Pasquantino v. United States - Oral Argument
Transcript:
Argument of Laura W. Brill
Justice Stevens: We'll hear argument in the case of Pasquantino against the United States.
Ms. Brill?
Mr. Brill: Justice Stevens, and may it please the Court:
There are five primary reasons why this prosecution is outside the scope of anything Congress has authorized.
First, the government's interpretation of the wire fraud statute is inconsistent with the revenue rule.
Second, it turns the rule of lenity on its head by allowing the government to incarcerate petitioners for 57 months for conduct that has never given rise to civil liability in this country.
Third, this prosecution contravenes our national policy of demanding reciprocity in matters of international tax enforcement.
Fourth, the government acknowledged below that it cannot bring this prosecution without disregarding another act of Congress, the Mandatory Victims Restitution Act, which is, as the name specifies, mandatory.
And, fifth, under this Court's decisions in McNally and Cleveland, the wire fraud statute applies only to schemes aimed at defrauding a victim into relinquishing something that it holds as money or property.
A sovereign's interest in an unassessed tax claim is neither money nor property.
Justice O'Connor: Well, can you look at the interest of the government as one of not allowing U.S. territory to be used to carry out a smuggling scheme?
I mean, why does it have to be viewed as one of trying to enforce some other nation's tax laws?
Mr. Brill: Justice O'Connor, the government's interest in prosecuting somebody does not define the scope of what the statute at issue proscribes.
Justice O'Connor: It's a wire fraud statute dealing with the use of communications capacity in this country to carry out a scheme designed to enable smuggling of goods.
Mr. Brill: Well, if the... if the statute was not written as it is... the statute, as written, uses the words "defraud" and the word... the word "property", and both of those terms are terms that this Court has defined very narrowly.
In Nader, it defined a "fraud" as--
Justice Scalia: Ms. Brill, I thought your brief said that we have an anti-smuggling statute, which is directed precisely against smugglers, but it only applies to those countries that have similar protection for us.
Mr. Brill: --Yes, Justice--
Justice Scalia: And Canada does not.
Mr. Brill: --Yes, Justice Scalia, that's exactly--
Justice Scalia: Now--
Mr. Brill: --correct.
Justice Scalia: --the existence of that statute would seem to suggest... and a statute which is limited to countries that will do the same for us... would seem to suggest that we don't want to do this for Canada.
Mr. Brill: Yes, that's exactly... that's exactly right, Your Honor.
There--
Justice Ginsburg: But it's also limited to vessels.
It's smuggling by water, not smuggling by--
Mr. Brill: --By automobile.
Justice Ginsburg: --vehicles, as is done here, so that we don't have any statute that covers smuggling on land.
Mr. Brill: Right.
Yes, Your Honor, that's correct.
Justice Scalia: Is there something better about reciprocity for vessels and not reciprocity for land smuggling?
Mr. Brill: I think it just evinces what Congress was concerned about most at the time, Justice Scalia, but it was... it is certainly the case that in any... any time that this country has endeavored to deal with matters of international tax enforcement, it has always demanded reciprocity.
It has done so through the smuggling statute, it has done so through the numerous tax treaties that the Second Circuit's RJR decision discusses at length.
And one of the points the RJR decision makes is that, in 1951, at the very time that Congress was looking at the wire fraud statute and enacting it, the Senate was, at the same time, becoming concerned that this country had gone too far in extending reciprocity in connection with its tax treaties and was actually evincing a policy of cutting back on the degree to which we would assist other countries in tax enforcement.
And so the issue is to look at... that the revenue rule must be used as a background principle of common law against which... against which the revenue... excuse me, against which the wire fraud statute is--
Justice O'Connor: Well, if we don't do view this case as involving some attempt to indirectly enforce Canada's tax laws... suppose we don't view it with that lens... then does that put it outside the so-called revenue--
Mr. Brill: --Well, if it were not... if it did not serve the function... it doesn't matter what the government's intent is and what is in the mind of the prosecutor, but if it did not have any effect of enforcing a foreign government's revenue rule, then, yes, it would be outside; but there are numerous ways in which this prosecution does enforce a foreign government's revenue rule.
Certainly, it deters future violations.
The sentence was based on the... an estimate of the intended loss, and there was no assessment or an adjudication in Canada to determine what the amount was that was owed.
And so the District Court became, essentially, part of the tax enforcement apparatus of the Government of Canada by performing that assessment in the first instance.
And so anytime that we impose criminal or civil liability in a manner that affects the tax policies of another country, we are enforcing that rule.
If we... whether we're requiring compliance with the... with the tax rule of a foreign country or punishing noncompliance.
All of those--
Justice Kennedy: Is the rationale for the rule that enforcement of taxes is so unpopular that we want to minimize the exposure to... of our judges so that they... the only thing they have to do is enforce taxes that... paid to our own government?
I'm serious about that?
Is that the rationale?
Mr. Brill: --Well, I think there's a certain amount of self-protection in some of the decision... decisions, surely; but the real... the underlying purpose of the revenue rule is a recognition that foreign... that taxes, in general, are a matter of policy.
They're inherently policy-based; they're not based on contract or other kinds of commerce.
They do not... they do not assist in resolving disputes between private parties.
And often they're imposed... especially customs duties, are imposed to disadvantage other countries, and so the courts have said these are a peculiar type of law, they serve only the interest of the... of the foreign sovereign, and there's a particular... there's been a particular sensitivity about scrutinizing those foreign laws, potentially declaring them invalid under the foreign governments' own laws or pursuant to our own Constitution.
And so revenue rules have historically been a categorical exclusion to general principles of comity through which we might otherwise recognize foreign laws or foreign judgements.
And the rule has come to be so entrenched, and has been so well established, that there's a whole body of background law in the tax treatise of our country, and of many other countries, that is based on our non-recognition and our non-enforcement of foreign revenue laws.
So--
Justice Ginsburg: But if we did... if we did enforce even a tax judgement of another country, there would be no U.S. law that would be violated.
You're talking about a common law, no country enforces the taxes of another.
But, at least in the Restatement of Foreign Relations now, that's put in terms of... there's no requirement that any country enforce the tax claims or judgements of another; but neither is there any prohibition.
Mr. Brill: --Well, Justice Ginsburg, the current restatement is worded in... addresses judgement specifically.
It does not... it doesn't address un-adjudicated tax codes.
But there's always been a much greater suspicion, a much greater reluctance, to get into enforcing a claim brought by a foreign country, where that country's own processes have not been allowed to run their course and to have the initial determination.
There... the restate... the second Restatement of Foreign Relations law, which is... was... came out in 1965 and is closer to reflecting what the law was at the time Congress enacted the wire fraud statute, says, in Section 41, Comment L,
"Under the... under the foreign relations law of the United States, courts in the United States will generally refrain from taking action to give effect to the penal or revenue laws of other states, except as provided by international agreement. "
And so that... that was a statement by the... by the propounders of the... of the Restatement of what they... what they believed the law was at the time.
Now, to the extent it's qualified, I think it's just to leave room for the fact that the Senate can promulgate treaties, or Congress can, by statute, command that courts recognize these laws.
But if--
Justice Scalia: You don't... you don't assert that this... that it... that this couldn't be done, do you?
You just--
Mr. Brill: --Not that--
Justice Scalia: --assert that we shouldn't assert that we shouldn't interpret this statute to have done it.
Mr. Brill: --Exactly, Justice Scalia.
If Congress had written a different wire fraud statute that had said,
"You can't have a scheme to defraud the revenue, whether foreign or domestic. "
that would have been a clear statement abrogating the revenue rule.
But we don't have any such clear statement, and the terms... the terms "defraud" and the terms "property" have to be read with the background rule in mind.
Justice Ginsburg: May I--
Justice Kennedy: But you would come to that conclusion even if we had a reciprocal enforcement agreement.
If this were Country X, where we did have a reciprocal enforcement agreement, you'd come to the same conclusion, no prosecution under this statute.
Mr. Brill: Correct, Your Honor, because there wouldn't... this statute wouldn't have been written to take that into account.
This--
Justice Kennedy: So, in a sense, the revenue position is irrelevant to your... to your secondary or your... or your independent argument on statutory construction.
The revenue rule is irrelevant to it.
Mr. Brill: --As to just whether an unassessed tax claim--
Justice Kennedy: Yes.
Mr. Brill: --is property, the revenue rule... the revenue rule adds a boost to it, but there are two... there are two dimensions to the property element.
One is that, as I said... and if a... if a tax claim is not... has not been subject to an assessment, that whatever interest the government may have in that is not in the nature of property; it is simply in the nature of law-enforcement power to collect.
They... some of these revenue rule cases talk about the power to--
Justice O'Connor: --So tax revenues are not property, in your view.
Mr. Brill: --Once a tax is collected, once the government actually has money in its hands, and if there's a scheme to, let's say, obtain an illegal refund through a tax and... that would be a scheme to deprive a government body of money.
But a scheme to merely evade paying a tax is not something that falls within the statute, separate and apart from the revenue rule.
But the revenue rule... as a result of the revenue rule, it is also the case that no state court would have recognized any property interest in a foreign sovereign, even if it had reached the point of a judgement.
And so it works in both ways.
The--
Justice Ginsburg: --May I ask you, Ms. Brill, something that puzzled me about this case?
It is a rather peculiar use of our wire fraud statute.
Are there any proceedings going on in Canada?
Has there been any attempt to extradite these people?
Mr. Brill: --Justice Ginsburg, there was an indictment that Canada issued against the Petitioners.
It has charges under... for smuggling, under Canadian law, which is Customs Act, Section 159.
It charges unlawful possession of imported spirits under Excise Act 163(1)(b), disposing of goods illegally imported, in violation of Customs Act, Section 155.
So Canada has its own process.
There has... there has not been, to my knowledge, any request by Canada for extradition, but the treaty between the United States and Canada does include revenue violations, and--
Justice Scalia: Presumably, if we punish this person this way, Canada wouldn't... there's no double jeopardy, right?
Mr. Brill: --That's correct.
Justice Scalia: So we'd be punishing this person for violating Canadian law, and then Canada would punish this person for violating Canadian law.
Mr. Brill: Yes, I haven't looked in detail at the statute of limitations provisions, but that could be the effect.
And we could be punishing them much more severely than Canada would be.
They have their own means of balancing what they think the appropriate balance is for these things, and certainly the wire fraud statute, 57 months in our--
Justice Kennedy: Well, I think the government has an interest in saying,
"Look, if you're going to smuggle, have your scheme up there in Canada; don't use our wire systems for fraudulent purposes. "
"We don't like that here. "
Mr. Brill: --And if they want to pass a law that says that, because of the... because there's a domestic--
Justice Kennedy: Well, they... of course, they say that this covers it, and it seems to me that really the... that turns on the definition of "property"--
Mr. Brill: --Okay.
Justice Kennedy: --which is an arguable point.
Justice Stevens: What if the... instead of a wire fraud case, it was assault and battery?
Supposing the Canadian revenue agent got inside of New York and one of your clients beat him up, would we have... solely because he was mad at him for trying to interfere with his attempt to smuggle into Canada... would we have to say that you can't do that, we have no jurisdiction over the assault and battery?
Mr. Brill: No, Justice Stevens.
It's... the question is whether you're--
Justice Stevens: The only purpose would be just what the purpose is here, they're trying to, you know, facilitate the smuggling operation.
Mr. Brill: --Well, the assault and battery... whatever the assault and battery provisions are, you would be bringing the prosecution solely for that purpose; it does not have any... the effect of applying the assault and battery statute, if there was one--
Justice Stevens: Interfere with Canadian's collection of their taxes.
That's the only reason for it.
Mr. Brill: --Well, I think it... in that case, it would be... it would be far too attenuated to reach that conclusion.
There could be... the motive of a person--
Justice Stevens: Why is that any more attenuated than a conspiracy carried out down here in Maryland using American assets to do the evil deed in Canada?
Mr. Brill: --Well, but the motive of the person performing the assault and battery would be irrelevant to the prosecution as to whether they intended to do the improper touching and, in fact, carried it out.
Justice Kennedy: Well, why isn't the motive irrelevant here?
We don't want our facilities to be used for criminal activities--
Mr. Brill: The question is whether--
Justice Kennedy: --any more than in the... in the hypothetical we don't want citizens beaten up on our soil.
Mr. Brill: --Justice Kennedy, the issue is whether... is what Congress had in mind in enacting the wire fraud statute.
And, in general, we presume that Congress had domestic concerns in mind, not that we have incorporated vast bodies of--
Justice O'Connor: Well, but it used broad language,
"Any scheme to defraud by means of wire communications in interstate or foreign commerce. "
Mr. Brill: --The wire... it is... the wire communications may be an interstate or foreign commerce, the word "any" modifies
"any scheme or artifice to defraud-- "
Justice Scalia: Is this statute applied against people who defraud the United States Government in taxes?
Mr. Brill: --Your Honor, the government's position on that, I believe, is somewhat inconsistent.
The tax... the tax division and the Department of Justice U.S. Attorneys manual specifies that it is... they believe it is the intent of Congress that tax matters will be dealt with through the internal revenue code, not through other means.
There are... there have been some prosecutions brought in the case of an illegal... an illegal tax shelter, where there is truly an... a private party who is defrauded into giving up money in connection with--
Justice Scalia: But you don't... you don't know of any prosecutions under this fraud statute for depriving the Federal Government of property.
Mr. Brill: --Well, the Henderson case, which we have cited in the reply brief, is one from the Southern District of New York, where Judge Weinfeld said, when faced with a mail fraud prosecution of that type, this is outside the scope of anything that Congress intended.
The... I would like to get back to the issue of money or property so that it... to have it conceptually why an unassessed tax claim is not money or property.
There is no allegation that... in the indictment or anywhere... that the petitioners took any money out of Canada's treasury.
So money is not an issue.
At most, it was an effort to evade Canada's right to collect money, not any money it has--
Justice Stevens: Ms. Brill, is this the same thing if it were a building fraud?
Suppose there were contractors building a Canadian building for the Canadian Government and they had a big fraud scheme down here, and it was to deprive the Canadian Government of money?
I think the statute would clearly apply.
Mr. Brill: --The statute only applies... what McNally said is, any assistance a governmental body obtains from the statute must be in the capacity of property-holder.
And so the... a scheme to defraud somebody out of their... out of a building, that's traditional property.
There's not... it is not the same thing.
Let's have an... let's take an example of an interference with prospective economic advantage.
So there is a defendant who says to somebody else who's about to get a contract... I know my competitor is about to get a contract, and I say,
"Why don't you go out of town? "
"There's a... there's a much bigger contract that you can get if you fly to Michigan. "
And, meanwhile, I go in, and I usurp the contract and take it for my own purposes.
Well, I've interfered with that person's prospective economic advantage, and so there would be a tort, and the person could collect from me.
But I have not taken any money or property from that person that was in his possession.
And what McNally and Cleveland plaintiffs to is whether there was money or property in the hands of the... of the victim.
And Canada's interest... until there has been an assessment, Canada's interest is purely that of a... of a sovereign.
It is... it does not have a claim to any money that is in the bank account of somebody who owes it a debt.
And the Johnston case, which we've cited in our reply brief, Your Honor, talks about... this Court talked about a statute in which there was a boxing promoter who collected fees for the boxing match and also collected taxes at the same time.
And the U.S. Government could not bring an embezzlement action against that person for not paying the taxes, because those taxes were not... were not yet anything that qualified as governmental property.
Justice Stevens: Ms. Brill, in the Court of Appeals, they treated the argument that this was not property as entirely separate from the revenue rule question.
And I thought your petition for cert was confined to the first question.
Mr. Brill: Well, Your Honor... no, Your Honor, we talked about both in the petition for cert..
And then the question--
Justice Stevens: But the question, itself, doesn't refer to the property issue.
Mr. Brill: --It talks about the--
Justice Scalia: Was it... was it phrased the same way it is in your brief, in the petition?
Mr. Brill: --Yes.
Yes, the--
Justice Scalia: Well, then the last part of it--
Mr. Brill: --Right, but--
Justice Scalia: --obviously covers it.
Mr. Brill: --Yes, the last part talks about--
Justice Stevens: Oh, I see.
I'm sorry, you're right.
Yeah.
Mr. Brill: --Yes, okay.
But to return... to return to the revenue rule... and thank you, Justice Stevens, for bringing me back to that... the government has acknowledged that there can be no restitution here.
And that's in... that's in the joint appendix, at page 106.
They expressly waived it.
They said that even if there was a foreign judgement that Canada was trying to bring here, that would be unenforceable.
There could be no RICO actions, because that's unenforceable; and no proxy suits on behalf of a foreign government.
And so the only thing that they say is, beyond... is not included... the only act of enforcement which they say is not included is, somehow, criminal enforcement.
And under Section 14 of the... excuse me, under the Fourteenth Amendment of the United States Constitution, Congress has power to enforce that amendment, and it has done so both in enacting statutes for civil recovery, as well as criminal recovery... criminal punishment, excuse me.
And so it's... the notion that somehow incarcerating someone is not... is not punishment is not something that makes much sense in that context.
The decisions of this Court have held that penalties are... monetary penalties count as punishment, and also that injunctions are... fall within the scope of the revenue rule.
That's in the Wisconsin versus Pelican Insurance case, which actually addresses the penal... the penal rule, which is the close corollary.
Justice Ginsburg: May I ask you, when... now that we're getting into money, one of the things that the sentencing board had to do was to find out how much of a loss there was, and that involved determining what taxes would be due under Canadian law.
And did that increase the sentence?
Did the... did the sentence vary with the amount of taxes that they... we found due?
Mr. Brill: Yes, Justice Ginsburg, it very much did.
The loss calculation was based on intended loss, and so they... what the District Court judge did was estimated the number of cases of liquor that were intended to be brought into Canada, and applied that number to the amount of the tax that Canada, he believed, would have applied to that... to that amount.
And that ended up changing the sentence from six months to, in the case of the Pasquantino brothers, 57 months, and the... and, in the case of Mr. Hilts, 21 months.
So the bulk of the sentence was based on the Canadian tax law and our courts making that assessment.
Justice Ginsburg: A judge making that assessment.
Mr. Brill: The judge made the sentence... made the assessment at sentencing, yes.
What the... what the... what the government did in this case was to submit, very self-consciously, all of the issues of Canadian tax law to the jury.
And the assistant U.S. attorney said this to the Fourth Circuit en banc panel several times, that they were presenting these matters of Canadian tax law as factual issues for the jury to find.
But, ultimately, in sentencing, it was... it was the court that ended up imposing and elevating that sentence.
If there aren't further questions, I'd like to reserve the balance of my time.
Justice Stevens: Mr. Dreeben?
Argument of Michael R. Dreeben
Mr. Dreeben: Justice Stevens, and may it please the Court:
A prosecution for wire fraud based on defrauding a foreign government of taxes serves at least four distinct United States prosecutorial interests.
The first is that the creation of schemes to defraud frequently spawns collateral criminal conduct in the United States above and beyond the fraudulent scheme itself.
Here, for example, one of the defendants was charged in the indictment with using a gun in relation to the charged wire fraud scheme.
Second--
Justice Ginsburg: Where?
Using a gun where?
Mr. Dreeben: --In the United States, Justice Ginsburg.
Justice Scalia: Well, why didn't you prosecute him for that?
Mr. Dreeben: That crime depended upon the validity of the wire fraud charges, because the crime was use of a gun during... in relation to this wire fraud scheme.
Justice Souter: But that really doesn't get you anywhere, does it?
I mean, if the United States says,
"We don't want this gun offense to be prosecuted unless there's a wire fraud prosecution. "
that doesn't tell you anything as to whether there ought to be a wire fraud prosecution.
Mr. Dreeben: Well, what it tells you, Justice Souter, is why the United States has an interest in enforcing a law that facially is written to cover schemes to defraud that are carried out using the United States wires.
Justice Scalia: But that's... but that's a reason for extending the statute to everything.
To everything.
Mr. Dreeben: No, Justice Scalia--
Justice Scalia: "Property" can mean anything at all.
I mean, what you're saying is, the broader you read this statute, the more bad guys we're going to catch.
I'll stipulate that.
Of course it's true.
Mr. Dreeben: --Well, Justice Scalia, I'm starting from the proposition that the language of the wire fraud statute textually applies to this scheme, and Petitioner's argument is that, because of the common law revenue rule, the statute should be read to exclude schemes to defraud a foreign government of tax revenue.
And the fact that a foreign government is defrauded of tax revenue does not mean that the United States does not have an independent interest in rooting out that scheme and prosecuting it.
In addition to the collateral criminal conduct that such schemes can spawn, the creation of such schemes indicates a criminal mind and a criminal group that can turn its techniques for used... using to smuggle into Canada, also to smuggle back into the United States or to victimize other victims in the United States.
Justice Scalia: What about evading a Cuban tax law that we think... that many people would think is an unjust tax law?
I mean, one of the things I'm worried about is that this gets us into foreign policy.
Are you sure that we always want to enforce the tax laws of foreign countries through this fraud statute, no matter what those tax laws happen to be?
Mr. Dreeben: The United States has prosecutorial discretion to determine when to invoke the statute and in what interests it should be served.
Justice Scalia: It may well, but when it comes here, this Court is going to have to decide... we'll just approve whatever you want to prosecute and let you not prosecute whatever you want?
Mr. Dreeben: There is no provision in the statute, Justice Scalia, for this Court to second-guess foreign-policy determinations that are made--
Justice Breyer: Well, not just foreign policy.
The White Russians come here because they don't want to pay Lenin's taxes designed to equalize all individuals, in terms of property.
Country A has a tax law that makes everybody a criminal because nobody really ever pays all the taxes.
Country C has a set of laws that tax bibles.
Country D has a... I mean, you know, we can spin out the examples endlessly, and they're not farfetched.
So take all the arguments from last week, called "any court arguments", cross... or two days ago... just let's cross-reference them.
The problem is complexity of tax law.
The problem is many, many, many would be contrary to American policy.
And the problem is, nobody really knows what they are; indeed, they don't even know what American tax law is, no single individual, I suspect.
Let's put in Italy, France, Byelorussia, Belarus, Ukraine, Saudi Arabia, and 35,000 others.
Everybody becomes a criminal.
And then we say,
"Don't worry, we'll only prosecute the real bad ones. "
That's the argument, I think, on the other side, and I'd like to hear your perspective.
Mr. Dreeben: --Justice Breyer, I don't think there's any reason to assume that everyone becomes a criminal.
What this--
Justice Breyer: No, only people who come over here because they don't want to pay taxes in those countries.
Sometimes we would agree with them--
Mr. Dreeben: --Justice Breyer, in order to violate the wire fraud statute, you have to use deception in order to deprive another--
Justice Breyer: --Yes, they don't tell Lenin that they're coming--
Mr. Dreeben: --Well, that wouldn't involve the use of the United States wires--
Justice Breyer: --and they write to each other.
They have a cousin, in Brooklyn, who forwards them the money to get out.
Mr. Dreeben: --Justice Breyer, if one stipulates that that violates the wire fraud statute or that there's enough conduct that does, the question still comes down to whether the United States chooses to prosecute that case.
This is not a--
Justice Breyer: So the question comes down to--
Justice Scalia: The question comes down to whether this statute, which doesn't have to be read that way, ought to be read that way, whether it makes sense to read it that way.
What about... does Canada have an income tax?
Mr. Dreeben: --I'm not sure of Canadian tax law.
Justice Scalia: Well, let's assume--
Mr. Dreeben: In the context of this case--
Justice Scalia: --Canada has an income tax.
Would you... would you prosecute a Canadian who files a deceptive Canadian income tax return?
Mr. Dreeben: --Not for using Canadian facilities to do so.
Justice Scalia: No, no, no, from this country.
He's... you know, he's a snow goose and is in Florida when he files his return.
Justice Souter: He files it electronically.
Justice Scalia: Yeah.
Mr. Dreeben: The wire fraud statute is applicable to schemes to defraud, generally speaking.
The questions in this case are whether there is a common law rule that should be read to provide background.
Justice Breyer: --reason for it.
I just... you don't seem to know completely about Canadian law.
How much do you know about the tax law of Vietnam?
Because Los Angeles is filled with Vietnamese refugees, many of communities of such people in the United States.
Do we know how many of them perhaps might owe taxes under the law of Vietnam, and maybe are talking to each other about whether they really want to pay it?
Mr. Dreeben: I don't think this is a realistic problem, Justice Breyer, that should require the court not to read a statute whose language--
Justice Breyer: Well, what about the wealth tax in France?
Mr. Dreeben: --There are a variety of taxing schemes all across the world.
The question that the United States has to make when it determines whether to prosecute a wire fraud scheme is whether it's in interest... in the interest--
Justice Stevens: Mr. Dreeben, at the beginning of your argument, you said there were four federal interests you were going to identify.
You've been able to identify one... you know, on running around with guns.
What are the other three?
Mr. Dreeben: --The other three are--
Justice Scalia: Second--
Mr. Dreeben: --The second one, which I began to allude to before hearing some questions about--
Justice Stevens: Before you were asked a brief question.
Mr. Dreeben: --are that people who engage in schemes in this country are capable of then using the same techniques against victims in this country.
The third reason is that the creation of international schemes to defraud, like the smuggling scheme in this case, poses independent threats to the United States Government because international criminal organizations are particularly difficult for the United States to deal with.
And the fourth reason is that it is an offense to a foreign government, the United States Executive Branch may conclude, to allow our soil and our wires to be used to perpetrate a smuggling scheme against a foreign government with the United States doing nothing about it.
Justice Ginsburg: Well, if we're concerned about offending the foreign country, then isn't the way to go, in fact, the way Congress has gone in this area, we negotiate treaties?
I mean, one of the reasons why we go the treaty route are the kind of problems that Justice Breyer brought up, we want to have reciprocal treaties.
We want two things.
We want to make sure that it's a basically fair system that we're dealing with.
On the other hand, we want to say,
"If we do anything with respect to your taxes, we want to make sure that we get the same benefit from you with respect to ours. "
So never mind the revenue rule, isn't it pervasive that... when it comes to enforcing tax claims, that the route that Congress has chosen to go, and the Executive, as well, has been the treaty route?
Mr. Dreeben: Justice Ginsburg, those are tax treaties designed to mutually assist the countries to collect taxes.
This is a prosecution directed at fraud.
The collection of taxes in a cooperative, reciprocal manner between governments implicates very different interests than the United States has when it seeks to combat people who have intended to devise, or have devised, a scheme to defraud in the--
Justice Ginsburg: One of--
Mr. Dreeben: --United States.
Justice Ginsburg: --one of... one of the last interests that you mentioned, about offending foreign governments, well, on the face of this, it would seem, the one that... the country that's been done out of taxes is Canada, not the United States.
So, we should help Canada, if it's interested in collecting revenue from these people or trying them for a criminal offense, to do that.
It... I asked Ms. Brill, Have they been indicted in Canada?
She said yes, but she said it's... they had not... there has not been a request for extradition.
Is that... is that--
Mr. Dreeben: That's my understanding, as well, Justice Ginsburg.
And the pursuit of this prosecution by the United States reflects that when United States citizens engage in fraudulent conduct on our soil, our government has a distinct interest, from Canada's interest, in pursuing the prosecution of this case.
Justice Scalia: --How long has this statute been on the books, this wire fraud statute?
Pretty old statute.
Mr. Dreeben: 1952.
And its antecedents are the mail fraud statute, which was enacted in 1872.
Justice Scalia: How many prosecutions like this have there been?
When was the first one?
Mr. Dreeben: This--
Justice Scalia: For, you know, using the mails or interstate commerce to defraud a foreign government of taxes?
Mr. Dreeben: --This type of prosecution became more common in the 1980s when Canada greatly increased its taxes on importation of tobacco and alcohol.
Justice Scalia: More common, or didn't exist at all before the 19... do you know of any case before--
Mr. Dreeben: No, I'm not aware of any case before--
Justice Scalia: --before the 1980s.
Mr. Dreeben: --That's right.
Justice Scalia: Doesn't that suggest to you that the statute isn't naturally read to cover stuff like that?
Mr. Dreeben: No, I think the statute--
Justice Scalia: We didn't have smugglers before then?
Mr. Dreeben: --No, of course there were smugglers before then, but the statute, on its face, is broad.
And the only justification... the only two justifications for seeking to read it narrowly are, first, that there's a common law revenue rule that forms a backdrop for the construction of the statute.
That is wrong, the government submits, because there is no common law revenue rule that has ever been articulated that says one country cannot prosecute people in that country for defrauding a foreign government of tax--
Justice Scalia: What's the second reason?
Mr. Dreeben: --The second reason is the claim that to deprive a foreign government of money by not paying tax revenues is not common law fraud.
Justice Scalia: Okay.
Well, and you have arguments against both of those two?
Which are arguments are at least... at least... arguable?
What about the third rule, the rule of lenity?
Mr. Dreeben: Well, Justice Scalia--
Justice Scalia: If we... if we are unsure, if it's a close question whether it's property, if it's a close question whether we're enforcing the tax laws of Canada by prosecuting somebody for violating the tax laws of Canada, if that's a closed question, why doesn't the rule of lenity apply?
Mr. Dreeben: --Well, if the Court concluded that the question was not susceptible of resolution by resort to the usual tools of statutory construction, then you would apply the rule of lenity.
But it's our submission that neither of these two theories--
Justice Stevens: But may I ask this question?
I think you have conceded, in a footnote... and maybe you're... almost conceded... that if this were a RICO case, a civil RICO case, that the Congress enacted the RICO statute against this background rule and that perhaps the RICO case could not go forward.
What if it were a federal RICO case and... the same facts... would the RICO statute be qualified by the revenue rule?
Mr. Dreeben: --No, it would not, Justice Stevens, and that's because of the precise distinction that I drew in response to Justice Scalia's question.
This is a suit by the United States Government, as Plaintiff, not by a foreign government, as Plaintiff or prosecutor.
The revenue rule is essentially concerned with interests of sovereignty.
One foreign government should not be able to come into our courts and enforce its sovereign power by using our courts to collect taxes from our citizens.
Justice Breyer: What about the other reasons underlying it, which is what I was trying to get at before?
I see, literally, that the common law... you know, the enforcement... this is not literally enforcement.
So what I was driving at with my questions is, even though literally it's not, the problems of complexity, the problems of knowability, and the problems of there being so many, many foreign tax laws that we might think are basically unfair, that those considerations apply here, just as they do with the enforcement rule, and then add the fact that turning people into criminals under threat of prosecution by the Federal Government is really very much equivalent to enforcing the foreign rule in a court.
I mean, that's the whole thing spelled out.
And I meant it seriously, though I used foreign examples to, sort of, drive the point home.
What is your response to that?
Mr. Dreeben: Well, Justice Breyer, first of all, the complexity of foreign tax law is something that would defeat a federal prosecution in which we need to show specific intent to defraud if the law were not sufficiently clear for us to be able to meet that burden.
This case illustrates the kind of prosecution that will be brought.
There are taxes that are due upon the importation of alcohol.
The Petitioners arranged, through the wires, to bring alcohol from Maryland up to New York, and then they got it across the border by not answering questions when asked by customs officials and by not going to secondary inspection when they were asked.
In order to bring a criminal prosecution that requires specific intent to defraud, the government is not going to be relying on obscure systems.
As to the concern about the enforcement of tax systems that the United States may believe are... is unfair, that is the prerogative of the Executive Branch to determine in deciding whether a prosecution should be brought in a particular case.
This Court has repeatedly recognized that the Executive Branch is the preeminent branch in the area of foreign affairs--
Justice Ginsburg: --To go to one more aspect of the statute which I don't think you've addressed, Congress said that... with respect to the wire fraud and mail fraud and, I think, other things... that restitution to the victim is mandatory, that it's not left up to the government to decide restitution or not.
Except here restitution sounds very much like enforcing Canada's taxes, so you have conceded no restitution.
But it seems to me that Congress thought of the wire/mail fraud statutes as cases in which there would be restitution, and that suggests that they didn't envision foreign taxes to be the object of the scheme to defraud.
Mr. Dreeben: --Justice Ginsburg, the syllogism doesn't track, because the entire scope of the revenue rule, as defined in the common law cases that can be pointed to as the background principle, has to do with a foreign government, or someone acting on its behalf, coming into this country's courts to enforce its tax rules.
Here what you have is the United States Government determining that it is in the interest of the United States to bring a criminal prosecution.
Now, in this case, the prosecutor did concede below that restitution was not appropriately ordered.
That's not the position of the United States.
The position of the United States is that restitution under the mandatory statute should be ordered and it does not infringe the revenue rule.
But there are--
Justice Ginsburg: Now, how could that be, because restitution is to the victim?
The victim is Canada.
You collect Congress... or Canada's tax, and you give it to Canada.
Is there any other kind of restitution?
Mr. Dreeben: --No, there isn't, Justice Ginsburg, but the revenue rule isn't of such a broad scope that it applies to efforts by the United States Government to secure punishment by... for a criminal conviction.
But, Justice Ginsburg, if the Court were to disagree with that and were to believe that restitution, even when it's been sought by the United States... not by a foreign government, in its own right, with the power to instigate a lawsuit... but that even when the United States does it, that somehow falls within the parameters of the common law revenue rule, then the answer to that problem would be to interpret the restitution statute against the background of the revenue rule, not to interpret the wire fraud statute against the background of the revenue rule and hold that a prosecution by the United States is wholly barred.
The Petitioner's submission here is really rather--
Justice Scalia: The restitution statute is not ambiguous at all; whereas, this statute has a number of ambiguities in it.
And if I had to find my way out of the restitution problem, I would pick the ambiguous statute to get out, rather than simply saying,
"Well, though this restitution statute says this categorically, we will ignore it, because if we didn't ignore it, we would be enforcing the revenue laws of another country. "
There's nothing against enforcing the revenue laws of another country, if we want to; this is just a question of statutory interpretation.
Should this ambiguous statute be interpreted that way?
If Congress said,
"We're going to enforce Canada's tax laws. "
there's nothing wrong with that.
But--
Mr. Dreeben: --Justice Scalia--
Justice Scalia: --So you have two statutes.
One of them seems to be quite ambiguous.
The other one is categorical, you get restitution in all cases.
Now, how do I wiggle out of it?
Mr. Dreeben: --There's a difference--
Justice Scalia: --Obviously, I wiggle out of it with the ambiguous statute.
Mr. Dreeben: --there's a difference, Justice Scalia, between an ambiguous statute and a broad statute.
The wire fraud statute is unequivocally broad, and it has been so interpreted.
It's not ambiguous on the question of whether it applies to schemes to defraud that may involve foreign victims; it says "any scheme to defraud".
And I think, as Justice Kennedy's questions pointed out earlier, if there were a scheme to defraud a foreign business interest in Canada or a foreign governmental interest in Canada relating to some commercial venture, the wire fraud statute would apply, and--
Justice Breyer: What about... what about a scheme--
Justice Scalia: But you haven't told me... you haven't told me how you get out of the restitution statute.
There's no ambiguity there, and it is not a rule of law that you can't... it's unconstitutional to enforce the tax laws of Canada.
Since it's entirely feasible, and since the text is categorical, how do you get out of the restitution statute?
Mr. Dreeben: --Here is how I get out of it, Justice Scalia.
If you think, as I do not, that the revenue rule would bar restitution at the behest of the United States in a criminal prosecution, there is a background principle that says when there is an established rule of the common law, Congress legislates against that background, and unless it makes its intent clear and unequivocal to overcome that background rule of the common law, then the statute will not be interpreted to be in derogation of it.
It was that principle that formed the basis for the government's view that Canada cannot come in under the RICO statute--
Justice Ginsburg: Well, that view is in... somewhat in tension with your view that the common law revenue rule doesn't stand in the way of this prosecution.
Because you have to interpret the statute in light of the general rule that one country doesn't mess with another country's taxes, absent a treaty.
Mr. Dreeben: --Well, Justice Ginsburg, there is no common law rule that one country doesn't "mess with" another country's taxes.
What there are, are a set of cases that deal with specific problems in which foreign taxes were at issue.
And in all of the 20th century versions of this problem, what you had is a foreign government or an entity, acting at the behest of a foreign government, coming into another country seeking to use that country's courts to enforce its own tax rules.
And in that context, the justifications for saying that one country will not enforce another country's revenue laws have to do with the sovereignty interests of the host country.
One country, when it seeks to obtain revenue to carry out its own governmental policies, is doing something fundamental to its sovereign existence, and there's no obligation of the United States to assist the foreign government in using its court system to achieve those independent sovereign aims.
No prohibition on it, either.
As Justice Scalia pointed out, it's not constitutional, if Congress wanted to allow it.
But countries, historically, have not.
And that principle does form an important backdrop--
Justice Breyer: --Have countries also... just... here, I don't know, in respect to the principle... would it have been viewed as contrary to the principle if a country were to pass a law... say, England were to pass a law saying it is a crime in England not to pay French taxes?
I'm not saying they couldn't do it; I'm just saying, Would a law like that, saying it is a crime in England not to pay French taxes... would it have been viewed as contrary to an abrogation of... or a... you know, whatever you call it... a derogation from the common law revenue rule?
Mr. Dreeben: --I think that that's essentially the same question in this case, with the one significant difference that here there is a domestic--
Justice Breyer: But do you see why I want to characterize it?
I mean, would you characterize... my criminal statute's absolutely clear... the clear is, it is a crime in England not to pay French taxes.
Now, would you, or would scholars, or whoever, view about the common law revenue rule, would they have said,
"There is a derogation from the common law revenue rule. "
or would they have said,
"It has nothing to do with it? "
Mr. Dreeben: --Well, I don't know what scholars would have said about it--
Justice Breyer: No, what would you have said?
Mr. Dreeben: --but this is what I would say about it.
Justice Breyer: Yeah.
Mr. Dreeben: When you're dealing with the principle that a statute of the United States will not be construed to be in derogation of a common law unless it's clear that that's its purpose, the court should be very careful in defining what the parameters of the common law are.
The court should not take a common law rule and treat it as some dynamic entity that has capability of growing a dimension that is not consistent with its purposes and that it had never assumed in any decided case as a means of telling Congress,
"You can't do what you have done. "
So I would say, Justice Breyer--
Justice Scalia: We haven't told... no, no, no, no, no, no, we're not telling Congress,
"You can't do what you have done. "
We're saying, "Congress hasn't done this".
Mr. Dreeben: --Well, the only reason you would say that Congress hasn't done it, Justice Scalia, is if you concluded that... and I would ask the Petitioners what their best citations are, because I haven't been able to find them... what cases indicate that a country cannot bring the kind of prosecution that the United States did here to vindicate its own independent sovereign--
Justice Breyer: Nobody says they can't do it.
That's why I asked you my question.
My question is simply whether you would consider an absolutely clear law...
"We will... we... it is a crime not to pay your French taxes. "
I'm asking whether you would consider that... I'm not saying they can't do it; I just want to know... would it be in derogation of the common law principle?
Mr. Dreeben: --It would probably be in derogation of a more--
Justice Breyer: That's where--
Mr. Dreeben: --fundamental principle.
Justice Breyer: --Oh.
Mr. Dreeben: Not the revenue rule--
Justice Breyer: Not the--
Mr. Dreeben: --but a more fundamental principle that one country usually does not legislate with respect to extraterritorial acts.
Justice Breyer: --That would be another one, too.
Mr. Dreeben: But if you--
Justice Breyer: Because the... I... that's why I want to know--
Mr. Dreeben: --But that's not applicable here, either, Justice Breyer, because the crime involves wire fraud in the United States.
Justice Souter: Yeah, but why is it ethical, to the extent that there seems to be a mandatory obligation to order restitution?
And it seems to me that the restitution that would be ordered would be just as much in derogation of the common law principle as the out-and-out collection in Justice Breyer's example.
Mr. Dreeben: Justice Souter, again, to say that it's in derogation of the common law principle assumes that the common law principle has applicability to one country seeking to vindicate interests of its--
Justice Souter: Well, but I... a moment ago, you said,
"Okay, we'll assume that there would be some derogation. "
in Justice Breyer's example.
I don't see why you don't come to the same conclusion with respect to the restitution aspect here.
Mr. Dreeben: --Because the derogation that I was talking about with respect to Justice Breyer is punishing conduct that occurs entirely extraterritorially.
This is not conduct that occurs entirely--
Justice Souter: Yeah, but the revenue... the revenue rule does not rest simply on the rationale of non-extraterritorial enforcement.
It has... it has other rationales: difficulty of understanding what the revenue rule is; the... you know, the problems of policy; there are lots of revenue rules in foreign countries that we certainly wouldn't want to enforce, and so on.
It's not just extraterritoriality.
In those... those policies would be just as much implicated by the... by the restitution as by the out-and-out enforcement in Justice Breyer's example.
Mr. Dreeben: --Well, Justice Souter, I think that the policies underlying the revenue rule are narrower than the ones that you have articulated; but, even more to the point, they are not justifications that found their way into any holdings that would leave a reasonable legislator in 1952, when the wire fraud statute was enacted, to conclude that this is a rule that I'm going to have to specifically--
Justice Scalia: Well, perhaps--
Justice Souter: Well--
Justice Scalia: --I'm sorry.
Justice Souter: --Go ahead.
Justice Scalia: No, no problem.
Justice Souter: I was going to say, perhaps there were no specific holdings, because it would have been regarded as, kind of, a bizarre derogation of the rule in the first place.
Nobody had dreamed up this scheme earlier.
Justice Scalia: I was about to say the same... the same thing.
You keep saying there are no cases that do this.
Are there... are there... are there cases, before 1980, which do what you want to do... that is, to use our fraud law, or something, to effectively enforce Canada's... or some foreign country's tax law?
Mr. Dreeben: --No, but what I would say about--
Justice Scalia: No.
Mr. Dreeben: --the revenue rule is that it is a shrinking principle of the common law, not one that has been growing.
It originally started out as a principle that allowed countries to avoid invalidating contracts that they believed were in furtherance of commerce.
It gradually came under attack, because what it said is that the United States will not notice that a foreign country's laws have been violated in the formation of a contract, and so the contract will be enforced.
Commentators recognized that that was contrary to principles of comity and recognition that each country does have a reciprocal interest in acknowledging each other's laws.
In the 20th century, those contract cases completely drop out of the picture, and what becomes left are sovereignty cases where a country is seeking to exert its sovereign power inside the United States or inside a foreign country... the United States, itself, tried it once in Canada... to collect taxes.
And countries said,
"We're not going to do that. "
"We're going to leave it to the treaty process. "
But the rationales that Justice Breyer and Justice Souter have articulated, about complexity of foreign law and odious foreign tax systems, have never been the driving force behind the revenue rule.
It's been--
Justice Breyer: --I got your point.
I think it is the... in my answer... in my clear example, you would say no, that's not in derogation for the reason that there's an independent local reason for doing it.
It's not being done to... whether it has that effect or not, it's not being done in order to collect the foreign tax.
Mr. Dreeben: --That's right.
Justice Breyer: That's been your response throughout.
Mr. Dreeben: That is correct.
Justice Breyer: Okay, I--
Mr. Dreeben: What you have instead is a law of the United States that's enacted to serve perfectly valid interests that the United States Government has in rooting out fraud in this country and in dealing with schemes to defraud that are created here.
And for the court to say that,
"We don't like these kinds of prosecutions, because we're concerned about really bad foreign tax systems, and we're concerned about complicated law, and we're concerned that some common law rule that had never actually assumed the scope that Petitioners ascribed to it, should be formed... read as the background principle for the interpretation of this statute. "
is not a principle that finds any support in the construction of federal--
Justice Ginsburg: Mr. Dreeben, can I ask you... this is such a curious case.
You were very candid in telling us that when Canada put these astronomical taxes on tobacco and alcohol, that was almost an invitation to smugglers.
Did we have any discussions with Canada... I mean, they do have that border, which is rather easy to cross... about what we were going to do when they put the taxes on liquor sky-high?
Mr. Dreeben: --I am not aware, Justice Ginsburg, of what specific law enforcement conversations occurred, but I can tell you that there is extensive law enforcement cooperation with Canada, as a close neighbor, and that the interests of the United States very much do favor our policing against smuggling here, and Canada policing against smuggling there.
Thank you.
Justice Stevens: Thank you, Mr. Dreeben.
Ms. Brill, you have four-and-a-half minutes left.
Rebuttal of Laura W. Brill
Mr. Brill: Thank you.
The common law cases universally say that it does not matter who is bringing the claim.
It can be the foreign government or it can be another person.
Justice Stevens: Can I just ask you to tell us what your strongest case is?
Because they did raise that question.
Mr. Brill: Sure.
On the... on the issue of the identity of the person bringing the claim, the contract cases, Holman and Boucher, stand for that proposition, and the Peter Buchanan case, which came down in 1950, just before the wire fraud statute was enacted... this was in the Appellate Court in Ireland... it says,
"It is not a question whether the plaintiff is a foreign state or the representative of a foreign state or its revenue authority. "
"In every case, the substance of a claim must be scrutinized. "
"And if it then appears that it is really a suit brought for the purpose of collecting the debts of a foreign revenue, it must be rejected. "
That's at 1955 A.C. 529.
And so with the... with the Mandatory Restitution Act, this clearly is something to collect the debts of a foreign nation.
And the sentencing scheme that Justice Ginsburg alluded to earlier, in which the sentences were enhanced based on the intended loss, demonstrate that this is an enforcement action.
Stringam versus Dubois, which is an Alberta case from 1992, involving... the plaintiff there was an executor of a probate estate, and the court said,
"The identity of the plaintiff in the action is not vital if the action indirectly has the effect of enforcing revenue laws of a foreign country. "
That's at 135 A.C. at page 70.
And the way the revenue rule has been cited repeatedly is that it... what it prevents is not just direct enforcement, but direct or indirect enforcement.
And so it is... the fact that there have not been criminal prosecutions, it clearly would have been in derogation of the common law for a... for England to pass a statute saying it is criminal in England to break the laws of France.
Justice Breyer: See, he's saying it isn't, for the reason that, he says, that if England did it for independent reasons, it wasn't doing it because it wanted to help France get it's money, that then it wouldn't have been in derogation.
Of course, it would have been legal, either way, but he says it wouldn't have been in derogation, for that reason.
Mr. Brill: Right.
Well, it clearly would have.
There was no common law practice... we have... we have not found, in all the research... and the government has not found... any example of a criminal prosecution... not just in this country; anywhere in the world... to... deriving from the violation of a foreign government's tax.
And so--
Justice Souter: You're saying, in effect, that derogation is an effects test, not an intent test.
Mr. Brill: --Yes, Your Honor.
Yes, Justice Souter.
And the... in terms of what the government's interests are, there were no deceptive acts in this country.
The way the government gets a material misstatement is by a failure to disclose at the Canadian border, which only... even though they did not put in evidence of what the... that Canada even had a law requiring disclosure, the only way there could have been any kind of material misstatement would be if Canadian law required it, not if... not anything that happened in the United States.
In Cleveland, the court was very clear to point out... one of the reasons to adopt a rule of lenity in interpreting the mail fraud statute and the wire fraud statute is because violations serve as a predicate for RICO actions and for money-laundering violations.
And so what the government's position is, is that we should carve out this ad-hoc exception and allow wire fraud prosecution, even though we would not allow any kind of a civil RICO action and even though we're going to have an ad-hoc exception for the Mandatory Victims Restitution Act.
But what the court said in Cleveland is, the way we should do this is by adopting a proper interpretation in the first place, not by... of the wire fraud statute... not by having ad-hoc exceptions.
And the reference to prosecutorial discretion that there should be faith that the government will only prosecute, I guess, what the government regards as exceptional cases is not something that can provide any business involved in an international transaction with any... with any comfort.
And thank you very much.
Justice Stevens: Thank you.
The case is submitted.
Unknown Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.
