In a move that promises to have far-reaching consequences for global operations and international tax compliance, the Supreme Court ruled that defendants who evaded Canadian taxes by smuggling large quantities of liquor into Canada from the United States could be prosecuted in the U.S. under federal wire fraud laws.

The defendants, while in New York, ordered liquor over the telephone from discount package stores in Maryland, then employed others to drive the liquor over the Canadian border without paying the required excise taxes. The Canadian taxes then due on alcohol purchased in the U.S. were approximately double the liquor's purchase price.

In a 5-4 decision, the Court held that a scheme to defraud a foreign government of tax revenue can be prosecuted as a violation of the wire fraud statute. The Court noted that its decision punishes the domestic element of the defendants' conduct: "Their offense was complete the moment they executed the scheme inside the United States."

A strongly worded dissent charged that the majority opinion constitutes an enforcing of foreign tax law in violation of the principle that courts should await congressional instruction before giving an "extraterritorial thrust" to United States law.

"The defendants' conduct arguably fell within the scope of [the wire fraud statute] only because of their purpose to evade Canadian customs and tax laws; shorn of that purpose, no other aspect of their conduct was criminal in this country," the dissent said.

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