Amendment to the Bank Secrecy Act Regulation Regarding Reports of Foreign Financial Accounts

This past February the Financial Crimes Enforcement Network (FinCEN) amended the regulations regarding the Report of Foreign Bank and Financial Accounts or “FBAR” in response to multiple comment letters requesting more detailed explanations regarding the scope and application of the FBAR rules.

FinCEN focused on three areas:

• The scope of the persons that are required to file reports of foreign financial accounts.
• The types of accounts that are reportable, and relief in the form of exemptions for certain persons with signature or other authority over foreign financial accounts.
• Adoption of provisions intended to prevent persons subject to the rule from avoiding their reporting requirement.

The new FBAR regulations revise the definition of signature (or other) authority to more clearly apply to individuals who have the authority to control the disposition of assets in the account by direct communication (whether in writing or otherwise) to the foreign financial institution.Individuals are considered to have signature or other authority if the bank will act upon their direct communication.Accordingly, multiple individuals may have signature authority over any one foreign bank account.

In addition, the regulations clarify whether an account is indeed foreign and therefore reportable as a foreign financial account.They reiterate that a bank account is not considered foreign if it is held in a U.S. branch of a foreign institution. Further, if a U.S. bank holds a person’s non-U.S. assets, an FBAR filing requirement is not triggered.

The regulations also clarify that officers or employees who file an FBAR because of signature or other authority over the foreign financial account of their employers are not expected to personally maintain the records of the foreign financial accounts of their employers. Finally, the FinCEN indicated that it plans to allow electronic filing of FBARs in the near future.

The new FBAR regulations were effective on March 28, 2011, and apply to all FBARs required to be filed by June 30, 2011, with respect to foreign financial accounts maintained in calendar year 2010 and for all FBARs required to be filed with respect to all subsequent calendar years.

FinCEN believes that these clarifications and changes should address many of the concerns expressed in the public comments and therefore should make it easier for taxpayers to determine whether the FBAR must be filed.