Every U.S. person with a financial interest in, or signature authority over, any foreign financial account is generally required to file an FBAR, if the aggregate value of all accounts exceeds $10,000 at any time during the calendar year.  Annual FBAR forms, TD F 90-22.1 are required to be received at the Treasury Department June 30th of each year.  This FBAR filing is separate and distinct from one’s annual tax return filings, but the two are related in that tax return documents make an explicit reference to the FBAR.

In recent years the IRS Form 1040, Schedule B, Line 7a asks this exact question or something substantially similar to this question: did you have a financial interest in or signatory authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country?  Also in recent years, Schedule B expressly indicates that if a taxpayer has a foreign account, the taxpayer generally must identify the account’s location and complete the FBAR form.

The government’s authority to require such an annual filing is derived from the Bank Secrecy Act (“BSA”), specifically 31 U.S.C. § 5314.  The name of the Act is misleading, as the BSA actually strives to limit secrecy in banking.  The BSA also contains two provisions, §§ 5321 and 5322, which grant the government the authority to civilly and criminally punish those who do not comply with FBAR requirements.  The regulations promulgated under the BSA are codified at 31 C.F.R. Part 103.

Civil and criminal liability for violations of the FBAR are contained in 31 U.S.C. §§ 5321 & 5322 respectively.  Section 5321(a)(5)(A) authorizes the government to impose a civil money penalty on any person who violates the FBAR.  Simply violating FBAR, even in non-egregious circumstances, automatically subjects a defendant to civil penalties not to exceed $10,000 for each violation.  § 5321(a)(5)(B).  However, if the government has evidence that the violation was willful, those civil penalties are increased to the greater of $100,000 per violation or 50 percent of the account balance at the time of each violation.  § 5321(a)(5)(C)-(D).

In addition to enhanced civil penalties, willful violations are also subject to criminal prosecution.  Section 5322(a) subjects defendants who willfully violate the FBAR to criminal fines as great as $250,000, imprisonment for up to five years, or both.  However, if a defendant willfully violates the FBAR while violating another law of the United States (e.g., the Iranian sanctions regulations or federal income tax laws), the statutory punishment is increased to a maximum fine of $500,000, imprisonment not to exceed 10 years, or both.  § 5322(b).  This criminal enhancement is very troubling, especially for immigrant populations in the United States (particularly those from Iran, Sudan, or Syria) who often have bank accounts in their home countries (in violation of the sanctions) but who also fail to report that they have a foreign bank account (in violation of FBAR).

Unlike most criminal violations, “willful violations” of the law require proof that the defendant acted with knowledge that the conduct was unlawful.  But unfortunately proving willfulness is easier than it sounds because the government is permitted to rely on circumstantial evidence to prove its case.  In the FBAR context a strong circumstantial case is made by the fact that every tax return in recent memory informs the taxpayer that they must disclose and report their foreign bank accounts.  In essence, every defendant is put in the position of trying to convince a prosecutor or a jury that they either did not understand the provision or that their accountant failed to properly inform them even though they signed off on the return.

Moreover, in the context of sanctions violations or tax evasion, not filing an FBAR or failing to disclosing foreign accounts on one’s tax returns itself could be viewed as circumstantial evidence of willfulness.  All a prosecutor would have to do is infer that a defendant’s failure to file an FBAR or report foreign accounts was a deliberate attempt to conceal one’s income or sanctions violation.  In this scenario the existence of FBAR requirements could possibly make it easier for the government to circumstantially prove substantive criminal tax evasion and criminal sanctions violations, which both require “willfulness.”

Compliance with the law is the best course of action.  But if one should find themselves as the subject or target of an FBAR-related investigation,  counsel experienced in interrelated federal criminal laws should be retained immediately, and preferably before an indictment has been returned by the grand jury.

This post is authored by Ferrari & Associates, P.C., a law firm specializing in federal criminal defense matters. Feel free to contact us at (202) 280-6370 or info@ferrariassociatespc.com.