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The legislative history of the USA Patriot Act does not show clear intent by Congress to abrogate a rule barring suits in the United States to enforce foreign tax judgments, the 2nd U.S. Circuit Court of Appeals ruled Wednesday. In a case brought by several foreign nations charging major tobacco companies with smuggling or abetting the smuggling of cigarettes, the 2nd Circuit upheld the bulk of the rulings made by an Eastern District of New York judge. The ruling in The European Community v. RJR Nabisco Inc. was one of three related cases before U.S. District Judge Nicholas Garaufis. Garaufis had dismissed claims brought against RJR Nabisco Inc. and Philip Morris International Inc. and the affiliates of both companies. Plaintiffs charged that the tobacco companies’ alleged complicity in cigarette smuggling was undermining tax collections and driving up law enforcement expenditures for the member states of the European Community. Before Garaufis’ ruling, the 2nd Circuit in 2001 had reaffirmed the validity of the “revenue rule,” the common law principle that the courts of one sovereign will not enforce the final tax judgments or unadjudicated tax claims of other sovereigns. The reaffirmation of that principle came in Attorney General of Canada v. R.J. Reynolds Tobacco Holdings Inc. Following the Canada case, and in response to the Sept. 11, 2001, terror attacks, Congress passed the USA Patriot Act. Section 315 of the act amended and expanded �1956(c)(7) of the Racketeer Influenced and Corrupt Organizations Act, or RICO, which established money laundering as a predicate act for purposes of proving racketeering. Judge Garaufis, after examining the legislative history and the reasons behind the revenue rule, said that Congress did not intend to erase the rule when it passed the Patriot Act. On appeal, the European Community and other plaintiffs claimed that legislative history behind amendments to RICO adding several money laundering crimes as predicate offenses meant that the decision in the Canada case was no longer good law. Writing for the 2nd Circuit, Judge Sonia Sotomayor said the reason behind the revenue rule is that “claims by foreign sovereigns invoking their tax statutes may embroil the courts in an evaluation of the foreign nation’s social policies, an enquiry that can be embarrassing to that nation and damaging to the forum state.” “In Canada, we undertook an extensive examination of the tax treaties in effect between the United States and other nations, and concluded that their grant of only limited reciprocal tax enforcement assistance reflected the political branches’ continuing recognition of the revenue rule,” she said. But while the revenue rule is not “absolute,” the judge said, clear consent by the political branches in accepting adjudication by the courts is needed to abrogate the rule. And that clear intent, she said, was not present here. “The Patriot Act did not change the structure or focus of RICO; it simply added additional offenses to those that constitute predicate acts of racketeering,” Sotomayor said. “Because Canada holds that the operation of the rule does not depend on the type of conduct alleged, but rather on the substance of the relief sought, the foreign policy concerns raised by the suit, and the identity of the plaintiffs, a mere showing that the plaintiffs’ suit will further the policies embodied in the statute at issue is not sufficient to abrogate the rule,” she said. Judges James L. Oakes and Guido Calabresi joined in the opinion. COMPANION CASES The circuit court also upheld the dismissal of a companion case, Department of Amazonas v. Philip Morris Companies. And it vacated the dismissal of a third action, European Community v. Japan Tobacco Inc., saying that the district court did not have jurisdiction over the action because of a lack of service on defendants when the case was dismissed. Krupnick Campbell Malone Roselli Buser Slama Hancock McNelis Liberman & McKee in Fort Lauderdale, Fla., and Speiser Krause Nolan & Granito in New York represented the European Community. Arnold & Porter; Cravath Swaine & Moore; and Jones Day represented the tobacco companies.

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