Supreme Court to Hear Bank Secrecy Act Appeal

Background

The BSA provides in relevant part in Section 5134, “the Secretary of the Treasury shall require a resident or citizen of the United States ... to keep records, file reports, or keep records and file reports, when the ... person makes a transaction or maintains a relation for any person with a foreign financial agency.”² Regulations promulgated under BSA Section 5314 require each person with a financial interest in a foreign account to report that interest to the Internal Revenue Service (IRS) each year via an FBAR.³ The BSA authorizes a civil penalty for violations of Section 5314: For non-willful violations, the penalty is not to exceed $10,000, and for willful violations, the maximum penalty increases to the greater of $100,000 or 50% of “the amount of the transaction” (when a violation involves a transaction) or “the balance in the account at the time of the violation” (when a violation involves “a failure to report the existence of an account”).⁴

Bittner, born in Romania, immigrated to the United States and was naturalized in 1987. In 1990, Bittner returned to Romania and earned millions as a successful businessman and investor. He established dozens of bank accounts in foreign countries. Unaware that as a United States citizen he had to report his interest in certain foreign accounts, he never filed FBARs while living in Romania. In 2011, when he returned to the United States, he retained a CPA who prepared and filed Bittner’s outstanding FBARs. But those FBARs had errors and failed to list all of Bittner’s accounts. Bittner hired a new CPA who filed corrected FBARs for the years 2007 to 2011. The IRS, in 2017, assessed $2.72 million in penalties against Bittner for non-willful violations of Section 5314 — $10,000 for each unreported account from 2007 to 2011, specifically 61 accounts in 2007, 51 in 2008, 53 in 2009, 53 in 2010, and 54 in 2011.

When the government moved to enforce the judgment, Bittner argued for a per-form basis of the $10,000 maximum penalty, while the government argued for the per-account basis. The district court sided with Bittner, deciding the $10,000 maximum penalty for a non-willful violation applies on a per-form basis and entering judgment of $50,000, $10,000 for each year from 2007 to 2011. The district court reasoned that the violation of the BSA attaches directly to the obligation that the statue creates: the filing of a single report.

On appeal, the U.S. Court of Appeals for the Fifth Circuit reviewed the text, structure, history, and purpose of Section 5314 and reversed the district court’s award, siding with the government and determining that the violation of Section 5314 is the failure to report an account, not the failure to file an FBAR, and reinstating the $2.72 million fine. The Fifth Circuit highlighted that the text of the BSA and its regulations impose (1) a statutory requirement to report each qualifying transaction or relation with a foreign financial agency and (2) a regulatory requirement to file these reports on an FBAR before a certain date each year (June 30). The law authorizes a penalty for any violation of the statue as opposed to authorizing a penalty for any violation of the regulations prescribed under Section 5413. Moreover, according to the Fifth Circuit, the district court’s reading would give the Secretary of the Treasury not only the power to set the reporting mechanism but also the power to define the number of violations subject to penalty by requiring only one FBAR be filed per year. Yet, streamlining the process by requiring only one FBAR per year (instead of one FBAR per account) cannot redefine the underlying reporting requirement imposed by Section 5314.

The Fifth Circuit further concluded that a per-account reading would not lead to “absurd results” because, given that Congress’ central goal in enacting the BSA was to crack down on the use of foreign financial accounts to evade taxes, it is reasonable to suppose that Congress would wish to penalize each failure to report each foreign account. In reaching its decision, the Fifth Circuit acknowledged that it was parting ways with a Ninth Circuit decision, United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021).

Bittner petitioned for writ of certiorari. The government also requested to have the writ of certiorari granted in light of the Ninth Circuit case, stating that the “question presented is important and will often recur, and this case would be an appropriate vehicle in which to address it.” The Supreme Court granted certiorari on Tuesday. The Court’s decision in Bittner is expected to provide clarity on filing requirements under the Bank Secrecy Act.

¹ No. 21-1195.  

² 31 U.S.C. § 5314(a) (Section 5134). 

³ 31 C.F.R. § 1010.350(a).

⁴ 31 U.S.C. § 5321(a)(5).