This Is Post 1 in a series of posts describing the statutory and regulatory history of Mr. FBAR.
These posts are organized on the page “The Little Red FBAR Book“.*
Introduction – Toward An Understanding Of Bittner, Roth And The Road To The Supreme Court
For Good And For Evil:
The late Charles W. Adams was the author of For Good And Evil: The Impact Of Taxes On The Course Of Civilization. The title is descriptive of the content. At the end of the book Mr. Adams summarizes 27 lessons that can be learned from the past. The principle summarized in lesson 11 reads:
If liberty is to defended with success against the dominance of the state, then financial privacy must be preserved. Banking privacy is one of the cornerstones of liberty, having its roots in the early principle of English law that a man’s castle (primarily his treasury) is beyond the surveillance of the King.
Whatever its origins, the FBAR has evolved into an assault on financial privacy and part of the growing trend of civil forfeiture. To put it simply the civil FBAR penalty found in USC 31 5321(a)(5) – enacted in the American Jobs Creation Act of 2004 – is being used as a vehicle for asset confiscations. In some cases (Toth) the confiscation is taking place under the guise of the “willful” penalty without a sufficient factual finding of willfulness. In other cases (Bittner) the confiscation is taking place under the guise of a “non-willful” penalty by imposing multiple penalties based on the number of accounts rather than a single penalty based on the failure to file the form itself. In each case the penalties are imposed under USC 31 5321(a)(5) which was enacted in 2004 as part of the American Jobs Creation Act.
This is Part 1 of a series of posts for the purpose of understanding the evolution of Mr. FBAR and the civil penalty regime. The purpose of Part 1 is to trace the legislative history of Mr. FBAR and the evolution of the penalty regime found in 31 USC 5321(a)(5).
“From Here To There Eventually” – The Life Of Mr. FBAR
There are four distinct periods to Mr. FBAR’s life …
Period 1: Birth October 26, 1970 – Public Law 91-507 – The “Wonder Years” – Currency and Foreign Transactions Reporting Act – See Appendix A
October 26, 1970 – Public Law 91-507 – Currency and financial Reporting Act – 201 on – page 5
https://www.govinfo.gov/content/pkg/STATUTE-84/pdf/STATUTE-84-Pg1114-2.pdf
STATUTE-84-Pg1114-2
Penalty Status for individuals: Only criminal penalties for willful violation of the statute
§ 209. Criminal penalty
Whoever willfully violates any provision of this title or any regulation under this title shall be fined not more than $1,000, or imprisoned not more than one year, or both.
§203. Definitions and rules of construction
(i) References to this title or any provision thereof include regulations issued under this title or the provision thereof in question.
Note that the penalties (criminal) are imposed for violating either the statute or a regulation made under the statute!
Period 2: Teenager September 13, 1982 – Public Law 97-258 – Those Teenage Years: Joining His Friends In The Title 31 Sandbox – See Appendix B below
September 13, 1982 – Public law 97-258 – Creation of Title 31 – See page 121
https://www.govinfo.gov/content/pkg/STATUTE-96/pdf/STATUTE-96-Pg877.pdf
STATUTE-96-Pg877
The purpose of this law was to consolidate a number of statutes into USC 31. The 1970 “Currency and Foreign Transactions Reporting Act” was one of the statutes brought under the umbrella of USC 31. (Note the under the “Currency and Foreign Transactions Reporting Act” any violation of the law would include a violation of any regulations made pursuant to the law. This is NOT the case for USC 31. This point will be developed in more detail later.)
Penalty Status: Only criminal penalties for willful failure to file an FBAR. Although the 1982 statute introduces civil violations for some violations of Title 31, the statute did NOT legislate a civil penalty for FBAR violations. It did NOT create 5321(a)(5) which was created in the 1986 amendments.
§ 5321. Civil penalties
(a)(1) A domestic financial institution, and a partner, director, officer, or employee of a domestic financial institution, willfully violating this subchapter or a regulation prescribed under this subchapter (except section 5315 of this title or a regulation prescribed under section 5315) is liable to the United States Government for a civil penalty of not more than $1,000. For a violation of section 5318(2) of this title or a regulation prescribed under section
5318(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues.
(2) The Secretary of the Treasury may impose an additional civil penalty on a person not filing a report, or filing a report containing a material omission or misstatement, under section 5316 of this title or a regulation prescribed under section 5316. A civil penalty under this paragraph may not be more than the amount of the monetary instrument for which the report was required. A civil penalty under this paragraph is reduced by an amount forfeited under section
5317(b) of this title.
(3) A person not filing a report under a regulation prescribed under section 5315 of this title or not complying with an injunction under section 5320 of this title enjoining a violation of, or enforcing compliance with, section 5315 or a regulation prescribed under section 5315, is liable to the Government for a civil penalty of not more than $10,000.
03) The Secretary may bring a civil action to recover a civil penalty under subsection (aXD or (2) of this section that has not been paid.
(c) The Secretary may remit any part of a forfeiture under section 5317(b) of this title or civil penalty under subsection …
The criminal penalties for FBAR violations continue …
§ 5322. Criminal penalties
(a) A person willfully violating this subchapter or a regulation prescribed under this subchapter (except section 5315 of this title or a regulation prescribed under section 5315) shall be fined not more than $1,000, imprisoned for not more than one year, or both.
(b) A person willfully violating this subchapter or a regulation prescribed under this subchapter (except section 5315 of this title or a regulation prescribed under section 5315), while violating another law of the United States or as part of a pattern of illegal activity involving transactions of more than $100,000 in a 12-month period, shall be fined not more than $500,000, imprisoned for not more than 5 years, or both.
(c) For a violation of section 5318(2) of this title or a regulation prescribed under section 5318(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues.
Note that the penalties (civil or criminal) are imposed for violating either the statute or a regulation made under the statute!
Period 3: Young Adult – October 27, 1986 – Public Law 99-570 – The First Civil Penalty For The “Willful Failure” To File Mr. FBAR – See Appendix C
October 27, 1986 – Public Law 99-570 – Creation of 5321(a)(5) Civil Monetary Penalty for Violation of 5314 – See page 26
https://www.govinfo.gov/content/pkg/STATUTE-100/pdf/STATUTE-100-Pg3207.pdf
Civil Penalty 1986 STATUTE-100-Pg3207
Penalty Status: Criminal penalties for willful violations continue. The first civil penalty under 5321(a)(5) for willful violations of USC 5314 is created.
(5) FOREIGN FINANCIAL AGENCY TRANSACTION VIOLATION.—
(A) PENALTY AUTHORIZED.—The Secretary of the Treasury may impose a civil money penalty on any person who willfully
violates any provision of section 5314.
Note that the civil penalties imposed under USC 5321(a)(5) are imposed only for violating the statute. There is no mention of a penalty for violation of the regulation made under the statute! (The criminal penalty under USC 5322 is imposed for violation of either the statute or the regulation made under the statute.)
Period 4: Mature Thug – October 22, 2004 – American Jobs Creation Act – “Form Crimes On Steroids” – The Creation Of The Non-Willful Civil FBAR Penalty See Appendix D
October 22, 2004 – Public Law 108-357 – American Jobs Creation Act October 22, 2004 – see page 170 – Creates Nonwillful Civil FBAR Penalty – See Appendix D
https://www.congress.gov/108/plaws/publ357/PLAW-108publ357.pdf
PLAW-108publ357
Penalty Status: Civil penalties for both willful and non-willful violations of 5314. Criminal penalties for willful violations.
(5) FOREIGN FINANCIAL AGENCY TRANSACTION VIOLATION.—
(A) PENALTY AUTHORIZED.—The Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.
(B) AMOUNT OF PENALTY.—
(i) IN GENERAL.—Except as provided in subparagraph (C), the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000.
(ii) REASONABLE CAUSE EXCEPTION.—No penalty shall be imposed under subparagraph (A) with respect to any violation if—
(I) such violation was due to reasonable cause,
and
(II) the amount of the transaction or the balance in the account at the time of the transaction was properly reported.
(C) WILLFUL VIOLATIONS.—In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314—
(i) the maximum penalty under subparagraph (B)(i) shall be increased to the greater of—
(I) $100,000, or
(II) 50 percent of the amount determined under subparagraph (D), and (ii) subparagraph (B)(ii) shall not apply.
(D) AMOUNT.—The amount determined under this subparagraph is—
(i) in the case of a violation involving a transaction, the amount of the transaction, or
(ii) in the case of a violation involving a failure to report the existence of an account or any identifying information required to be provided with respect to an account, the balance in the account at the time of the violation.
(b) EFFECTIVE DATE.—The amendment made by this section shall apply to violations occurring after the date of the enactment
of this Act.
Note that the civil penalties imposed (whether civil or criminal) under USC 5321(a)(5) continue to be imposed only for violating the statute. There continues to be no mention of a penalty for violation of the regulation made under the statute! (The criminal penalty under USC 5322 is imposed for violation of either the statute or the regulation made under the statute.)
John Richardson – Follow me on Twitter. @Expatrationlaw
Appendix A – 1970 Statute
Chapter 4.—FOREIGN TRANSACTIONS
Sec.
241. Records and reports required.
242. Classifications and requirements.
§241. Records and reports required
(a) The Secretary of the Treasury, having due regard for the need to avoid impeding or controlling the export or import of currency or other monetary instruments and having due regard also for the need to avoid burdening unreasonably persons who legitimately engage in transactions with foreign financial agencies, shall by regulation require any resident or citizen of the United States, or person in the United States and doing business therein, who engages in any transaction or maintains any relationship, directly or indirectly, on behalf of himself or another, with a foreign financial agency to maintain records or to file reports, or both, setting forth such of the following information, in such form and in such detail, as the Secretary may require:
(1) The identities and addresses of the parties to the transaction or relationship.
(2) The legal capacities in which the parties to the transaction or relationship are acting, and the identities of the real parties in interest if one or more of the parties are not acting solely as principals.
(3) A description of the transaction or relationship including the amounts of money, credit, or other property involved.
t>isciosure. ^j^^ ]^Q persou required to maintain records under this section shall be required to produce or otherwise disclose the contents of the records except in compliance with a subpena or summons duly authorized and issued or as may otherwise be required by law.
§242. Classifications and requirements
The Secretary may prescribe:
(1) Any reasonable classification of persons subject to or
exempt from any requirement imposed under section 241.
(2) The foreign country or countries as to which any requirement imposed under section 241 applies or does not apply if, in
the judgment of the Secretary, uniform applicability of any such requirement to all foreign countries is unnecessary or undesirable.
(3) The magnitude of transactions subject to any requirement imposed under section 241.
(4) Types of transactions subject to or exempt from any requirement imposed under section 241.
(5) Such other matters as he may deem necessary to the application of this chapter.
Appendix B – 1982 Statute Creating Title USC Title 31
SUBCHAPTER II—RECORDS AND REPORTS ON MONETARY
INSTRUMENTS TRANSACTIONS
§5311. Declaration of purpose
It is the purpose of this subchapter (except section 5315) to require
certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.
§ 5312. Dennitions and application
(a) In this subchapter—
(1) “financial agency” means a person acting for a person
(except for a country, a monetary or financial authority acting
as a monetary or financial authority, or an international financial institution of which the United States Government is a
member) as a financial institution, bailee, depository trustee, or
agent, or acting in a similar way related to money, credit,
securities, gold, or a transaction in money, credit, securities, or
gold.
(2) “financial institution” means—
(A) an insured bank (as defined in section 3(h) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(h)));
(B) a commercial bank or trust company;
(C) a private banker;
(D) an agency or branch of a foreign bank in the United
States;
(E) an insured institution (as defined in section 401(a) of
the National Housing Act (12 U.S.C. 1724(a)));
(F) a thrift institution;
(G) a broker or dealer registered with the Securities and
Exchange Commission under the Securities Exchange Act
of 1934 (15 U.S.C. 78a et seq.);
(H) a broker or dealer in securities or commodities;
(I) an investment banker or investment company;
(J) a currency exchange;
(K) an issuer, redeemer, or cashier of travelers’ checks,
checks, money orders, or similar instruments;
(L) an operator of a credit card system;
(M) an insurance company;
(N) a dealer in precious metals, stones, or jewels;
(O) a pawnbroker;
(P) a loan or finance company;
(Q) a travel agency;
(R) a licensed sender of money;
(S) a telegraph company;
(T) an agency of the United States Government or of a
State or local government carrying out a duty or power of a
business described in this clause (2); or
(U) another business or agency carrying out a similar,
related, or substitute duty or power the Secretary of the
Treasury prescribes.
(3) “monetary instruments” means—
(A) United States coins and currency; and
(B) as the Secretary may prescribe by regulation, coins
and currency of a foreign country, travelers’ checks, bearer
negotiable instruments, bearer investment securities,
bearer securities, stock on which title is passed on delivery,
and similar material.
(4) “person”, in addition to its meaning under section 1 of title
1 use 1. 1, includes a trustee, a representative of an estate and, when the
Secretary prescribes, a governmental entity.
(5) “United States” means the States of the United States, the
District of Columbia, and, when the Secretary prescribes by
regulation, the Commonwealth of Puerto Rico, a territory or
possession of the United States, or a military or diplomatic
establishment.
(b) In this subchapter—
(1) “domestic financial agency” and “domestic financial institution” apply to an action in the United States of a financial
agency or institution.
(2) “foreign financial agency” and “foreign financial institution” apply to an action outside the United States of a financial
agency or institution.
§ 5314. Records and reports on foreign Hnancial agency transactions
(a) Considering the need to avoid impeding or controlling the
export or import of monetary instruments and the need to avoid
burdening unreasonably a person making a transaction with a
foreign financial agency, the Secretary of the Treasury shall require
a resident or citizen of the United States or a person in, and doing
business in, the United States, to keep records, file reports, or keep
records and file reports, when the resident, citizen, or person makes
a transaction or maintains a relation for any person with a foreign
financial agency. The records and reports shall contain the following
information in the way and to the extent the Secretary prescribes:
(1) the identity and address of participants in a transaction or
relationship.
(2) the legal capacity in which a participant is acting.
(3) the identity of real parties in interest.
(4) a description of the transaction.
(b) The Secretary may prescribe—
(1) a reasonable classification of persons subject to or exempt
from a requirement under this section or a regulation under
this section;
(2) a foreign country to which a requirement or a regulation
under this section applies if the Secretary decides applying the
requirement or regulation to all foreign countries is unnecessary or undesirable;
(3) the magnitude of transactions subject to a requirement or
a regulation under this section;
(4) the kind of transaction subject to or exempt from a
requirement or a regulation under this section; and
(5) other matters the Secretary considers necessary to carry
out this section or a regulation under this section.
(c) A person shall be required to disclose a record required to be
kept under this section or under a regulation under this section only
as required by law.
§ 5321. Civil penalties
(a)(1) A domestic financial institution, and a partner, director,
officer, or employee of a domestic financial institution, willfully
violating this subchapter or a regulation prescribed under this
subchapter (except section 5315 of this title or a regulation prescribed under section 5315) is liable to the United States Government for a civil penalty of not more than $1,000. For a violation of
section 5318(2) of this title or a regulation prescribed under section
5318(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a
violation occurs or continues.
(2) The Secretary of the Treasury may impose an additional civil
penalty on a person not filing a report, or filing a report containing
a material omission or misstatement, under section 5316 of this title
or a regulation prescribed under section 5316. A civil penalty under
this paragraph may not be more than the amount of the monetary
instrument for which the report was required. A civil penalty under
this paragraph is reduced by an amount forfeited under section
5317(b) of this title.
(3) A person not filing a report under a regulation prescribed
under section 5315 of this title or not complying with an injunction
under section 5320 of this title enjoining a violation of, or enforcing
compliance with, section 5315 or a regulation prescribed under
section 5315, is liable to the Government for a civil penalty of not
more than $10,000.
03) The Secretary may bring a civil action to recover a civil
penalty under subsection (aXD or (2) of this section that has not been
paid.
(c) The Secretary may remit any part of a forfeiture under section
5317(b) of this title or civil penalty under subsection (aX2) of this
section.
§ 5322. Criminal penalties
(a) A person willfully violating this subchapter or a regulation
prescribed under this subchapter (except section 5315 of this title or
a regulation prescribed under section 5315) shall be fined not more
than $1,000, imprisoned for not more than one year, or both.
(b) A person willfully violating this subchapter or a regulation
prescribed under this subchapter (except section 5315 of this title or
a regulation prescribed under section 5315), while violating another
law of the United States or as part of a pattern of illegal activity
involving transactions of more than $100,000 in a 12-month period,
shall be fined not more than $500,000, imprisoned for not more than
5 years, or both.
(c) For a violation of section 5318(2) of this title or a regulation
prescribed under section 5318(2), a separate violation occurs for each
day the violation continues and at each office, branch, or place of
business at which a violation occurs or continues.
Appendix C – 1986 – Introduces 5321(a)(5) – Willful failure to file an FBAR
(c) SEPARATE CIVIL MONEY PENALTY FOR VIOLATION OF SECTION
5314.—Section 5321(a) of title 31, United States Code, is amended by
inserting after paragraph (4) (as added by subsection (a) of this
section) the following new paragraph:
“(5) FOREIGN FINANCIAL AGENCY TRANSACTION VIOLATION.—
“(A) PENALTY AUTHORIZED.—The Secretary of the Treasury
may impose a civil money penalty on any person who willfully
violates any provision of section 5314.
“(B) MAXIMUM AMOUNT LIMITATION.—The amount of any civil
money penalty imposed under subparagraph (A) shall not
exceed—
“(i) in the case of violation of such section involving a
fi transaction, the greater of—
-it ? ? “(I) the amount (not to exceed $100,000) of the transaction; or
“(II) $25,000; and
(ii) in the case of violation of such section involving a
3;?-; failure to report the existence of an account or any identify-
. ing information required to be provided with respect to
s Obig a I f such account, the greater of—
,i>Ki “(I) an amount (not to exceed $100,000) equal to the
balance in the account at the time of the violation; or
“(II) $25,000.”.
Appendix D – Replaces 5321(a)(5) – Introduces Non-Willful Civil Penalty For Failure To File FBAR
SEC. 821. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN
FINANCIAL ACCOUNTS.
(a) IN GENERAL.—Section 5321(a)(5) of title 31, United States
Code, is amended to read as follows:
‘‘(5) FOREIGN FINANCIAL AGENCY TRANSACTION VIOLATION.—
‘‘(A) PENALTY AUTHORIZED.—The Secretary of the
Treasury may impose a civil money penalty on any person
who violates, or causes any violation of, any provision
of section 5314.
‘‘(B) AMOUNT OF PENALTY.—
‘‘(i) IN GENERAL.—Except as provided in subparagraph (C), the amount of any civil penalty imposed
under subparagraph (A) shall not exceed $10,000.
‘‘(ii) REASONABLE CAUSE EXCEPTION.—No penalty
shall be imposed under subparagraph (A) with respect
to any violation if—
‘‘(I) such violation was due to reasonable cause,
and
‘‘(II) the amount of the transaction or the balance in the account at the time of the transaction
was properly reported.
‘‘(C) WILLFUL VIOLATIONS.—In the case of any person
willfully violating, or willfully causing any violation of,
any provision of section 5314—
‘‘(i) the maximum penalty under subparagraph
(B)(i) shall be increased to the greater of—
‘‘(I) $100,000, or
‘‘(II) 50 percent of the amount determined
under subparagraph (D), and
‘‘(ii) subparagraph (B)(ii) shall not apply.
‘‘(D) AMOUNT.—The amount determined under this
subparagraph is—
‘‘(i) in the case of a violation involving a transaction, the amount of the transaction, or
‘‘(ii) in the case of a violation involving a failure
to report the existence of an account or any identifying
information required to be provided with respect to
an account, the balance in the account at the time
of the violation.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to violations occurring after the date of the enactment
of this Act.
