Treasury Offers Something for Everyone to Comply With: Trades and Businesses, Banks, Crypto Exchangers and Individuals

On May 21, 2021, the U.S. Department of Treasury (“Treasury”) released its American Families Plan Tax Compliance Agenda (“Agenda”), a comprehensive set of initiatives to increase tax compliance and close the “tax gap” between the amount taxpayers owe and the amount that is actually paid.  While part of the $80 billion plan calls for providing Treasury and specifically the Internal Revenue Service (“IRS”) with additional resources to combat tax evasion, the Agenda also proposes revisions to current regulations and leveraging existing infrastructure to “shed light on previously opaque income sources;” namely, cryptocurrency.  Although the sweeping Agenda obviously focuses on tax compliance, it also has related consequences for Bank Secrecy Act (“BSA”) compliance in areas where the BSA and the tax code overlap as to cryptocurrency.

The Agenda also represents the latest in a string of initiatives by the U.S. government regarding the increasing regulation of the use of cryptocurrency, whether by direct users, exchangers of cryptocurrency, or financial institutions with customers dealing in cryptocurrency.  The Agenda represents both an acknowledgement by the U.S. Treasury that cryptocurrency use has become “normalized,” coupled with a clear signal that its use will be highly scrutinized and regulated.
Continue Reading As Treasury Eyes Crypto in Tax Compliance Agenda, Reporting Obligations May Increase – Including a Crypto “Form 8300” for Transactions over $10K

Conduct Performed Without Knowledge Still Can Lead to the Most Serious Penalties

Under the Bank Secrecy Act (“BSA”), the most onerous civil penalties will be applied for “willful” violations. That mental state standard might sound hard for the government to prove.  For example, in criminal and civil tax fraud cases under the Internal Revenue Code, “willfulness” is defined to mean a voluntary and intentional violation of a known legal duty – a very demanding showing. But as we will discuss, two very new court opinions discussing a required BSA filing – a Form TD F 90-22.1, or Report of Foreign Bank and Financial Accounts, otherwise know as a FBAR – remind us that, under the BSA, a “willful” violation does not require proof of actual knowledge. A “willful” BSA violation only needs to be reckless, and the government can prove it through the doctrine of “willful blindness” or “conscious avoidance.”

The fact that courts in civil FBAR cases have been holding that “willfulness” can mean “just recklessness” is not a new development, and it is well known to those practicing in the tax fraud and tax controversy space. This blog post will not attempt to delve into the long-running offshore account enforcement campaign that has been waged by the IRS and the DOJ; the related case decisions; or the related voluntary disclosure programs for offshore accounts (for those interested in this fascinating but complicated topic, the Federal Tax Crimes blog is one of many excellent resources). Rather, the point of this post is that the case law now being made in the FBAR and offshore account context will have direct application to more traditional Anti-Money Laundering (“AML”)/BSA enforcement actions, because the civil penalty statute being interpreted in the FBAR cases is the same provision which applies to claimed failures to maintain an adequate AML program and other violations of the BSA.  Thus, the target audience of this post is not people involved in undisclosed offshore bank account cases, but rather people involved in day-to-day AML compliance for financial institutions, who may not realize that some missteps may be branded as “willful” and entail very serious monetary penalties, even if they were done without actual knowledge.  This may be news to some, and it underscores in particular the risks presented by one the topics that this blog frequently has discussed: the potential AML liability of individuals.
Continue Reading The BSA Civil Penalty Regime: Reckless Conduct Can Produce “Willful” Penalties