New Supreme Court Appeal Asks Whether the Government Can Ignore the Constitution’s Excessive Fines Clause by Imposing Not “Fines,” But “Penalties”

ARLINGTON, Va.—The Eighth Amendment is clear—the government may not impose excessive fines. But what if the government calls a multimillion-dollar punishment a “civil penalty”? Can it escape constitutional scrutiny? A new appeal to the U.S. Supreme Court from a Boston-area grandmother and the Institute for Justice (IJ) calls on the Court to confirm what should already be obvious: a $2.17 million civil penalty is subject to the Excessive Fines Clause.

“The Eighth Amendment’s Excessive Fines Clause is a key check on the government’s power to punish,” said IJ Attorney Sam Gedge. “That is why the Excessive Fines Clause is part of the Bill of Rights, and that is why the federal courts need to take it seriously.”

In the mid-1930s, Monica Toth’s father fled from Germany to South America to escape rising, violent antisemitism. Monica was born there in 1940 and emigrated to the United States in her twenties. Back in South America, her father became a successful businessman, and, before his death, he gifted Monica a considerable amount of money, which was kept in a foreign bank account. Like many who fled Germany or later survived the Holocaust, he felt strongly that his daughter should have a reserve of money in case (as happened to him) she might one day have to flee government persecution.

Years later, Monica learned about the federal government’s Foreign Bank and Financial Accounts (FBAR) reporting requirement. Under the 1970 Bank Secrecy Act, Americans with foreign bank accounts containing more than $10,000 are required to file an FBAR form with the federal government. In 2010, Monica filed five years’ worth of reports. Following an audit, she ended up being assessed a relatively modest amount of back taxes and penalties, which she paid promptly and in full.

But the government wasn’t done with her. The IRS later decided that a reasonable person in Monica’s shoes would have tried to figure out whether the FBAR requirements applied. That made Monica’s reporting violation “reckless,” which meant it could be categorized as “willful,” which exposed her to a maximum civil penalty of more than $2 million. At first representing herself without attorneys, Monica raised the Eighth Amendment’s Excessive Fines Clause as a defense. But first the district court and then the 1st U.S. Circuit Court of Appeals rejected that defense on a startling ground. According to the First Circuit, the multimillion-dollar penalty “is not a ‘fine’” and “the Excessive Fines Clause of the Eighth Amendment does not apply to it.” The court declined even to consider whether the penalty might be excessive.

That interpretation of the Eighth Amendment is profoundly wrong. As the IRS’s National Taxpayer Advocate warned last year, “The maximum FBAR penalty is among the harshest civil penalties the government may impose.” It is precisely the sort of punishment the Excessive Fines Clause serves to check.

The last time the Supreme Court considered the Clause was its landmark ruling in Timbs v. Indiana, another Institute for Justice case. In a 9-0 decision, the Court held in Timbs that the Eighth Amendment’s protection against excessive fines is “both fundamental to our scheme of ordered liberty and deeply rooted in this Nation’s history and tradition.” That protection has meaning only if the federal courts enforce it faithfully.

“Across the country, Americans suffer from abusive fines,” said IJ Attorney Brian Morris. “The Eighth Amendment is their protection. But if the government can escape judicial scrutiny of ruinous fines by clever wording, nothing would be out of the government’s reach.”

The Institute for Justice is a public-interest law firm that litigates nationwide to vindicate individual liberties. IJ is currently working to protect a Florida homeowner from ruinous fines for how she parked on her own driveway; drivers targeted by an abusive impound regime in Wilmington, Delaware; and thousands of Alabamians victimized by a notorious profit-fueled ticketing scheme in Brookside, Alabama.

“Fines, fees and forfeitures, if unrestrained, threaten Americans’ cherished liberties,” said IJ President and General Counsel Scott Bullock. “The courts must respect the Constitution and control the government’s impulse to prioritize revenue over people’s lives.”