Landa v. United States, No. 18-365

CourtCourt of Federal Claims
Writing for the CourtHERTLING, Judge
PartiesLEON LANDA, Plaintiff, v. UNITED STATES, Defendant.
Docket NumberNo. 18-365
Decision Date19 April 2021

LEON LANDA, Plaintiff,
v.
UNITED STATES, Defendant.

No. 18-365

United States Court of Federal Claims

April 19, 2021


FOR PUBLICATION

M. Bradford Randolph, M. Bradford Randolph, Esq. PLLC, New York, NY, for the plaintiff.

Miranda Bureau, Tax Division, U.S. Department of Justice, Washington, D.C., with whom was G. Robson Stewart, of counsel, for the defendant.

MEMORANDUM OPINION

HERTLING, Judge

In 2009, the plaintiff, Leon Landa, opened a bank account in Switzerland under his own name. He subsequently failed to file with the IRS for 2009 a timely Report of Foreign Bank and Financial Accounts ("FBAR"). U.S. citizens who hold foreign bank accounts are required by law to file an FBAR annually. The plaintiff challenges a civil penalty imposed on him by the defendant, the United States, acting through the Internal Revenue Service ("IRS"), pursuant to the Bank Secrecy Act, 31 U.S.C. § 5321. The IRS imposed the civil penalty due to the plaintiff's failure to file a timely FBAR for 2009.

The plaintiff argues that the FBAR-filing requirement did not apply to him in 2009 because he had no financial interest in the foreign bank account. According to the plaintiff, the account was held in trust for his family's benefit, and under Swiss law he was not the true account owner. He challenges the imposition of the FBAR penalty on two grounds: first, his FBAR filing for 2009 was timely under U.S. Treasury Notice 2010-23; second, the penalty imposed violates the excessive fines clause of the eighth amendment to the U.S. Constitution.

The defendant has moved for summary judgment pursuant to Rule 56 of the Rules of the Court of Federal Claims ("RCFC"), arguing that the FBAR penalty was properly imposed and is not an excessive fine under the eighth amendment. The Court grants the defendant's motion for summary judgment.

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I. BACKGROUND

A. Legal Background

The Bank Secrecy Act, codified at 31 U.S.C. § 5311 et seq., was enacted by Congress in 1970 to discourage abuse of foreign financial facilities to evade U.S. law. The Bank Secrecy Act seeks to curb tax evasion by ensuring that U.S. citizens pay taxes on income earned abroad. See H.R. Rep. No. 91-975 (1970), reprinted in 1970 U.S.C.C.A.N. 4394, 4397-98 (noting that "[s]ecret foreign financial facilities" offered a "grossly unfair" but "convenient avenue of tax evasion").

The Bank Secrecy Act requires U.S. citizens and residents to keep records and file reports with the Treasury Department when that "resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency." 31 U.S.C. § 5314. One such report is the "Report of Foreign Bank and Financial Accounts" (Form TD F 90-22.1), commonly referred to as the "FBAR." Regulations implementing the Bank Secrecy Act require that "[e]ach person subject to the jurisdiction of the United States . . . having a financial interest in, or signature or other authority over, a bank, securities or other financial account in a foreign country" file an FBAR. 31 C.F.R. § 103.24 (effective to February 28, 2011).1

An individual required to file an FBAR must do so on or before June 30 of the year following the calendar year for which the report is made. An individual must file an FBAR for any foreign financial account with a balance exceeding $10,000 at the close of the relevant calendar year. Id. § 103.27(c) (2009). "The familiar Form 1040, used by every United States resident filing a personal federal income tax return, includes Schedule B, which contains a check-the-box question that puts a taxpayer on notice [that an FBAR must be filed]." Kimble v. United States, 991 F.3d 1238, 1242 (Fed. Cir. 2021). The 2009 Form 1040 Schedule B contained this check-the-box question. (ECF 46-2, Def's Ex. 22, A132.)

The Bank Secrecy Act grants the Secretary of the Treasury the authority to impose a "civil money penalty" on any person who fails to file a required FBAR. 31 U.S.C. § 5321(a)(5). The Secretary delegated this authority to the IRS. 31 C.F.R. § 103.56(g).

Historically, "[f]rom 1986 to 2004, § 5321 only authorized penalties for willful violations of § 5314 and capped such penalties at $100,000. In 2004, Congress amended § 5321 to authorize penalties up to $10,000 for non-willful violations of § 5321 and to increase the

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maximum penalty for willful violations . . . ." Norman v. United States, 942 F.3d 1111, 1114 (2019) (citing 31 U.S.C. § 5321(a)(5)(A)-(D)).

As amended in 2004, the Bank Secrecy Act authorizes the IRS to impose an increased civil money penalty for a willful violation 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) . . . .

31 U.S.C. § 5321(a)(5)(C).

Subparagraph (D) specifies that "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 50-percent penalty shall be assessed in regard to "the balance in the account at the time of the violation." Id. § 5321(a)(5)(D). Section 5321 thus increased the maximum penalty for a willful violation of the FBAR-filing requirement to $100,000 or 50 percent of the account balance. Id. § 5321(a)(5)(C)-(D).

Willful violations are exempted from subparagraph (B)(ii), which provides an exception to the penalty if the account balance was properly reported. Id. The term "willful" is not defined in the statute.

B. Factual Background

The plaintiff emigrated to the United States from Ukraine, by way of Israel and Belgium, in 1975 with his father, Gersh Landa; his mother; and his brother, Mark. (ECF 53-4, L. Landa Dep. 17:2-18:24.) The plaintiff became a U.S. citizen in 1980. (Id. at 18:25-19:4.)

In early 1980, the plaintiff learned from his father that the plaintiff's grandfather had deposited money into an account in Switzerland during World War II. (Id. at 19:23-20:4.) The money left by Mr. Landa's grandfather was apparently intended to be money "for the family" to be preserved and used for emergencies "in case another situation like World War II . . . happen[ed]." (Id. at 20:19-21:18.) It had been deposited in Switzerland because that country was "neutral." (Id.) Mr. Landa's father did not locate the Swiss account until 1980, and Mr. Landa was unaware of the account until that time. (Id. at 20:19-21:3.)

The plaintiff's grandfather initially deposited the funds in 1939 with Banca Popolare Svizzera, which later merged with Credit Suisse AG ("Credit Suisse"). (ECF 53-6, Pl.'s Ex. 6 at

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6.2) After the plaintiff's father located the account, the funds were held in Switzerland in accounts at Credit Suisse and UBS AG ("UBS") by the plaintiff's father. (L. Landa Dep. 149:4-17.)

In 1985, Mr. Landa and his father traveled to Switzerland to monitor the accounts. His father gave Mr. Landa, Mr. Landa's brother, and mother power of attorney on the UBS account in 1985 and a power of attorney on the account at Credit Suisse in 1998. (Id. at 23:1-18; ECF 46-2, Def.'s Exs. 30 & 31, A202-03.3)

The Landa family has run a wholesale supply company to the jewelry and diamond industry since approximately 1980. (ECF 53-5, M. Landa Dep. 21:1-21.) Starting in the 1980s, the plaintiff's father traveled annually with the plaintiff to Zurich, Switzerland, to attend a jeweler's convention in Basel, Switzerland, and to monitor the accounts at Credit Suisse and UBS. (L. Landa Dep. 25:22-28:19). Mr. Landa and his brother took over management of the jewelry-supply business in 2001. (Am. Compl. ¶ 5.)

Around 2005, Gersh Landa's health began to deteriorate, and travel to Switzerland grew difficult. (L. Landa Dep. 44:7-45:23; 45:24-46:11.) The plaintiff and his father made their last joint trip to Switzerland in 2006. (Id. at 45:24-46:11.) At that time, approximately $1.2 million was transferred from the UBS account to the Credit Suisse account. (Def.'s Ex. 28, A158.) In 2007, Mr. Landa returned to Zurich by himself to check on the accounts. During that trip he secured confirmation that the 2006 transfer of funds from UBS to Credit Suisse had been effectuated. (L. Landa Dep. 41:21-42:25.) While visiting UBS in 2007, Mr. Landa signed an investment direction to extend a fiduciary deposit automatically every three months. (Def.'s Ex. 27, A157.)

1. BSI Account

Due to a criminal investigation by U.S. authorities in 2008, UBS announced that it would no longer provide private banking services to U.S. clients starting in July 2008. (Def.'s Ex. 29, A159; Ex. 38, A228.) Pursuant to a deferred prosecution agreement between UBS and the United States filed in February 2009, UBS agreed to provide U.S. authorities with documents regarding its U.S. clients. (Def.'s Ex. 29, A159-64.)

In June 2009, Mr. Landa traveled to Switzerland alone. (Am. Compl. 2-3; L. Landa Dep. 60:1-60:15.) On June 12, 2009, Mr. Landa visited Credit Suisse to withdraw the balance of the account. (L. Landa Dep. 60:5-11; 61:23-24; Pl.'s Ex. 15 at 7.) Later that day, Mr. Landa visited UBS. (L. Landa Dep. at 60:7-11.) At UBS, he was told he was required "to close the account."

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(Id. at 60:10-11; 60:24-25.) According to the plaintiff, a UBS employee informed him that UBS was "closing all the US accounts." (Id. at 62:5-12.)

Mr. Landa returned to Credit Suisse on the same day intending to transfer the balance of funds in the UBS account to Credit Suisse. (Id. at 60:24-61:18.) Upon arrival at Credit Suisse's office in Zurich, an employee advised him that it was "probably not a good idea" to transfer money from UBS to Credit Suisse because, in the wake of the UBS investigation, the U.S. government would "check Credit Suisse." (Id. at 63:6-15.) Mr. Landa testified at his deposition that he was advised to open an account at a bank that "doesn't do any operation in the United States." (Id. at 63:15-64:5.) The Credit Suisse advisor suggested to Mr. Landa that he open an account at BSI, which...

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