Issues
Does an individual commit a single violation or multiple violations under the Bank Secrecy Act when the individual fails to report multiple foreign accounts during a single reporting period?
This case asks the Supreme Court to decide an issue of statutory construction; specifically, on what basis should the Secretary of the Treasury evaluate taxpayer violations of the Bank Secrecy Act (“BSA”). The Bank Secrecy Act requires citizens with a financial interest in a foreign bank account to report that financial interest to the Commissioner of Internal Revenue for each year that the interest exists. Alexandru Bittner contends that evaluating violations under the Bank Secrecy Act on a per-form basis is consistent with the statute’s text, history, and purpose. The United States counters that the text of the Bank Secrecy Act clearly outlines that a violation occurs on a per-account basis, not a per-form basis, and that the statute’s history and purpose confirm this viewpoint. The outcome of this case has heavy implications for tax law, banking regulations, civil penalties for tax violations, and financial interests in foreign bank accounts.
Questions as Framed for the Court by the Parties
Whether a “violation” under the Bank Secrecy Act is the failure to file an annual Report of Foreign Bank and Financial Accounts (no matter the number of foreign accounts), or whether there is a separate violation for each individual account that was not properly reported.
Facts
Petitioner Alexandru Bittner is a dual citizen of Romania and the United States. United States v. Bittner, at 1. Bittner emigrated to the United States in 1982, where he obtained his American citizenship and lived until 1990, when he moved back to Romania. Id. Between the years 1990 and 2011, Bittner invested in securities, real estate, and even government assets in Romania, earning a total income of more than $70 million. Id. at 2. Between 1996 and 2011, Bittner maintained multiple Romanian accounts with an aggregate high balance exceeding $10,000. Id.
The Bank Secrecy Act of 1970 (the “BSA”) and 31 C.F.R. § 1010.306 require that any American citizen whose foreign account exceeds $10,000 of the aggregate high balance must report the account to the Commissioner of Internal Revenue in the Treasury Department. Id. at 4.
In particular, the U.S. citizen must file a Foreign Bank and Financial Account (“FBAR”) form by June 30 of the year following the year to report his or her foreign account(s). Id. The Secretary of the Treasury may penalize U.S. citizens who fail to disclose foreign accounts properly or in a timely manner, according to 31 U.S.C. § 5321. Id. Although such penalties were originally limited to willful violations, Congress later amended the BSA to penalize non-willful violations as well. Id.
A willful failure to disclose carries a $100,000 penalty under § 5321(a)(5)(C) while a non-willful failure carries a civil penalty of up to $10,000 under § 5321(a)(5)(B). Id. at 5. Despite maintaining foreign accounts with an aggregate balance exceeding $10,000, Bittner was unaware of the filing requirement and failed to file FBARs for any of these accounts until May 2012. Brief for the Petitioner, Alexandru Bittner at 4. In 2017, the Internal Revenue Service (the “IRS”) calculated civil penalties against Bittner for his non-willful violation of the BSA, which amounted to a total of $2,720,000 for 272 foreign accounts maintained between 2007 and 2011. Bittner, at 6.
The United States filed an action against Bittner for undisclosed accounts from 2007 to 2011, charging him $2,720,000 in penalties. Id. After Bittner admitted to maintaining 177 of the undisclosed accounts, the United States subsequently filed a motion for partial summary judgement, seeking $1,770,000 for those accounts. Id.
In addition to invoking a reasonable-cause exception under 31 U.S.C. § 5321(a)(5)(B)(ii) and denying his liability, Bittner disputes the amount of penalties against him. Id. at 7. Bittner argues that the penalty stipulated in § 5321 applies per failure to file an annual FBAR, not per account. Id. The United States counters that Bittner’s penalties should be based on the 177 separate violations. Id. Therefore, Bittner and the United States asked the district court to interpret 31 U.S.C. § 5321. Id.
The United States District Court for the Eastern District of Texas (the “District Court”) denied Bittner’s defense of a reasonable-cause and found him liable for violations of the BSA. Id. at 7, 29. However, The District Court also held that the penalty for violating the BSA attaches to each failure to file an annual FBAR, not to each account not properly or timely reported, reducing Bittner’s penalties to $50,000. Id. at 16, 29. Bittner appealed the District Court’s ruling to the United States Court of Appeals for the Fifth Circuit (the “Fifth Circuit”). United States v. Bittner, at 1. The Fifth Circuit affirmed Bittner’s liability but reversed on his penalties, holding that the failure to report each qualifying foreign account constitutes a separate violation of the BSA. Id.
The United States Supreme Court granted Bittner’s petition for a writ of certiorari on June 21, 2022.
Analysis
PLAIN TEXT INTERPRETATION OF THE STATUTE
Bittner argues that the Fifth Circuit wrongly interpreted the statutory language of the BSA and that penalties must be per failure to file an annual FBAR, “no matter how many accounts [one holds].” Brief for Petitioner at 17. Bittner claims that 31 U.S.C. § 5314 “instructs the Secretary to require parties to [uphold] . . . a single substantive obligation . . . to keep records [and] file reports.” Id. at 18. Bittner emphasizes that the plain text of the BSA focuses on the duty of filing reports, not reporting individual accounts. Id. Bittner distinguishes this legal requirement from a triggering condition, which is “when [a person] makes a transaction or maintains a [qualifying] relation [to a foreign account].” Id. Bittner contends that the condition activates the legal requirement to report. Id. In other words, Bitter argues, the BSA does not create a standalone duty to report each account but rather a duty to report when the Secretary requires so. Id. at 19. Bittner further claims that without a standalone duty to report each account, a standalone violation for each account not properly or timely reported does not exist. Id. at 21. Moreover, Bittner argues that an ordinary usage analysis and common sense reading of the text itself indicate that a party is in violation when the party fails to file a report and not in violation when it files a report, regardless of the total number of accounts involved. Id. Bittner asserts that Congress’ use of singular nouns, such as “an account,” is irrelevant due to the default rule of interpreting singular words to also include and apply to plural forms in Congressional acts. Id. at 27.
The United States, on the other hand, argues that the plain text of the BSA indicates that a violation constitutes a failure to report an individual account because 31 U.S.C. § 5321(a)(5) consistently uses the word “violation” in an account-specific way. Brief for Respondent, United States at 20. The United States contends that the multiple uses of “violation” in the statute, including subparagraph (B)’s reasonable cause exception and subparagraph (D)’s penalty for a willful violation, must necessarily refer to the same conduct. Id. at 20–21. The United States argues that subparagraph (B) “presupposes that [a] ‘violation’ relates to” one specific account because ascertaining whether a violation under the section has occurred involves determining “whether the balance in ‘the account’ has been properly reported.” Id. The United States claims that since the use of the definite article “the” indicates that the noun “violation” is definite or specified, evaluating a violation must necessarily be based on a per-account basis. Id. at 21. Similarly, the United States maintains, subparagraph (D) refers to failure to report the existence of “an account” and to ascertainment of the balance in that particular account, which is again an account-specific determination of a violation. Id. Therefore, the United States claims that a failure to report is a function of the balance in a specific account. Id. at 24. The United States further counters that the lack of explicit per-account stipulation does not mean that Congress chose to deny its account-specific intent. Id. The United States maintains that although § 5321 omits any reference to the account balance in determining a violation, this omission merely reflects Congress’ intent to cap the maximum penalty “as a matter of policy, rather than [a function of the account balance].” Id. The United States argues that since the meaning of violation must be consistent for the sections to be coherent, the account-specific meaning of violation applies to § 5314 likewise. Id.
CONGRESSIONAL INTENT
Bittner claims that Congress intended for a non-willful violation of the BSA to be defined as the non-willful failure to file an annual FBAR. Brief for Petitioner at 29. Bittner claims that Congress did not intend for a violation to constitute a failure to report an individual account because it “chose not to use any account-specific language in defining . . . [a] violation.” Id. at 26. According to Bittner, Congress would have clearly defined a non-willful violation as a failure to report a singular account within the text if that had been their intent. Id. at 29. Bittner supports their argument by noting that the Joint Congressional Committee on Taxation of the 111th Congress described a non-willful violation of the BSA as a “failure to file the FBAR.” Id. at 30. Bittner further substantiates their argument by highlighting previous IRS and Department of the Treasury documents that came to similar conclusions regarding Congress’ intent. See id.
The United States counters that the amendment history of the BSA reveals that Congress intended a non-willful violation of the BSA to be defined as the non-willful failure to report an individual account. Brief for Respondent at 35. The United States notes that Congress amended the BSA’s penalty scheme in 1986 and 2004, respectively for willful and non-willful violations. Id. The United States contends that the 1986 amendment of penalties treated a willful failure to report each account as a distinct violation. Id. The United States concludes that since the 2004 amendment employed the same language, Congress presumably intended to maintain the existing connotation that the failure to report each account constitutes a separate violation. Id.
THE SECRETARY’S IMPLEMENTING REGULATIONS
Bittner asserts that “the Secretary’s implementing regulations . . . confirm that” a non-willful violation constitutes the failure to file an annual FBAR. Brief for Petitioner at 28. Bittner argues that when the Secretary imposes a legal obligation to file an annual FBAR, the obligation to file is attached to the aggregate account balance, not the number of accounts. Id. Bittner also points out that the Secretary’s regulations exempt filers with 25 accounts or more from listing each individual account, which indicates that compliance with the BSA is based on filing a report and not on reporting every individual account. Id. Bittner further argues that § 5321 penalizes anyone who violates any provision of § 5314, not anyone who violates a regulation prescribed under the section. Id. at 24. Bittner contends that because Congress opted to limit the violation to statutory violations, the government cannot multiply violations based on rules that exist only as regulations that require the reporting of individual accounts. Id.
On the other hand, the United States counters that the Secretary’s regulations distinguish the substantive and procedural obligations of the BSA and that filing an annual FBAR is merely a procedural regulation. Brief for Respondent at 40. The United States claims that the Secretary’s regulation 10 C.F.R. 1010.306(d) uses different terms, “report” and “reporting form,” indicating a distinct obligation to report and to file an annual FBAR form. Id. at 41. Therefore, the United States argues, a violation pertains to the substantive obligation to disclose each account, not the procedural obligation to file the appropriate form. Id. at 40. The United States further claims that the section does not explicitly require a single annual form to report multiple accounts. Id. at 15. The United States argues that the exception for filers with 25 accounts or more does not change the distinct statutory and regulatory requirements and the exception only reflects the Secretary seeking administrative convenience. Id. at 42.
Discussion
DISPROPORTIONATE TREATMENT OF ACT VIOLATORS
The Center for Taxpayer Rights (“The Center”), in support of Petitioner, contends that evaluating violations on a per-account basis would lead to the disproportionate treatment of non-willful violators. Brief of Amicus Curiae Center for Taxpayer Rights (“The Center”), in Support of Petitioner at 13. The Center argues that under a per-account evaluation, a willful violator would face a lower civil penalty than a non-willful violator for failing to report the same amount of money held in a foreign account simply because the willful violator held that sum of money in one account, rather than multiple. Id. The Center posits that even though both the willful and non-willful violator have the same amount of money, and both failed to submit the required form for the money, the non-willful violator faces a harsher penalty because they can be evaluated for penalties by account. Id. The Center further maintains that “a per-account [evaluation] is unjust and simply unwarranted” by the Internal Revenue Service’s own goal of encouraging self-reporting, “and can result in an unreasonably high penalty that” is not proportional to any loss actually suffered by the United States. Id. at 17.
The United States responds that a ruling upholding a per-account basis for violations would not treat non-willful violations of the BSA more harshly than willful violations. Brief for Respondent, United States at 44. The United States contends that the relevant comparison for willful violations and non-willful violations is the failure to disclose any specific account. Id. In particular, the United States notes that the failure to disclose one account willfully carries a $100,000 penalty, while a non-willful failure to disclose one account carries only a $10,000 penalty. Id. Thus, the United States asserts that the maximum penalty for willful violations will always outweigh the maximum penalty for non-willful violations, since the willful penalty is ten times higher than the non-willful penalty. Id. Therefore, the United States contends that non-willful violators will not be disproportionately treated. Id. Furthermore, the National Whistleblower Center, in support of Respondent, argues that a per-account basis will not result in an overly harsh system, since the civil penalties will only apply to a narrow group of Americans and the penalties will not be automatic: the Secretary of the Treasury will have the discretion to drop some or all of the penalties to prevent excessive punishments. Brief of Amicus Curiae National Whistleblower Center, in Support of Respondent at 17–18.
PROVIDING TAXPAYERS WITH FAIR NOTICE
The Chamber of Commerce of the United States (“The Chamber”), in support of Petitioner, argues that the plain text of the BSA fails to provide fair notice that violations are per-account. Brief of Amicus Curiae Chamber of Commerce of the United States of America (“The Chamber”), in Support of Petitioner at 20. Consequently, the Chamber contends that the BSA fails to warn taxpayers of the potentially severe penalties they may face for failing to file just one form. Id. The National Federation of Independent Business Small Business Legal Center and others, in support of Petitioner, assert that Supreme Court precedent such as FCC v. Fox Television Stations, Inc. requires that fair notice be given “before . . . civil penalties can be imposed.” Brief of Amici Curiae National Federation of Independent Business Small Business Legal Center, et al., in Support of Petitioner at 7.
The United States contends that fears of a lack of fair notice under a per-account basis for violations are misplaced. See Brief for Respondent at 44–45. In particular, the United States maintains that the BSA clearly states the maximum penalty amount violators may face. Id. at 45. In addition, the United States argues that the plain text is unambiguous, “[leaving] no doubt that each failure to report an account is a separate violation . . . subject to penalty.” Id. As such, the United States asserts that potential violators would have fair notice of the size and scope of the civil penalties. See id. at 44-45.
Conclusion
Acknowledgments
- Stephen J. Dunn, Supreme Court Grants Certiorari in Bittner, American Bar Association (Aug. 30, 2022).
- Nicholas R. Peterson, Supreme Court to Review Non-Willful FBAR Penalties, Steptoe (July 13, 2022).
- Dan Schweitzer, Supreme Court Report: Bittner v. United States, 21-1195, National Association of Attorneys General (June 30, 2022).