The U.S. Supreme Court held Tuesday in a 5-4 decision that the $10,000 penalty for a non-willful failure to file a Report of Foreign Bank and Financial Accounts (FBAR) for foreign accounts accrues per report, not per account (Bittner, No. 21-1195 (U.S. 2/28/23)).
The decision resolves a split between the Fifth and Ninth circuits. The Fifth Circuit had held that the penalty can be imposed per unreported account (Bittner, 19 F.4th 734 (5th Cir. 2021)); the Ninth Circuit has held it can only be applied per unfiled FBAR covering all foreign accounts each year (Boyd, 991 F.3d 1077 (9th Cir. 2021)).
FBARs (Financial Crimes Enforcement Network (FinCEN) Forms 114, Report of Foreign Bank and Financial Accounts) are required to be filed annually by the Bank Secrecy Act of 1970 (BSA), P.L. 91-508. U.S. persons must report on an FBAR all financial interests in, or signature or other authority over, financial accounts located outside the United States (with certain exceptions) if the aggregate value of those financial accounts exceeded $10,000 at any time during the calendar year covered by the FBAR.
The statute (31 U.S.C. §5321(a)(5)(B)) prescribes a civil penalty of up to $10,000 for a non-willful violation of any provision of the FBAR filing requirement (unless due to reasonable cause).
The decision arises from an appeal brought by Romanian-American businessperson Alexandru Bittner. The IRS, ruling that the FBAR penalty applies to each foreign account not timely or accurately reported, assessed FBAR penalties for 2007 through 2011 totaling $2.72 million for Bittner’s non-willful violations of the FBAR reporting requirements for 272 accounts.
Bittner contested the penalties in district court, arguing that the FBAR penalty applies on a per-report, not per-account, basis and that he owed only $50,000 in penalties. The district court agreed with Bittner, holding that the penalty applies per report (Bittner, 469 F. Supp. 3d 709 (E.D. Tex. 2020)). The government appealed, and the Fifth Circuit reversed the district court in Bittner, 19 F.4th 734 (5th Cir. 2021). However, a split in the circuits was created when the Ninth Circuit held that the fine applies on a per-report basis.
In its opinion, the Supreme Court agreed with the Ninth Circuit’s interpretation, concluding that, “[b]est read, the BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis” (slip op. at 16).
The Court noted that 31 U.S.C. Section 5314, which spells out an individual’s legal duties under the BSA, does not speak of accounts, but rather of a legal duty to “file reports.” These reports must include various kinds of information about the individual’s foreign transactions or relationships. Under 31 U.S.C. Section 5321, a penalty of up to $10,000 is imposed for “any violation” of Section 5314, and under Section 5314 a violation occurs “when an individual fails to file a report consistent with the statute’s commands” (slip op. at 6).
Therefore, the Court determined, “penalties for non-willful violations accrue on a per-report, not a per-account, basis” (id.), and it reversed the Fifth Circuit’s decision.
The Court also emphasized the difference in language in the statute in describing the application of the FBAR penalties to willful violations as opposed to non-willful ones, stating:
Because Congress explicitly authorized per-account penalties for some willful violations, the government asks us to infer that Congress meant to do so for analogous non-willful violations as well. But, in truth, this line of reasoning cuts against the government. When Congress includes a particular language in one section of a statute but omits it from a neighbor, we normally understand that difference in language to convey a difference in meaning (expressio unius est exclusio alterius). The government’s interpretation defies this traditional rule of statutory construction. … [W]hen Congress wished to tie sanctions to account-level information [in Sec. 5321(a)(5)(B)(ii)], it knew exactly how to do so. Congress said that penalties for certain willful violations may be measured on a per-account basis. Congress said that a person may invoke the reasonable cause exception only on a showing of per-account accuracy. But the one thing Congress did not say is that the government may impose non-willful penalties on a per-account basis. [slip op. at 7-8, citations omitted]
A dissenting opinion, joined by four justices, argued that Section 5314’s reporting requirement attaches to each individual account because that section requires individuals to file reports when they “maintain a relationship [i.e., account] … with a foreign financial agency” — therefore, each account triggers a reporting requirement and “each failure to report an account violates the reporting requirement” (Barrett, J., dissenting op. at 2).
The dissent also found that the security risks the United States faces if it is not aware of all accounts associated with a report justified a per-account application of the penalties. “When analyzing complex webs of money laundering or funding for international terrorism, knowing about every account matters — and lacking information about 15 accounts is certainly more harmful to law enforcement than lacking information about one account. Given the stated purpose, authorizing a penalty for each undisclosed account makes sense” (Barrett, J., dissenting op. at 9).