Harvard Professor's Conviction for Filing False Tax Returns and FBAR Violations Upheld

(Parker Tax Publishing September 2022)

A district court denied a motion for judgment of acquittal or alternatively, for a new trial, filed by a former Harvard chemistry professor who was convicted by a jury of making false statements to the U.S. government, filing false tax returns, and failing to file a Report of Foreign Bank and Financial Accounts (FBAR) in connection with his contractual relationship with a Chinese university and his participation in a Chinese talent recruitment plan. The court found that the evidence against the professor was sufficient to uphold the convictions and rejected his argument that the regulation imposing the FBAR requirement is an impermissible interpretation of the statute. U.S. v. Lieber, 2022 PTC 274 (D. Mass. 2022).

Background

Charles Lieber was a professor in the Department of Chemistry and Chemical Biology at Harvard University. He became its chair in 2015. From 2011 to 2015, Lieber developed a relationship with Wuhan University of Technology (WUT) in China and participated in the Chinese government's Thousand Talents Program (TTP). His relationship with WUT, and specifically his participation in the TTP, was the subject of investigations by two U.S. agencies that periodically provided substantial grant money to fund Lieber's laboratory and research at Harvard.

In 2018, agents from the Defense Criminal Investigative Service of the Department of Defense (DOD) interviewed Lieber about his relationship with WUT and his participation in the TTP. Lieber stated that he was never asked to participate in the TTP and that he was not sure how China categorized him, even though he had been asked by representatives of WUT to take part in the TTP, and in 2012, had signed a three-year contract with WUT memorializing the same. Also in 2018, the National Institutes of Health (NIH) approached Harvard University to investigate Lieber's ties with WUT and the TTP. After receiving notice of these inquiries, Lieber met with Harvard officials and told them that he was not, and had never been a participant, in the TTP. Harvard included Lieber's statement in a draft letter it prepared in response to NIH's inquiry, which Lieber reviewed but did not correct. In 2019, Harvard sent the letter to NIH.

Lieber received significant sums of money from WUT in 2013 and 2014. A portion of the payments were deposited in a bank account in China. Lieber carried the remainder of the payments back to the United States in cash and failed to report these payments on his tax returns. Further, although his Chinese bank account had a balance of at least $10,000 in 2014 and 2015, Lieber did not file a Report of Foreign Bank and Financial Accounts (FBAR) for either year.

Lieber was indicted on two counts of making false statements to the U.S. government, two counts of filing false tax returns under Code Sec. 7206(1), and two counts of failing to file FBARs as required under 31 U.S.C. Section 5314 and 31 C.F.R. Section 1010.350. He was tried by a jury and, after the close of the evidence, moved for judgment of acquittal, which the court denied. The jury returned a verdict of guilty on all six counts. Lieber then renewed his motion for judgement of acquittal or, in the alternative, a new trial.

Lieber argued that the government failed to introduce sufficient evidence to sustain the guilty verdicts for the false statement charges and the FBAR violation for year 2015. He also argued that 31 C.F.R. Section 1010.350, the regulation on which the government relied for the FBAR charges, is void. The regulation states that a United States person having a financial interest in, or signature authority over, a bank, securities, or other financial account in a foreign country "shall report such relationship." According to Lieber, the regulation impermissibly requires a U.S. person to report a "relationship" with a foreign bank while 31 U.S.C. Section 5314(a) only requires that a U.S. person report a "transaction" with a foreign bank. The statute requires that a "resident or citizen of the United States [must]...file reports...when [he or she] makes a transaction or maintains a relationship for any person with a foreign financial agency."

In addition, Lieber contended that the government's allegation that he had "signature and other authority over" a Chinese bank account was an invalid legal theory because 31 C.F.R. Section 1010.350(a) only applies to financial accounts, not bank accounts. He further argued that when the court instructed the jury on the definition of willfulness, it should have instructed the jury that a heightened standard of willfulness applied to the charges for filing false tax returns and failing to file FBARs. In addition, Lieber contended that because the government had to prove he had a "financial interest in" or "signature authority over" a foreign bank account, and those terms are regulatory terms of art, the court erred by failing to instruct the jury on the terms' regulatory definitions.

Analysis

The district court denied Lieber's motions for acquittal or a new trial. Regarding his conviction for making false statements, the court found that the entirety of the evidence, including Lieber's emails with a WUT professor regarding the execution of the TTP contract and his participation in the TTP, as well as Lieber's post-arrest statements, was sufficient for a jury to find literal falsity of the statements as charged. The court also found that there was sufficient evidence that Lieber's response to Harvard's request was knowingly false and therefore so was Harvard's response to NIH, which Lieber reviewed but did not correct.

The court rejected Lieber's argument that 31 C.F.R. Section 1010.350 is invalid. In the court's view, Lieber's position assumed that the "relation" provision of 31 U.S.C. Section 5314(a) only applies when the U.S. person maintains a relation for a third party but does not apply when he maintains a relation with a foreign bank himself. The court said that Lieber's interpretation undermines the natural meaning of "any person," which includes the U.S. person himself. The court also found that the government presented sufficient evidence of Lieber's willfulness with regard to his failure to file an FBAR for 2014. The court noted that engagement letters sent to Lieber and his wife by a tax accountant included a written explanation of the FBAR reporting requirement, and that Lieber signed one of the letters. In addition, Lieber's 2013 and 2014 tax returns represented that he did not have a financial interest in any foreign account.

The court disagreed with Lieber's reading of 31 C.F.R. Section 1010.350(a) and his contention that it does not apply to bank accounts. The court found that the regulation defines a bank account as a type of financial account and that to read it otherwise would go beyond the plain meaning without justification. The court also rejected Lieber's argument that the jury should have been instructed on a heightened standard of willfulness applicable to the counts for filing false tax returns and not filing FBARs. The court found that the knowing and willful standard was defined for the jury at the outset of the jury instructions and that the court then instructed the jury on the willfulness element of the charges. The court also saw no error in the court's failure to define the terms "financial interest" and "signature or other authority over." The court found that, given the evidence in this case, and the fact that the phrases "financial interest in" or "signature or other authority over" a bank account are reasonably clear, no error occurred.

For a discussion of the criminal penalty for filing a false tax return, see Parker Tax ¶277,110. For a discussion of information reporting for foreign bank accounts, see Parker Tax ¶203,170.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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