Proposed Rules for Bank Secrecy Act Regulations

On March 1st, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued proposed rules to modify regulations issued under the 2011 Bank Secrecy Act regarding the reporting of foreign financial accounts through the filing of Foreign Bank Account Reports (“FBARs”).  See RIN 1506–AB26.

One of the major proposed changes is to eliminate the need for employees with signature authority over a company account to report that authority individually.  FinCEN has found that employers will often file FBARs on behalf of their employees with signature authority, therefore, requiring both the employer and every officer, employee and agent who has signature authority over those accounts to file an FBAR creates unnecessary filings for accounts already disclosed and is of “limited practical value.”  It is important to note that this exemption does not apply to foreign financial accounts that otherwise are not subject to reporting by a U.S. person.

This proposed rule would require entities to maintain and make available to FinCEN upon request, five years’ worth of information identifying all officers, employees and agents with signature authority but no financial interest in the entities’ foreign financial accounts.  For U.S. parent entities filing consolidated FBARs for themselves and their subsidiaries, they must maintain a list of all such people for both the parent entity’s and the subsidiaries foreign accounts.  Where the entities file separate FBARs, they are individually required to maintain this list.

The other major proposed change is to eliminate the abbreviated filing requirements for individuals and entities with 25 or more foreign financial accounts.  Currently, if you maintain 25 or more foreign financial accounts you are required to report only the number of accounts and basic identifying information of the taxpayer, in contrast to taxpayers who maintain 25 or less foreign financial accounts, which requires them to report the highest balance in the account for the year and identifying information about the account and the financial institution where the account is held.  FinCEN has found that in 2013 over half of the number of accounts reported were reported in abbreviated FBAR filings, creating a significant gap in information; this prevents FinCEN from properly analyzing the data in an effort to combat money laundering and terrorist financing.  The proposed rule would simply require detailed account information reporting regardless of the number of accounts held.  This rule is expected to hit especially hard for U.S. entities who previously would file consolidated FBARs for them and their subsidiaries, therefore being able to aggregate all foreign accounts and hit the 25 or more threshold for abbreviated reporting.