United States Supreme Court Holds that Criminal Wire Fraud Statute Encompasses Schemes to Violate Foreign Law

On April 26, 2005, the United States Supreme Court upheld criminal convictions arising from a scheme to avoid taxation by a foreign government. The decision in Pasquantino v. United States, 125 S. Ct. 1766 (2005), expands the reach of the U.S. wire fraud statute, 18 U.S.C. § 1343, to encompass the use of interstate wire communications to fraudulently avoid paying foreign tax liabilities. In doing so, the Supreme Court resolved a long-running conflict between lower federal courts over whether the mere use of U.S. wires in connection with a scheme to violate only foreign law is sufficient to constitute a felony violation of U.S. law.

The scheme at issue in Pasquantino was directed at circumventing Canada’s tax on imported alcoholic beverages, but we believe the decision could result in a significant increase in U.S. Department of Justice investigations and prosecutions of multinational corporations and individuals doing business in the United States or merely using the services of U.S. financial institutions. Aggressive tax planning or technical violations of foreign law that carry very little risk of prosecution overseas by foreign governments may now be charged as wire fraud or money laundering in the United States, if U.S. wires (or U.S. mail or express delivery services) are even slightly implicated.

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