Financial Crimes Enforcement Network (FINCEN) Issue Final Rules

The Bank Secrecy Act (“BSA”) was originally enacted in 1970 to help detect and prevent money laundering. The BSA requires reporting for a calendar year called a “Report of Foreign Bank and Financial Accounts” (Form TD F 90-22.1 (the “FBAR”)), which must be filed by June 30th of the subsequent year. Records related to such accounts must be maintained for a period of five years. The FBAR has become a difficult and comprehensive reporting requirement for individuals with foreign accounts. The penalties for failuer to file an FBAR are extrememly high and unfair.

The instructions to the FBAR identify who must file an FBAR report, what types of foreign accounts trigger the reporting requirement and list any exemptions that there may be to these requirements. Despite the fact that the instructions to the FBAR make such specifications, there was still much confusion over the filing requirements. In an effort to “(1) [d]efine the scope of individuals and entities required to file the FBAR, (2) delineate the types of reportable accounts, and (3) exempt certain persons and accounts from reporting requirement and provide additional relief,” the Financial Crimes Enforcement Network (“FinCEN”) issued a Notice of Proposed Rulemaking (“NPRM”) on February 16, 2010 addressing the FBAR rules. On February 24, 2011 FinCEN issued its final rule which amended the BSA. Consequently the Treasury Department published final regulations amending the FBAR regulations. These new regulations became effective March 28, 2011 and apply to FBARs required to be filed with respect to foreign financial accounts maintained in calendar year 2010 (for which FBAR reports must be filed by June 30, 2011) and subsequent years. In light of several comments received by FinCEN in response to the NPRM some changes were made to the final rule in an effort to (1) further clarify what accounts are reportable, (2) revise the definition of signature authority, (3) further clarify what responsibilities officers or employees who file an FBAR because of signature or other authority over a foreign financial account of their employers have and (4) further clarify the general exemptions applicable to the reporting requirements.

The final rule attempts to clarify when an account is deemed “foreign” and is therefore subject to the FBAR reporting requirements. As a general matter FinCEN determined that “an account is not a foreign account under the FBAR if it is maintained with a financial institution located in the United States.” Further, an account will not be deemed to be foreign simply because it contains holdings or assets of foreign entities. As per custodial arrangements, such as omnibus accounts, FinCEN clarified that in situations where the U.S. person can only access their non-U.S. based holdings through the U.S. custodian there is no FBAR reporting requirement, however “if the specific custodial arrangement permits the United States person to directly access their foreign holdings maintained at the foreign institution, the United States person would have a foreign financial account” and would consequently be subject to the FBAR reporting requirements.

For a complete version of the final rule, and FinCEN’s analysis thereof, please see Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations – Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234 (February 24, 2010).

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