Ninth Circuit Court of Appeals Rules FBAR Violations Include Recklessness

In a significant decision, the Ninth U.S. Circuit Court of Appeals ruled that FBAR (Foreign Bank Account Report) violations can be based on recklessness, not just intentional misconduct. In Hughes v. United States, the court upheld a district court’s decision that an owner of two New Zealand businesses owed penalties for failing to disclose foreign bank accounts. The court confirmed that willfulness, for the purpose of FBAR penalties, can be established by proving “objective recklessness” in addition to subjective intent.

This ruling aligns with the approach taken by several other federal appellate courts, which have also embraced the notion that reckless disregard of FBAR requirements can constitute a willful violation. The Ninth Circuit’s decision adheres to the standard set by the U.S. Supreme Court in Safeco Insurance Co. of America v. Burr, which allows for penalties based on reckless behavior, not just knowing violations.

The decision underscores the severe consequences of failing to meet FBAR requirements, emphasizing that individuals can face significant penalties even if they did not intentionally conceal foreign accounts.

Reckless disregard of reporting obligations is sufficient to trigger penalties, reinforcing the importance of adequately disclosing foreign financial interests.

Please reach out to McGuire Sponsel’s Global Business Services practice for assistance in this matter.