Tuesday, April 26, 2005

Supreme Court: Fraud Law Covers Smuggling Scheme


Supreme Court: Fraud Law Covers Smuggling Scheme

Tue Apr 26, 2005 12:56 PM ET

By James Vicini

WASHINGTON (Reuters) - A divided U.S. Supreme Court ruled on Tuesday that Americans can be prosecuted under U.S. wire fraud law for scheming to evade foreign taxes, ruling on a case about large quantities of liquor smuggled from the United States into Canada.

By a 5-4 vote, the high court ruled against three convicted defendants, brothers David and Carl Pasquantino and accomplice Arthur Hilts, who argued that such prosecutions exceed the reach of the federal wire fraud law.

In the opinion for the court majority, Justice Clarence Thomas ruled that a plot to defraud a foreign government of tax revenue violated the federal wire fraud law, based on phone calls made.

Prosecutors said the brothers, residents of Niagara Falls, New York, ordered the liquor over the telephone from discount stores in Maryland. Hilts and others drove the shipments in rental trucks to New York for storage.

Then it was smuggled in smaller quantities across the border in the trunks of vehicles between 1996 and 2000. The men were charged with devising a scheme to defraud Canada and Ontario Province of millions of dollars in excise duties and tax revenues for the imported liquor.

The wire fraud charges were based on phone calls between Niagara Falls and Maryland.

The three defendants were convicted in federal court in Baltimore. Each Pasquantino received a sentence of 57 months in prison while Hilts was sentenced to 21 months in prison.

A federal appeals court upheld the convictions and ruled the wire fraud law covered schemes to defraud a foreign government of tax revenue.

The justices upheld the appeals court's ruling.

"It may seem an odd use of the federal government's resources to prosecute a U.S. citizen for smuggling cheap liquor into Canada." Thomas wrote.

"But the broad language of the wire fraud statute authorizes it to do so and no canon of statutory construction permits us to read the statute more narrowly," he concluded.

Justices Ruth Bader Ginsburg, Stephen Breyer, David Souter and Antonin Scalia dissented. Ginsburg said the majority ruling read the wire fraud law to cover charges that another nation's revenue laws have been evaded.

"U.S. citizens who have committed criminal violations of Canadian tax law can be extradited to stand trial in Canada," she said. The decision failed to take into account Canada's primary interest in the matter at stake, Ginsburg said.