The statute colloquially known as the Bank Secrecy Act provides for assessment of civil money penalties (“CMPs”) in a variety of contexts. One of these is foreign financial accounts. Any United States person with a financial interest in or signature authority over a foreign financial account (including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account) containing more than $10,000 is required under the BSA to report the account annually to the Treasury Department by electronically filing a Report of Foreign Bank and Financial Accounts (FBAR) on Financial Crimes Enforcement Network (FinCEN) Report 114.
FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. The person filing must maintain records of the account(s) in question for five years and be prepared to make them available for inspection.
The requisite contents for the filing are:
- the account number (or other designation) of the foreign account and the name in which it is maintained;
- the name and address of the foreign bank or other person where the account is maintained; and
- the type of account and its maximum value during the annual reporting period.
The FBAR filing requirement applies to all United States persons with direct and certain indirect interests in, or signature authority over, a foreign financial account where the aggregate value of such accounts in any year exceeds $10,000.
Certain filing exceptions are available, including for the following United States persons or foreign financial accounts:
- Certain foreign financial accounts jointly owned by spouses
- United States persons included in a consolidated FBAR
- Correspondent/Nostro accounts
- Foreign financial accounts owned by a governmental entity
- Foreign financial accounts owned by an international financial institution
- Owners and beneficiaries of U.S. Individual Retirement Accounts (“IRAs”)
- Participants in and beneficiaries of tax-qualified retirement plans
- Certain individuals with signature authority over, but no financial interest in, a foreign financial account
- Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)
- Foreign financial accounts maintained on a United States military banking facility
A complete detailing of available exceptions is available in the FBAR instructions.
The Treasury may assess a CMP of up to $10,000 for any nonwillful violation of any provision of the FBAR statute. A question on which the practice of the Internal Revenue Service (IRS) has been inconsistent—and on which the lower federal courts have split—is whether separate penalties or only one penalty should apply to a taxpayer who has multiple overseas accounts that should be described in the annual FBAR filing. In other words, is the $10,000 maximum CMP per FBAR report or per foreign bank account?
The question was recently resolved by the U.S. Supreme Court. The case involved an immigrant from Rumania who became a naturalized U.S. citizen and returned to Rumania after the fall of the communist regime to take advantage of business opportunities. He maintained 272 foreign bank accounts in Rumania. He conducted his business for several years unaware that he was subject to the FBAR reporting requirements for all of those accounts, even though he was not at the time residing in the United States. Once he became aware of this requirement, he hired an accountant to prepare and file FBARs for tax years 2007 through 2011. The IRS imposed a $2.72 million penalty on the theory that each and every undisclosed foreign account constituted a separate violation.
The Supreme Court held that a person who nonwillfully fails to file FBARs is subject to a maximum CMP of $10,000 for each FBAR report—i.e., per report, not per account. For a decision on such a relatively minor—and certainly technical—question of statutory interpretation, the Court was surprisingly split 5–4. The case has garnered little attention thus far. The few press accounts that have appeared have largely focused two extraneous details. One was the minor disruption of the oral argument (back in November 2022) by three abortion rights demonstrators in the Courtroom (who may have been disappointed that the Justices seemed unperturbed by the disruption). The other was the “strange bedfellows” aspect of the votes on the case, which found Justice Alito misaligned with Justice Thomas and Justice Jackson disagreeing with Justices Kagan and Sotomayor.
Writing for the majority, Justice Gorsuch relied on the plain language of the BSA. Section 5314 focuses on the legal duty to file reports, which must include various kinds of information about an individual’s foreign “transaction[s] or relationship[s].” Justice Gorsuch’s opinion trenchantly observed, “Section 5314 does not speak of accounts or their number. The word ‘account’ does not even appear. Instead, the relevant legal duty is the duty to file reports.” Violation of § 5314’s reporting obligation is binary, the majority concluded: One files a report “in the way and to the extent the Secretary prescribes,” or one does not; multiple willful errors may establish a violation of §5314 but even a single mistake, willful or not, constitutes a § 5314 violation.
The Treasury’s position was that because Congress explicitly authorized per-account penalties for certain willful violations, the Court should infer that Congress meant to do the same for analogous nonwillful violations. That position was rejected, however, as incompatible with the well-known canon of statutory construction expressio unius est exclusio alterius. In the willful violations provision, § 5321(a)(5)(D), and in the “due to reasonable cause” exception in § 5321(a)(5)(B)(ii), Congress explicitly contemplated penalties on a per-account basis, thereby demonstrating that Congress knew how to do that but deliberately chose different language in § 5321(a)(5)(B)(i).
The legislative history supported this conclusion. As originally enacted (in 1970), the BSA included penalties only for willful violations. In 1986, Congress authorized the imposition of penalties on a per-account basis for certain willful violations. When the BSA was amended again in 2004 to authorize penalties for nonwillful violations, Congress could have—but did not—simply use language from its 1986 amendment to extend per-account penalties for nonwillful violations.
Finally, the majority found the per-account interpretation as applied to nonwillful violations to be incompatible with the purpose of the FBAR provisions, i.e., to require certain reports and records to assist the government in various criminal and tax intelligence initiatives. That information-seeking purpose was fully effected with a per-report interpretation. To rule otherwise and allow aggregation of nonwillful violations on a per-account basis could lead to an absurd result: A willful violator would incur a lesser penalty than a nonwillful violator.
The dissent, authored by Justice Barrett, highlighted the language in § 5314 requiring FBAR reporting when an individual has a relationship with a foreign financial agency or an account with a foreign bank. That statutory focus on the relationship, the dissent argued, compelled the conclusion that it was each relationship that triggers a separate penalty for nonwillful violation.
That interpretation, although the dissenting Justices seem not to have noticed, would still leave an ambiguity: Is the “relationship” for this purpose with the institution maintaining the account, or the account itself? In other words, one could persuasively argue that 272 accounts at one bank would constitute but a single “relationship.”
Justice Gorsuch’s majority opinion concluded with a brief segment (joined only by Justice Jackson) relying on the rule of lenity, under which, as earlier cases repeatedly explain, “statutes imposing penalties are to be ‘construed strictly’ against the government and in favor of individuals.” A major purpose of the rule of lenity, Justice Gorsuch wrote, is to ensure that taxpayers have “a fair warning … in language that the common world will understand, of what the law intends to do,” an ideal that he contrasted with the absence of any “discuss[ion of] per-account penalties for nonwillful violations” in the statute, together with the government’s “own public guidance documents [that] have seemingly warned of per-report, not per-account, penalties.” Justice Gorsuch emphasized the criminal consequences of the government’s interpretation, which would change the criminal exposure in this case from a $250,000 fine and five years in prison to a $68 million fine and 1,360 years in prison—all for nonwillful violations of the BSA.
The actual name is the Currency and Foreign Transactions Reporting Act of 1970, Pub. L. No. 91-508, 84 Stat. 1114 (1970) (codified as amended in scattered sections of 12, 18, and 31 U.S.C.) [hereinafter referred to as the “BSA”]. ↑
As used in any BSA regulation, the term “person” includes both natural and juridical persons, including “Indian tribe[s] (as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities.” 31 C.F.R. § 1010.100(mm). Thus a U.S. person encompasses U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States. ↑
31 U.S.C. § 5314(a). ↑
31 C.F.R. § 1010.420. ↑
A “Nostro” account is an account held by a bank in a foreign currency at another bank. Derived from the Latin word for “ours,” Nostro accounts are frequently used to facilitate foreign exchange and international trade transactions. ↑
These include the following: (1) An officer or employee of a financial institution that is examined by any of the three federal bank regulatory agencies or the National Credit Union Administration is not required to report signature authority over a foreign financial account owned or maintained by the financial institution. (2) An officer or employee of a financial institution that is registered with and examined by the SEC or the CFTC is not required to report signature authority over a foreign financial account owned or maintained by the financial institution. (3) An officer or employee of an “Authorized Service Provider” is not required to report signature authority over a foreign financial account that is owned or maintained by an investment company registered with the SEC. (“Authorized Service Provider” means an entity that is registered with and examined by the SEC and provides services to an investment company registered under the Investment Company Act of 1940, as amended, 15 U.S.C. § 80a-1 et seq.). (4) An officer or employee of an entity that has a class of equity securities listed (or American depository receipts listed) on any United States national securities exchange is not required to report signature authority over a foreign financial account of such entity. (5) An officer or employee of a United States subsidiary is not required to report signature authority over a foreign financial account of the subsidiary if its United States parent has a class of equity securities listed on any United States national securities exchange and the subsidiary is included in a consolidated FBAR report of the United States parent. (6) An officer or employee of an entity that has a class of equity securities registered (or American depository receipts in respect of equity securities registered) under section 12(g) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78a et seq., is not required to report signature authority over a foreign financial account of such entity. ↑
See, e.g., FinCEN, BSA Electronic Filing System, Individuals Filing the Report of Foreign Bank & Financial Accounts (FBARs). ↑
31 U.S.C. § 5321(a)(5)(A) ↑
31 U.S.C. § 5321(a)(5)(B)(i). No penalty may be assessed, however, if the violation was “due to reasonable cause” and the amount of the transaction or the balance in the account at the time of the transaction was properly reported. Id. § 5321(a)(5)(B)(ii)(I)–(II). ↑
A willful violation or willfully causing a violation of any provision of 31 U.S.C. § 5314 does not enjoy the “due to reasonable cause” exception of § 5321(a)(5)(B)(ii) and is subject to an enhanced penalty of up to $100,000 or 50% of a statutorily defined penalty assessment, whichever is greater. Id. § 5321(a)(5)(C). That statutorily defined penalty is, in the case of a violation involving a transaction, the amount of the transaction, id. § 5321(a)(5)(D)(i), and, in the case of a violation involving the failure to report the existence of an account or any identifying information required to be provided in respect of the account, the balance in the account at the time of the violation (i.e., potential forfeiture of the account balance), id. § 5321(a)(5)(D)(ii). ↑
31 U.S.C. § 5314. ↑
Compare Bittner v. United States, 19 F.4th 734 (5th Cir. 2021), with United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021). ↑
The taxpayer actually had dual citizenship: U.S. and Rumania. ↑
There was a minor constitutional component in terms of the application to these CMPs of the “rule of lenity.” That rule has due process origins and demands that people must have fair notice of what is proscribed by law before they can be punished for violating it. Only two Justices signed on to that portion of the 5–4 majority opinion, however. ↑
Bittner, slip op. at 5. ↑
See 31 U.S.C. § 5321(a)(5)(D). ↑
Bittner., slip op. at 6–8. The Court also noted the inconsistent positions the Treasury Department has taken in its guidance purporting to interpret the provision as a per-report penalty. In a 2010 proposed rulemaking, for instance, the Treasury Department indicated that a person who nonwillfully fails to properly file an FBAR faces a civil penalty “not to exceed $10,000.” Id., slip op. at 9–10. ↑
Id., slip op. at 10–12. ↑
Id. (Barrett, J., with Thomas, Sotomayor, and Kagan, JJ., dissenting). ↑
Bittner, slip op. at 14–16. ↑