Court Opinion

ID: 9554267
Source: CourtListenerOpinion
Date Created: 2023-08-08 16:00:40.273793+00
Date Added: 2024-06-11T15:22:53.874391
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 22-2758
UNITED STATES OF AMERICA,
                                                   Plaintiff-Appellee,
                                 v.

MINGQING XIAO,
                                               Defendant-Appellant.
                     ____________________

         Appeal from the United States District Court for the
                     Southern District of Illinois.
         No. 4:21-cr-40039-SMY-1 — Staci M. Yandle, Judge.
                     ____________________

      ARGUED JUNE 21, 2023 — DECIDED AUGUST 8, 2023
                 ____________________

   Before SYKES, Chief Judge, and HAMILTON and BRENNAN,
Circuit Judges.
   HAMILTON, Circuit Judge. Defendant-appellant Dr.
Mingqing Xiao has taught mathematics for many years at
Southern Illinois University—Carbondale. He has also done
academic work based in China, for which he has received
more than $100,000 in payments. An investigation of certain
grant applications by Dr. Xiao led FBI agents to take a deeper
look at his ﬁnances. He was ultimately charged with wire
2                                                   No. 22-2758

fraud, making a false statement, failing to disclose his foreign
bank account on his income tax returns, and failing to ﬁle a
required report with the Department of the Treasury.
    At trial, Dr. Xiao was acquitted of wire fraud and making
a false statement, but a jury found him guilty of ﬁling false tax
returns and failing to ﬁle a report of a foreign bank account.
He has appealed, seeking reversal of those convictions. He ar-
gues that the evidence was insuﬃcient, primarily on the ques-
tion of willfulness, that the tax return question was ambigu-
ous, and that the foreign-account reporting regulation is inva-
lid. We aﬃrm. The government’s evidence permitted the jury
to ﬁnd beyond a reasonable doubt that Dr. Xiao acted will-
fully in choosing not to disclose his foreign bank account. The
key question on the tax return form was not ambiguous as
applied to Dr. Xiao’s situation. He also has not shown that the
foreign-account reporting regulation is invalid.
I   Legal, Factual, and Procedural Background
    A. The Legal Duty to Disclose a Foreign Bank Account
    The Bank Secrecy Act requires many United States citizens
and residents to report ﬁnancial relationships and transac-
tions with foreign banks. 31 U.S.C. § 5314(a). The Act’s pur-
poses include tax compliance and more general law enforce-
ment, including civil investigations, criminal proceedings,
and counterterrorism eﬀorts. 31 U.S.C. § 5311 (stating pur-
poses of Act). Under regulations adopted under the Act,
United States citizens and residents who have a “ﬁnancial in-
terest in” or “signature or other authority over” a foreign
bank account or other ﬁnancial account must report their ac-
counts to the federal government. 31 C.F.R. § 1010.350(a). A
taxpayer who meets the reporting criteria is required to
No. 22-2758                                                   3

disclose the existence of the foreign bank account on an an-
nual tax return. Id. And if such a taxpayer meets the reporting
criteria as to foreign bank accounts collectively exceeding
$10,000, that taxpayer is required to ﬁle a separate annual re-
port of a foreign bank account. 31 C.F.R. §§ 1010.306(c) &
1010.350(a).
    IRS Form 1040, Schedule B, asks whether the taxpayer has
a foreign bank account:
       At any time during [the tax year], did you have
       a ﬁnancial interest in or signature authority over a
       ﬁnancial account (such as a bank account, secu-
       rities account, or brokerage account) located in
       a foreign country? See instructions … .
(Emphases added.) Deﬁnitions are available in the instruc-
tions. If the answer is “yes”—that the taxpayer did have a “ﬁ-
nancial interest in” or “signature authority over” a foreign ﬁ-
nancial account—the tax form directs the taxpayer to instruc-
tions to determine whether it must be reported in a “Report
of Foreign Bank and Financial Accounts,” also known as an
“FBAR.” Willfully giving a false answer on a tax return is a
criminal oﬀense. 26 U.S.C. § 7206(1). So is willfully failing to
ﬁle a required foreign bank account report. 31 U.S.C. §§ 5314
(duty to report) and 5322(a) (criminal penalty).
   B. Dr. Xiao’s Case
    As part of an investigation into grant applications to the
National Science Foundation for possible fraud, the Depart-
ment of Justice investigated Dr. Xiao’s ﬁnances, including his
Chinese bank account and his tax returns. After the investiga-
tion, a federal grand jury indicted Dr. Xiao on seven counts:
two counts of wire fraud by failing to disclose his outside
4                                                    No. 22-2758

funding to the National Science Foundation, one count of
making a false statement to Southern Illinois University, three
counts of making a false statement on three years of income
tax returns, and one count of failing to ﬁle a report of a foreign
bank account. See 18 U.S.C. § 1343 (wire fraud); 18 U.S.C.
§ 1001(a)(1) (false statement); 26 U.S.C. § 7206(1) (false state-
ment on tax return); 31 U.S.C. §§ 5314 & 5322 (failure to ﬁle
reports of foreign bank and ﬁnancial accounts).
    The case was tried to a jury. Before the case was submitted
to the jury, the judge granted Dr. Xiao’s motion for judgment
of acquittal on the wire fraud charges under Federal Rule of
Criminal Procedure 29(a). On those charges, the district judge
found suﬃcient evidence that Dr. Xiao intended to deceive
but not that he intended to defraud. The jury acquitted Dr.
Xiao on the charge of making a false statement. The jury con-
victed Dr. Xiao on the three charges of ﬁling false tax returns
and the one charge of not reporting a foreign bank account.
He was sentenced to serve one year of probation and to pay a
ﬁne and costs totaling just under $2,400.
    On appeal, Dr. Xiao contests the denial of his renewed mo-
tion for judgment of acquittal or for a new trial under Federal
Rules of Criminal Procedure 29 and 33. His principal argu-
ment is that the evidence did not support ﬁndings beyond a
reasonable doubt that he acted willfully in ﬁling his false tax
returns and failing to ﬁle a foreign bank account report. His
arguments revolve around a single question on each tax re-
turn: did he have a “ﬁnancial interest in or signature authority
over a ﬁnancial account … located in a foreign country?” He
also argues that the question was fundamentally ambiguous
and that the foreign bank account report regulation exceeds
the statutory authority for issuing such regulations.
No. 22-2758                                                     5

II. Analysis
   We consider ﬁrst the suﬃciency of the evidence of willful-
ness. We then address Dr. Xiao’s claim that the tax return
question about foreign bank accounts is “fundamentally am-
biguous” and then his challenge to the FBAR regulation.
   A. Suﬃciency of the Evidence
    We will overturn a conviction for insuﬃcient evidence
only if, viewing the evidence in the light most favorable to the
government, “no rational trier of fact could have found the
essential elements of the crime beyond a reasonable doubt.”
United States v. Snyder, 71 F.4th 555, 571 (7th Cir. 2023), quot-
ing United States v. Maldonado, 893 F.3d 480, 484 (7th Cir. 2018),
quoting in turn United States v. Brown, 726 F.3d 993, 1005 (7th
Cir. 2013). We have often said this is a high hurdle for defend-
ants to clear, but it is not impossible. The “height of the hurdle
depends directly on the strength of the government’s evi-
dence,” for even a “properly instructed jury may occasionally
convict even when it can be said that no rational trier of fact
could ﬁnd guilt beyond a reasonable doubt.” Snyder, 71 F.4th
at 571, quoting United States v. Moreno, 922 F.3d 787, 793 (7th
Cir. 2019), quoting in turn United States v. Garcia, 919 F.3d 489,
496–97 (7th Cir. 2019); see generally Jackson v. Virginia, 443
U.S. 307, 317 (1979).
   The government’s evidence—corroborated by Dr. Xiao’s
own statements in the interview with FBI agents—was easily
suﬃcient to permit a ﬁnding beyond a reasonable doubt that
Dr. Xiao answered the tax return question falsely and that he
did so willfully. We summarize that evidence, giving the gov-
ernment the beneﬁt of reasonable inferences from the evi-
dence.
6                                                 No. 22-2758

     Since 2000, Dr. Xiao has taught mathematics at Southern
Illinois University—Carbondale. He also worked with re-
search colleagues in China, and that team received a grant of
approximately $180,000. Dr. Xiao also received from one of
those colleagues in China approximately $30,000 to critique
papers, to edit manuscripts, and to help with English. Dr. Xiao
also signed a contract to become a specially appointed profes-
sor at a university in China. By the contract’s own terms, he
would be paid for his “employment” in the form of an “an-
nual salary,” a “year-end performance” payment, and a
home-purchase subsidy for “high-level talent.”
    Dr. Xiao opened a bank account with Ping An Bank in
China to receive payments for his academic work in China.
Accordingly, from at least 2017 to 2019, Dr. Xiao had a ﬁnan-
cial interest in, and signature authority over, a foreign bank
account. But on his United States federal tax returns for those
years, he answered “no,” that he did not. Likewise, in 2019,
he failed to ﬁle a foreign bank account report.
    The evidence includes Dr. Xiao’s foreign bank records,
which documented his many transactions, including depos-
its, withdrawals, and investments. The records showed
monthly deposits for “salary.” They also showed his with-
drawals to pay individuals, convenience stores, and mobile
apps. The records further showed about $70,000 worth of in-
vestments, which Dr. Xiao hoped would produce a “stable in-
crease of assets.” His foreign bank records showed his trans-
actions occurred during 2017, 2018, and 2019. In 2019, his for-
eign bank account had a balance in Chinese currency worth
over $100,000, well beyond the reporting threshold of $10,000.
   Dr. Xiao did not disclose this income or the account when
he applied for research grants in the United States. He was
No. 22-2758                                                   7

later asked to explain by Southern Illinois University oﬃcials.
The reason, he explained to the university, was that he be-
lieved he did not have to disclose his “income from seminars,
lectures, or teaching engagements sponsored by public or
non-proﬁt entities.” But the real reason, he admitted to the FBI
agents, was that he feared disclosing the extra source of
money would have damaged his employment with the uni-
versity.
    Dr. Xiao likewise did not disclose his foreign bank account
on his income tax returns, nor did he ﬁle a foreign bank ac-
count report. During his FBI interview, Dr. Xiao admitted that
he had the Ping An bank account, that it was his bank account,
and that it was in a foreign country. He admitted he opened
his account under his own name. He admitted that his ac-
count had a balance worth over $100,000. All of this evidence
was more than suﬃcient circumstantial evidence to support a
ﬁnding that Dr. Xiao acted willfully, i.e., in deliberate viola-
tion of a known legal duty, when he kept answering “no” on
his tax returns.
    So what is the defense theory? Dr. Xiao also told the fed-
eral agents that he answered “no” each time on the tax return
question about foreign bank accounts because he did not
think the payments counted as his “own money.” Based on
his answers in the interview, his theory for not reporting the
foreign bank account seemed to be that his use of the money
was limited to paying expenses in China, so that he was not
free to use the money as he wished and that it thus should
somehow not count as his money. His appellate brief quotes
a number of passages from his interview with the federal
agents in which he suggested that the Chinese bank account
8                                                   No. 22-2758

was not actually his money because it could be used only to
cover his travel expenses.
    A taxpayer’s wrong and even unreasonable understand-
ing of applicable tax law can defeat a prosecution for willful
violations. Cheek v. United States, 498 U.S. 192, 201–02 (1991).
Such a wrong or unreasonable understanding of applicable
tax law often presents a question of fact for trial, as in Cheek,
id. at 202–04, and in Dr. Xiao’s case. The jury in this case was
instructed properly on this standard, however, and it found
beyond a reasonable doubt that Dr. Xiao had acted willfully.
    The jury was not required to accept the paper-thin defense
theory. Dr. Xiao did not testify to explain his understanding
or withstand cross-examination. That was his right, of course,
but it meant that the only evidence of his supposed under-
standing of the law was limited to his confusing and contra-
dictory answers during the FBI interview. He admitted, for
example, that his wife could use the money, that his children
could use the money, and that no Chinese law he knew of pre-
vented him from using the money. Moreover, his actions were
not consistent with this defense theory, as shown, for exam-
ple, by his using the money to invest to produce a “stable in-
crease of assets.”
   The government also presented suﬃcient proof that Dr.
Xiao was responsible for preparing, signing, and ﬁling the tax
returns. Dr. Xiao told the FBI agents he prepared his own tax
returns, using privately purchased software. His tax returns
show his same personal identiﬁcation number and email ad-
dress each year. His receipts for the privately purchased
No. 22-2758                                                                9

software match his tax return’s personally identifying infor-
mation and show he submitted his returns to the IRS. 1
    This evidence thus supported a straightforward case of
willfully ﬁling tax returns with materially false statements.
Dr. Xiao points out, however, that the privately purchased
software he used did not actually use exactly the same ques-
tion as the Form 1040. The software had a dialogue box titled
“Other Interest and Dividends.” It said: “These are other in-
terest and dividend items that apply to very few people. Take
a look at the list below, if any of these situations apply, check
the box.” The ﬁrst option to check read: “Received income
from discounted loans or had foreign bank accounts or trusts
Learn More.” The “Learn More” phrase was highlighted as a
link to more detailed information. The second option con-
cerned receiving interest payments from a seller-ﬁnanced
mortgage. The third and last option was “None of the above.”
The user was required to check at least one box.
    One might imagine that a taxpayer in a hurry might see
the note that these items “apply to very few people” and skip
past the prompt about foreign bank accounts without paying
attention. That might be negligent rather than willful. But Dr.

    1 Dr. Xiao argues on appeal that the government failed to prove be-

yond a reasonable doubt that he was the person who prepared, signed,
and filed the false tax returns using privately purchased software prod-
ucts. In light of (a) his admissions summarized in this paragraph of the
text, (b) the standard of review on sufficiency of the evidence, and (c) the
absence of conflicting evidence, the argument is frivolous. It invites only
baseless speculation. See generally United States v. Ytem, 255 F.3d 394, 395–
96 (7th Cir. 2001) (affirming conviction in face of defendant’s speculation
about whether he actually mailed money obtained by fraud across state
lines).
10                                                   No. 22-2758

Xiao does not contend that is what happened. He told the FBI
agents that he had answered the question each year. One
might also imagine a theory that diﬀerent wording between
the IRS form and the privately purchased software confused
the issue, but the software question was even simpler than the
IRS question, and Dr. Xiao did not claim he did not under-
stand the software’s question.
    As noted, a defendant who honestly misunderstood the
requirements of tax law has a defense to a criminal charge of
willful violations. Cheek, 498 U.S. at 201–02. In this case, given
the evidence that Dr. Xiao’s returns were actually false and
that he answered the questions deliberately, his theory of an
honest mistake presented a question of fact for the jury. Id. at
202–04. Given the weakness of the evidence showing an hon-
est mistake and the extensive evidence inconsistent with that
theory, the evidence was suﬃcient to permit a reasonable jury
to ﬁnd beyond a reasonable doubt that Dr. Xiao acted will-
fully in failing to disclose his ownership of a foreign bank ac-
count in his tax returns.
     B. Fundamental Ambiguity?
   Dr. Xiao’s appellate theory that perhaps he misunderstood
the question for his tax return blends into a closely related ar-
gument, that the question is “fundamentally ambiguous,” so
that neither he nor anyone else could fairly be convicted for
answering it falsely. We are not persuaded.
    The starting premise of Dr. Xiao’s argument is sound: if
the government prosecutes a person for giving a false answer
to a question, whether from a grand jury or the IRS, the ques-
tion must have been clear to a reasonable person under the
circumstances. As we said in an earlier tax case under 26
No. 22-2758                                                    11

U.S.C. § 7206(1), “literal truth is a defense to perjury, even if
the answer is highly misleading.” United States v. Reynolds,
919 F.2d 435, 437 (7th Cir. 1990), citing Bronston v. United
States, 409 U.S. 352 (1973); see also United States v. Harris, 942
F.2d 1125, 1127–28 (7th Cir. 1991) (reversing criminal tax con-
victions where law was unclear as to whether payments in
question were gifts or taxable income).
    Dr. Xiao invokes this principle by arguing on appeal that
the phrases “ﬁnancial interest in” and “signature authority
over” are confusing and ambiguous to an ordinary taxpayer,
even if they might be clear enough to lawyers, judges, and ac-
countants. He points to the extensive deﬁnitions and instruc-
tions that surround this question. The privately purchased
software he used oﬀered a link to “learn more” about whether
he “had foreign bank accounts.” The Form 1040 directed tax-
payers to instructions to determine whether they had a “ﬁ-
nancial interest in” or “signature authority over” a foreign ﬁ-
nancial account. The ﬁling instructions deﬁne both terms. A
United States person has a “ﬁnancial interest in a foreign ﬁ-
nancial account” if he is “the owner of record or holder of le-
gal title, regardless of whether the account is maintained …
for the beneﬁt of another person.” FinCEN, BSA Electronic Fil-
ing Requirements for Report of Foreign Bank and Financial Ac-
counts (FinCEN Form 114) at 5 ¶ 1 (Jan. 2017). A United States
person has “signature authority over” a foreign ﬁnancial ac-
count if he has “authority … (alone or in conjunction with an-
other individual) to control the disposition of assets held in a
foreign ﬁnancial account … .” IRS, 2017 Instructions for Sched-
ule B at B-2 to B-3 (2017), https://www.irs.gov/pub/irs-
prior/i1040sb--2017.pdf.
12                                                   No. 22-2758

   Missing from this defense theory is a plausible alternative
meaning of the question that would make his “no” answers
true. Dr. Xiao obviously had a “ﬁnancial interest” in his for-
eign bank account. There was no evidence that anyone else
had any interest in the account. Nor was there any evidence
that anyone else had access to or control of the account. Dr.
Xiao also had “signature authority over” his foreign bank ac-
count. He could “control the disposition of assets,” as he reg-
ularly did with his own debit card tied to the account. He has
not oﬀered any plausible alternative meaning for the question
on the tax return under which his answers of “no” could have
been true.
    Dr. Xiao shows no contrary regulations. Instead, the regu-
lations clearly deﬁne his legal duty. 31 C.F.R. § 1010.350(e) (ﬁ-
nancial interest) and (f) (signature authority). Dr. Xiao points
to no conﬂicting agency guidance. See, e.g., United States v.
Harra, 985 F.3d 196, 204, 218 (3d Cir. 2021) (reversing false-
statement conviction of bank oﬃcial; government provided
contradictory regulatory guidance for banks on deﬁnition of
“past due”); United States v. Critzer, 498 F.2d 1160, 1160–62 (4th
Cir. 1974) (reversing convictions for willful tax evasion; dif-
ferent government agencies provided contradictory regula-
tory guidance on key deﬁnition of “possessory interest” in
land held in trust for Indian tribe that governed taxability of
income).
    Dr. Xiao did not testify or otherwise oﬀer evidence of his
understanding of the facts or his legal obligations, apart from
the recording of the FBI interview with him, which the gov-
ernment entered into evidence. Even on appeal, Dr. Xiao has
not oﬀered an explanation of the question on the Form 1040
or the private software that would excuse his failure to report
No. 22-2758                                                    13

his foreign bank account. Nor has he pointed to any relevant
contradictions in the guidance from diﬀerent government
agencies.
    Dr. Xiao’s lawyers argue the forms, instructions, and reg-
ulations are all just too dense and complicated to be fairly en-
forced by criminal law. We disagree. The statute, regulations,
and guidance on reporting foreign bank accounts are cer-
tainly detailed. They have been written to apply broadly and
to prohibit evasion by clever lawyering and complex structur-
ing of foreign banking relationships. We can imagine other
cases where more complex facts might leave room for
stronger arguments for ambiguity as applied. Laws are not
unconstitutionally indeﬁnite, however, solely because of dif-
ﬁculty in “determining whether certain marginal oﬀenses fall
within their language.” Parker v. Levy, 417 U.S. 733, 757 (1974),
quoting United States v. National Dairy Products Corp., 372 U.S.
29, 32 (1963); accord, Jordan v. De George, 341 U.S. 223, 231
(1951); Trustees of Indiana University v. Curry, 918 F.3d 537, 541
(7th Cir. 2019) (“a core of meaning is enough to reject a vague-
ness challenge, leaving to future adjudication the inevitable
questions at the statutory margin”).
    Notwithstanding any possible limits on the use of the
money in Dr. Xiao’s Chinese account (and there is no actual
evidence of such limits), Dr. Xiao’s case is quite straightfor-
ward. It lies within the “core of meaning,” not at the edge of
any regulations or deﬁnitions. He owned the foreign bank ac-
count, and his records show several years of his deposits,
withdrawals, and investments. Whatever else the provisions
might mean in “peripheral cases,” the deﬁnitions and instruc-
tions made it plain that Dr. Xiao had a legal duty to answer
the question “yes.” See De George, 341 U.S. at 232.
14                                                   No. 22-2758

     C. Failure to File a Report of Foreign Bank Account
    Dr. Xiao raises distinct arguments challenging his convic-
tion for willfully failing to ﬁle a foreign bank account report
for 2019, in violation of 31 U.S.C. § 5314. He ﬁrst argues that
the government simply failed to oﬀer suﬃcient evidence that
his failure to ﬁle was willful. During the FBI interview, the
audio of which was in evidence, Dr. Xiao admitted that he
knew about the ﬁling requirement when he ﬁled his 2019
taxes. He had also ﬁled his tax returns which, for several
years, had prompted him to report foreign bank accounts.
And of course he knew of his foreign bank account and its
balance, so the evidence was suﬃcient to permit the jury to
ﬁnd beyond a reasonable doubt that Dr. Xiao knew of his legal
duty to ﬁle a report and that he willfully chose not to ﬁle it.
   He also raises a legal challenge to the regulations. He ar-
gues that the statute criminalizing his conduct authorizes reg-
ulations to punish only failures to report “transactions” with
foreign banks, not the broader category of “relationships”
with foreign banks. From this premise, he contends that the
evidence was insuﬃcient to convict him of willfully failing to
ﬁle a foreign bank account report because the evidence did
not show he failed to report transactions.
    This argument fails both legally and factually. (We elect to
bypass the government’s argument that Dr. Xiao also waived
the argument by failing to raise it at the proper time in the
district court.) The argument fails legally because the statute
authorizes the Secretary of the Treasury to require a United
States person to ﬁle a report when that person “makes a trans-
action or maintains a relation for any person with a foreign ﬁ-
nancial agency.” 31 U.S.C. § 5314(a) (emphases added). The
regulation is nearly identical, requiring a person having a
No. 22-2758                                                  15

“ﬁnancial interest in, or signature or other authority over, a
bank, securities, or other ﬁnancial account in a foreign coun-
try” to “report such relationship.” 31 C.F.R. § 1010.350(a) (em-
phasis added). Likewise, the regulations deﬁne “transaction”
to include deposits, withdrawals, and investments, and Dr.
Xiao carried out all of these sorts of transactions. 31 C.F.R.
§ 1010.100(bbb).
    Dr. Xiao argues that the regulation improperly extends the
duty beyond the statute’s authority. He asserts that the statu-
tory phrase “maintains a relation for any person” implies a
relationship for a person other than the reporting person. If
that were correct, the argument continues, the regulation re-
quires a person to report his own foreign banking relation-
ships and thus reaches beyond the permissible scope of the
statute, and hence is void either as applied in general to “re-
lationships” with foreign banks or as applied to Dr. Xiao, or
at the very least requires the government to prove he engaged
in a transaction that would have triggered the legitimate por-
tion of the regulation.
    We reject the reading of the statute. We see no diﬀerence
between a foreign-bank relation and a foreign-bank relation-
ship. The phrase “for any person” certainly includes the
owner of the bank account. The phrase also is not surplusage.
It makes crystal clear to those who might try to evade the re-
porting requirement that it also applies to persons who act as
agents (disclosed or not) for others (subject to exceptions that
do not arguably apply to Dr. Xiao). Accordingly, the regula-
tion that Dr. Xiao violated is valid and enforceable.
   Dr. Xiao’s argument also fails as a matter of fact because
in any event the government proved beyond a reasonable
doubt that he engaged in reportable transactions. In 2019 he
16                                               No. 22-2758

received deposits to the Chinese account, made withdrawals
from the Chinese account, and made investments using his
Chinese account.
     The judgment of the district court is AFFIRMED.