Timothy M. Todd serves as associate dean for faculty development and scholarship and is a professor of law at Liberty University School of Law. He thanks Philip Manns for his continued friendship, mentorship, and insight.
In this report, Todd tackles the question of whether foreign bank account report penalties should apply per account or per form through unit-of-prosecution analysis and a survey of similar misstatement regimes.
Copyright 2022 Timothy M. Todd.
All rights reserved.
- I. Introduction
- II. Statutory and Regulatory Framework
- III. The Per-Form and Per-Account Approaches
- IV. Shining Light on the Morass
- V. Conclusion
The Supreme Court has granted certiorari to resolve a circuit split over the proper interpretation of the Bank Secrecy Act’s penalty regime for foreign bank account report violations. The question presented is “whether a ‘violation’ under the Act is the failure to file an annual FBAR (no matter the number of foreign accounts), or whether there is a separate violation for each individual account that was not properly reported.” In other words, does an FBAR violation result from each failure to report a particular foreign bank account, or does a violation result from the singular failure to file an FBAR for the year, regardless of the accounts at issue?
As this report highlights, the statutory and regulatory language is far from clear. The courts of appeal have taken two competing approaches to this issue. The first view — the per-form approach — was adopted by the Ninth Circuit in Boyd.1 The second view — the per-account approach — was adopted by the Fifth Circuit in Bittner,2 the case now before the Supreme Court. This report advances the discussion by using adjunctive interpretive tools that generally have not been used when analyzing this FBAR issue — namely, borrowing the unit-of-prosecution analysis from criminal law and surveying other false-statement regimes. Based on those insights, this report concludes that the per-form approach is the superior interpretive choice, given the current language. Moreover, as discussed, the per-form approach can also harmonize the term “violation” across the civil penalty regime and simultaneously reduce constitutional concerns when that same definition is applied to the criminal FBAR penalties.
For background, this report provides a brief overview of each approach. For brevity, however, it generally omits the particular facts of the cases and discusses only the legal analyses.3 The statutory and regulatory framework is unpacked next.
II. Statutory and Regulatory Framework
As part of the Bank Secrecy Act, 31 U.S.C. section 5314 requires U.S. residents or citizens to keep and file specified reports and records concerning foreign financial transactions. In particular, section 5314(a) requires residents or citizens 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.”4
Section 5314(a) of title 31 further prescribes the content of the records and reports:
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.
The penalty for not complying with section 5314 is found in 31 U.S.C. section 5321, which provides that “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.” This section implicitly distinguishes between willful and non-willful violations.
For non-willful violations, the penalty for violating “any provision of section 5314” is a civil penalty not to exceed $10,000.5 For willful violations, however, the maximum penalty is increased to the greater of (1) $100,000 or (2) 50 percent of the greater of (A) the amount of the transaction “in the case of a violation involving a transaction” or (B) the balance in the account at the time of the violation “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.”6 (Emphasis added.)
Importantly, 31 U.S.C. section 5314 is not self-executing; it relies on the promulgation of regulations to be obligatory.7 There are two relevant regulations. First is 31 C.F.R. section 1010.350(a), which provides:
Each United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country shall report such relationship to the Commissioner of Internal Revenue for each year in which such relationship exists and shall provide such information as shall be specified in a reporting form prescribed under 31 U.S.C. 5314 to be filed by such persons.
That regulation provides that the required form is the “Report of Foreign Bank and Financial Accounts (TD-F 90-22.1),” colloquially known as the FBAR. The regulation continues by providing a definition of terms, types of reportable accounts, and a special rule for persons with 25 or more reportable accounts (allowing the reporting of summary — instead of detailed — information). The second regulation, 31 C.F.R. section 1010.306(c), requires that the FBAR be filed with Treasury’s Financial Crimes Enforcement Network by June 30 of each calendar year. With the main statutory and regulatory framework provided, let us now turn to the two main cases and approaches.
III. The Per-Form and Per-Account Approaches
A. Boyd: The Per-Form Approach
In Boyd,8 the Ninth Circuit adopted a per-form approach, concluding that only one annual non-willful civil penalty can be imposed for an untimely but accurate FBAR. Jane Boyd had several reportable financial accounts in the United Kingdom but did not timely file an FBAR. After participating in the offshore voluntary disclosure program, Boyd filed an FBAR listing the accounts. Later, after an examination, the IRS assessed a non-willful FBAR penalty for the accounts. In short, the FBAR was accurate but late. The district court agreed with the IRS that the penalty was authorized for each nonreported account.9
On appeal, however, the Ninth Circuit reversed, holding that the statute and regulations authorize a “single non-willful penalty for the failure to file a timely FBAR.”10 The court focused on the language of 31 U.S.C. section 5321, which provides the penalty for “any provision of section 5314.” Notably, the Ninth Circuit remarked that Congress did not define the term “provision.” The court explained that a provision — based on dictionary definitions — introduces a condition or requirement. After reviewing section 5314, the court concluded that section 5314 contains two relevant but separate provisions: first, to file the report; and second, to ensure the report has the required information.
Next, the Ninth Circuit turned to Shultz,11 in which the Supreme Court held that the Bank Secrecy Act’s penalties effectively apply only upon violations of the regulations. Thus, the court of appeals emphasized that its “focus must be on the directives the Secretary had in place.”12 It then highlighted two relevant regulations: first, 31 C.F.R. section 1010.350, requiring that an FBAR be filed and that the specified information be provided; and second, 31 C.F.R. section 1010.306, requiring that the FBAR be filed by June 30 after the applicable calendar year. In short, under the court’s synthesis, reg. section 1010.350 describes what must be reported, and reg. section 1010.306 describes when it must be reported.
Using that implicit what-versus-when dichotomy, the Ninth Circuit noted that Boyd could not have violated reg. section 1010.350 because the FBAR was accurate. Thus, the violation concerned only reg. section 1010.306 (the when requirement). Consequently, the court held that “under the statutory and regulatory scheme, Boyd committed a single non-willful violation — the failure to timely file the FBAR.”13
The Ninth Circuit rejected the government’s entreaties to adopt a per-account approach (that is, the idea that multiple violations had occurred). First, the court emphasized that in its view, Boyd did not violate reg. section 1010.350(a) because all the information requested in the FBAR was disclosed. It also rejected the government’s interpretation that the word “any” before the word “violation” in 31 U.S.C. section 5321(a)(5)(A) suggests that more than one violation can occur for a single FBAR. The Ninth Circuit explained that regulations describe how the statute can be violated, and it reiterated that only one violation had occurred.14 The court did note, however, that this was not a case in which the individual both failed to timely file an FBAR and then later filed an inaccurate one.
Next, the Ninth Circuit considered and rejected the government’s argument that the amount of the penalty can be assessed on a per-account basis. In its analysis, the court looked at the statutory history. Before 2004, only willful violations were penalized, but in 2004 Congress added the provision for non-willful penalties and rearranged the other penalty sections. The court juxtaposed the “new” non-willful penalty — which neither authorized nor forbade multiple penalties — with the older, existing willful penalty — which, as explained by the court, is capped by the balance in the account (in account-based violations). The court reasoned that Congress intended to create a further distinction between willful and non-willful penalties. That is, according to the Ninth Circuit, Congress deliberately excluded the per-account language from the non-willful penalties.
After addressing other arguments, the court stated its holding as follows: “The non-willful penalty provision allows the IRS to assess one penalty not to exceed $10,000 per violation, and nothing in the statute or regulations suggests that the penalty may be calculated on a per-account basis for a single failure to file a timely FBAR that is otherwise accurate.”15 Judge Sandra Segal Ikuta dissented. She argued that reading the various statutory and regulatory provisions together results in a conclusion that a violation of 31 U.S.C. section 5314 “is the same whether the mens rea is willful or not willful: the failure to report a single account or a single transaction.”16 In other words, according to Ikuta, “the applicable statute and regulations make clear that any failure to report a foreign account is an independent violation, subject to independent penalties.”17
B. Bittner: The Per-Account Approach
The other view is advanced by Bittner, in which the Fifth Circuit held that “the ‘violation’ of 31 U.S.C. section 5314 contemplated by 31 U.S.C. section 5321(a)(5)(A) is the failure to report a qualifying account, not the failure to file an FBAR.”18 Thus, “the $10,000 penalty cap therefore applies on a per-account, not a per-form, basis.”19
Similar to the situation in Boyd, Alexandru Bittner was assessed penalties for non-willful violations of 31 U.S.C. section 5314 — namely for filing correct but late FBARs. After the government sued to reduce the assessment to judgment, the district court held on summary judgment that the $10,000 maximum penalty applied on a per-form basis.20 The district court also decided other issues, such as the reasonable cause defense. Both parties appealed to the Fifth Circuit.21
In analyzing the per-account or per-form question, the Fifth Circuit framed the issue this way: “Properly assessing the penalty hinges on what constitutes a ‘violation’ of section 5314: the failure to file an FBAR (as urged by Bittner) or the failure to report an account (as urged by the government).”22
First, the Fifth Circuit panned the district court’s reliance on Shultz. The court of appeals emphasized that “Shultz did not interpret any penalty provision” of the Bank Secrecy Act and instead concerned constitutional challenges to the act.23 In any event, the court noted, the non-willful penalties were added 30 years after Shultz.
The Fifth Circuit then started its analysis with the statutory text of 31 U.S.C. section 5314. It observed that 31 U.S.C. section 5321(a)(5)(A) penalizes a violation of section 5314 and not a violation of a regulation. The court emphasized that elsewhere in the Bank Secrecy Act — namely, section 5321 — the statutory text expressly provides for a penalty for violating a regulation.
The Fifth Circuit invoked the theme of Ikuta’s dissent in Boyd: that 31 U.S.C. section 5314(a) “has both a substantive and procedural element.”24 The substantive element, according to the Fifth Circuit, regards filing reports when a specified transaction or relationship with a foreign financial agency is triggered. Moreover, the court noted, the procedural element directed that those reports contain the required information in the way and to the extent prescribed.
The court further noted that the regulations echo the substantive and procedural elements, too. That is, 31 C.F.R. section 1010.350(a) implements two distinct requirements: first, to report the applicable foreign financial relationship with the commissioner each year; and second, to provide that information in the prescribed form. Reading the statute and regulations together, the Fifth Circuit concluded that providing a penalty for a “violation of any provision of section 5314 . . . most naturally reads as referring to the statutory requirement to report each account — not the regulatory requirement to file FBARs in a particular manner.”25
Bolstering its per-account interpretation, the Fifth Circuit also explained that the use of the word “violation” in other parts of the Bank Secrecy Act refers to the failure to report an account as opposed to the failure to file an FBAR. First, the court considered 31 U.S.C. section 5321(a)(5)(C), which provides a penalty for a willful “violation of any provision of section 5314.” As noted earlier, the maximum penalty for the violation is determined by either the amount of the transaction or the balance of the unreported account. Thus, the court reasoned that “this language plainly describes a ‘violation’ in terms of a failure to report a transaction or an account.”26
Invoking the canon of statutory construction that identical terms in an act bear the same meaning,27 the Fifth Circuit reasoned that if the term “violation” means the failure to report an account in 31 U.S.C. section 5321(a)(5)(C) regarding willful violations, it must have a similar meaning in subsection (A) for non-willful violations. Noting that the canon is not inviolable, because it can yield if there is sufficient variation to warrant a divergent meaning,28 the court found that nothing in section 5321 suggested that Congress meant to define violation differently in various subsections.29
Further supporting its same-meaning interpretation, the Fifth Circuit examined the district court’s analysis, which drew the opposite inference. The district court explained that only the willful penalty provision references “account,” and so the non-willful penalty could not relate to specific accounts. The Fifth Circuit, however, found that there was a good reason for different phrasing in the penalty provisions. It noted that the amount of a willful penalty may depend on the balance of the account, which is not true for a non-willful penalty (because it is capped at $10,000). Consequently, the court reasoned that “Congress had no reason to refer to the ‘account’ in the non-willful penalty provision.”30
The Fifth Circuit also explored the use of the term “violation” in the reasonable cause exception. Under that exception, no penalty is to be imposed if (1) “such violation was due to reasonable cause” and (2) the amount of the transaction or account balance was properly reported.31 The court explained that the reasonable cause exception thus equates a violation with either the failure to report an amount of the transaction or the balance of an account. Indeed, the court found that the article “the” immediately preceding the term “transaction” or “account” suggests that the violation relates to the transaction or account.
The Fifth Circuit rejected Bittner’s other arguments. It found that the rule of lenity did not apply because no criminal penalty was possible. The court also dismissed the possibility of absurd results under a per-account interpretation. It found that it would not be an absurd result that, in enacting a scheme to crack down on the use of foreign accounts to evade taxes, Congress would penalize each failure to report an account. And, in rejecting arguments based on the legislative history, the court quipped that “mining legislative history . . . is highly disfavored in the Fifth Circuit.”32
In sum, the Fifth Circuit held:
The text, structure, history, and purpose of the relevant statutory and regulatory provisions show that the “violation” of section 5314 contemplated by section 5321(a)(5)(A) is the failure to report a qualifying account, not the failure to file an FBAR. The $10,000 penalty cap therefore applies on a per-account, not a per-form, basis.33
IV. Shining Light on the Morass
Both courts of appeal — the Ninth Circuit in Boyd and the Fifth Circuit in Bittner — invoked canons of statutory interpretation and a “plain text” approach,34 yet they arrived at opposite results. Instead of rehashing those canons, this report takes a different approach to illuminate an interpretative solution. At bottom, the issue in Boyd and Bittner crystallizes into what a “violation” of a “provision” means. Although this is a novel issue in this context, it is not a novel issue in law generally. The concern about multiplicity of charges is not novel; indeed, it arises regularly in criminal law. Therefore, this report explores the “unit of prosecution” framework in criminal law as an analogue to help resolve whether the per-form or per-account approach comports better with the statutory language. It then considers other false-statement frameworks. These frameworks serve as adjunctive interpretive tools to help interpret the morass surrounding the statutory and regulatory language in the FBAR context.
A. Unit-of-Prosecution Framework
The per-form approach ameliorates the multiplicity problem; that is, if an individual with many foreign accounts fails to file a single FBAR for a year (or files it late, or if it was inaccurate), and if the penalties stack at the account level, the fines can be enormous. Multiplicity is not a new concern in the law, however. Because of constitutional protections against double jeopardy — preventing multiple punishments for the same offense35 — criminal law has regularly dealt with multiplicity, and it has developed the unit-of-prosecution analysis to help resolve those constitutional tensions. Unit-of-prosecution analysis focuses on “whether conduct constitutes one or several violations of a single statutory provision.”36 Because the FBAR non-willful penalty is not a criminal provision, the unit-of-prosecution analysis does not squarely apply. But it is helpful as an interpretive tool because it is designed to address similar concerns — namely, how Congress has defined the statutory violation.
A unit-of-prosecution analysis typically has two steps.37 The first is to consider whether the legislature has defined the unit of prosecution. In this part of the examination, the statute’s wording, history, purpose, and even its prescribed punishment are instructive. If the legislatively defined unit is unclear, a court must determine whether the criminal acts are sufficiently distinct to justify multiple punishments. In the criminal context, if the statute or its intent is unclear, courts generally resolve the ambiguity in favor of the defendant under the rule of lenity.38
Some examples of unit-of-prosecution analyses may be instructive. In examining 18 U.S.C. section 2252A(a)(5)(B), which criminalizes knowingly possessing material that contains images of child pornography, the unit of prosecution is each material that contains child pornography. To charge multiple possession counts, there must be separate materials and the images must be obtained in different transactions.39 Another common example is 18 U.S.C. section 922(g), which makes it unlawful for a felon to “receive any firearm . . . which has been shipped or transported in interstate or foreign commerce.” Although this phrasing, on its face, would seemingly allow the government to charge 10 counts if, say, the defendant received 10 guns on the same day, the consistent interpretation has been that the “undifferentiated possession or receipt of multiple firearms” is the same as possession or receipt of a single firearm.40 In other words, Congress did not “make the firearms themselves the allowable units of prosecution, unless they were received at different times or stored in separate places.”41
In the fraud context, however, multiple convictions can arise from a common thread of fraud. For example, in Naftalin,42 the defendant was convicted of eight counts of using a scheme to defraud in the offer or sale of a stock, in violation of the Securities Act of 1933. The defendant argued that the government offered proof of a single scheme to defraud, but the Eighth Circuit noted that “even though there may be a common thread of fraud among the sales, courts have consistently held that each sale of a security may constitute a separate offense.”43
Another interesting example is the case of identity theft, as demonstrated by Leyda.44 Steven Leyda obtained another person’s credit card information and used it four times. The Washington Supreme Court held that only one instance of identity theft occurred. In short, the court held that the identity theft occurred once the person came into possession of the stolen information, not each time that information was subsequently used.
Another thread in the criminal law cases that sheds light on the unit-of-prosecution framework is the distinction between conduct-based and results-based statutes.45 As explained by the Supreme Court of Indiana, for example, conduct-based statutes define an offense by a particular action coupled with attendant circumstances. An example would be operating a vehicle while intoxicated — the crime is completed once the act and circumstances are present, regardless of harm or any negative consequences. However, particular results or consequences may enhance or increase penalties. As the court explained, a results-based statute, by contrast, defines an offense by actions and results (or consequences). An example is murder — it requires both action by the defendant and a prescribed result (that is, death). Thus, if multiple deaths occur, the offense has occurred multiple times. In sum, conduct-based crimes allow one conviction, and the presence of multiple consequences results in harsher or enhanced penalties, whereas results-based crimes allow multiple convictions, even though the crime may flow from a single act.
Related to this approach is the idea of focusing on the statute’s verbs in elucidating the unit of prosecution. An example is Rentz,46 in which the defendant fired a single gunshot that managed to strike and kill one victim and hit and injure another. The Tenth Circuit was called upon to analyze 18 U.S.C. section 924(c)(1)(A), which provides:
Any person who, during and in relation to any crime of violence or drug trafficking crime . . . uses or carries a firearm, or who, in furtherance of any such crime, possesses a firearm, shall, in addition to the punishment provided for such crime . . . be sentenced to a term of imprisonment of not less than 5 years.
In short, in firing the single gunshot that found two victims, did the defendant violate the statute once or twice?
The Tenth Circuit, in an opinion by then-Judge Neil Gorsuch, diagrammed the sentence, focusing on the relevant verbs in the statute: “uses,” “carries,” and “possesses.” The court noted that at first blush, a natural reading of the statute would suggest that each new conviction requires some new act within the categories of those verbs. The court also elaborated on the adverbial prepositional phrases that modify the three verbs — namely, “during and in relation to any crime of violence or drug trafficking” and “in furtherance of such crime.” Those phrases define which acts of using, carrying, and possessing are illegal, the Tenth Circuit explained. The court used those “textual clues” to inform its decision that “each section 924(c)(1)(A) charge must involve both an act of using, carrying, or possessing and that such an act must come during and in relation to (or in furtherance of) a qualifying crime.”47 (Emphasis in original.)
The Tenth Circuit also gave an insightful hypothetical using the verb test along with adverbial modifiers. It hypothesized a statute that made it unlawful for a person to murder another during a holiday. The court posed this question: If Hanukkah and Christmas both fell on December 25 and someone committed murder that day, would the government be allowed to charge the defendant with two counts of the crime? It noted that two charges would not be allowed, absent further legislative direction, because “murders is the statute’s operative verb and it focuses our attention on how many times the defendant performed that act — not on how many holidays that act happened to fall.”48 (Emphasis in original.)
B. Other Frameworks
Other statutory frameworks — and how they have been interpreted — also serve as a useful interpretive tool. One to consider is 18 U.S.C. section 1014, which prohibits false statements in loan and credit applications. This is the statute used to combat mortgage fraud.
False-statement frameworks can be particularly helpful and insightful in the FBAR context because they can share similarities — for example, if a document was filed but was inaccurate (for example, if it omitted foreign accounts). Consider a loan applicant who makes several knowing and material misstatements or omissions in a loan application (for example, employment information, income levels, other assets, omitting liabilities). How many counts of mortgage fraud can be sustained? Is it one count for the single loan application, or is it multiple counts traceable to each false statement? This is analogous to the choice between the per-form or the per-account approach.
Courts that have considered this issue have held that “the making of a number of false statements to a lending institution in a single document constitutes only one criminal violation under 18 U.S.C. section 1014.”49 In Sue,50 for example, the Eighth Circuit held that false statements in two different paragraphs of the same document constituted one criminal violation. The court relied on the reasoning of Sahley,51 in which the Fifth Circuit vacated the sentence of a defendant who was convicted of making three false statements on a single document to acquire a single loan. The court noted that the statute punishes making any “false statement or report.” It found that the false statement constituted a single transaction and therefore was not divisible. Remanding the case, the Fifth Circuit explained that “the statute in this instance speaks of ‘statement’ and ‘report’ in a manner which will not support a fracturing of the offense according to the number of false allegations in a single financial statement.”52
Reasoning by analogy, the Sahley court cited Bell,53 in which the Supreme Court had to determine the allowable unit of prosecution for the Mann Act,54 which prohibits transporting a woman in interstate commerce for prostitution. The defendant had two women in the car and was charged with two counts — one for each woman. Writing for the Court, Justice Felix Frankfurter explained that although Congress could make the punishment cumulative for each woman transported, it did not clearly do so. Therefore, the Bell Court invoked the rule of lenity: “If Congress does not fix the punishment for a federal offense clearly and without ambiguity, doubt will be resolved against turning a single transaction into multiple offenses, when we have no more to go on than the present case furnishes.”55
The Sue and Sahley holdings — that making multiple false statements in a single document constitutes only one violation of 18 U.S.C. section 1014 — has been adopted by other courts.56 However, courts have found situations in which multiple violations are proper. For example, in Doost,57 the D.C. Circuit upheld two counts under a different false-statement statute, 22 U.S.C. section 2197, because the defendant’s two false statements “corresponded to two separate purchases and resulted in two . . . disbursements to separate organizations.”58 Further, in Davis,59 the Eleventh Circuit held that two separate counts under 18 U.S.C. section 1014 were allowable because they were attributable to two different documents, even though they were submitted to procure the same loan — that is, the two false statements, in separate documents, constituted “separate and distinct acts.”60
This framework is present under 18 U.S.C. section 1001, too, which makes it unlawful to make a materially false statement in connection with a matter within the jurisdiction of the federal government. For example, in Bettenhausen,61 the Tenth Circuit rejected the defendants’ argument that multiple counts are improper under 18 U.S.C. section 1001 when multiple documents are submitted at one time in support of a single tax return. The court noted that “the statute aims at the making or using of each ‘false writing or document’ and intends the wrong connected with each to be a separate offense.”62 As summarized by the Fifth Circuit, “Where false statements are made in distinct and separate documents requiring different proof as to each statement, the filing of each false document constitutes a crime, and each filing may be alleged in a separate count of the indictment.”63
Misstatements and omissions have been considered in the bankruptcy context as well. In bankruptcy, debtors need to list their assets and debts in various bankruptcy filings, forms, and schedules (akin to tax returns). How many counts are proper if a defendant omits several assets from an asset schedule? In considering this issue under 18 U.S.C. section 152, the Seventh Circuit explained that it is proper to treat “the fraudulent nondisclosure of several items of property in the petition for bankruptcy as a ‘single continuous concealment’ constituting a single offense.”64 As noted by the Ninth Circuit, “if an accused should conceal a dining room set, a china set, or one thousand silver dollars belonging to the estate of the bankrupt, his offense of failure to reveal or disclose would not be multiplied by the number of separate items concealed.”65 The Seventh Circuit even used the fact that a single form is used to report assets to support its conclusion of a single count.66 As aptly noted by the Second Circuit, “The duty to disclose . . . is a single duty to reveal all.”67 Indeed, in further supporting its reasoning, the Seventh Circuit pointed to tax evasion — “We have no doubt that plural fraudulent omissions in a single federal income tax return are one offense rather than as many offenses as there are omissions.”68
The multiplicity issue arises in tax matters, too. Consider, for example, the false-statement statute specific to tax returns, section 7206. This statute makes it a felony to “willfully make and subscribe any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which [the taxpayer] does not believe to be true and correct as to every material matter.” As noted by the Sixth Circuit:
The Tax Division of the Justice Department appears to routinely charge defendants who have made multiple false statements on tax returns for multiple years with one count of violating section 7206(1) for each year, in apparent recognition that the statutory language appears to focus upon the filing of a “return” that is willfully untrue as to each false statement.69
C. Synthesizing the Interpretive Tools
Two frameworks have been examined in the above analysis as potential adjunctive interpretive tools: (1) those concerning the unit of prosecution, using a textual analysis; and (2) those concerning non-FBAR false statement or omission statutes (in tax and nontax contexts). This section applies each of those frameworks to the FBAR interpretive conflict. First, let’s consider the textual unit-of-prosecution analysis.
In Rentz, Gorsuch diagrammed the statutory provision at issue to help divine the unit of prosecution. Consider the following diagram for the relevant Bank Secrecy Act sections. First, let us unpack 31 U.S.C. section 5321(a)(5)(A) with a simplified diagram:
Although this diagram represents the mechanics of 31 U.S.C. section 5321, its utility can be increased by substituting the actual language from 31 U.S.C. section 5314. Section 5314(a) provides that the secretary shall require applicable citizens and residents to (1) keep records, (2) file reports, or (3) keep records and file reports. At first blush, it is tempting to list all three as independent obligations, with a failure to satisfy any of the three obligations as causing a violation, but that is not how the section operates. Instead, the section basically tells the secretary to pick one of the three options. That is operationalized by 31 C.F.R. section 1010.350.
One problem in diagramming reg. section 1010.350 is how to treat the two verbs: “report” and “provide.” One option is to treat them as independent obligations, a simplified version of which is below:
Under this approach, “shall report” and “shall provide” are compound verbs with “and” as a coordinating conjunction. Thus, the failure to either report (a relationship) or provide (information) would be a violation of the regulation. Indeed, this is supported by using the modal verb “shall” connoting an obligation to do both things. Thus, the absence of one (either reporting or providing) means the directive was not satisfied.
Under a diagram and strict textual approach, therefore, anyone who fails to report any relationship violates the regulation, even if other relationships and information were reported. This seems to comport with the per-account approach; that is, every instance of a relationship not being reported (or of insufficient information being provided about a relationship) constitutes a separate violation.
In interpreting reg. section 1010.350, though, we should be mindful of the statutory options to implement: (1) to keep records, (2) to file reports, or (3) to keep records and file reports. In effect, then, 31 U.S.C. section 5314 treats “provide information” as an adjective clause that further clarifies and modifies the nature of the reports (that is, what must be included in a report).71 With that gloss, the statutory and regulatory directive looks as follows regarding filing reports (because keeping records is not really at issue in this construction):
Perhaps this is how the statute and regulation should read. There are some implied words in this construction (indicated by parentheses). Under this construction, it is clearer that the operative verb phrase is about filing reports, which mirrors the statutory text in 31 U.S.C. section 5314. This is more aligned with a per-form diagram; if the report is filed, any deficiency relates to the singular report. Of course, that assumes that a single, unitary report is contemplated. What if, though, a report is to be filed for each foreign account? That’s not how the FBAR works, however. The FBAR is unitary reporting, unlike other provisions of the Bank Secrecy Act. As discussed later, the fact that the FBAR is a unitary reporting system bolsters the per-form approach.
So, are we back where we started? From a strictly diagram perspective, yes, though admittedly the per-account approach does appear to have fewer “syntactical somersaults.”72 But there is an ambiguity, and as in other cases, we cannot determine the proper unit of prosecution “by a literal reading of the penalized section.”73 Consequently, we should use “all the light relevantly shed upon the words and the clause and the statute that express the purpose of Congress.”74
Borrowing from the criminal context, “when choice has to be made between two readings of what conduct Congress has made a crime, it is appropriate, before we choose the harsher alternative, to require that Congress should have spoken in language that is clear and definite.”75 Of course, this is not a criminal context, and the rule of lenity does not apply in force.76 However, there are other sources of light to illuminate a proper construction — namely, the other misstatement sections examined and comparison of the FBAR with other Bank Secrecy Act-related (or similar) reporting frameworks.
Consider first some of these other Bank Secrecy Act-related reporting frameworks. Congress and Treasury could have established a regulatory scheme that requires a separate reporting form for each foreign account (instead of a streamlined, annual, and unitary form like the FBAR). In fact, that’s already how similar regimes work. For example, that’s how suspicious activity reports operate — a bank files a report for each suspicious transaction, not a combined annual report.77 And that’s how currency transaction reporting works — a bank files a currency transaction report for each applicable transaction.78 Even at the non-bank level, discrete and separate reporting can be required for each transaction. Under section 6050I, a person who is engaged in a trade or business and during the course thereof receives more than $10,000 in cash must report the transaction (using IRS Form 8300).79 This is per-transaction reporting that is directed at the individual level.
Examining the regulatory language in these other Bank Secrecy Act provisions, moreover, helps distinguish those per-transaction reporting obligations from the annual FBAR requirement. A salient example is the currency transaction reporting framework under the Bank Secrecy Act, which is noticeably distinguishable because the regulatory command is much clearer. The currency transaction report regulations, 31 C.F.R. section 1010.311, provide:
Each financial institution other than a casino shall file a report of each deposit, withdrawal, exchange of currency or other payment or transfer, by, through, or to such financial institution which involves a transaction in currency of more than $10,000, except as otherwise provided in this section.
Moreover, 31 C.F.R. section 1010.306 provides that each report shall be filed within 15 days of the transaction. Under this framework, each transaction gets its own report. Thus, the failure to report a transaction would, on its face, be its own violation, even if other reports are filed for other transactions. That obligation — to file a separate report for each transaction — stands in contrast to the FBAR requirement. By regulation and administrative practice, the FBAR obligation is a singular and annual requirement, combined in a unitary report.80
Per-transaction reporting comports better with the per-account approach because the misstatement (or omission) is traceable to a discrete obligation to report the information regarding that transaction (or account) on its own specific form. This also fits the general interpretive practice with other false-statement regimes: Any misstatement (or omission) about an account would be allocable to the form required for that specific account. This also makes the offense more naturally divisible because each discrete completed and submitted form more naturally constitutes obviously separate acts (and thus violations). Therefore, it would be more natural to stack violations for multiple misstatements or omissions across multiple forms.
Because the FBAR is a singular document, however, the analogous provisions about false statements (per document) are even more persuasive. In the other false-statement sections that were examined earlier — such as tax perjury, loan application misstatements, and general misstatements to a federal agency — multiple misstatements in a single document constituted a single offense. Those sections have syntactical similarities. For example, 18 U.S.C. section 1014 uses the phrase “makes any false statement or report” (emphasis added). Similarly, in tax perjury, multiple misstatements in a single return constitute only a single offense. In the tax perjury statute, as noted, the offense is focused on the return. In 31 U.S.C. section 5314, the approach is similar — the statute expressly contemplates the reports. By analogy, therefore, multiple misstatements in the report should be a single offense.
Using the verb approach used by Gorsuch, moreover, the operative verb regarding the report is to file it. Once the filing has occurred, downstream deficiencies (like an omitted account) relate to that filing — but there can be only one filing: the annual FBAR. This reading also harmonizes similarly situated false-statement provisions that center on a single document.
D. Harmonizing Civil and Criminal Violations
Another concern in defining the scope of a “violation” under 31 U.S.C. section 5314 is the distinction between willful and non-willful nonreporting, on the one hand, and the goal of internal consistency on the other. Bittner is about a non-willful failure to report. However, internal consistency is always a guiding principle for statutory interpretation.81 The single-document analogue still works with this harmonization, as discussed next.
The penalty for willful non-reporting is set forth in 31 U.S.C. section 5321(a)(5)(C). It provides that for a person who willfully violates 31 U.S.C. section 5314, the maximum penalty is increased to the greater of $100,000 or 50 percent of “the balance in the account at the time of the violation.”82 Thus, an argument arises that because willful violations are denoted in terms of failing to report a particular account, non-willful violations similarly should be penalized on a per-account basis. Undoubtedly, that argument is persuasive. One retort to this, however, is that because only the willful penalty is expressly connected to accounts, the omission means that the non-willful penalty is not similar.83 In other words, Congress knows how to make violations account-specific; it did that for willful violations but not for non-willful violations.
Yet another way to harmonize these sections is to treat the use of accounts for willful violations as simply a calculation metric, not a divisible-violation-triggering metric. In other words, even in willful cases, there is still one violation of the statute, and it is triggered by the failure to file a truthful, complete, and comprehensive FBAR (listing all the applicable accounts). Then, to calculate the penalty allocable to that singular failure, omitted accounts are used as the metric. In other words, the extent of unreported accounts serves as a penalty enhancer, not as a violation multiplier.
This framework — that there is one violation and that the extent of the omission serves as a metric for the penalty — is used routinely in tax matters. For example, consider accuracy-related penalties generally and section 6662 specifically. Under section 6662, if there is a substantial understatement of income tax for a tax year, an accuracy-related penalty of 20 percent of the underpayment is imposed as a de facto fine for failure to properly state the amount of income tax owed.
Moreover, consider section 6721. This section regards information return reporting, and its statutory language is admittedly much clearer than the FBAR sections and regulations, including the penalty calculation provisions. But it shares the FBAR framework insofar as (1) there is a singular duty to file an accurate information return (a single, unitary document) for each required information return,84 (2) there is a distinction in penalties between intentional and unintentional reporting errors (including failing to provide all required information),85 and (3) penalties for intentional errors are based on the amount of the reporting obligation.86 Indeed, for intentional disregard of specific information reporting requirements, the penalty for a single failure is “10 percent of the aggregate amount of the items required to be reported correctly.” This is the functional equivalent of a per-form FBAR approach for willful violations: A single violation bears a maximum penalty of up to 50 percent of the account balances not reported.87
Adopting the per-form approach — coupled with the gloss that Congress’s use of “account” in the willful penalty provision is simply a metric for calculating the penalty but does not trigger additional violations — gives rise to another major benefit. It not only allows the same definition of violation in the willful and non-willful provisions but also solves some of the tensions in the criminal FBAR provisions. Although Bittner involves civil penalties, there is criminal enforcement of the FBAR requirements under 31 U.S.C. section 5322. Section 5322 provides that “a person willfully violating this subchapter or a regulation prescribed or order issued under this subchapter . . . shall be fined not more than $250,000, or imprisoned for not more than five years, or both.”
Assume these facts: A person files an FBAR but willfully and intentionally omits 10 small accounts whose funds are not being used for any nefarious or illegal purposes. Is that person facing five years in jail or 50? All the concerns about multiplicity, the unit of prosecution, the rule of lenity, and the like are now in full force. The per-form approach addresses those concerns: There is one violation of 31 U.S.C. section 5322 — for violating the singular duty to accurately report all accounts on the annual FBAR. The person can be criminally fined up to $250,000, imprisoned for five years, or both. For civil purposes, there was a single willful violation, and the maximum fine can be 50 percent of the omitted combined account values.88
Indeed, the rule of lenity is squarely applicable here, particularly as elucidated by the Supreme Court in Bell: “If Congress does not fix the punishment for a federal offense clearly and without ambiguity, doubt will be resolved against turning a single transaction into multiple offenses, when we have no more to go on than the present case furnishes.”89 Consequently, if the definition of violation should be interpreted under the per-form approach in the criminal context, it would support internal consistency across the regulatory scheme to apply the per-form approach in the civil context, too. The per-form approach (with the gloss of account-based penalty calculations, as compared to account-based violation triggers) therefore both harmonizes the definition of violation across the civil provisions and provides greater internal consistency when applied to the criminal sections as well.
Can Congress (and Treasury) make each failure to list a foreign financial account (or relationship) a separate and discrete offense? The answer is likely yes.90 But the question at hand, properly framed, is whether they have done so clearly. That answer is muddy at best. This report advances two interpretive tools that have not generally been used in this interpretive puzzle — unit-of-prosecution analysis and a survey of other misstatement regimes — to help illuminate the interactions between the statutory language and regulatory language, neither of which is a model of clarity. There should be no doubt — and clear notice provided — when large economic penalties are promulgated. Thus, given the statutory and regulatory morass and ambiguity, the issue should be resolved in favor of the per-form approach. If Congress wants the per-account approach, it should indicate so clearly.
3 Moreover, the particular facts are of no moment. The question before the Supreme Court is a pure question of statutory interpretation. The main factual disputes in FBAR cases — e.g., the number of accounts and willfulness — are not at issue and are undisputed here.
4 31 U.S.C. section 5314 applies not only to U.S. residents and citizens but also to “a person in, and doing business in, the United States.” 31 U.S.C. section 5314(a).
5 31 U.S.C. section 5321(a)(5)(C).
6 31 U.S.C. section 5321(a)(5)(C) and (D). There is also a reasonable cause exception, not relevant here, which provides that no penalty is imposed if the violation is related to reasonable cause and the amount of the transaction or account balance was properly reported. 31 U.S.C. section 5321(a)(5)(B).
7 This is implicated by the statutory text, which reads, “in the way and to the extent the Secretary prescribes.” (Emphasis added.) Indeed, this was confirmed by California Bankers Association v. Shultz, 416 U.S. 21, 64 (1974), in which the Supreme Court noted that the Bank Secrecy Act is “not self-executing, and were the Secretary to take no action whatever under his authority there would be no possibility of criminal or civil sanctions being imposed on anyone.”
8 Boyd, 991 F.3d 1077.
10 Boyd, 991 F.3d at 1079-1080.
12 Boyd, 991 F.3d at 1081.
13 Id. at 1082.
14 This is seemingly circular, or, at a minimum, assumes the conclusion.
15 Boyd, 991 F.3d at 1085.
16 Id. at 1089 (Ikuta, J., dissenting).
18 Bittner, 19 F.4th at 749.
21 The Fifth Circuit’s opinion also analyzes the reasonable cause defense, which is not implicated by this report; consequently, it is not discussed here.
22 Bittner, 19 F.4th at 743.
23 Id. at 744.
24 Boyd, 991 F.3d at 1088 (Ikuta, J., dissenting).
25 Bittner, 19 F.4th at 745.
26 Id.; see also Boyd, 991 F.3d at 1089 (Ikuta, J., dissenting).
27 E.g., Lexon Insurance Co. v. Federal Deposit Insurance Corp., 7 F.4th 315, 324 (5th Cir. 2021); and Cowart v. Nicklos Drilling Co., 505 U.S. 469, 479 (1992).
28 E.g., General Dynamics Land Systems Inc. v. Cline, 540 U.S. 581, 595 (2004).
29 Bittner, 19 F.4th at 747; see also Boyd, 991 F.3d at 1090-1091 (Ikuta, J., dissenting).
30 Id. at 747.
31 31 U.S.C. section 5321(a)(5)(B)(ii).
32 Id. at 749 (quoting Thomas v. Reeves, 961 F.3d 800, 817 n.45 (5th Cir. 2020) (en banc)). In any event, it also noted that “the legislative history Bittner cites is unilluminating.” Id.
34 In Boyd, the Ninth Circuit remarked that it determines “the plainness or ambiguity of [the] statutory language . . . by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole.” Boyd, 991 F.3d at 1080 (quoting Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997)). In Bittner, the Fifth Circuit said that “when interpreting a statute, we begin with the text.” Bittner, 19 F.4th at 743. It also cited Antonin Scalia and Bryan A. Garner, Reading Law: The Interpretation of Legal Texts (2012). See Bittner, 19 F.4th at 741.
35 E.g., United States v. Planck, 493 F.3d 501 (5th Cir. 2007) (noting that “the rule against multiplicitous prosecutions stems from the Fifth Amendment’s proscription against double jeopardy”).
36 Callanan v. United States, 364 U.S. 587, 597 (1961).
37 See State v. Swick, 279 P.3d 747, 757 (N.M. 2012) (describing the two steps).
38 E.g., State v. Leyda, 138 P.3d 610 (Wash. 2006).
39 See United States v. Woerner, 709 F.3d 527 (5th Cir. 2013).
40 United States v. Hodges, 628 F.2d 350 (5th Cir. 1980) (collecting cases).
41 Id.; see also United States v. Bullock, 615 F.2d 1082 (5th Cir. 1980).
42 United States v. Naftalin, 606 F.2d 809 (8th Cir. 1979).
43 Id. at 810.
44 Leyda, 138 P.3d 610.
45 E.g., Powell v. State, 151 N.E.3d 256 (Ind. 2020) (describing both types of statutes).
46 United States v. Rentz, 777 F.3d 1105 (10th Cir. 2015) (en banc).
47 Id. at 1110.
49 United States v. Sue, 586 F.2d 70, 71 (8th Cir. 1978); United States v. Mangieri, 694 F.2d 1270, 1281-1282 (D.C. Cir. 1982).
50 Sue, 586 F.2d 70.
51 United States v. Sahley, 526 F.2d 913 (5th Cir. 1976).
52 Id. at 918.
53 Bell v. United States, 349 U.S. 81 (1955).
54 18 U.S.C. section 2421.
55 Bell, 349 U.S. at 84.
56 E.g., United States v. Pierce, 733 F.2d 1474 (11th Cir. 1984); United States v. Thibadeau, 671 F.2d 75 (2d Cir. 1982) (“It is not improper to charge one violation of 18 U.S.C. section 1014 when several false statements are made in one document.”); United States v. Adams, 909 F.2d 1489 (9th Cir. 1990); and Mangieri, 694 F.2d 1270.
57 United States v. Doost, 3 F.4th 432 (D.C. Cir. 2021).
58 Id. at 440.
59 United States v. Davis, 730 F.2d 669 (11th Cir. 1984).
60 Id. at 672.
62 Id. at 1234; see also United States v. Meuli, 8 F.3d 1481 (10th Cir. 1993).
63 United States v. Guzman, 781 F.2d 428, 432 (5th Cir. 1986).
64 United States v. White, 879 F.2d 1509 (7th Cir. 1989).
65 Edward v. United States, 265 F.2d 302, 306 (9th Cir. 1959).
66 White, 879 F.2d at 1512.
67 United States v. Moss, 562 F.2d 155, 160 (2d Cir. 1977).
68 White, 879 F.2d at 1512.
70 Duncan, 850 F.2d at 1112 n.8.
71 Alternatively, it could also be an adverbial clause, which explains how you report.
72 Rentz, 777 F.3d at 1110 (en banc).
73 United States v. Universal C.I.T. Credit Corp., 344 U.S. 218, 221 (1952).
74 Id. at 221.
75 Id. at 221-222.
76 Given the potential economic magnitude of FBAR penalties, however, perhaps the rule of lenity should apply. The application of the rule of lenity when considering the per-account approach is even more persuasive when considering that the penalty may be intended to punish (a criminal law purpose), not to compensate (a civil law purpose).
77 See 12 C.F.R. section 21.11.
78 31 C.F.R. section 1010.311; 31 C.F.R. section 1021.311.
79 Section 6050I.
80 31 C.F.R. section 1010.306(c).
81 That is, it is “basic canon of statutory construction that identical terms within an Act bear the same meaning.” Lexon, 7 F.4th at 324.
82 31 U.S.C. section 5321(a)(5)(D)(ii).
83 E.g., Bittner, 469 F. Supp. 3d at 719-721.
84 Section 6721(a). Of course, a taxpayer may be required to file many information returns, but the penalty is still traceable to the discrete return (not to how many errors or omissions are present in that discrete return).
88 The statute expressly allows both criminal and civil enforcement for the same violation. 31 U.S.C. section 5321(d).
89 Bell, 349 U.S. at 84.
90 Of course, the implementation would need to pass other constitutional muster.