Harvard Professor Struggles to Defend Against Criminal Tax and FBAR Charges
If you are facing criminal FBAR charges for failing to disclose your foreign financial accounts, you and your tax attorney may need to get creative in crafting your defense. But as one recent criminal tax case from Massachusetts shows, creativity doesn’t always pay off.
Harvard Professor Faces Criminal Tax and FBAR Charges
Charles Lieber was a professor of chemistry and chemical biology at Harvard University. He held a prestigious position, becoming the chair of his department in July 2015. But in the years leading up to it, he made some choices that resulted in two separate U.S. agencies investigating his financial affairs. Eventually, he was charged with six criminal tax and FBAR charges and found guilty in a jury trial.
In 2011 or so, the U.S. attorney’s office said Professor Lieber developed a relationship with Wuhan University of Technology (WUT) in China and participated in the Chinese government’s Thousand Talents Program (TTP). In July 2012, he signed a three-year contract with WUT. In 2013 and 2014, WUT paid Lieber “significant sums of money” which were deposited into a Chinese bank account or carried back to the U.S. in cash. But Lieber never reported the income in his tax returns. He also never filed a report of foreign financial accounts (FBAR) disclosing the existence of the Chinese bank account, which contained more than the $10,000 minimum reporting balance. The income was only discovered when two U.S. agencies began periodic reviews of grant money given to Lieber as part of his work at Harvard.
In April 2018, the Department of Defense (DOD) interviewed Lieber about his work with WUT and the TTP. Lieber said he was never asked to participate in the TTP and he was not sure how China categorized him. In 2018, the National Institutes of Health (NIH) also investigated Lieber’s connections with WUT and TTP, but he told them too that he was not a participant in the TTP. Following a federal criminal trial, a jury convicted him of six charges:
- Making false statements to the U.S. government (two counts)
- Filing false tax returns (two counts)
- Failing to report his interest in a foreign bank account (two counts)
He filed a motion for judgment of acquittal, seeking to overturn his conviction or obtain a new trial.
“Doctrine of Literal Truth” Defense to Criminal Tax Charges
Lieber claimed that the jury should not have been allowed to consider his statements “false” when they were “literally true but not responsive to the question asked and arguably misleading by negative implication.” He argued that because he told the DOD he didn’t know how China categorized him, the government should have been required to prove that categorization to show his statements were false. The Court disagreed, saying it was Lieber’s state of mind, and not the Chinese government’s, that mattered in proving the statements were false. Since Lieber entered into contracts with WUT for his work with the TTP, his statements to the DOD were false.
Criminal FBAR Defense Says Reporting Regulation was Invalid
Lieber next claimed that he could not be convicted of criminal FBAR charges because the reporting regulation itself was flawed and void. The Bank Secrecy Act, which establishes the reporting requirement requires a U.S. person to report a “transaction” with a foreign bank, but the regulation setting the FBAR reporting requirements uses the word “relationship.” Lieber argued that a person could have a relation on behalf of a third party, but not for himself. Again, the Court disagreed, and said that the natural meaning of “any person” included the defendant himself.
Criminal Willfulness Requirements for FBAR Charges
The standard for proving someone committed a tax crime by willfully failing to file FBAR requirements is different from the civil standard using the same terminology. As this blog has addressed many times, in a civil case, willfulness includes both intentional acts and reckless disregard for a known duty to report foreign financial accounts.
But for criminal FBAR charges to result in a conviction, a willful violation must be demonstrated by an knowing and willful intent to avoid taxes and disclose assets. Lieber said the government hadn’t proven that. However, once again, the Court disagreed. It pointed to letters Lieber and his wife had received from his tax accountant explaining the FBAR reporting requirement, his signature on the accountant’s engagement letter, and his certification of his 2013 and 2014 tax returns, which represented that he had no interest in any foreign financial accounts, which was not true. The Court said:
On this evidence the jury could find that Defendant knew about the reporting requirement for calendar year 2014 and willfully failed to meet it.
Criminal FBAR Defendant Seeks New Trial Over the Difference Between Banks and Financial Accounts
Lieber also raised another defense to his criminal FBAR charges. He said that, under the statute, he only had to report financial accounts that he had “signature or other authority over.” He said that language could only apply to financial accounts, not bank accounts. But once again, the Court was not persuaded. It said that the phrase “other financial account” signaled that the reporting regulation was designed to cover financial accounts, securities, and bank accounts, despite the technical language and the fact that bank accounts do not have signatories.
The Lieber case demonstrates that when you are facing criminal tax and FBAR charges, sometimes you have to get creative to come up with defenses and avoid criminal consequences including jail time and large fines and penalties. However, those theories need to be backed up with established law to convince the courts. Raising novel defenses won’t often work without the assistance of an experienced tax attorney who can make your case and show the Court why the government’s case can’t hold up against you.
Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 35 years’ experience. If you have questions regarding criminal tax or FBAR charges, contact Joe Viola to schedule a consultation.