The U.S. Supreme Court on 28 February 2023 issued its ruling in a case dealing with the penalties due for violations of the reporting obligations under the Bank Secrecy Act (BSA) and its implementing regulations.

The BSA requires U.S. persons with (an interest in) foreign bank accounts to annually file with the IRS a Report of Foreign Bank and Financial Accounts (FBAR). Failure to file the FBAR non-willfully attracts a maximum penalty of USD 10,000. The case before the Court concerned a dual U.S. and foreign country citizen who learned of his FBAR obligations in 2011 upon returning to the United States. The person subsequently filed FBAR reports covering 5 years (2007-2011), but which the IRS considered deficient because they did not cover all financial accounts in which the person had an interest. The person subsequently filed corrective reports covering 61 accounts in 2007, 51 in 2008, 53 in 2009 and 2010, and 54 in 2011. The government did not contest the accuracy of the corrective filings, but because it took the view that the USD 10,000 penalty applies to each account not accurately or timely reported, and because the plaintiff’s five late-filed annual reports collectively involved 272 accounts, it calculated the penalty due at USD 2.72 million.

The plaintiff challenged the penalty in court on the grounds that the BSA authorizes a maximum penalty for non-willful violations of USD 10,000 per report, not $10,000 per account. The Fifth Circuit upheld the government’s assessment. However, the Supreme Court reversed the ruling and determined that the BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of USD 10,000, not a cascade of such penalties calculated on a per-account basis. The Court remanded its judgment to the Circuit Court to adjudicate as per its findings.