Opinion ID: 4680715
Heading Depth: 2
Heading Rank: 1

Heading: The meaning of willfulness

Text: Rum argues that the district court erred when it applied a standard of willfulness that includes reckless disregard of a known or obvious risk of nonpayment. He argues that the proper standard should be violation of a known legal duty, which is the standard used in criminal cases under the Bank Secrecy Act. Congress passed the Bank Secrecy Act in 1970 in response to “serious and widespread use of foreign financial facilities located in secrecy jurisdictions for the purpose of violating American law.” H.R. Rep. No. 91-975 (1970), reprinted in 1970 U.S.C.C.A.N. 4394, 4397. Under 31 U.S.C. § 5321(a)(5)(A), the Secretary of the Treasury has the authority to impose civil money penalties on any person who fails to file a required FBAR. From 1986 to 2004, § 5321 only authorized penalties for willful violations and capped such penalties at $100,000. In 2004, Congress amended § 5321 to authorize penalties up to $10,000 for non-willful violations and to increase the maximum penalty for willful violations to the greater 12 USCA11 Case: 19-14464 Date Filed: 04/23/2021 Page: 13 of 28 of $100,000 or fifty percent of the balance in the account at the time of the violation. 31 U.S.C. § 5321(a)(5)(A)–(D). In civil cases, willfully has traditionally been interpreted to include recklessness. In Safeco Insurance Co. of America v. Burr, 551 U.S. 47, 127 S. Ct. 2201 (2007), while examining the Fair Credit Reporting Act, the Court noted that “‘willfully’ is a word of many meanings whose construction is often dependent on the context in which it appears, and where willfulness is a statutory condition of civil liability, we have generally taken it to cover not only knowing violations of a standard, but reckless ones as well.” 551 U.S. at 57, 127 S. Ct. at 2208 (internal quotations and citations omitted). Like the Bank Secrecy Act, the Fair Credit Reporting Act contained both criminal and civil penalties and both included willfulness as the standard for violations. However, the Court rejected the call to require actual knowledge for both, limiting that higher standard to the criminal penalties. Id. at 60, 127 S. Ct. at 2210. Other courts addressing this issue in the context of FBAR civil penalties have held that willfulness includes reckless disregard. “Though ‘willfulness’ may have many meanings, general consensus among courts is that, in the civil context, the term often denotes that which is intentional, or knowing, or voluntary, as distinguished from accidental, and that it is employed to characterize conduct marked by careless disregard whether or not one has the right so to act.” 13 USCA11 Case: 19-14464 Date Filed: 04/23/2021 Page: 14 of 28 Bedrosian v. United States, 912 F.3d 144, 152 (3d Cir. 2018) (internal quotations and citations omitted); see also United States v. Horowitz, 978 F.3d 80, 89 (4th Cir. 2020) (discussing Safeco and holding in the context of a civil penalty that a “willful violation” of the FBAR reporting requirement includes reckless violations); Norman v. United States, 942 F.3d 1111, 1115 (Fed. Cir. 2019) (citing Safeco and holding “that willfulness in the context of § 5321(a)(5)(C) includes recklessness”). In United States v. Malloy, 17 F.3d 329 (11th Cir. 1994), we rejected a taxpayer’s similar willfulness argument in a suit brought by the government to collect unpaid withholding taxes pursuant to 26 U.S.C. § 6672. We noted that we had previously held that willfully, under § 6672, is defined by prior cases as meaning, in general, a voluntary, conscious, and intentional act, such as payment of other creditors in preference to the United States, although bad motive or evil intent need not be shown. The willfulness requirement is satisfied if the responsible person acts with a reckless disregard of a known or obvious risk that trust funds may not be remitted to the Government, such as by failing to investigate or to correct mismanagement after being notified that withholding taxes have not been duly remitted. 17 F.3d at 332 (quoting Mazo v. United States, 591 F.2d 1151, 1154 (5th Cir. 1979). 3 We emphasized that something less than actual knowledge was sufficient 3 In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), this Court adopted as binding precedent all of the decisions of the former Fifth Circuit handed down prior to the close of business on September 30, 1981. 14 USCA11 Case: 19-14464 Date Filed: 04/23/2021 Page: 15 of 28 to be liable and specifically restated the test of “a reckless disregard of a known or obvious risk.” Id. Following our precedent interpreting the analogous language in § 6672, we hold that willfulness in § 5321 includes reckless disregard of a known or obvious risk. In so doing, we join with every other circuit court that has interpreted this provision.
The Safeco Court stated that “[w]hile the term recklessness is not selfdefining, the common law has generally understood it in the sphere of civil liability as conduct violating an objective standard: action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known.” 551 U.S. at 68, 127 S. Ct. at 2215 (internal quotations and citations omitted). Both the Fourth Circuit and the Third Circuit have adopted the Safeco standard in the context of the FBAR penalty: [C]ivil recklessness requires proof of something more than mere negligence: “It is [the] high risk of harm, objectively assessed, that is the essence of recklessness at common law.” Safeco, 551 U.S. at 69, 127 S. Ct. 2201. Thus, as the Third Circuit has held, when imposing a civil penalty for an FBAR violation, willfulness based on recklessness is established if the defendant “(1) clearly ought to have known that (2) there was a grave risk that an accurate FBAR was not being filed and if (3) he was in a position to find out for certain very easily.” Bedrosian, 912 F.3d at 153 (cleaned up). 15 USCA11 Case: 19-14464 Date Filed: 04/23/2021 Page: 16 of 28 Horowitz, 978 F.3d at 89; accord Norman, 942 F.3d at 1115 (citing Safeco and Bedrosian and holding: “the failure to learn of the filing requirements coupled with other factors, such as efforts taken to conceal the existence of the accounts and the amounts involved, may lead to a conclusion that the taxpayer acted willfully” (internal quotation omitted)). We join our sister circuits in holding that the appropriate standard of willfulness to warrant the FBAR penalty is—borrowing from Safeco—“an objective standard: action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known.” We turn next to address Rum’s argument that, in applying the Safeco standard of recklessness, the district court erred in failing to conclude that there were genuine issues of fact.