FBARs from Wuhan

The US Department of Justice recently announced the indictment for tax-related crimes of Dr. Charles Lieber, the former Chair of Harvard University’s Chemistry Department, for monies received from a university in Wuhan, China.

Key excerpts from the announcement are:

Dr. Charles Lieber, 61, was indicted by a federal grand jury in Boston on two counts of making a false income tax return and two counts of failing to file reports of foreign bank and financial accounts (FBAR) with the Internal Revenue Service (IRS).  The indictment alleges that Lieber served as the Principal Investigator of the Lieber Research Group at Harvard University, which received more than $15 million in federal research grants between 2008 and 2019. Unknown to his employer, Harvard University, Lieber allegedly became a “Strategic Scientist” at WUT [Wuhan University of Technology] and, later, a contractual participant in China’s Thousand Talents Plan from at least 2012 through 2015.  China’s Thousand Talents Plan is one of China’s talent recruitment plans designed to cultivate high-level scientific talent to further China’s national security. 

Under the terms of Lieber’s three-year Thousand Talents contract, WUT allegedly paid Lieber a salary of up to $50,000 per month, living expenses of up to $150,000 and awarded him more than $1.5 million to establish a research lab at WUT.  According to the indictment, in tax years 2013 and 2014, Lieber earned income from WUT in the form of salary and other payments made to him under the Strategic Scientist and Thousand Talents Contracts, which he did not disclose to the IRS on his federal income tax returns.  The indictment also alleges that Lieber opened a bank account at a Chinese bank during a trip to Wuhan in 2012. After that, between at least 2013 and 2015, WUT periodically deposited portions of Lieber’s salary into that account. US taxpayers are required to report any foreign bank accounts that hold more than $10,000 in total at any time by annually filing an FBAR.  Lieber allegedly failed to file FBARs for the years 2014 and 2015.

In the announcement, the participating prosecutors are the National Security Division’s Counterintelligence and Export Control Section.  The case was likely brought as the United States seeks to crack down on Chinese theft of intellectual property. This is yet another complicated criminal case brought in the form of a simple tax crime using FBARs. 

FBAR crimes are easier to prove than more complex espionage or theft allegations that require criminal intent, blurry lines of evidence, and blurry proof issues. An FBAR is simply filed or not; failure to do so can be criminal (but in my experience, in most cases, only civil penalties are imposed) According to a recent report by the Internal Revenue Service (IRS), those charged with a tax crime face a very high rate of conviction. The IRS reported it brought 91.2% of all taxpayers accused of tax crimes in 2019 to conviction.

Although an extreme case, this case should remind all US persons and their advisors of the need to file FBARs for all foreign accounts to avoid unexpected future complications.  All advisors should routinely ask about clients’ foreign accounts. There are various voluntary disclosure programs to correct past non-filings and noncompliance issues to affirmatively address such problems.

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