Bittner - another illegal money grab

As SCOTUS noted in Cal. Bankers Ass'n v. Shultz, 416 U.S. 21, 27 (1974), the primary purpose of the Bank Secrecy Act (BSA) is to curb the "serious and widespread" use of foreign financial accounts to evade taxes. On its website, the Financial Crimes Enforcement Network (FinCEN) states, "[a] United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR [FINCEN form 114] if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year." The FBAR is a reporting requirement and failure to file these annual reports results in a penalty.

However, the foreign bank account reporting requirements were not designed to produce a financial windfall for the IRS. As FinCEN plainly states, the purpose of the reporting requirement is "to report a financial interest in or signature authority over a foreign financial account" for the previous calendar year. The purpose of filing is to report, not to create a cash cow for the government when there is a failure to report. Yet, the recent Fifth Circuit decision in United States v. Bittner, 19 F. 4th 734 (2021) does just that, and in so doing serves to represent yet another illegal money grab by the government that gets validated by the courts.

To accomplish this objective, the Court parses 31 U.S.C. § 5314 and relies heavily on the dissent in the 9th Circuit opinion United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021), which does the same. Section 5314 essentially requires that a person or entity keep records of foreign transactions and disclose those records. The majority in Boyd held that the non-willful penalty as to the "Report of Foreign Bank and Financial Accounts" (FBAR) applies on a per form basis and not on the number of foreign accounts a person controls. In contrast, the dissent took the opposite position that the penalty should be applied based on the number of accounts.

The problem with this analysis is multifold. First, the cash cow that is generated when the penalty is tied to the number of accounts was clearly not the intent of the Act. Second, creating a distinction in Section 5314 between the reporting form and the reporting itself is nothing more than a creative distinction without a difference to achieve a goal: more money from the taxpayer. The fact that Section 5314 contemplates reporting and that the reporting should be on a form does not translate into separate obligations such that the intent of the statute was to penalize per bank account failure to report as opposed to per calendar year (form) failure to report. This conclusion is supported by the language of FinCEN which repeats that the reporting requirement is triggered per calendar year for each form, and that form needs to list the bank accounts that held over $10,000 in the previous calendar year. The Fifth Circuit's distinction that the reports themselves constitute substance while the form itself constitutes procedure is simply mindboggling.

The opinion espouses a backup argument that because a willful violation merits a far greater penalty and includes as a penal option "the balance in the account at the time of the violation" that therefore, a non-willful violation "presumably" also is grounded in the bank account itself. To presume that a willful violation and a non-willful violation are equivalent is error. Willful violations often result in criminal charges. Non-willful violations never do. There is nothing equal about willful and non-willful violations. The presumption is flawed.

The money grab is something we are seeing more and more of by government agencies. Recently here in the Central District, the FBI with the support and backing of the USAO seized hundreds of innocent owners' safe deposit boxes from US Private Vaults in Beverly Hills. Many of these innocent box owners had to hire counsel and fight to get their property returned and many had to give a portion of their own property to the government to keep any because they did not have the resources to fight. When the legality of the search and seizure was challenged, the court determined the warrant, and its execution, were legal. Bottom line, the government keeps what they want - the money.