United States v. Bittner

• Court: United States District Courts. 5th Circuit. United States District Court of Eastern District Texas
• Citation: 469 F.Supp.3d 709
• Docket Number: Civil Action No. 4:19-cv-415
• Parties: UNITED STATES of America, Plaintiff, v. Alexandru BITTNER, Defendant.
• Decision Date: 29 June 2020

469 F.Supp.3d 709

UNITED STATES of America, Plaintiff,

v.Alexandru BITTNER, Defendant.

Civil Action No. 4:19-cv-415

United States District Court, E.D. Texas, Sherman Division.

Signed June 29, 2020

Holly Michele Church, Herbert West Linder, US Department of Justice, Dallas, TX, for Plaintiff.

Farley P. Katz, Forrest Mathew Seger, III, Rachael Elisa Rubenstein, Theodore Joshua Wu, Clark Hill Strasburger, San Antonio, TX, for Defendant.

MEMORANDUM OPINION AND ORDER

AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

Pending before the Court are Defendant Alexandru Bittner's Motion for Partial Summary Judgment (Dkt. #28) and United States’ Motion for Partial Summary Judgment (Dkt. #29). After consideration, the Court is of the opinion that Defendant Alexandru Bittner's Motion for Partial Summary Judgment (Dkt. #28) should be GRANTED and United States’ Motion for Partial Summary Judgment (Dkt. #29) should be GRANTED in part and DENIED in part .

BACKGROUND

I. Factual Summary

The dispute in this case concerns the proper interpretation of the civil penalty provided by 31 U.S.C. § 5321(a)(5)(A) and (B)(i) for a non-willful violation of the regulations implementing 31 U.S.C. § 5314. The facts giving rise to this dispute are as follows.

Defendant Alexandru Bittner is a Romanian–American dual citizen. Before emigrating to the United States, Mr. Bittner earned a Master of Science in Engineering from Politechnica University of Bucharest. In December 1982, Mr. Bittner moved to the United States, where he worked as a dishwasher and plumber and earned his master plumbing certificate in California.

Mr. Bittner became a naturalized American citizen in 1987 or 1988.

After living in the United States for eight (8) years, Mr. Bittner moved back to Romania in 1990 and lived there until 2011. He did not renounce his American citizenship. While living in Romania, Mr. Bittner generated a considerable stream of income through a variety of businesses and investments and opened a number of foreign bank accounts. His investment ventures—including, among other things, purchasing shares in hotels, buying apartments in the name of an entity, using holding companies to hold his assets, and negotiating deals with the Romanian government to purchase government assets—indicate that he was and is a sophisticated businessman. In addition, Mr. Bittner demonstrated at least some level of awareness about his tax obligations as a United States citizen, as he filed United States income tax returns for 1991, 1997, 1998, 1999, and 2000 (Dkt. #29).

From 1990 to 2011, Mr. Bittner generated over $70 million in total income through his various foreign businesses and investment ventures. During those years, Mr. Bittner kept at least some of that income in a number of foreign financial accounts. From 1996–2011, the aggregate high balance in those foreign financial accounts exceeded $10,000. This is important because United States citizens who maintain an aggregate high balance in a foreign financial account or accounts exceeding $10,000 in any given year are required by federal law to report that financial interest to the Treasury Department. The history and framework of that law are central to this case and are worth discussing at length.

Congress enacted the Bank Secrecy Act of 1970 ("BSA"), codified at 31 U.S.C. §§ 5311 – 5328, in response to an increasing "unavailability of foreign and domestic bank records of customers thought to be engaged in activities entailing criminal or civil liability." Cal. Bankers Ass'n v. Shultz , 416 U.S. 21, 26, 94 S.Ct. 1494, 39 L.Ed.2d 812 (1974). "[T]he express purpose of the Act [was] to require the maintenance of records, and the making of certain reports, which have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings." Id. (citations omitted). As interpreted by the Shultz Court, "Congress was concerned about a serious and widespread use of foreign financial institutions, located in jurisdictions with strict laws of secrecy as to bank activity, for the purpose of violating or evading domestic criminal, tax, and regulatory enactments." Id.

The stated purpose of the BSA, as amended in 2004, is "to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism." 31 U.S.C. § 5311.

The first portion of the BSA relevant to this dispute is § 5314, which provides that:

Considering the need to avoid impeding or controlling the export or import of monetary instruments and the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency, the Secretary of the Treasury shall require a resident or citizen of the United States or a person in, and doing business in, the United States, to keep records, file reports, or keep records and file reports, when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency.

31 U.S.C. § 5314(a). In other words, § 5314 of the BSA directs the Secretary of the Treasury to require United States residents or citizens to file reports when they maintain foreign and/or offshore bank accounts. The report(s) must contain the following information:

(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.

31 U.S.C. § 5314(a)(1)–(4). The Secretary of the Treasury also may require further detail he or she considers necessary to carry out the provisions and purpose of § 5314 or regulations promulgated thereunder. See 31 U.S.C. § 5314(b).

Pursuant to Congress’ directive, the Secretary of the Treasury promulgated certain regulations implementing § 5314 of the BSA. Of particular relevance here are 31 C.F.R. § 1010.350 and 31 C.F.R. § 1010.306. Section 1010.350 provides that:

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. The form prescribed under section 5314 is the Report of Foreign Bank and Financial Accounts (TD–F 90–22.1) [ ("FBAR") ], or any successor form.

31 C.F.R. § 1010.350(a). And § 1010.306 provides that:

Reports required to be filed by § 1010.350 shall be filed with [The Financial Crimes Enforcement Network ("FinCEN") ] on or before June 30 of each calendar year with respect to foreign financial accounts exceeding $10,000 maintained during the previous calendar year.

31 C.F.R. § 1010.306(d). That is, United States residents or citizens maintaining offshore and/or foreign bank accounts with an aggregate balance exceeding $10,000 must file an FBAR form by June 30 of the year following the year to be reported.¹

Finally, § 5321 of the BSA authorizes the Secretary of the Treasury to penalize United States residents or citizens who violate the regulations implementing § 5314. See 31 U.S.C. § 5321(a)(5)(A). Until 2004, the penalty for failing to comply with the reporting requirements set out by the Secretary of the Treasury's implementing regulations attached only to willful reporting violations. In 2004, Congress amended the BSA to its current form to provide penalties for non-willful violations as well. The civil penalty provisions are as follows:

(5) Foreign financial agency transaction violation. —

(A) Penalty authorized.— 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.

(B) Amount of penalty. —

(i) In general.— Except as provided in subparagraph (C), the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000.

(ii) Reasonable cause exception.— No penalty shall be imposed under subparagraph (A) with respect to any violation if—

(I) such violation was due to reasonable cause, and

(II) the amount of the transaction or the balance in the account at the time of the transaction was properly reported.

(C) Willful violations. —In the case of any person willfully violating, or willfully causing any violation of, any provision 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), and

(ii) subparagraph (B)(ii) shall not apply.

(D) Amount. —The amount determined under this subparagraph is—

(i) in the case of a violation involving a transaction, the amount of the transaction, or

(ii) 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 balance in the account at the time of the violation.

31 U.S.C. § 5321(a)(5).

From 1996–2011, Mr. Bittner was a United States citizen and maintained an aggregate balance of more than $10,000 in foreign financial accounts. But he did not timely file FBARs for any of those years until May 2012.² In response, in June 2017, the IRS assessed the following penalties against Mr. Bittner for non-willful FBAR violations under 31 U.S.C. § 5321(a)(5)(A) and (B)(i) :

Year	Total Number of Mr. Bittner's Accounts Penalized	Amount of FBAR Penalties Sought by Summary Judgment
2007	61	$610,000
2008	51	$510,000
2009	53	$530,000
2010	53	$530,000
2011	54	$540,000
Total	272	$2,720,000

(Dkt. #29 at p. 6).³ The Government filed this action to reduce its penalty assessment to judgment, seeking a total of $2,720,000 in penalties against Mr. Bittner. The Government's motion for partial summary judgment, however, seeks only...