United States v. Rund, No. 24-1958, ___ F.4th ___ (4th Cir. Sep. 4, 2026), affirming 743 F. Supp. 3d 779 (E.D. Va. 2024)

As tax professionals representing clients with international assets, we continuously grapple with the severe civil penalties associated with non-compliance under the Bank Secrecy Act (BSA). In United States v. Richard M. Rund, No. 24-1958, ___ F.4th ___ (4th Cir. Sep. 4, 2026), the Fourth Circuit Court of Appeals affirmed a $2,915,633 willful FBAR penalty against a taxpayer, Richard Rund. This case provides a critical roadmap for CPAs and EAs regarding the court’s strict application of the objective recklessness standard for “willfulness” and the formidable barriers to asserting an Excessive Fines defense under the Eighth Amendment.

Factual Background and the IRS Assessment

The taxpayer, Richard Rund, is a U.S. citizen and businessman who held a financial interest in or authority over more than a dozen foreign bank accounts that he failed to report on annual FBARs for the years 2003 through 2008, 2013, and 2014. These violations fell into four distinct categories:

Personal HSBC Hong Kong Accounts: Rund reported one of his HSBC personal accounts on FBARs for 2001 and several other years, but failed to do so for 2004, 2006, 2007, or 2008. In 2008, he opened a second personal HSBC account, which also went unreported.
Bank of East Asia (BEA) Accounts: Rund set up FOB Instruments Ltd. (FOB) around 1999 and transferred ownership of York Luen to FOB. Rund structured FOB so that he “would not be a legal person for F.O.B. on the face” of things, which “could enable [him] a more favourable tax rate in [the] US.” He was designated the “Beneficial Owner” of 95% of FOB’s shares, while a friend acted as a “nominee for the Beneficial Owner.” He exercised complete control over the funds but failed to report these accounts for 2003 through 2008.
UBS Switzerland Account: Opened in 2003 under the name of Far East Ventures Ltd. (FEV), a Mauritius shell company. FEV had no business activity other than receiving $25,000 monthly from FOB to avoid Hong Kong taxes. FEV was named the account holder “for US tax reasons,” while Rund retained control and beneficial ownership of the UBS account. He failed to report this account for 2004 through 2008.
CCB and HSBC Accounts (Post-OVDP): In 2010, Rund entered the IRS’s Offshore Voluntary Disclosure Program (OVDP). He disclosed the UBS and some BEA accounts but was removed from the program in 2016. While participating in OVDP, he opened two accounts at China Construction Bank (CCB) in 2013 under York Luen (which he then owned 100% as sole director). He filed a timely 2013 FBAR but omitted these CCB accounts. He also failed to timely file his 2014 FBAR, omitting the CCB and personal HSBC accounts.

Throughout this period, Rund suffered from what he termed “compounding conditions.” These included business litigation over FOB starting in 2007, an ADHD diagnosis in 2006 or 2007, cancer treatment in 2017 and 2018, and subsequent depression.

The IRS identified 48 reporting deficiencies and, concluding the violations were willful, assessed civil penalties totaling $2,915,663. To calculate the penalty, the IRS took 50% of the highest aggregate balance of the unreported accounts (which occurred in 2014) and allocated it pro rata across the years and accounts, resulting in an effective annual penalty of roughly 14% to 16% of the balance of each unreported account.

The government filed an action in the Eastern District of Virginia to reduce the assessment to judgment under 31 U.S.C. § 5321(b)(2). The district court granted summary judgment for the government, holding that Rund’s FBAR violations were willful as a matter of law and that the penalties did not violate the Eighth Amendment (United States v. Rund, 743 F. Supp. 3d 779, 791 (E.D. Va. 2024)).

The Standard of Willfulness Under the Bank Secrecy Act

To establish liability for enhanced civil penalties under 31 U.S.C. § 5321(a)(5)(C), the government must show the taxpayer’s failure to file was “willful.” The Fourth Circuit reaffirmed that “for the purpose of applying § 5321(a)(5)’s civil penalty, a ‘willful violation’ of the FBAR reporting requirement includes both knowing and reckless violations”, aligning with its landmark decision in United States v. Horowitz, 978 F.3d 80, 88 (4th Cir. 2020).

In civil tax enforcement, recklessness is governed by “an objective standard”. A taxpayer acts objectively recklessly if they “act[] or (if the person has a duty to act) fails to act in the face of an unjustifiably high risk of harm that is either known or so obvious that it should be known” (quoting Horowitz, 978 F.3d at 89; Farmer v. Brennan, 511 U.S. 825, 836 (1994); Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 69 (2007)).

Under this framework, a willful FBAR violation based on recklessness is established as a matter of law if the taxpayer:

“clearly ought to have known that”
“there was a grave risk that an accurate FBAR was not being filed” and
“he was in a position to find out for certain very easily” (quoting Horowitz, 978 F.3d at 89; Bedrosian v. United States, 912 F.3d 144, 153 (3d Cir. 2018)).

Application of the Law to the Taxpayer’s Facts

The Fourth Circuit methodically applied this three-part objective recklessness standard to each category of Rund’s foreign accounts, rejecting his arguments that summary judgment was inappropriate.

First, regarding general awareness, Rund had actual knowledge of the FBAR requirements because he had filed FBARs for years prior to 2003. Furthermore, the incomplete FBARs he did file had warning instructions directly below the signature line notifying him that the form “should be used to report a financial interest in, signature authority, or other authority over one or more financial accounts in foreign countries”.

Second, the Court highlighted the role of tax returns. For the years 2005 through 2008, Rund signed tax returns under penalty of perjury falsely answering “no” to the question of whether he had an interest in a foreign bank account. Following Horowitz, the court noted that a taxpayer’s failure “to review the [tax] returns with the care sufficient at least to discover their misrepresentations of foreign bank accounts” represents “an aspect of their recklessness”.

Third, the Court dismissed Rund’s defense regarding professional advice. Rund consistently employed tax professionals. However, there was no evidence that he informed them of the foreign accounts before 2009. The court emphasized that he was in a position to easily clear up his obligations by disclosing the accounts, and the “absence of evidence that he did so under these circumstances evinces more than mere negligence”.

The court systematically addressed and rejected Rund’s arguments:

Lack of Motive to Conceal: Rund argued that his historical disclosure of some HSBC accounts showed he lacked a “motive to conceal”. The Fourth Circuit held that while motive is relevant to a knowing violation, it is not required to establish objective recklessness.
Compounding Medical Conditions: Rund blamed his ADHD and other stressors for the omissions. The Court rejected this defense because Rund “managed to file timely and complete FBARs for the years 2009 to 2012” despite these conditions, and did not tether any specific impairment to the periods of non-compliance.
Reinvestment Defense for CCB Accounts: For his 2013 CCB accounts, Rund claimed he omitted them because the funds came from a real estate sale he intended to reinvest to defer tax. The court pointed out that Rund had no professional advice supporting an FBAR filing exception for reinvested proceeds. More importantly, by the June 2014 filing deadline, Rund knew the funds had not been reinvested in 2013. Since he was in the OVDP at the time, he “should have been even more cognizant of his reporting requirements and careful with his omissions” (quoting United States v. Rund, 743 F. Supp. 3d 792 (E.D. Va. 2024)).

Ultimately, the Court concluded that Rund “clearly ought to have known” of the grave risk of non-compliance and “was in a position to find out for certain very easily”. Thus, his violations were willful as a matter of law.

The Proportionality Analysis Under the Excessive Fines Clause

The second major issue was whether the $2.9 million civil penalty violated the Excessive Fines Clause of the Eighth Amendment. The Fourth Circuit noted a clear circuit split on whether civil FBAR penalties are subject to the Eighth Amendment at all. The First Circuit in United States v. Toth, 33 F.4th 1, 16 (1st Cir. 2022), held that they are not because they serve a remedial purpose and are not tied to a criminal sanction. Conversely, the Eleventh Circuit in United States v. Schwarzbaum, 127 F.4th 259, 275 (11th Cir. 2025), held that they are subject to the clause because they serve at least “in part to punish” (quoting Toth v. United States, 143 S. Ct. 552, 553 (2023) (Gorsuch, J., dissenting from denial of certiorari)).

The Fourth Circuit assumed, without deciding, that the Excessive Fines Clause applied, but found that the $2,915,633 penalty was not unconstitutionally excessive.

Under United States v. Bajakajian, 524 U.S. 321, 334 (1998), the “touchstone of the constitutional inquiry under the Excessive Fines Clause is the principle of proportionality”. A fine is unconstitutional only if it is “grossly disproportional to the gravity of a defendant’s offense”. In making this de novo determination, the Fourth Circuit applied the four-factor framework established in United States v. Ahmad, 213 F.3d 805, 813 (4th Cir. 2000):

Nature and Extent of the Offense: Rund committed upwards of 40 willful FBAR violations across more than a dozen accounts over eight nonconsecutive years. The court noted that “repeated or prolonged offenses can justify higher fines than a solitary violation”. Rund’s case was “quite unlike Bajakajian,” which involved a single, isolated failure to report currency.
Relation to Other Offenses: Unlike the taxpayer in Bajakajian who simply transported legal currency, Rund’s FBAR failures “facilitated concealing taxable income from the Government”. The court recognized a direct “correlation” between the unreported balance of an account and the potential tax loss to the government. Since Congress has tied “the size of the penalty to the size of the account” (quoting Schwarzbaum, 127 F.4th at 281), the penalty is proportional to the “increas[ed] incentiv[e] not to comply with the reporting requirements as the amounts in the concealed accounts ... gr[o]w larger” (quoting Schwarzbaum, 127 F.4th at 281).
Harm Caused: Rund’s failure to report resulted in substantial lost tax revenue (currently being litigated in the Tax Court) and forced the IRS to expend sizeable investigative resources to uncover the non-compliance.
Penalties Authorized by Congress: The maximum statutory penalty authorized by Congress for Rund’s 48 deficiencies was $9,842,840. The assessed penalty of $2,915,663 was only about 30% of this statutory maximum. The pro rata annual assessment of 14% to 16% of the account balances was “much less than the maximum that Congress authorized” (which is the greater of $100,000 or 50% per account, per year).

The court concluded that the IRS’s assessment fell “within the lower portion of the willful violator scale” and was not grossly disproportional to the gravity of his offenses.

Key Takeaways for Tax Professionals

The Rund decision reinforces several critical lessons for tax practitioners:

The Objective Standard is Unforgiving: Clients cannot escape willful FBAR penalties by pointing to medical conditions like ADHD or a lack of explicit tax-evasion intent. If they “clearly ought to have known” and were in a “position to find out very easily,” objective recklessness will be found.
Failure to Disclose to Preparers is Fatal: Taxpayers cannot claim reliance on tax professionals if they failed to provide them with the foreign account details. The court will treat the failure to disclose as objective recklessness.
The Excessive Fines Defense is a High Bar: Even if the Eighth Amendment applies to civil FBAR penalties, a penalty that is well below the statutory maximum and is tied directly to multiple, repeated violations that conceal income will easily survive constitutional scrutiny.

Prepared with assistance from Gemini Notebook.