The ineffable, unknowable mystery of the Canadian tax code.

I am sometimes asked by the people who pay me how I choose which cases to cover in the Supreme Court. The calculus isn't complicated: I make it a general rule to cover any case that deals with drugs, alcohol, small children, stupid criminals, brazen policemen, nakedness, sex, pornography, love, lust, and strippers. But today I find myself forced to add another subject area to this intriguing list: the Canadian tax code.

Not a lot of reporters attend this morning's oral argument in Pasquantino v. United States,perhaps because it is, as Justice Ruth Bader Ginsburg observes, a very odd case. The trouble started when David Pasquantino and his brother Carl began smuggling cheap booze into Canada for sale on the black market. They'd probably argue that the trouble really started when dopey Canada hiked up the taxes on alcohol to the point that, between federal and provincial sales taxes and a "sin" tax on top of all that, the average total tax on Canadian alcohol is 83 percent (as opposed to 44 percent in the United States). Here was a situation begging for a little bit of American Robin Hoodery—the defendants were actually doing Canadians a service if you think about it: making crap vodka available at every income bracket across North America.

The brothers and one of their drivers were charged in U.S. court with violating the federal wire-fraud statute—18 U.S.C. Section 1343. The government alleged that they broke this law by arranging to buy and transport cheap hooch with phone calls between New York and Maryland, thus defrauding the Canadian government of an alleged $3 million in duty and taxes. Throughout the morning, the question lingers: If these guys stole from the Canadians, why isn't Canada prosecuting them? The answer must have something to do with the Bush administration's ongoing war on criminals-without-borders. That or the Mounties are just too stoned to care.

After a jury trial, the defendants were found guilty and sentenced to five years in prison. A divided panel of the 4^th Circuit Court of Appeals reversed their convictions, holding that a hoary common-law doctrine, the "revenue rule," barred prosecution by the U.S. government for violation of Canadian tax law. The revenue rule dates back several hundred years to England, where the beer is generally better anyhow. The doctrine bars the courts of one country from prosecuting folks for violating other country's tax laws. The theory was that this promotes national sovereignty and restricts the local effects of incomprehensible foreign policies. If Canada wants to enforce its own wacky tax code, goes the thinking, it should do so. But the Americans shouldn't be in the business of carrying Canada's water. Or beer, for that matter.

When the 4^th Circuit reheard the case en banc,they flipped positions. By a 9-2 vote, the appeals court found the convictions could stand because this "revenue rule" prohibits the U.S. government from "enforcing" foreign tax judgments; it doesn't bar the government from "recognizing" them. No, really, there's a difference, they say. I still can't figure out the difference, but maybe that's why I'm just a reporter. Since there is a split between the 1^st Circuit (which doesn't allow such prosecutions) and the 2^nd Circuit (which does), the high court agreed to take the case.

It's always fun when the court hears a plain old vanilla statutory construction case. It helps clarify, for one thing, which of the justices can read.

Laura Brill represents the Pasquantino brothers and Arthur Hilts, the driver. She opens by listing five reasons this prosecution is outside the scope of what American courts should be doing. Justice Sandra Day O'Connor stops her, incredulous: "How can you not allow the United States to use its wire-fraud statute to apprehend someone carrying out the scheme of smuggling?"

Brill starts to respond, but Justice Antonin Scalia interrupts to remind her that there is an antismuggling statute that might have applied in this case, but it only works "for countries with reciprocity" and that if "Canada won't do this for the United States … that suggests we don't want to do this for Canada."

Brill notes that the allegations against the Pasquantinos weren't even adjudicated in Canadian courts: The American court, by calculating the tax burden and setting the penalties, "became an apparatus of the government of Canada." Sounds almost communist when she puts it that way.

Brill explains that foreign tax laws, unlike foreign contracts, are based on policy—often policy, such as customs law, aimed at disadvantaging foreign countries. Why would the United States be enforcing those policies on Canada's behalf? She goes on to argue that, even though the federal wire-fraud * statute is worded with extraordinary breadth (criminalizing "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent purposes …"), the unpaid taxes in this case cannot be viewed as either "money" or "property." Again O'Connor launches an acid bomb: "Tax revenues are not property in your view?"