In recent years, the US government has markedly stepped up its enforcement efforts concerning the reporting of Foreign Bank and Financial Accounts (FBAR).

“The primary responsibilities for FBAR filing typically reside with the treasury and tax departments. Treasury plays a crucial role in monitoring and managing an organization’s bank relationships, global financial accounts, and transactions, while ensuring the maintenance of accurate and up-to-date financial records. This places them in the best position to identify foreign financial accounts that need to be reported by a corporation and provide leadership and support to navigate the complexities of FBAR filing”, according to Strategic Treasurer’s just-released white paper Compliance Fundamentals: FBAR Filing and Treasury.*   

When it comes to reporting foreign bank and financial accounts, no US corporation, limited liability company (LLC), partnership, trust, estate, or for that matter US citizen, dual citizen, or permanent resident can afford to turn a blind eye. What can happen, you may ask?

Let’s examine the cautionary story of H. Ty Warner, the billionaire who created Beanie Babies plush toys. In 2013, Warner had pleaded guilty to tax evasion after hiding millions of dollars in secret Swiss bank accounts.

As a consequence of his actions, he had to pay a colossal US$53.6 million fine, representing 50% of the maximum balance stashed away in his unreported foreign account for failing to file the required foreign bank account report. In addition, he had to pay approximately $27 million in back taxes and interest.

This $80 million fine serves as a dramatic example that leaves no room for underestimating the importance of adherence to FBAR regulatory compliance, especially for corporations and their treasury and tax professionals. While this enforcement action was for an individual’s account(s) with which he held a formal interest, the penalty calculations also apply to corporations and individuals who do not have a formal interest.

Furthermore, with tax abuse by multinational companies on the rise attracting increasing attention and scrutiny in recent years, the critical significance of strict compliance with FBAR regulations cannot be overemphasised.

The State of Tax Justice 2020 report published by the Tax Justice Network, Public Services International, and the Global Alliance for Tax Justice, states that “The world is losing over $427 billion (USD) in tax a year to international tax abuse. Of the $427 billion, nearly $245 billion is lost to multinational corporations shifting profit into tax havens in order to underreport how much profit they actually made in the countries where they do business and consequently pay less tax than they should. The remaining $182 billion is lost to wealthy individuals hiding undeclared assets and incomes offshore, beyond the reach of the law.”

The report further added that of the estimated $90 billion lost in tax revenue by the United States every year due to global tax abuse, $49.24 billion was lost to tax abuse committed by multinationals.

To combat the menace of tax evasion, money laundering, and terrorism financing, to promote compliance with international agreements, and to preserve the integrity of the domestic tax system, “The US government mandates that US persons (US citizens, permanent residents, dual citizens, corporations, LLCs, partnerships, trusts, and estates) file an FBAR if the aggregate maximum value of their foreign (located outside of the US) financial account(s) exceeds US$10,000 at any point during the calendar year reported”, as per Strategic Treasurer’s white paper on FBAR filing.

The three key nuances of FBAR filing comprise financial accounts, financial interest, and signatory authority. Strategic Treasurer’s white paper sheds light on these three key areas within the scope of FBAR reporting requirements that lead to filing missteps or mistakes.

The white paper also offers clarity about the reporting requirements for corporations, corporate signers, and individuals, including information on how to determine the reporting threshold and exchange rate. Additionally, the white paper covers the reporting methods and highlights the essential information required for FBAR filing, as well as the importance of maintaining and retaining records or statements associated with such filing. It also advocates the use of treasury aggregators and treasury management systems to manage the intricacies of FBAR filing and ensure accurate reporting.

It is advisable for corporate treasury to gauge the complexity of their filing situation and the resources at their disposal before determining whether to internally manage the FBAR or seek assistance from a third party. Equally important is for them to be aware of the types of foreign financial accounts and US persons that are exempt from the requirement of FBAR filing, as counselled in the white paper.

Given that corporations often maintain numerous foreign accounts, engage in a wide array of financial activities, and grapple with intricate regulatory compliance obligations, Strategic Treasurer’s white paper suggests that “The FBAR can be prepared and submitted on a corporation’s behalf by a third party, such as IRS Enrolled Agents, attorneys, or CPAs. Enlisting the help of such external experts to interpret and navigate the complexities and ensure that the filing is prepared and submitted appropriately may alleviate the burden placed on internal teams.”

To conclude, the relentless efforts of the US Treasury to tackle tax evasion, money laundering, and terrorism financing have spurred the need for a stringent approach to FBAR filing.

“In this uncompromising regulatory compliance landscape, corporate treasury is uniquely poised to provide guidance and active assistance in managing the nuances of FBAR filing. Even if a third party is engaged to assist, treasury bears the responsibility for assessing the situation, deciding whether internal resources are sufficient, and ensuring the steps for filing will be carried out properly”, the white paper noted.

Ignoring the reporting requirements for foreign bank and financial accounts is not an option, as it can lead to substantial fines. In this regard, keeping their organizations compliant, efficient, and secure is paramount for corporate treasurers. Offering clarity on the specifics of FBAR requirements is another strategic step that amplifies financial integrity, transparency, and accountability within corporations, demonstrating a steadfast commitment to stand with the US government in combating illicit financial activities.

To achieve this, we encourage you to download, review and benefit from Strategic Treasurer’s white paper Compliance Fundamentals: FBAR Filing and Treasury.

 

⃰ Disclosure: Strategic Treasurer owns CTMfile.