FinCEN Amends and Clarifies FBAR Responsibilities
On February 24, 2011, the Financial Crimes Enforcement Network (FinCEN) issued a final rule amending and clarifying the Bank Secrecy Act (BSA) implementing regulations regarding the Report of Foreign Bank and Financial Accounts (FBAR). FBARs, which have existed since 1972, are used to report a financial interest in, or signature or other authority over, one or more financial accounts in foreign countries if the aggregate value of the accounts exceeds $10,000. The complete final rule, which is available here, will become effective on March 28, 2011.
On February 26, 2010, FinCEN issued a Notice of Proposed Rulemaking (NPRM) addressing the FBAR rules. The final rule, which was issued following FinCENs receipt and review of 42 timely filed comment letters from the interested public, adopts the proposed rules proposed changes with slight modifications. Among the highlights of the final rule are the following critical points:
First, in the final rule, FinCEN clarified the issue of what constitutes a reportable account. According to FinCEN, “an account is not a foreign account under the FBAR if it is maintained with a financial institution located in the United States.” FinCEN also addressed cases where a bank in the United States acts “as a global custodian” holding the persons assets outside the United States. As it relates to these accounts (commonly referred to as “omnibus accounts”), FinCEN clarified that so long as the US person cannot directly access their foreign holdings maintained at the foreign institution, the US customer maintains an account with a financial institution located in the United States and thus “the US customer would not have to file an FAR with respect to assets held in the omnibus account and maintained by the global custodian.”
FinCEN next addressed the troublesome and oftentimes confusing question of the type of “signature or other authority” that a person must have over a foreign financial account to trigger a FBAR filing requirement. In addressing issue, FinCEN first revised the definition of “signature or other authority” to provide as follows:
Signature or other authority means the authority of an individual (alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account by direct communication (whether in writing or otherwise) to the person with whom the financial account is maintained.
According to FinCEN, the test for determining whether an individual has signature or other authority over an account (and thus a filing obligation) “is whether the foreign financial institution will act upon a direct communication from that individual regarding the disposition of assets in that account.” Thus, as explained in the final rule, the reporting obligation extends even “to employees with signature authority over but no financial interest in their employers foreign financial accounts.” According to FinCEN, it had contemplated creating an exemption for such employees, but consultations with law enforcement authorities revealed that law enforcement interests would be better served by requiring employees and employers to file FBARs, despite the duplicative filings that will undoubtedly result. However, as it relates to employees or officers who file solely due to their signature authority over foreign financial accounts, FinCEN will not “expect such officers or employees to personally maintain the records of the foreign financial accounts of their employers.”
The final rule also addresses a variety of case specific issues in response to comments submitted by the interested public. It is worth reading in its entirety, especially if you have concerns about a possible FBAR filing obligation of your own. If you have questions about whether this FinCEN final rule may impact you, contact us at firstname.lastname@example.org.