Foreign Bank and Financial Accounts
United States v. Reyes
Date: Jan. 7, 2026
Issue: Whether “willfulness” under the Bank Secrecy Act (BSA) includes reckless conduct for purposes of imposing enhanced Reports of Foreign Bank and Financial Accounts (FBARs) civil penalties, and whether the Treasury Department must impose a mandatory six percent late-payment penalty on unpaid FBAR assessments.
Case Summary: In a unanimous decision, a Second Circuit panel affirmed a New York federal court’s ruling that enforced civil penalties against Juan and Catherine Reyes for willfully failing to file FBARs.
The BSA requires U.S. persons to report financial interests in foreign accounts by filing FBARs and authorizes the Treasury to impose civil penalties for violations. The BSA caps penalties for non-willful violations at $10,000 but allows enhanced penalties for willful violations of up to the greater of $100,000 or 50% of the account balance, with the IRS responsible for investigation and enforcement. When penalties remain unpaid, the Federal Claims Collection Act (FCCA) and Treasury regulations permit the IRS to impose a late-payment penalty of up to six percent per year.
In October 2022, the United States sued Juan and Catherine Reyes to collect unpaid civil penalties for failing to report a foreign bank account. The Reyeses jointly held an account that began in Nicaragua, later moved to London and Switzerland, and grew to more than $2 million, representing most of their assets. From 2010 through 2012, they reported no foreign accounts to the IRS, did not disclose the account to their accountant, and failed to file required FBARs, leading the IRS to find willful violations, reduce the penalties on appeal to about $420,000 each, and add a six-percent late-payment penalty when they did not pay.
Judge Margo Brodie of the Eastern District of New York granted the United States’ motion for summary judgment and ruled that Juan and Catherine Reyes willfully failed to file FBARs because their conduct was at least reckless.
On appeal, the Second Circuit panel affirmed, concluding the term “willfully” as used in the BSA incorporates reckless conduct, is not limited to knowing infractions, and that the Reyeses’ conduct met that standard. The panel explained that when Congress uses “willful” in a civil statute, courts presume it carries its common law meaning, which includes reckless disregard of legal duties, absent a clear indication otherwise. Relying on the holdings of every circuit to address the issue, the panel rejected the Reyeses’ argument that willfulness requires proof of intentional wrongdoing or subjective knowledge of the FBAR requirement. Even more so, the panel pointed out the BSA’s reasonable cause exception confirms an elevated penalty scheme that permits enhanced penalties for reckless or knowing violations.
The panel also determined that no genuine dispute of material fact existed as to whether the Reyeses acted recklessly in failing to file FBARs. The undisputed record showed that the Reyeses kept more than $2 million in a Swiss bank account representing the vast majority of their wealth, regularly accessed those funds through linked credit cards, and took affirmative steps to limit U.S. disclosure, including suppressing account mail and restricting U.S. related investments. The panel emphasized that multiple documents from the bank, their accountant, and their tax returns explicitly flagged foreign account reporting obligations, yet the Reyeses repeatedly denied having foreign accounts and failed to consult their accountant. In the panel’s view, no reasonable jury could find they did not act with reckless disregard of the law.
Finally, the panel rejected the Reyeses’ argument that the district court erred in adopting the penalty interest rate of six percent established by Treasury regulations. The panel explained that the FCCA requires federal agencies to assess late-payment penalties of up to six percent on debts owed to them and that the Treasury, through binding regulations, set that rate at six percent for debts collected by the IRS. Because the Reyeses owed a debt to the IRS, an executive agency within the Treasury, the district court properly applied the Treasury’s regulation and had no authority to substitute a different rate. The panel also rejected the Reyeses’ attempt to avoid the penalty by withholding payment and forcing litigation, noting they had agreed to the penalty terms and could not circumvent Treasury’s regulatory judgment by waiting to be sued.
Bottom Line: The panel unanimously held that reckless conduct satisfies civil willfulness under the BSA.
Document: Opinion
