The Currency and Foreign Transactions Reporting Act of 1970, commonly referred to as the “Bank Secrecy Act,” requires U.S. financial institutions to assist U.S. governmental agencies in detecting and preventing money laundering. The regulations that govern the Bank Secrecy Act are issued by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). These regulations require all financial institutions to submit five types of reports to the U.S. Government:

1. Currency Transaction Report
2. Report of International Transportation of Currency or Monetary Instruments
3. Suspicious Activity Report
4. Designation of Exempt Person FinCEN Form 110
5. Report of Foreign Bank and Financial Accounts (FBAR)

Of all the reports, the FBAR has recently garnered the most attention. Not only do U.S. financial institutions have a requirement to file a FBAR, each U.S. person having a financial interest in, or signature authority over, a bank account, securities or other financial account in a foreign country must report such relationship to the Commissioner of Internal Revenue for each year in which such relationship exists [and the aggregate value of the accounts exceeds $10,000] and must provide such information as shall be specified in a reporting form prescribed under 31 U.S.C. 5314. The reporting form, FinCEN 114, is due April 15th of the calendar year following the calendar year being reported.

The following terms related to FBAR qualifications are detailed in 31 CFR §1010.350.12

United States Person (U.S. person)

U.S. persons are required to file FinCEN 114, provided they meet the qualifications prescribed above. A U.S. person is defined by the regulations as: (1) [a] citizen of the United States, (2) [a] resident of the United States, or (3) [an] entity including, but not limited to, a corporation, partnership, trust, or limited liability company created, organized or formed under the laws of the United States, any State, the District of Columbia, the Territories and Insular Possessions of the United States, or Indian Tribes.

Reportable Accounts

The regulations define reportable accounts as bank accounts, securities accounts and “other” financial accounts. Bank accounts are defined under the regulations as savings deposit, demand deposit, checking or any other account maintained with a person engaged in the business banking. Securities accounts encompass those accounts with a person engaged in the business of buying, selling, holding or trading stock or other securities. Various examples of “other accounts” are listed in the regulations. With respect to whether an account is a reportable account, the reporting requirements do not apply to, among other examples, accounts of international financial institutions of which the U.S. government is a member.

Another issue to consider to determine if a financial account is a reportable account is to analyze its location to determine whether it is located in a foreign country. A foreign country includes all geographical areas located outside the United States, as defined in the regulations. By way of example, if a U.S. person maintains a foreign financial account with a branch of a U.S. Bank that is physically located outside of the United States, that account is a reportable account. Alternatively, if a U.S. person maintains a foreign financial account with a branch of a foreign bank that is located in the United States, that account is not a reportable account.

Financial Interest In or Signature or Other Authority

One of the most confusing elements of the reporting requirements is for a U.S. person to determine whether he/she has a financial interest in or signature authority over a foreign financial account. At a minimum, a U.S. person has a financial interest in a foreign financial account if he or she is the owner of record or the holder of legal title. Additionally, a financial interest can be created by way of a person’s status as a constructive owner of a foreign financial account. Generally, a constructive owner is a person acting on behalf of a U.S. person with respect to the account. A U.S. person can also be a deemed owner of a foreign financial account. The regulations further elaborate on which persons may be a deemed owners of a foreign financial account.

A U.S. person has signature or other authority over an account if that person controls the disposition of money, funds or other assets held in a financial account by direct communication to the person with whom the financial account is maintained. There are many exceptions to this requirement, which apply to officers and employees of financial institutions that have federal functional regulators. The regulations include a list of the specific exceptions.

Reporting Threshold

If U.S. persons meet all the requirements described above, these individuals are required to file FinCEN Form 114 if, at any point during the calendar year, the aggregate value of their accounts exceeds $10,000. When aggregating accounts, the maximum value of each account is added together. If a foreign financial account is reported in a foreign currency, it must be translated into U.S. dollars at year-end using the U.S. Treasury’s Reporting Foreign Exchange Rates.