## Facts

- The Attorney General of Canada sued multiple R.J. Reynolds-related entities and an industry council, alleging participation in a long-running cigarette-smuggling scheme into Canada.
- Canada alleged defendants sold large quantities of cigarettes to wholesalers, knowing the cigarettes were destined for unlawful importation into Canada without payment of Canadian excise taxes and duties.
- Canada alleged smugglers and black-market distributors transported cigarettes into Canada and sold them illegally, evading taxes.
- Canada pled that the conduct constituted a pattern of racketeering activity under RICO, including predicate acts such as mail and wire fraud.
- Canada sought damages for (1) lost Canadian tax revenues and (2) increased law-enforcement and health-care expenditures allegedly caused by the smuggling scheme.
- The district court dismissed under the common-law revenue rule; Canada appealed.

## Issues

1. Whether the common-law revenue rule bars a foreign sovereign’s civil RICO action seeking damages measured by lost foreign tax revenues and related governmental expenditures.
2. Whether RICO evidences congressional intent to abrogate the revenue rule for foreign sovereign plaintiffs.
3. Whether alleged loss of tax revenue and increased public expenditures constitute injury to “business or property” under 18 U.S.C. § 1964(c) when the claimed harms arise from the foreign sovereign’s taxing and regulatory interests.

## Decision

- The Second Circuit affirmed dismissal of the complaint.
- The court held Canada’s claims were barred by the revenue rule because adjudication would, in substance, require a U.S. court to enforce and assess Canada’s tax laws and claimed tax losses.
- The court held RICO did not clearly repeal or displace the revenue rule.
- A separate opinion concurred in part and dissented in part, arguing the revenue rule should not categorically bar all asserted injuries pled under RICO.

## Legal Principles

- Under the common-law revenue rule, courts of one sovereign generally will not enforce the tax judgments or unadjudicated tax claims of another sovereign.
- Courts assess the substance of the requested relief, not merely the cause-of-action label; a claim is barred if it effectively requires determining the validity, operation, or amount of foreign taxes owed.
- Abrogation of a longstanding common-law doctrine requires a clear expression of congressional intent; RICO’s broad civil remedy provision does not, without more, authorize indirect enforcement of foreign revenue laws.
- Comity and separation-of-powers concerns counsel against judicial involvement in disputes that would entangle U.S. courts in foreign tax policy absent direction from the political branches.

## Conclusion

The Second Circuit held that Canada could not use civil RICO to recover damages measured by allegedly unpaid Canadian cigarette taxes and related governmental costs because doing so would function as foreign tax enforcement barred by the revenue rule, and RICO contained no clear congressional authorization to override that limitation.


Attorney General of Canada v. R.J. Reynolds Tobacco Holdings, Inc., 268 F.3d 103 (2d Cir. 2001)