The Rule Everyone with Money Overseas Needs to
Know
Since 1970, the Bank Secrecy
Act has required U.S. persons with a financial interest in, or signature
authority over, foreign financial accounts worth more than $10,000 to report
those accounts every year on a form commonly known as the FBAR (Report of Foreign
Bank and Financial Accounts). The rule is not really about taxes directly it
exists to help the government trace money that could otherwise disappear
overseas and to flag income that should have been reported.
Miss the deadline by
accident, and the maximum civil penalty is a relatively modest $10,000. But if
the failure to file is "willful," the penalty jumps dramatically —
the greater of $100,000, or 50% of the account balance at the time of the violation,
for every account, every year. That difference between "oops" and
"willful" is exactly what was fought over in the Rund case, and it is
the single most important concept for any client with unreported foreign
accounts to understand.
What Richard Rund Did and Didn't Do
Richard Rund, a U.S. citizen
and businessman, had financial interests in more than a dozen foreign accounts
in Hong Kong, Switzerland, and China between 2003 and 2014. He:
·
Failed to report personal HSBC accounts in Hong Kong for several
years, even though he had reported the very same accounts in other years;
·
Structured a Hong Kong company so that he would not appear as the
legal owner "on the face" of things, explicitly to get "a more
favourable tax rate" in the U.S., while a friend was listed as a nominee
and Rund continued to actually run the business and control its money;
·
Opened a Swiss UBS account in the name of an offshore entity
"for US tax reasons," while admitting he personally controlled the
funds; and
·
Failed to disclose several accounts even after entering the IRS's
Offshore Voluntary Disclosure Program — a program specifically designed to help
people catch up before the IRS finds them first.
On his tax returns for 2005
through 2008, signed under penalty of perjury, Rund checked "no" to
the question asking whether he had an interest in a foreign account. The IRS
eventually identified 48 separate reporting failures and assessed a $2,915,663
civil penalty. When Rund refused to pay, the government sued to collect, and
the district court granted summary judgment against him. Rund appealed on two
grounds: that the penalty required proof he acted knowingly (not just
carelessly), and that a $2.9 million fine violated the Eighth Amendment's ban
on excessive fines.
"Willful" Includes Sticking Your Head
in the Sand
This is the part that
surprises a lot of people: in the civil FBAR context, "willful" does
not require proof that someone intentionally set out to defraud the government.
Following its own 2020 precedent in United
States v. Horowitz, the Fourth Circuit reaffirmed that willfulness includes
reckless conduct — meaning a person acted (or failed to act) in the face of a
risk that was either known or so obvious it should have been known. The
specific test: did the person clearly ought to have known there was a
"grave risk" that an accurate FBAR was not being filed, while being
"in a position to find out for certain very easily"?
Rund tried several defenses,
and the court rejected each one:
·
"I didn't have a motive
to hide anything." The court said motive to conceal isn't required — recklessness
alone is enough.
·
"My ADHD and health
problems distracted me." Rund claimed a decade of business litigation, an ADHD diagnosis,
and a cancer diagnosis explained the gaps. The court noted he had managed to
file complete, timely FBARs during other years covered by the same conditions,
and that he never tied a specific health issue to a specific missed filing.
·
"My accountants knew
about everything." This is probably the most instructive rejection for
practitioners. Rund testified vaguely that "everybody knew about
everything," but could not point to any evidence that he actually told his
return preparers about the foreign accounts before the years in question, or
that a preparer advised him the accounts didn't need to be reported. The
court's response is worth remembering: a jury can only draw favorable
inferences from evidence that actually exists in the record — general,
unsupported assertions don't create a factual dispute that can survive summary
judgment.
Because a simple question to
a tax professional could easily have resolved any doubt, and Rund never showed
he asked, the court held his FBAR violations were willful as a matter of law
across every account and every year at issue.
The $2.9 Million Question: Is It an
"Excessive Fine"?
Rund's fallback argument was
constitutional: even if he was reckless, a $2.9 million penalty is grossly
disproportionate to the harm and violates the Eighth Amendment's Excessive
Fines Clause. This argument has divided the federal appeals courts — the First
Circuit has held the Excessive Fines Clause doesn't even apply to civil FBAR
penalties, while the Eleventh Circuit has held that it does because the penalty
is at least partly punitive.
The Fourth Circuit
sidestepped that split entirely. It assumed, without deciding, that the
Excessive Fines Clause applies, and then held that Rund's penalty passed
constitutional muster anyway. Several facts drove that conclusion:
·
The statutory maximum penalty Congress authorized for Rund's
conduct was roughly $9.8 million. The $2.9 million actually assessed was about
30% of that ceiling — closer to the lower end of the willful-violator scale,
not the top.
·
Rund's violations were not a single, isolated mistake (the kind of
case where the Supreme Court has struck down a fine as excessive), but more
than 40 separate failures across a dozen-plus accounts over eight years.
·
Unlike a case involving simple failure to declare cash at a border
crossing, Rund's unreported accounts were tied to real underreporting of
taxable income — meaning actual harm to the Treasury, not just a paperwork
violation.
·
The penalty structure itself, tying the fine to 50% of the account
balance, tracks the government's actual risk of loss: bigger hidden accounts
mean bigger potential tax losses, so a proportionally bigger fine makes sense.
The court also brushed aside
the government's suggestion that criminal FBAR penalties (which can include
prison time) made the civil penalty look modest by comparison, noting that
criminal penalties require a higher level of proof and a more culpable state of
mind that the government never had to establish here. Even so, the civil
penalty stood.
What This Means If You Have Money Overseas
Rund is not an outlier, as it
fits squarely within a growing body of case law (including the Eleventh
Circuit's Schwarzbaum decision, which
the Fourth Circuit relied on repeatedly) confirming that multi-million-dollar
FBAR penalties will survive constitutional challenges as long as they stay
meaningfully below the statutory maximum. A few practical takeaways:
1. "Reckless" is a low bar, and it's the bar that usually
applies. You do not
need to intend to evade taxes to face the enhanced willful penalty. Simply
failing to ask an obvious question when you had every opportunity to ask it can
be enough.
2. Answering tax return questions carelessly is dangerous. The Fourth Circuit
specifically pointed to Rund's "no" answers on the foreign-account
questions on his 1040 as strong evidence of recklessness. That single checkbox
matters far more than most taxpayers realize.
3. Tell your accountant everything and be able to prove you did. The court's harshest
language was reserved for Rund's inability to show he actually disclosed the
foreign accounts to his preparers. If you've told your CPA or attorney about a
foreign account, keep the emails, engagement letters, or notes that prove it.
4. Voluntary disclosure only helps if it's actually complete. Rund's participation in the
IRS's disclosure program did not shield him, because his disclosures during
that program were themselves incomplete.
5. Don't count on the Constitution to cap a runaway penalty. With courts treating the
statutory maximum as the real ceiling for excessiveness analysis, a penalty
needs to approach that maximum — not just be a large dollar figure — before an
Eighth Amendment challenge has a real chance of success.
If you have unreported
foreign accounts, the lesson from Rund is that time and professional advice are
your best tools not silence and hope. A proactive, complete disclosure, made
with qualified counsel before the IRS comes looking, remains the most reliable
way to avoid becoming the next multi-million-dollar cautionary tale.
Do You Have A Non-Compliant Offshore Account?
Source:
Case citation: United States v. Rund, No. 24-1958, 2026 WL 2617117
(4th Cir. Sept. 4, 2026), available at https://www.ca4.uscourts.gov/opinions/241958.P.pdf. Underlying district court decision: United States v. Rund, 743
F. Supp. 3d 779 (E.D. Va. 2024), available via Justia.
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