The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has extended the deadline for Report of Foreign Bank and Financial Accounts (FBAR) filings for individuals with signature authority over, but not financial interest in, foreign financial accounts. In 2012, the deadline was extended to June of this year; the latest extension moves it to June 30, 2015.
FinCEN has yet to decide which prior reporting periods these individuals will have to report on by June 30 of next year. Analysis of FBAR-related notices indicates that individuals might have to file reports stretching as far back as 2009. According to FinCEN, “This matter is under consideration.”
FBAR applies to "foreign financial accounts," which by FinCEN definition include not only bank accounts, but also securities accounts, insurance or annuity policies with a cash value, and mutual funds. A U.S. person must check a box on his or her personal income tax form and file an FBAR form if he or she has a financial interest in and/or has signature authority over foreign financial accounts with an aggregate value that exceeds US$10,000 at any time during the course of the calendar year. FinCEN defines “signature authority” as individuals' ability to control, either by themselves or in conjunction with others, “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.”
For corporate officers or employees with this level of control over one or more of the company’s accounts, the recent deadline extension applies as long as they do not have a financial interest in the accounts. “That is probably the biggest gray area,” says Tom Hunt, director of treasury services for the Association for Financial Professionals (AFP). “The challenge is: What’s the definition of financial interest?”
Some companies are assuming that only people who can sign checks on a corporate account have to worry about FBAR. Others are including everyone involved in the movement of money, all the way down to accounts payable clerks. “And then other companies are also including the board member or officers named in the banking resolution, because in a sense they have authority over opening and closing accounts,” Hunt says. “Companies are tending to be conservative and report all possible filers, as opposed to not reporting enough and having to revisit it later.”
How Companies Are Responding
Despite the repeated extensions, few organizations are waiting around for the FinCEN deadline. Over the past two years, most affected businesses have been working with their banks to reconcile their account information with their banks’ data and to determine exactly which employees need to file for which years. “A lot of companies have discovered that although they sent letters to their banks to close accounts, some accounts weren’t closed,” Hunt says. “I think the regulators will say that the bank has the final source of information, even if that information is incorrect. So banks are having to look at their internal systems to make sure that they’re trued up to match what the customer’s reporting.”
Another issue is determining which individuals were associated with accounts whose balances, combined, crossed the US$10,000 threshold during a prior year. “And that’s not just bank accounts,” Hunt points out. “It could be securities accounts, it could be custody accounts. If companies don’t have their bank account reports from 2010 or 2011, it’s going to be very difficult for them to go back and create historical balances. Again, I’ve heard a lot of companies are being very conservative and probably over-reporting for the sake of not having to deal with it later.”
Finally, Hunt says, is the issue of determining which employees and officers had the appropriate authority over those accounts in a given year. It will prove a challenging task for some organizations. “If an employee leaves during the year, they’re still liable to file an FBAR for your company for that year,” he says. “In that case, you’ll have to track them down. So treasurers are working with their HR departments, looping them in to know when there’s any employment change that could impact some of the filings, as well as impact who’s cast within the definition of required filers.”
Where FBAR Compliance Is Going
The treasury team sits at the intersection of all the different actions required for FBAR compliance. The tax department will likely generate the reports, Hunt says, but the information will come from treasury. In some organizations, the tax group will file on behalf of treasury. “And now the mandate as of July 1, 2013, to file electronically further complicates matters," Hunt adds. "It makes treasury more of a recordkeeper. Treasury is responsible for notifying everyone who’s required to file that they need to check the box on their tax return and then file an FBAR report by June.”
Although FBAR filings may be an administrative burden, there is a benefit for treasury: As a result of their reconciliation of account data with their banks, companies are developing more accurate bank account records. And some treasury functions see FBAR compliance as a good reason to upgrade their technology infrastructure. Electronic bank account management (eBAM) “would facilitate a lot of this,” Hunt says. “The byproduct of it is you have a centralized data repository for information to facilitate FBAR reporting. I think that’s why a lot of companies like the [eBAM] concept.”
Regardless of whether they implement new technologies, companies with foreign operations are compiling better bank account records. Many are also revisiting their policies and procedures for determining who has control over their various accounts. “Do they really need to have the CFO or the treasurer on every single account?” Hunt asks. “In the past, it was about control. Now it’s about whether the company can forgo the administrative burden” that is generated every time they give another individual signature authority over a foreign account.