United States v. Burga

Background

The United States sued Francis Burga and Francis Burga as administrator of the Estate of Margelus Burga. It alleged that they failed to file Reports of Foreign Bank and Financial Accounts (FBARs) for approximately 271 foreign bank accounts during the 2004–2009 reporting years, violating the Bank Secrecy Act. The Government sought duplicative penalties totaling $52,581,604.

The accounts were held through a network of foreign foundations and entities in multiple countries. The Government alleged that the network was used to divert and shelter at least $17 million in profits from GWUSA through a false-invoicing arrangement. The proceeds were also used for various purchases and expenses benefiting the defendants and their family.

The Government moved for partial summary judgment, asking the court to find that Francis had a financial interest, signature authority, or other authority over the accounts and that Francis and Margelus willfully failed to report them. Summary judgment is appropriate only when the evidence shows that no genuine dispute of material fact requires a trial.

Applicable law

The Bank Secrecy Act and its regulations require certain United States citizens and lawful permanent residents to report qualifying foreign financial accounts. The elements relevant here were that the person was a United States citizen or lawful permanent resident, had a financial interest or signature or other authority over a foreign account, the account balance exceeded $10,000, and the person willfully failed to disclose it.

The defendants conceded that they were United States citizens, that the total balances exceeded $10,000, that Margelus had a financial interest in all the accounts, and that Francis had a financial interest in one UBS account. The court adopted an objective-recklessness standard for willfulness. Under that standard, a person acts willfully if the person clearly should have known there was a serious risk that the reporting requirement was not being met and could easily have found out for certain.

Francis’s financial interest or authority

The court found no genuine dispute that Francis had a financial interest in the UBS primary account x7.405 and six related sub-accounts—x405, x280.0, x280.1, x280.3, x280.4, and x280.5—from 2004 until the accounts were transferred in 2007. The bank records listed the sub-accounts with the primary account, and Francis conceded her financial interest in the primary account.

The court found genuine factual disputes about whether Francis retained a financial interest in the UBS funds after their 2007 transfer to Micadema. The Government asserted that Micadema became a nominee for Francis and Margelus, but it offered no supporting evidence establishing that Francis remained an owner or that Micadema acted as her nominee.

The court found no genuine dispute that Francis had signature authority over Raiffeisen x50.17 because a bank document showed that she used her signature to withdraw 10,000 euros in December 2009. It also found no genuine dispute that she had signature authority over GKB x0.100 because her name appeared on a 2009 signature card. The court rejected the argument that the Government had to show an actual transaction from GKB x0.100 or produce a separate signature card for Raiffeisen.

The court also found no genuine dispute that Francis had signature authority over the three LGT accounts opened by Bakewell Assets—x6.023, x6.030, and x7216. Resolutions that Francis signed as a Bakewell director authorized opening an LGT account and transferring property-sale proceeds to an LGT account.

For the remaining accounts, the Government relied mainly on Francis’s role in GWUSA’s sales and marketing operations. The Government argued that her negotiations, pricing decisions, payment terms, and directions that customers send orders to foreign GW entities showed “other authority” over related foreign accounts. The court found factual disputes because there was no evidence that Francis maintained the ownership structure, directed employees to transfer money to foreign banks, initiated bank transfers, or expected to transact with the accounts. Francis’s testimony that Margelus controlled the finances and prevented her involvement also supported the possibility that she lacked authority over those accounts.

The court declined to grant summary judgment based on the Government’s separate community-property theory, stating that the Government provided no legal support for that theory in the FBAR context and did not develop it at oral argument.

Willfulness

As to Margelus, the court found no genuine dispute that he willfully failed to file FBARs for 2004–2008. The undisputed evidence showed that he created and controlled the foreign foundations and entities, managed the family and business finances, received financial statements, and was asked each year whether he had foreign accounts. He answered no, reviewed and signed tax forms indicating that he had no foreign accounts, and was in a position to determine easily why he was being asked about foreign accounts. The court also concluded that the size and complexity of the structure supported an inference that his conduct was intended to conceal or mislead about income or financial information.

The court found genuine disputes about Francis’s willfulness for 2004–2008. Conflicting evidence existed about whether she knew or should have known about most of the accounts, whether she was asked about foreign accounts during tax preparation, whether she reviewed the tax forms, and whether Margelus’s alleged abuse and control prevented her from learning about the accounts and reporting requirements. Resolving those issues would require credibility determinations that are not appropriate on summary judgment.

The court reached a different conclusion for Francis’s own 2009 filing. After Margelus died, Francis became president of GWUSA, received IRS letters concerning offshore entities, hired counsel to investigate, had access to attorneys, an accountant, and company records, and personally withdrew 10,000 euros from Raiffeisen x50.17 in December 2009. The court found no genuine dispute that she should have known of the serious risk that required FBARs were not being filed and could easily have investigated. It therefore found her failure to file an FBAR for 2009 willful as to accounts in which she had a financial interest, signature authority, or other authority.

The court also found no genuine dispute that the Estate willfully failed to report approximately 62 accounts omitted from the Estate’s 2009 FBAR. Francis filed that report after learning about the structure but relied completely on a financial adviser and signed the forms without reviewing the information. The court concluded that, under those circumstances, the Estate should have investigated and reported accounts that exceeded $10,000 at any time during 2009.

Disposition

The court granted in part and denied in part the Government’s motion for partial summary judgment. It denied the motion concerning Francis’s interest or authority over accounts other than the specified UBS, Raiffeisen, GKB, and LGT accounts, including the UBS accounts after their 2007 transfer to Micadema, and denied the motion concerning whether Francis willfully failed to file FBARs for 2004–2008. It granted the motion as to the remaining accounts and as to the willfulness findings for Margelus’s 2004–2008 failures, Francis’s 2009 failures concerning accounts over which she had the required interest or authority, and the Estate’s omission of approximately 62 accounts from its 2009 report.