On December 11, 2020, the US Department of the Treasury Financial Crimes Enforcement Network (FinCEN) issued Notice 2020-1, which further extended the deadline for certain Report of Foreign Bank and Financial Accounts (FBAR) filings until April 15, 2022, with an automatic six-month extension until October 16, 2022. Notice 2020-1 is a continuation of previous extensions granted by FinCEN for certain individuals with signatory authority over but no financial interest in one or more foreign financial accounts.1
The final FBAR regulations issued by FinCEN on February 25, 2011 (the 2011 FBAR regulations) require US persons who hold a financial interest in, or signature or other authority over, a bank, securities, or any other financial account in a foreign country, to electronically file a FBAR if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year. The 2011 FBAR regulations also provide exemptions for officers and employees of certain federally regulated entities who have signatory authority over the entities’ foreign financial accounts, but do not have a financial interest in those accounts.2 Shortly after publishing the 2011 FBAR regulations, FinCEN received several questions about the application of the signature authority exemptions due to the following:
Instances of “overlapping,” in which an officer of a parent company has signature authority over the foreign financial account of a controlled subsidiary entity, or vice versa. Pursuant to the implementing regulations, individuals must be “an officer or employee of” the entity that holds the account to qualify for this exemption, regardless of affiliated corporate structures.
Officers and employees of SEC Registered Investment Advisers (RIAs) who have signature or other authority over (but not financial interest in) the foreign financial accounts of persons that are not registered investment companies. Pursuant to the implementing regulations, individuals may only qualify for this exemption if they are an officer or employee of an Authorized Service Provider3 who owns or maintains a foreign financial account for an investment company registered with the SEC.
In response to these concerns, FinCEN issued two notices, 2011-1 and 2011-2, that provided relief in connection with these scenarios, extending the filing deadline until June 30, 2012. In each subsequent year, FinCEN has provided identical extensions, the latest notice being 2020-1 issued on December 11, 2020.
2016 FBAR Notice of Proposed Rulemaking (NPRM)
As a result of the industry questions and comments regarding FBAR exemptions, FinCEN proposed to expand and clarify the exemptions for certain US persons with signature or other authority over foreign financial accounts. Specifically, in a 2016 NPRM, FinCEN proposed to replace the current exemptions with a more streamlined definition, that:
“…would eliminate the requirement for officers, employees, and agents of US entities to report on accounts owned by the entity over which the officer, employee, or agent has signature authority solely due to their employment when those accounts are already required to be reported by their employer, or any other US entity within the same corporate or other business structure as their US employee...”
“Under the proposed signature authority exemption an officer, employee, or agent of an entity need not submit a report to FinCEN regarding signature or other authority over a foreign financial account in which such entity, or a subsidiary, parent entity, or other entity within the same corporate or other business structure of such entity has a financial interest, if the officer, employee, or agent has no financial interest in the account and the account is required to be reported under 31 CFR 1010.350 by the entity or any other entity within the same corporate or other business structure.”
Importantly, the proposed rules do, in certain situations, require US persons to file an FBAR when they have signature or other authority over a foreign financial account with no financial interest, as the NPRM states “the exemption for employees to report their signature authority over the foreign financial accounts of their employer would not extend to US persons in instances in which no entity within their employer’s corporate or other business structure has an obligation to report to FinCEN its financial interest in such accounts.” As such, an individual employed by a non-US entity with no obligation to report its foreign financial accounts (and is not included as a subsidiary of a US entity that is filing) must file if they meet the FBAR criteria. Furthermore, under the proposed rules, FinCEN is requiring employers to maintain information identifying all officers, employees, or agents with signature authority over, but no financial interest in, foreign financial accounts for a period of five years, and to make such information available to FinCEN upon request.
A purpose of the proposed changes in the NPRM is to prevent double filing on the same account, and provide relief to US persons who are employees, officers, and agents of a US entity that is already required to report foreign financial accounts to FinCEN. As such, FinCEN’s proposed exemption changes are not limited to certain federally regulated entities under the 2011 FBAR regulations.
The 2016 NPRM does, however, narrow the scope of certain exemptions when compared to the FinCEN notices on FBAR filing extensions. Pursuant to Notice 2020-1, individuals with signatory authority (but no financial interest in) foreign financial accounts are not required to file an FBAR, regardless of whether the account is included in another US filing. The 2016 NPRM diverges from Notice 2020-1 in that FinCEN would require US persons to file an FBAR if their employer is not already reporting the account to FinCEN. Second, employees and officers of SEC RIAs who have signature or other authority over (but not financial interest in) foreign financial accounts of non-US investment funds may be required to file an FBAR.
The FBAR filing extensions introduced by FinCEN in notices 2011-1 and 2011-2, and then continued through notices issued in each subsequent year, have effectively served as exemptions since implementing the 2011 FBAR regulations. As expected, Notice 2020-1 further extends the filing deadline to April 15, 2022, given the prior notices and in light of the 2016 NPRM.
Although FinCEN has not yet issued the final rule, US persons should consider collecting relevant data in preparation. It is unclear whether the final rule will be implemented as drafted in the NPRM or amended to provide additional administrative relief. At minimum, US persons will likely have to maintain information on individuals with signature authority over foreign financial accounts and make such information available to FinCEN upon request, even if a final rule exempts an annual FBAR filing.
Special thanks to Gene Bolton for co-authoring this article.
1 See FinCEN Notices 2019-1, 2018-1, 2017-1, 2016-1, 2015-1, 2014-1, 2013-1, 2012-1 and 2012-2, along with Notices 2011-1 and 2011-2.
2 31 CFR 1010.350(f)(2)(i)-(v).
3 An ‘‘Authorized Service Provider’’ is defined as an entity that is registered with and examined by the SEC and that provides services to an investment company registered under the Investment Company Act of 1940. See 31 CFR 1010.350(f)(2)(iii).