I am glad I got a little delayed in writing this week, as I got the benefit of reading the indictment of Paul Manafort. He got charged with several crimes but of course, I want to highlight the alleged violations of the Foreign Bank Account Report laws.
FBARs are required to be filed by US persons, when they own or have signature authority over a foreign financial account, if its value exceeds $10,000 at any moment during the year. If there is more than one account and the total (aggregate) value at any moment exceeds $10,000, there is a reporting requirement. This of course is oversimplification but you should know that if you are a US person with a financial account outside the US, and a balance near $10,000 you should be keeping an eye on the FBAR reporting requirement. The “signature authority” part is important. If you can control the movement of funds within foreign accounts, there is a filing requirement even if the account is not yours—accounts in the names of entities, corporations, homeowner’s associations, partnerships, trusts, employers, or even if your foreign spouse allows you to sign.
There are both civil and criminal penalties at stake when there reports are not timely filed. Whether they are one or the other depends on the facts, hinging mainly on whether a person acted “willfully”. This means failure to carry out a known legal duty. Since we can’t go in people’s heads to see if a failure was “willful” (or if they knew) external indications become relevant in figuring this out.
It is said Mr. Manafort lied to his return preparer when asked about foreign bank accounts. Not only that: he went through all kinds of schemes, it is said, to use foreign cash to get stateside cash (via real estate financing) that did not have to be explained. When schemes to conceal are detected, as it was here, it is difficult to say “I did not know I had to file a FBAR”. Of course, the income in question also never made it into his tax returns, another bad thing. In his case, the lack of FBAR helped conceal the income but also his work as a foreign agent. If proved, he is in hot, hot water.
What can we learn here? Willful failure? Very bad. Non willful? Less bad, still costly. Who gets to say which is it? It could be a jury, the IRS (in civil cases) or better, you, filing when required.