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24 February 2011
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24 February 2011
Reports of Foreign Financial Accounts |
[Federal Register: February 24, 2011 (Volume 76, Number 37)]
[Rules and Regulations]
[Page 10234-10246]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24fe11-11]
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DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Part 1010
RIN 1506-AB08
Amendment to the Bank Secrecy Act Regulations--Reports of Foreign
Financial Accounts
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Final rule.
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SUMMARY: FinCEN is issuing this final rule to amend the Bank Secrecy
Act (BSA) regulations regarding reports of foreign financial accounts.
The rule addresses the scope of the persons that are required to file
reports of foreign financial accounts. The rule further specifies the
types of accounts that are reportable, and provides filing relief in
the form of exemptions for certain persons with signature or other
authority over foreign financial accounts. Finally, the rule adopts
provisions intended to prevent persons subject to the rule from
avoiding their reporting requirement.
DATES: Effective Date: This rule is effective March 28, 2011.
Applicability Date: This rule applies to reports required to be
filed by June 30, 2011 with respect to foreign financial accounts
maintained in calendar year 2010 and for reports required to be filed
with respect to all subsequent calendar years.
FOR FURTHER INFORMATION CONTACT: FinCEN, Regulatory Policy and Programs
Division at (800) 949-2732 and select Option 1.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
The BSA, Titles I and II of Public Law 91-508, as amended, codified
at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314 and
5316-5332, authorizes the Secretary of the Treasury (Secretary), among
other things, to issue regulations requiring persons to keep records
and file reports that are determined to have a high degree of
usefulness in criminal, tax, regulatory, and counter-terrorism matters.
The regulations implementing the BSA appear at 31 CFR part 103 (31 CFR
Chapter X, effective March 1, 2011).\1\ The Secretary's authority to
administer the BSA has been delegated to the Director of FinCEN.
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\1\ On October 26, 2010, FinCEN issued a final rule (the Chapter
X Final Rule), creating a new Chapter X in title 31 of the Code of
Federal Regulations (CFR) for BSA regulations. (See 75 FR 65806
(October 26, 2010) (Transfer and Reorganization of Bank Secrecy Act
Regulations Final Rule)). As discussed in the Chapter X Final Rule,
FinCEN reorganized its regulations that previously appeared at 31
CFR part 103 in the new Chapter X. The Chapter X reorganization is
effective as of March 1, 2011, and is not intended to have any
substantive effect on the BSA regulations. The notice of proposed
rulemaking (NRPM) that preceded today's final rule (amending the BSA
regulations related to reports of foreign bank and financial
accounts) was published prior to the effective date of the Chapter X
reorganization. Accordingly, the NPRM used the 31 CFR part 103
numbering system. References in today's final rule generally use the
31 CFR part 103 numbering system. However, the text of the final
rule itself is renumbered using the Chapter X numbering system.
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Under 31 U.S.C. 5314 the Secretary ``shall require a resident or
citizen of the United States or a person in, and doing business in, the
United States, to * * * keep records and file reports, when the
resident, citizen, or person makes a transaction or maintains a
relation for any person with a foreign financial agency.'' For this
purpose, foreign financial agency means ``a person acting for a person
as a financial institution, bailee, depository trustee, or agent, or
acting in a similar way related to money, credit, securities, gold, or
a transaction in money, credit, securities, or gold.'' \2\ The
Secretary is authorized to prescribe exemptions to the reporting
requirement and to prescribe other matters the Secretary considers
necessary to carry out section 5314.
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\2\ See 31 U.S.C. 5312(a)(1) which excepts from the definition
of financial agency a person acting for a country, a monetary or
financial authority acting as a monetary or financial authority or
an international financial institution of which the United States
government is a member.
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The regulations implementing 31 U.S.C. 5314 appear at 31 CFR
103.24, 103.27, and 103.32. Section 103.24 generally requires each
person subject to the jurisdiction of the United States having a
financial interest in or signature or other authority over a bank,
securities, or other financial account in a foreign country to ``report
such relationship to the Commissioner of Internal Revenue for each year
in which such relationship exists, and * * * provide such information
as shall be specified in a reporting form prescribed by the Secretary
to be filed by such persons.'' Section 103.27 requires the form to be
filed with respect to foreign financial accounts exceeding $10,000. The
form must be filed on or before June 30 of each calendar year for
accounts maintained during the previous
[[Page 10235]]
calendar year. Section 103.32 requires records of accounts to be
maintained for each person having a financial interest in or signature
or other authority over such account. The records must be maintained
for a period of five years.
The form used to file the report required by section 103.24 is the
Report of Foreign Bank and Financial Accounts--Form TD-F 90-22.1
(FBAR). The instructions to the FBAR specify which persons must file as
well as the types of accounts that must be reported.
II. Notice of Proposed Rulemaking
On February 26, 2010, FinCEN published in the Federal Register a
Notice of Proposed Rulemaking (NPRM) that proposed changes to the rules
for the reporting of foreign financial accounts.\3\ Most significantly,
the NPRM proposed to (1) Define the scope of individuals and entities
required to file the FBAR, (2) delineate the types of reportable
accounts, and (3) exempt certain persons and accounts from the
reporting requirement and provide certain additional relief. The
changes proposed in the NPRM were accompanied by proposed changes to
the FBAR form instructions, a draft of which appeared in the Federal
Register as an attachment to the NPRM.
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\3\ See 75 FR 8844 (February 26, 2010).
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Comments on the NPRM--Overview and General Issues
In response to the NPRM, FinCEN received a total of 42 timely filed
comment letters from individuals, entities, and representatives of
various groups and industries whose members are affected by FBAR
requirements. The comments were generally supportive of the NPRM but
sought broader exemptions than in the NPRM and often asked for
clarification of the NPRM. In particular, commenters were uncertain
about when an account was reportable under the FBAR and the scope of
individuals covered by the signature authority definition. To this end,
this final rulemaking document--
Clarifies whether an account is foreign and therefore
reportable as a foreign financial account and addresses the treatment
of custodial accounts in this context;
Revises the definition of signature or other authority to
more clearly apply to individuals who have the authority to control the
disposition of assets in the account by direct communication (whether
in writing or otherwise) to the foreign financial institution;
Clarifies that officers or employees who file an FBAR
because of signature or other authority over the foreign financial
account of their employers are not expected to personally maintain the
records of the foreign financial accounts of their employers;
Clarifies that filers may rely on provisions of this final
rule in order to determine their filing obligation for FBARs in those
cases where filing was properly deferred under prior Treasury guidance.
FinCEN believes that these clarifications and changes should
address many of the concerns expressed in the public comments regarding
uncertainty about the scope of the NPRM and therefore should make it
easier for filers to determine whether the FBAR must be filed.
A. Reportable Accounts
FinCEN received a large number of comments requesting clarification
as to when an account is deemed ``foreign'' for purposes of triggering
the FBAR filing requirement. Commenters requested clarification on this
issue with respect to holdings of securities accounts, pension fund
accounts, and covered life insurance policies and annuities. FinCEN
wishes to clarify that, as a general matter, an account is not a
foreign account under the FBAR if it is maintained with a financial
institution located in the United States. For example, individuals may
purchase securities of a foreign company through a securities broker
located in the United States as part of their investment portfolio. The
mere fact that the account may contain holdings or assets of foreign
entities does not render the account ``foreign'' for purposes of the
FBAR. In this instance, the individual maintains the account with a
financial institution in the United States.
FinCEN received a number of comments asking for clarification
regarding specific custodial arrangements. Commenters explained that in
some cases a United States person may have an account with a financial
institution located in the United States, such as a bank. According to
the commenters, that U.S. bank may act as a global custodian and hold
the person's assets outside the United States. In many cases, the
custody bank creates pooled cash and securities accounts in the non-
U.S. market to hold the assets of multiple investors. These accounts,
commonly called omnibus accounts, are in the name of the global
custodian. Typically, the U.S. customer does not have any legal rights
in the omnibus account and can only access their holdings outside of
the United States through the U.S. global custodian bank. FinCEN wishes
to clarify that in this situation, the U.S. customer would not have to
file an FBAR with respect to assets held in the omnibus account and
maintained by the global custodian. In this situation, the U.S.
customer maintains an account with a financial institution located in
the United States.
However, if the specific custodial arrangement permits the United
States person to directly access their foreign holdings maintained at
the foreign institution, the United States person would have a foreign
financial account.
B. Signature or Other Authority, Generally
FinCEN received a large number of comments generally regarding the
signature authority requirement. Some commenters sought further
clarification of the definition, while other commenters recommended an
elimination of the requirement. In the NPRM, FinCEN proposed to define
``signature or other authority'' as the ``authority of an individual
(alone or in conjunction with another) to control the disposition of
money, funds or other assets held in a financial account by delivery of
instructions (whether communicated in writing or otherwise) directly to
the person with whom the financial account is maintained.'' \4\ To
avoid confusion, FinCEN inserted the word ``directly'' into the
definition proposed in the NPRM to place the filing requirement on an
individual only if the individual has the authority to directly deliver
instructions to the foreign financial institution.\5\
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\4\ 75 FR 8851 (February 26, 2010) (Emphasis added).
\5\ A revised FBAR form that modified several aspects of the
form instructions was issued in October 2008. That revision
eliminated the words ``direct communication'' from the definition of
signature or other authority.
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Nonetheless, commenters stated that they were unsure whether the
proposed definition of signature authority would apply to an individual
who merely participates in the decision to allocate assets or has the
ability to instruct or supervise others with signature authority over a
reportable account. In light of these comments, FinCEN has decided to
revise the proposed definition of signature or other authority as
follows:
Signature or other authority means the authority of an
individual (alone or in conjunction with another) to control 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.
The test for determining whether an individual has signature or
other
[[Page 10236]]
authority over an account is whether the foreign financial institution
will act upon a direct communication from that individual regarding the
disposition of assets in that account. The phrase ``in conjunction with
another'' is intended to address situations in which a foreign
financial institution requires a direct communication from more than
one individual regarding the disposition of assets in the account.
Some commenters requested that FinCEN eliminate the requirement to
report signature or other authority over a foreign financial account.
Commenters expressed concern about perceived duplication of reporting
as well as a perceived lack of utility to law enforcement when both
individuals with signature authority and those with a financial
interest file FBARs with respect to the same account. Some commenters
suggested that investigators could obtain the relevant information if
FinCEN were to modify the FBAR form to enable the person with a
financial interest in a reportable account to list all of the
individuals with signature or other authority over the account. Another
commenter suggested that FinCEN provide an exemption for all employees
who have signature authority over but no financial interest in their
employer's foreign financial accounts if the employer provides notice
to the employees that the employer has filed an FBAR for its accounts.
Although FinCEN has considered the concerns raised by these
commenters, FinCEN has decided not to eliminate the signature authority
reporting requirement or revise the obligations as suggested by these
commenters. Law enforcement agencies have indicated to FinCEN that
FBARs filed by individuals with only signature authority are valuable
tools in investigations. Law enforcement representatives disagreed with
commenters that the signature authority requirement results in
duplication of information. Although FinCEN may receive more than one
FBAR with respect to the same foreign financial account, the reports
contain information about different individuals with access to the
account (either through financial interest or signature authority).
Moreover, if FinCEN were to adopt a modified reporting system which
relies upon the person with financial interest to report those
individuals having signature authority over the account, there would be
an increased opportunity to evade reporting because the signature
authority requirement also acts as an independent check on FBAR
reporting. For example, a person with financial interest may not report
the FBAR at all, or may not identify all individuals with signature
authority over the account. In such a case, law enforcement and other
agencies would be deprived of valuable information regarding the full
range of individuals with access to the account. Likewise, if FinCEN
were to adopt an exemption for employees who receive notice from their
employers regarding the filing of the FBAR, and the employer falsely
provides the notice, law enforcement again would be deprived of
valuable information. By adopting an independent reporting requirement
for individuals with signature authority, the final rule maintains the
check and balance that has existed since 1972, making it more difficult
for the account and the individuals having access to that account to
escape detection. The signature authority filing requirement is a
necessary component of an effective FBAR regulatory regime. Thus, in
this final rule, FinCEN continues to require reporting by individuals
with signature or other authority.
Finally, FinCEN received one comment that pointed to a discrepancy
between the NPRM definition of signature authority and the definition
contained in the draft form instructions, which accompanied the NPRM.
This comment noted that the draft form instructions slightly varied
from the regulatory definition leaving the commenter unclear whether
the definition of signature authority was intended to apply more
broadly than just to individuals. FinCEN wishes to clarify that the
signature authority definition contained in this final rule only
applies to individuals. The instructions to the FBAR form have been
revised to reflect the language in the final rule.
C. Recordkeeping and Truncated Filing Related to Signature or Other
Authority
Commenters sought relief from the recordkeeping provisions of 31
CFR 103.32 for individuals with signature authority over their
employer's accounts. These commenters argued that the recordkeeping
rules present challenges in such cases, because these individuals do
not own the records of the employing firm. Further, these commenters
argued that they should not be expected to personally maintain the
records of that employer for five years. FinCEN wishes to clarify that
in the case of officers or employees who file an FBAR because of
signature or other authority over the foreign financial accounts of
their employer, we do not expect such officers or employees to
personally maintain the records of the foreign financial accounts of
their employers.
The preamble of the NPRM noted that a modified form of reporting
would be available in the case of United States persons who are
employed in a foreign country and who have signature or other authority
over foreign financial accounts owned or maintained by their employer.
FinCEN received two comments recommending that this modified form of
reporting be available to United States persons employed in the United
States with respect to foreign financial accounts over which they have
signature authority. One of these commenters cited the difficulties in
complying with the recordkeeping obligation, while the other commenter
did not believe that United States persons should be treated
differently based on the location of their employment. As noted above,
FinCEN has clarified the recordkeeping obligations of officers and
employees with only signature authority over the foreign financial
accounts of their employers. FinCEN also wishes to note that in
providing the modified reporting for United States persons who are
employed overseas, FinCEN was attempting to balance the need for
information contained in the FBAR with a recognition that United States
persons working overseas are subject to both U.S. law and foreign law.
FinCEN has not provided United States persons employed in the United
States by a foreign employer with the modified form of reporting. In
such cases, FinCEN believes that the foreign employer should expect
that U.S. law will apply to these U.S. employees.
Finally, FinCEN received a comment asking that the modified
reporting be explicitly available to ``officers'' employed overseas.
The form instructions have been amended to reflect this change. The
commenter also asked that FinCEN incorporate the modified reporting
into the text of the final rule. FinCEN does not believe that it is
necessary to include this form of relief in the text of the final rule
itself.
D. General Exemptions
The NPRM proposed exemptions from the reporting requirements for
certain types of persons and accounts. FinCEN received a number of
comments asking for broader exemptions. One commenter requested that
FinCEN exempt from the reporting requirement accounts located in
jurisdictions that are not considered to be ``tax havens'' or that have
highly functional bank regulation and information exchange with the
United States. FinCEN also received comments from individuals living
abroad who objected to the FBAR filing requirement. Some of these
commenters were married
[[Page 10237]]
individuals who raised concerns that their non-U.S. spouses did not
want information regarding joint financial accounts to be reported to
U.S. government authorities. Another commenter requested that FinCEN
exempt regulated financial institutions, such as those that qualify for
exempt recipient status for purposes of filing an IRS 1099 series form,
to report interest income and dividends.
Finally, FinCEN received several comments requesting a broad
exemption for pension plans and welfare benefit plans, or at least for
large ERISA plans. These commenters argued that pension plans and
welfare benefit plans already are subject to comprehensive regulation
and believed that the FBAR filing obligations would be unduly
burdensome and duplicative in light of existing reporting requirements,
particularly Form 5500, Annual Return/Report of Employee Benefit Plan.
Commenters also pointed to the tax-exempt status of certain ERISA plan
trusts, and a provision in the customer identification program (CIP)
rules which exempts from the CIP rules an account established for the
purpose of participating in an ERISA plan as indicating that an
exemption from the FBAR rules would be appropriate in the case of ERISA
pension and welfare benefit plans.\6\ Alternatively, these commenters
stated that many of their concerns would be addressed if FinCEN were to
clarify the scope of a number of definitions in the NPRM such as
signature authority and reportable accounts.
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\6\ The CIP rules require certain financial institutions to
collect identifying information about a customer at account opening
and implement procedures for verifying the customer's identity that
are sufficient to enable the financial institution to form a
reasonable belief that it knows the true identity of the customer.
See, e.g., 31 CFR 103.121.
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Section 5314 of the BSA mandates that the Secretary require each
``resident or citizen of the United States or a person in, and doing
business in, the United States'' to keep records and file reports that
disclose information regarding their foreign financial accounts.
Section 5314 authorizes the Secretary to ``prescribe a reasonable
classification of persons subject to or exempt from'' the reporting
requirements.
FinCEN does not believe it appropriate to expand the exemptions as
recommended by the commenters. Although the commenters noted that
certain countries may have a robust set of anti-money laundering laws,
the FBAR places the obligation of reporting on the United States
person, and individuals and businesses can commit financial abuses and
other crimes using financial institutions in those countries. By
requiring United States persons to identify foreign financial accounts,
the FBAR creates a financial trail that assists law enforcement and
other agencies to identify accounts outside of the United States.
With respect to the comments raised by United States persons living
abroad, FinCEN does not believe that an exemption is appropriate simply
because a United States person chooses to live outside of the United
States. With respect to commenters who recommended exempting certain
regulated entities, such as those that qualify for exempt recipient
status for purposes of reporting on IRS Form 1099, FinCEN has carefully
considered the comments and has decided not to adopt them. While these
entities may be entitled to some measure of special treatment under the
Federal tax rules, FinCEN wishes to note that the purpose of the FBAR
is broader than tax administration.\7\
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\7\ 31 U.S.C. 5311.
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Finally, FinCEN has considered the concerns raised by commenters
regarding the treatment of pension and welfare benefit plans. FinCEN
has not adopted the recommendation for a broad exemption for such
plans. Because the purpose of the FBAR is broader than tax
administration, FinCEN does not believe that it is appropriate to
exempt entities from the FBAR requirement based on their tax-exempt
status. In addition, while the CIP rule exempts accounts of certain
entities, FinCEN does not believe that those CIP provisions which apply
in the case of accounts established or maintained at a financial
institution located in the United States, are determinative in the case
of accounts maintained with a foreign financial institution. However,
in response to these commenters' request for greater clarification of
the NPRM, the final rule has provided a number of clarifications that
address their concerns regarding the scope of foreign financial
accounts that are reportable, and the definitions of signature
authority and financial interest.\8\
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\8\ FinCEN wishes to note that the final rule eliminates the
proposed trust protector provision; see the discussion in the
Section-by-Section Analysis.
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E. Other Issues
Commenters raised a number of issues related to the process of
filing the FBAR. Specifically, they requested the option to file the
form electronically.\9\ As noted in the NPRM, the FBAR form currently
available on both the FinCEN and IRS Web sites allows users to complete
the form electronically and print a PDF document that can be mailed to
the address on the form. FinCEN is in the process of modernizing its IT
system and has plans to include the ability to file FBARs
electronically.
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\9\ A few commenters raised other issues concerning the filing
of the FBAR such as increasing the filing threshold and changing the
due date of the FBAR. The threshold and the due date are established
under a regulation section, 31 CFR 103.27 that was not proposed to
be amended by the NPRM. Thus, changes suggested by those comments
are not addressed in this final rulemaking.
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Commenters requested clarification of the draft instructions
regarding how to determine the value of an account. The draft
instructions to the FBAR form which accompanied the NPRM provide that
periodic account statements may be relied on to determine the maximum
value of the account provided that the statements fairly reflect the
maximum account value during the calendar year. The commenters were
uncertain whether it is possible to rely on periodic statements that
provide the value in the account at the end of the statement period.
Where bona fide statements are prepared in the ordinary course of
business, FinCEN believes that such periodic account statements may be
relied on for this purpose.
F. Applicability Date
The final rules contained in this document apply to FBARs required
to be filed by June 30, 2011 with respect to foreign financial accounts
maintained in calendar year 2010 and for reports required to be filed
with respect to all subsequent calendar years.
FinCEN received several comments regarding the applicability date
for the final rule. These commenters specifically asked whether filers
would be permitted to rely on favorable provisions of the final rule
with respect to foreign financial accounts maintained in calendar years
beginning before 2010. We recognize that in certain instances, United
States persons might have deferred filing the FBAR for prior reporting
years in accordance with guidance issued by Treasury.\10\ Although this
final rule is not retroactive, filers who properly deferred filing
obligations pursuant to IRS Notice 2010-23 may, if they wish, apply the
provisions of this final rule in determining their FBAR filing
requirements for reports due June 30, 2011, with respect to foreign
financial
[[Page 10238]]
accounts maintained in calendar years beginning before 2010.
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\10\ As a result of changes that were made to the FBAR form
instructions in October 2008, the IRS extended the FBAR filing
deadline for certain filers. See IRS Notice 2009-62 and IRS Notice
2010-23.
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G. Coordination With Chapter X
On October 26, 2010, FinCEN finalized a reorganization of all the
BSA regulations appearing in part 103 of Title 31 of the Code of
Federal Regulations, effective March 1, 2011.\11\ As discussed in the
preamble of that final rule, BSA regulations that previously appeared
in part 103 of Title 31 now appear in new Chapter X of Title 31. The
reorganization is not intended to have any substantive effect on the
BSA regulations.
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\11\ 75 FR 65806, Oct. 26, 2010.
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Because the NRPM was published prior to the effective date of the
Chapter X reorganization, the NPRM used the 31 CFR part 103 numbering
system. For consistency with the NPRM, references in this final rule
generally continue to use the 31 CFR part 103 numbering system.
However, because the effective date of this final rule is March 28,
2011, the text of the regulations finalized today must use the Chapter
X numbering system. Thus, instead of being numbered 31 CFR 103.24,
today's final rule is numbered 31 CFR 1010.350.
III. Section-by-Section Analysis
The NPRM set forth general requirements for filing the FBAR and
specific definitions applicable to such reporting. The final rule
continues these general requirements and includes definitions of United
States person, and bank, securities, and other financial accounts in a
foreign country. These definitions delineate both the scope of
individuals and entities that would be required to file the FBAR and
the types of accounts for which such reports should be made. In
addition, the final rule exempts certain persons with signature or
other authority from filing the FBAR. Finally, the final rule includes
provisions intended to prevent United States persons required to file
the FBAR from avoiding this reporting requirement.
A. Section 103.24(a)--In General
FinCEN received no comments on proposed paragraph (a) of section
103.24 of the NPRM. Accordingly, the final rule adopts this paragraph
without change.
B. Section 103.24(b)--United States Person
The NPRM defined a United States person as a citizen or resident of
the United States, or 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 the Indian Tribes. The NPRM provided that the
determination of whether an individual is a resident of the United
States would be made under the rules of the Internal Revenue Code,
specifically, 26 U.S.C. 7701(b) and the regulations thereunder, except
that the definition of the term United States provided in 31 CFR
103.11(nn) will be used instead of the definition of United States in
the rules under the Internal Revenue Code.
FinCEN received a number of comments about the proposed definition
of United States person. Commenters raised questions about the part of
the definition of United States person concerning trusts. They also
raised questions about the application of the provisions of the
Internal Revenue Code with respect to the term ``resident.''
Commenters generally objected to the inclusion of trust in the
definition. They argued that trusts should not have a separate filing
obligation in light of the fact that a U.S. trustee would also have an
obligation to file an FBAR with respect to the trust. Commenters also
believed that the NPRM is unclear about whether a trust that is treated
as wholly owned by another person under the Internal Revenue Code would
be required to file an FBAR. Finally, commenters believed that the
final rule should define trust with reference to the rules of the
Internal Revenue Code, specifically section 7701(a)(30), rather than
considering whether a trust has been ``created, organized, or formed
under the laws of the United States * * *''.
FinCEN acknowledges that in the case of trusts, a U.S. trustee must
file the FBAR for the trust. However, FinCEN has decided to retain
trust under the definition of United States person in the same manner
that it has retained other entities such as corporations and limited
liability companies.
FinCEN does not believe it appropriate to define trust under
section 7701(a)(30) of the Internal Revenue Code because that
definition might allow trusts formed under the law of a State to be
excluded from the scope of FBAR obligations. For example, if a trust is
formed under New York law and has one trustee who is a United States
person and two trustees who are not United States persons, under
section 7701(a)(30) the trust would not be considered a U.S. trust if
all substantial trust decisions were not controlled by its U.S.
trustee.
Commenters also raised questions with respect to the term
``resident'' in the definition of United States person. These
commenters sought clarification on the treatment of individuals who
make certain elections under section 7701(b) of the Internal Revenue
Code. FinCEN believes that individuals who elect to be treated as
residents for tax purposes under section 7701(b) should file FBARs only
with respect to foreign accounts held during the period covered by the
election. A legal permanent resident who elects under a tax treaty to
be treated as a non-resident for tax purposes must still file the FBAR.
Commenters also sought clarification about the interaction of elections
under section 6013(g) and (h) of the Internal Revenue Code and the
definition of resident. FinCEN wishes to clarify that the determination
of whether an individual is a United States resident should be made
without regard to elections under section 6013(g) or 6013(h) of the
Internal Revenue Code. In the same vein, a commenter asked whether
foreign corporations holding a U.S. real property interest and electing
to be treated as a U.S. corporation for U.S. income tax purposes under
section 897(i) of the Internal Revenue Code are required to file FBARs.
FinCEN wishes to reiterate that, for purposes of FBAR reporting, a
corporation is a United States person only if it is 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 the Indian Tribes.
C. Section 103.24(c)--Types of Reportable Accounts
FinCEN proposed to amend 31 CFR 103.24 by adding definitions of the
accounts subject to reporting. FinCEN has chosen to define the terms
bank account, securities account, and other financial account with
reference to the kinds of financial services for which a person
maintains an account.
D. Section 103.24(c)(1)--Bank Account
The NPRM defined ``bank account'' as a savings deposit, demand
deposit, checking, or any other account maintained with a person
engaged in the business of banking. The proposed definition would
include time deposits such as certificates of deposit accounts that
allow individuals to deposit funds with a banking institution and
redeem the initial amount along with interest earned after a prescribed
period of time. FinCEN received no comments on the proposed definition
and, therefore, is adopting this definition without change.
[[Page 10239]]
E. Section 103.24(c)(2)--Securities Account
The NPRM defined ``securities account'' as an account maintained
with a person in the business of buying, selling, holding, or trading
stock or other securities. FinCEN received no comments on the proposed
definition and, therefore, is adopting this definition without change.
F. Section 103.24(c)(3)--Other Financial Account
The term ``other financial account'' appears in current section
103.24. In order to enhance compliance, the NPRM proposed certain types
of accounts that would fall within the meaning of this term.
Specifically, the NPRM defined ``other financial account'' to mean
An account with a person that is in the business of
accepting deposits as a financial agency;
An account that is an insurance policy with a cash value
or an annuity policy;
An account with a person that acts as a broker or dealer
for futures or options transactions in any commodity on or subject to
the rules of a commodity exchange or association; or
An account with a mutual fund or similar pooled fund which
issues shares available to the general public that have a regular net
asset value determination and regular redemptions.
FinCEN received comments on the parts of the proposed definition
addressing life insurance and annuity policies and mutual funds. With
respect to life insurance and annuity policies, one commenter was
concerned that the treatment of life insurance policies as accounts
under the FBAR rule would cause these policies to be treated as
accounts under other BSA regulations. The final rule clarifies that
this definition is limited to the FBAR requirement.
The commenter also asked FinCEN to revise the definition with
respect to life insurance and annuity policies so that the FBAR
reporting requirement would apply only to such policies with a cash
value or only at the time of the payment of an income stream to the
policy holder. FinCEN has considered this comment. We are amending the
definition with respect to life insurance and annuities to clearly
reflect that only those life insurance or annuity policies with a cash
value are covered under this definition. However, we do not believe it
appropriate to limit the FBAR requirement to situations in which there
is payment of an income stream. As with other types of reportable
accounts, such as bank accounts, which are included in this final rule,
the reporting of the FBAR is not limited to situations in which there
is payment from the account. FinCEN also received a comment seeking
clarification as to whether the obligation to file the FBAR in the case
of life insurance rests with the policy holder or the beneficiary.
FinCEN would like to clarify that the obligation in such a case rests
with the policy holder.
With respect to mutual funds, FinCEN received a number of comments
seeking clarification of the definition. Commenters noted that the term
``mutual fund'' may have a different meaning outside of the United
States and might potentially cover hedge funds and private equity funds
that have periodic redemptions. FinCEN wishes to reiterate that the
definition of mutual fund includes a requirement that the shares be
available to the general public in addition to having a regular net
asset value determination and regular redemption feature. FinCEN
believes that some of the concerns of commenters arose because the
draft instructions to the form published with the proposed rule did not
include the words ``which issues shares available to the general
public.'' The instructions have been revised to reflect the language of
the definition contained in the final rule. As such, FinCEN does not
believe it necessary to amend the proposed definition with respect to
mutual funds. Accordingly, FinCEN is retaining this part of the
definition as proposed. Furthermore, FinCEN notes that the NPRM
specifically reserved the treatment of investment companies other than
mutual funds or similar pooled funds, and the final rule continues to
do so.
G. Section 103.24(c)(4)--Exceptions for Certain Accounts
Section 103.24(c)(4) of the NPRM proposed exceptions for certain
accounts for which reporting will not be required by persons with a
financial interest in or signature or other authority over the
accounts. The following accounts were proposed to be excepted from
reporting:
An account of a department or agency of the United States,
an Indian Tribe, or any State or any political subdivision of a State,
or a wholly-owned entity, agency, or instrumentality of any of the
foregoing is not required to be reported. In addition, reporting is not
required with respect to an account of an entity established under the
laws of the United States, of an Indian Tribe, of any State, or of any
political subdivision of any State, or under an intergovernmental
compact between two or more States or Indian Tribes[,] that exercises
governmental authority on behalf of the United States, an Indian Tribe,
or any such State or political subdivision. For this purpose, an entity
generally exercises governmental authority on behalf of the United
States, an Indian Tribe, a State, or a political subdivision only if
its authorities include one or more of the powers to tax, to exercise
the power of eminent domain, or to exercise police powers with respect
to matters within its jurisdiction.
A few commenters sought clarification as to the meaning of proposed
section 103.24(c)(4)(i). In particular, the commenters asked FinCEN to
clarify whether the last sentence of the paragraph concerning the
exercise of governmental authority applied to the entire paragraph or
only the second sentence of the paragraph. In response, FinCEN
clarifies that the last sentence should be read in conjunction with the
second sentence of the paragraph, which contains a specific requirement
concerning the exercise of governmental authority. FinCEN is also
making a minor editorial change to the second sentence so that it will
be clearer that the exercise of governmental authority requirement
applies to the entire second sentence.\12\
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\12\ A comma is added before the word ``that''.
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Commenters recommended that the final rule provide an exception for
the accounts of foreign insurance companies that elect under section
953(d) of the Internal Revenue Code to be treated as U.S. companies.
Their recommendation appears to be based, in part, on a reading of the
second sentence of proposed section 103.24(c)(4)(i) as providing an
exception for the accounts of any entity organized in the United
States. As explained above, the second sentence of proposed section
103.24(c)(4)(i) would only exempt the accounts of certain entities
organized under the laws of the United States (or the law of other
levels of government, such as State and local governments) if the
entities exercise governmental authority. The commenters also indicate
that by making a section 953(d) election, these companies are agreeing
to comply with U.S. tax law. FinCEN wishes to clarify that making such
an election does not render the entity a United States person for
purposes of the FBAR.\13\ Accordingly, the final rule does not adopt
this recommendation.
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\13\ FinCEN reaffirms that the FBAR requirement addressed in
this document is a requirement under title 31 of the United States
Code rather than under the Internal Revenue Code.
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[[Page 10240]]
The last three exceptions contained in proposed 31 CFR 103.24(c)(4)
were as follows:
An account of an international financial institution of
which the United States government is a member is not required to be
reported.\14\
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\14\ This exception does not limit the operation of the
International Organization Immunities Act of December 29, 1945 (22
U.S.C. 288).
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An account in an institution known as ``United States
military banking facility'' (or ``United States military finance
facility'') operated by a United States financial institution
designated by the United States Government to serve United States
government installations abroad is not required to be reported even
though the United States military banking facility is located in a
foreign country.
Correspondent or nostro accounts that are maintained by
banks and used solely for bank-to-bank settlements are not required to
be reported.
FinCEN received no comments on these proposed exceptions and,
therefore, is adopting these exceptions without change.
H. Section 103.24(d)--Foreign Country
The term foreign country includes all geographical areas located
outside of the United States as defined in 31 CFR 103.11(nn). FinCEN
received no comments on the proposed definition and, therefore, is
adopting this definition without change.
I. Section 103.24(e)--Financial Interest
The NPRM proposed a definition of financial interest. The proposed
definition covered situations in which the United States person is the
owner of record or holder of legal title, as well as situations in
which the United States person's ownership or control over the owner of
record or holder of legal title rises to such a level that the person
should be deemed to have a financial interest in the account.
Section 103.24(e)(1) proposed the following:
A United States person has a financial interest in each
bank, securities, or other financial account in a foreign country for
which he is the owner of record or has legal title regardless of
whether the account is maintained for his own benefit or for the
benefit of others. If an account is maintained in the name of more than
one person, each United States person in whose name the account is
maintained has a financial interest in that account.
Section 103.24(e)(2) proposed that a United States person also has
a financial interest in each bank, securities, or other financial
account in a foreign country for which the owner of record or holder of
legal title is one of the following:
A person acting on behalf of that United States person
such as an attorney, agent, or nominee with respect to the account.
(Section 103.24(e)(2)(i)).
A corporation in which the United States person owns
directly or indirectly more than 50 percent of the voting power or the
total value of the shares, a partnership in which the United States
person owns directly or indirectly more than 50 percent of the interest
in profits or capital, or any other entity (other than a trust) in
which the United States person owns directly or indirectly more than 50
percent of the voting power, total value of the equity interest or
assets, or interest in profits. (Section 103.24(e)(2)(ii)).
A trust, if the United States person is the trust settlor
and has an ownership interest in the account for United States Federal
tax purposes. See 26 U.S.C. 671-679 to determine if a settlor has an
ownership interest in a trust's financial account for a year. (Section
103.24(e)(2)(iii)).
A trust in which the United States person either has a
beneficial interest in more than 50 percent of the assets or from which
such person receives more than 50 percent of the income. (Section
103.24(e)(2)(iv)).
A trust that was established by the United States person
and for which the United States person has appointed a trust protector
that is subject to such person's direct or indirect instruction.
(Section 103.24(e)(2)(v)).
FinCEN received one comment seeking clarification on the scope of
proposed section 103.24(e)(2)(iii). The commenter noted that although
FinCEN incorporates the provisions of 26 U.S.C. 671-679 for determining
ownership interest, section 103.24(e)(2)(iii) references the interests
of the trust ``settlor,'' while the provisions of 26 U.S.C. 671-679
refer to ``grantor''. The commenter noted that FinCEN did not define
the term ``settlor.'' FinCEN agrees with the commenter and has revised
section 103.24(e)(2)(iii) to replace the word ``settlor'' with the word
``grantor''. In addition, the NPRM inadvertently used the word
``account'' instead of ``trust'' in section 103.24(e)(2)(iii). The
final rule revises the section by using the word ``trust.''
FinCEN received a few comments related to the application of the
definition of financial interest in the context of trusts, including
trusts for pension plans. With respect to trusts generally, commenters
raised concerns about determining whether a person has more than a 50
percent beneficial interest in the trust, when the trust is a
discretionary trust. FinCEN recognizes that in the case of trusts,
determinations regarding beneficial interest for purposes of filing the
FBAR may be difficult if the person is a beneficiary of a discretionary
trust or has a remainder interest in a trust. After considering this
comment, FinCEN has revised section 103.24(e)(2)(iv) to change the term
``beneficial interest'' to ``present beneficial interest.'' FinCEN does
not intend for a beneficiary of a discretionary trust to have a
financial interest in a foreign account simply because of his status as
a discretionary beneficiary. Further, FinCEN does not intend to include
a remainder interest within the scope of the term ``present beneficial
interest'' for purposes of filing an FBAR. Finally, the final rule adds
the word ``current'' before the word ``income'' which was inadvertently
omitted from the text of the NPRM.
FinCEN also received comments regarding the trust protector
provision in section 103.24(e)(2)(v). Commenters were concerned that
the trust protector provision could be read in an overly broad manner,
particularly in the case of pension plans, and another commenter
believed that the trust protector provision would not adequately
address situations in which the grantor has retained control over the
trust. Although FinCEN has considered these comments and is removing
the trust protector provision from the final rule, FinCEN remains
concerned with the potential for abuse when a trust protector is
appointed.\15\ FinCEN believes that instances of abuse or arrangements
designed to obfuscate ownership in the context of trusts, including the
use of a trust protector to evade an FBAR reporting obligation, are
sufficiently captured through the anti-avoidance provision discussed
below.
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\15\ See, the Senate Permanent Subcommittee on Investigations
(PSI), Committee on Homeland Security and Governmental Affairs 2006
report titled, Tax Haven Abuses: the Enablers, the Tools and
Secrecy, Senate Hearing 109-797, 109th Cong., 2d Sess. (August 1,
2006).
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Finally, the NPRM provided that a United States person that causes
an entity to be created for a purpose of evading the FBAR reporting
requirement would have a financial interest in any bank, securities, or
other financial account in a foreign country for which the entity is
the owner of record or holder of legal title. The term ``evading'' as
used in the anti-avoidance rule is not intended to apply to persons who
make a good faith effort to comply with the final rule.
[[Page 10241]]
FinCEN received one comment on the proposed anti-avoidance
provision, which recommended that the provision specifically
incorporate rules found in 26 CFR 1.671-2(e)(4), relating to the
treatment of transfer companies used to disguise the fact that a trust
had a United States grantor. FinCEN believes that the anti-avoidance
rule is sufficiently broad as to make it unnecessary to specifically
incorporate 26 CFR 1.671-2(e)(4) because the rule captures all
situations in which entities, including trusts, are used to evade an
FBAR reporting obligation.
J. Section 103.24(f)--Signature or Other Authority
Current section 103.24 requires reporting by United States persons
with signature or other authority over bank, securities, or other
financial accounts in a foreign country. The NPRM proposed to continue
this requirement and to define signature or other authority. As
discussed in Section II.B above, the final rule revises the definition
and continues the signature authority filing requirement.
K. Signature Authority Exceptions
The NPRM proposed to grant relief from the obligation to report
signature or other authority over a foreign financial account to the
officers and employees of five categories of entities subject to
specific types of Federal regulation. These exceptions would apply,
however, only where the officers or employees have no financial
interest in the reportable account. These entities would still be
obligated to report their financial interest in these reportable
accounts. Officers and employees would be able to avail themselves of
these exceptions without receiving notice that the entities had filed
an FBAR with respect to these accounts.
FinCEN received a number of comments on the signature authority
exceptions. Some commenters sought additional relief in the form of new
exceptions. FinCEN received comments requesting relief from the
signature authority filing requirement for the officers and employees
of entities located in countries that FinCEN would designate as ``low-
risk,'' of entities listed on a foreign securities exchange, of
foreign-located banks that have entered into a Qualified Intermediary
agreement with the IRS, and of 501(c)(3) private colleges and
universities. FinCEN wishes to reiterate that although certain
countries may have a robust set of anti-money laundering laws, the FBAR
places the obligation of reporting on the United States person, and the
purpose of the FBAR is to create a financial trail of foreign accounts.
Likewise, the fact that a foreign bank may have entered into a
Qualified Intermediary agreement with the IRS for tax purposes or that
an entity is exempt from tax under the Internal Revenue Code does not
eliminate the need for law enforcement and other agencies to have
information about the existence of foreign financial accounts of United
States persons.
Commenters also submitted specific comments on the proposed
exceptions. We are addressing these concerns below in connection with
the specific provisions of the NPRM.
The NPRM provided the following exceptions:
31 CFR 103.24(f)(2)(i). An officer or employee of a bank
that is examined by the Office of the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, or the
National Credit Union Administration need not report that he has
signature or other authority over a foreign financial account owned or
maintained by the bank if the officer or employee has no financial
interest in the account.
This exception would be available to officers or employees of banks
examined by the Federal banking agencies. Several commenters asked that
the exemption be expanded to cover officers and employees of trust
companies and credit unions that lack a Federal functional regulator.
We proposed this exception for officers and employees of entities that
are subject to functional regulation by Federal agencies that also
examine them for compliance with the BSA. Limiting the exemption as
proposed provides for a degree of uniformity in functional regulation
and BSA examination and compliance that may not necessarily exist on
the part of State or even other Federal agencies with little or no
involvement in BSA compliance.
31 CFR 103.24(f)(2)(ii). An officer or employee of a
financial institution that is registered with and examined by the
Securities and Exchange Commission or Commodity Futures Trading
Commission need not report that he has signature or other authority
over a foreign financial account owned or maintained by such financial
institution if the officer or employee has no financial interest in the
account.
This exception would be available to officers or employees of
financial institutions which are registered with, and examined by, the
SEC or CFTC. As with the first exception, this is available to officers
and employees of entities that are subject to functional regulation by
Federal agencies that also examine such entities for compliance with
the BSA. Commenters sought clarification on whether this exception
would apply to SEC registered investment advisers when they are
providing advisory services to clients that are not registered
investment companies. FinCEN wishes to clarify that this exception does
not apply in this situation. The exception applies to officers and
employees of ``financial institutions,'' which is a defined term under
31 CFR 103.11(n). Investment advisers are not included in that
definition of financial institution.
31 CFR 103.24(f)(2)(iii). An officer or employee of an
Authorized Service Provider need not report that he has signature or
other authority over a foreign financial account owned or maintained by
an investment company that is registered with the Securities and
Exchange Commission if the officer or employee has no financial
interest in the account. ``Authorized Service Provider'' means an
entity that is registered with and examined by the Securities and
Exchange Commission and provides services to an investment company
registered under the Investment Company Act of 1940.
The NPRM included this exception to address the fact that mutual
funds do not have employees of their own. Instead, the day-to-day
operations of such a fund are performed by individuals who are employed
by fund service providers, such as investment advisors. This exception
would be available to officers or employees of an Authorized Service
Provider that is registered with and examined by the SEC, provided that
the fund serviced by the Authorized Service Provider is also registered
with the SEC.
Commenters sought clarification on the scope of this exception and
specifically asked how this exception relates to the exception provided
in the NPRM under section 103.24(f)(2)(ii). FinCEN wishes to reiterate
that the exception in 103.24(f)(2)(ii) applies to officers and
employees of financial institutions as defined in 31 CFR 103.11(n) that
are registered with and examined by the SEC or CFTC. Thus, section
103.24(f)(2)(ii) does not apply to officers and employees of investment
advisers. These commenters also sought clarification as to the scope of
accounts covered by the exception contained in section
103.24(f)(2)(iii). FinCEN wishes to clarify that officers and employees
of an Authorized Service Provider may avail themselves of this
exception only with respect to the reportable accounts of those clients
which are investment companies registered under the Investment Company
Act of 1940 and are managed by the Authorized Service
[[Page 10242]]
Provider. If FinCEN were to expand the exception as requested beyond
clients that are registered investment companies, the exception would
apply even in situations where the officer and employee is providing
service to individuals. FinCEN does not believe that such a change is
appropriate.
Likewise, commenters asked that FinCEN consider expanding the scope
of the proposed exception to cover service providers to registered
investment companies even when the service providers are not registered
with the SEC. These commenters noted that the preamble to the anti-
money laundering rules for mutual funds permits the fund contractually
to delegate the implementation and operation of their AML program to a
service provider that is not registered with the SEC. FinCEN has
considered this comment but declined to expand the exception as
requested by these commenters. First, FinCEN believes that this
exception is appropriate not only because the service provider and the
fund are registered with the SEC, but also because the investment
companies registered under the 1940 Act have obligations under the BSA.
Further, we note that under the AML rules, the mutual fund remains
responsible for AML compliance. Under this exception, however, officers
and employees of the Authorized Service Provider would be relieved of
the reporting obligations of this rule.
31 CFR 103.24(f)(2)(iv). An officer or employee of an
entity with a class of equity securities listed on any United States
national securities exchange need not report that he has signature or
other authority over a foreign financial account of such entity if the
officer or employee has no financial interest in the account. An
officer or employee of a United States subsidiary of such entity need
not file a report concerning signature or other authority over a
foreign financial account of the subsidiary if he has no financial
interest in the account and the United States subsidiary is named in a
consolidated FBAR report of the parent filed under proposed paragraph
(g)(3) of 31 CFR103.24.
This exception would be available to officers and employees of
entities with a class of equity securities listed upon a U.S. national
securities exchange, regardless of whether the entity is domestic or
foreign. Officers and employees of a U.S subsidiary of such listed U.S.
entities are also covered by this exception if the U.S subsidiary is
named in a consolidated FBAR report of the parent.
FinCEN received a number of comments on this exception. Most of
these comments addressed the interaction between the exception for
officers and employees of corporations listed on a United States
national securities exchange and the special rule for consolidated
FBARs. Some commenters questioned whether the exception contained in
section 103.24(f)(2)(iv), which discusses consolidated FBARs filed by a
parent, enables a foreign listed parent to file a consolidated report
on behalf of its United States subsidiaries. FinCEN notes that by its
terms the special rule for consolidated FBAR reporting only applies to
United States persons.
FinCEN received a number of comments regarding the treatment of
U.S. subsidiaries of foreign parents. Some commenters noted that a
foreign listed parent cannot file a consolidated FBAR report, and,
therefore, the officers and employees of its U.S. subsidiaries cannot
avail themselves of the signature authority exceptions. Commenters
recommended that in the case of foreign entities listed on a U.S.
national securities exchange, the U.S. subsidiary of that foreign
entity be permitted to file a consolidated report for other U.S.
subsidiaries. Other commenters recommended that the exception be
revised to apply to the officers and employees of U.S. subsidiaries
whose foreign parent is listed on a foreign exchange, provided that
FinCEN determined that the foreign exchange was subject to suitable
regulation. Some of these commenters suggested that FinCEN allow the
foreign parent to voluntarily file a consolidated FBAR on behalf of its
U.S. subsidiaries.
FinCEN has considered these comments but has decided to retain the
exception as originally proposed. In the NPRM, FinCEN considered it
appropriate to provide an exception for officers and employees of a
U.S. subsidiary when the U.S. parent files a consolidated FBAR in light
of both the listed parent's regulation by the SEC and its legal
obligation to file the FBAR. In the case of a U.S. subsidiary with a
foreign parent listed on a U.S. national securities exchange, the
parent has no legal obligation to file the FBAR, and the subsidiary is
not required to file the same reports with the SEC as the U.S. listed
parent.\16\ For similar reasons, FinCEN has decided not to extend the
exception to U.S. subsidiaries of foreign parents listed on foreign
exchanges. Furthermore, because the FBAR rules apply only to United
States persons, FinCEN will not permit voluntary filing by the foreign
parent to satisfy the filing obligations of the officers and employees
of U.S. subsidiaries.\17\
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\16\ To make the application of the exception clearer in the
context of the special rule for consolidated FBARs, the final rule
revises the second sentence of the exception by deleting the words
``such entity'' and adding the words ``a United States entity with a
class of equity securities listed on a United States security
exchange.'' FinCEN believes that this change will clarify that the
second sentence of the exception does not apply in the case of
parent companies that are not U.S. entities.
\17\ FinCEN also received comments requesting that we adopt a
provision in the instructions to the 2008 version of the FBAR that
provided officers and employees of a foreign subsidiary with an
exception to the signature authority obligation. In light of the
broader set of changes made with respect to the signature authority
provisions, FinCEN has decided not to adopt this recommendation.
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Finally, commenters asked that a U.S. subsidiary be permitted to
rely on this exception if its U.S. listed parent does not file a
consolidated FBAR. While the rules permit the parent to file a
consolidated FBAR, if it chooses not to do so for its own reasons,
FinCEN does not believe it necessary to provide a special treatment for
such U.S. subsidiaries.
FinCEN received two comments seeking an expansion of the exception
when an employee of a U.S. parent also has signature authority over the
foreign accounts of a U.S. parent's subsidiary which have been included
in the consolidated FBAR report. These commenters noted that under the
proposed exception, officers or employees of the parent who have
signature authority over the foreign accounts of the subsidiary would
not benefit from the exception, which is limited to the accounts of the
employer. The commenter further noted that in this situation, officers
or employees of the subsidiary would benefit from the exception with
respect to the subsidiary's foreign accounts. Likewise, one of the
commenters asked for similar treatment when the officers and employees
of the subsidiary have signature authority over the accounts of the
listed parent.
FinCEN has considered these comments and has decided not to revise
the exception as recommended. Given the revision in the final rule to
the signature authority definition, the clarifications provided
regarding the scope of the signature authority filing requirement and
the recordkeeping rules, FinCEN does not believe that a further
relaxation of the rule is appropriate.
FinCEN also received a comment recommending that the exception be
extended to employees with respect to the accounts of an employee
benefit trust established by an entity listed
[[Page 10243]]
upon a U.S. national securities exchange. The commenter argued that in
this situation, the entity is required to report the assets and
liabilities of its employee benefit plans on its own financial
statements filed with the SEC, and the trust accounts are subject to
oversight and examination by the Department of Labor. FinCEN has
considered this comment and decided not to adopt the recommendation
because an employee benefit trust itself is not a listed entity.
Further, FinCEN believes that the clarifications previously discussed
concerning the scope of foreign financial accounts that are reportable
and the definitions of signature authority and financial interest
should address some of the concerns regarding FBAR filing obligations.
31 CFR 103.24(f)(2)(v)--An officer or employee of a United
States corporation that has a class of equity securities registered
under section 12(g) of the Securities Exchange Act need not report that
he has signature or other authority over the foreign financial accounts
of such corporation if he has no financial interest in the accounts.
This exception as proposed would apply to officers and employees of
U.S. corporations whose size in terms of assets and shareholders \18\
requires them to register their stock with the SEC and makes them
subject to reporting under the Securities Exchange Act. FinCEN received
a comment requesting a similar exception for officers or employees of a
mutual insurance company with assets of more than $10 million and more
than 500 policy holders. FinCEN has decided not to adopt such an
exception because these companies are not subject to the SEC regulation
that applies to companies covered by the exception.
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\18\ Currently, these are corporations which have more than $10
million in assets and more than 500 shareholders of record. See 15
U.S.C. 78l(g) (2006) and the regulations thereunder.
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FinCEN also received comments seeking an amendment to the proposed
exceptions contained in sections 103.24(f)(2)(iv) and 103.24(f)(2)(v)
to include listed American Depository Receipts (ADRs), unlisted ADRs
that are traded over-the-counter if they are listed on the Designated
Offshore Securities Market, ADRs with unlisted trading privileges on a
national securities exchange, ADRs registered under section 12(g) or
ADRs with unlisted trading privileges under section 12(f) of the
Securities Exchange Act. After considering these comments, FinCEN
believes that listed ADRs would be covered by the first sentence of the
exception in section 103.24(f)(2)(iv). In addition, if a foreign issuer
has registered under section 12(g) a class of equity securities
underlying ADRs, FinCEN believes it should be covered by the exception
under section 103.24(f)(2)(v). The final rule makes appropriate changes
to reflect this coverage. FinCEN does not believe that other ADRs are
subject to the same requirements as listed entities on a U.S. national
securities exchange or entities registered under section 12(g), and,
therefore, we have not adopted the recommendations to include other
types of ADRs.
Accordingly, the final rule adopts these exceptions as revised.
L. 103.24(g)--Special Rules
The NPRM proposed the following special rules to simplify FBAR
filings in certain cases.
25 or more foreign financial accounts. A United States
person having a financial interest in 25 or more foreign financial
accounts need only provide the number of financial accounts and certain
other basic information on the report, but will be required to provide
detailed information concerning each account when so requested by the
Secretary or his delegate. Similarly, a United States person having
signature or other authority over 25 or more foreign financial accounts
need only provide the number of financial accounts and certain other
basic information on the report, but will be required to provide
detailed information concerning each account when so requested by the
Secretary or his delegate.
Commenters raised concerns that the simplified reporting
requirements for filers having signature authority over 25 or more
foreign financial accounts requires more information than the
simplified reporting for persons having financial interest in 25 or
more foreign financial accounts. In the case of simplified reporting
for persons with a financial interest, filers are required to provide
identifying information about themselves and indicate that they have a
financial interest in 25 or more foreign financial accounts. Where
persons have signature authority over 25 or more such accounts, filers
are required to provide identifying information about themselves as
well as those who have a financial interest in the accounts. FinCEN
notes that where filers have only signature authority, the FBAR
requires identifying information about the persons with a financial
interest to ensure that law enforcement receives meaningful information
about these accounts.
Consolidated reports. An entity that is a United States
person and owns directly or indirectly more than a 50 percent interest
in an entity required to report under this section will be permitted to
file a consolidated report on behalf of itself and such other
entity.\19\
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\19\ One commenter recommended that we provide for consolidated
filing where the listed parent's ownership in the subsidiary exceeds
20 percent so that a broader range of officers and employees may
take advantage of the signature authority exception. We believe that
20 percent is too low of an ownership interest for purposes of the
consolidated filing.
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One commenter urged additional consolidated filing relief be
available to funds organized by the same fund manager, specifically all
foreign financial account information for all funds in the same fund
family should be reportable in a single consolidated FBAR filing.
FinCEN believes that this issue is better addressed in the form of
specific guidance because the factual situations may vary.
Participants and beneficiaries in certain retirement
plans. Participants and beneficiaries in retirement plans under
sections 401(a), 403(a) or 403(b) of the Internal Revenue Code as well
as owners and beneficiaries of individual retirement accounts under
section 408 of the Internal Revenue Code or Roth IRAs under section
408A of the Internal Revenue Code will not be required to file an FBAR
with respect to a foreign financial account held by or on behalf of the
retirement plan or IRA.
FinCEN received one comment proposing an across-the-board exemption
for all pension plan participants and beneficiaries. The commenter was
concerned about the filing obligations of participants and
beneficiaries of other types of plans not covered by the exemption. In
proposing this exemption, FinCEN considered that participants and
beneficiaries of these plans were less likely to be aware of the
existence of foreign financial accounts because they were unlikely to
exceed the 50 percent ownership threshold. Participants and
beneficiaries that are not covered by this exemption should look to the
50 percent ownership indicia to determine whether a filing obligation
exists.
Certain trust beneficiaries. A beneficiary of a trust
described in proposed paragraph (e)(2)(iv) is not required to report
the trust's foreign financial accounts if the trust, trustee of the
trust, or agent of the trust is a United States person that files an
FBAR disclosing the trust's foreign financial accounts and provides any
additional information as required by the report.
This provision is intended to provide relief to beneficiaries of
trusts if the
[[Page 10244]]
trust, trustee of the trust, or agent of the trust is a United States
person and has filed the FBAR as required. FinCEN is adopting this
provision without change.
IV. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et
seq.), FinCEN certifies that this final rule will not have a
significant economic impact on a substantial number of small entities.
The final rule revises a rule in existence since 1972 that requires
reports to be made to Treasury with respect to certain foreign
financial accounts. Because this final rule addresses the scope of
reportable accounts and financial interest, and revises the definition
of signature authority and narrows the scope of individuals and
entities subject to reporting and recordkeeping requirements, the final
rule will reduce regulatory obligations overall.
The final rule will not affect a substantial number of small
entities. The final rule applies to United States persons, a term that
includes entities of all sizes, if they have reportable accounts under
this rule. However, we expect that small entities will be less likely
to have reportable foreign financial accounts or to have many such
accounts unlike larger entities, which have a broader base of business
operations.
In any event, the final rule will not have a significant economic
impact on small entities. As explained above, the final rule revises an
existing rule that requires reports to be made to Treasury with respect
to certain foreign financial accounts. Filing the reports will require
entities to transfer basic information that they will often have
received on account statements from the foreign financial institution
at which the account is opened and maintained. Those statements will
provide the entity with the information about the account needed to
file the FBAR. No special accounting or legal skills are necessary to
transfer the basic information required to be reported, such as the
name of the foreign financial institution, the type of account, and the
account number, to the FBAR. Furthermore, the final rule continues a
simplified reporting method for persons with a financial interest in 25
or more foreign financial accounts and also provides a similar
simplified reporting method to persons with signature or other
authority over 25 or more foreign financial accounts.
In the NPRM, FinCEN requested comments on the accuracy of the
statement that the proposed rule would not have a significant economic
impact on a substantial number of small entities. FinCEN received no
comments that directly challenged the accuracy of that statement.
V. Executive Order 12866
It has been determined that the final rule is a ``significant
regulatory action'' for purposes of Executive Order 12866 (although not
economically significant) and has been reviewed by the Office of
Management and Budget.
VI. Paperwork Reduction Act Notices
The collection of information burden contained in this rule (31 CFR
1010.350) has been approved by the Office of Management and Budget
(OMB) in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)) (Paperwork Reduction Act) under control number (1506-0009). An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a valid
control number assigned by OMB.
Estimate Number of Affected Filing Individuals and Entities:
400,000.
Estimate Average Annual Burden Hours Per Affected Filer: The
estimated average burden associated with the recordkeeping requirement
in this rule will vary depending on the number of reportable accounts.
We estimate that the recordkeeping burden will range from five minutes
to sixty minutes, and that the average burden will be thirty minutes.
The estimated average burden associated with the reporting requirement
(FBAR form completion) will also vary depending on the number of
reportable accounts and whether the filer will be able to take
advantage of the exceptions provided in this rule. We estimate that the
average reporting burden will range from approximately twenty minutes
to one hour and that the average reporting burden will be approximately
45 minutes. The reporting burden is reflected in the burden listed for
completing TD-F 90-22.1 (See OMB Control Number 1506-0009/1545-2038).
The burden associated with reporting a financial interest in or
signature or other authority over a foreign financial account to the
Commissioner of Internal Revenue is reflected in the burden for the
appropriate income tax return or schedule.
Estimated Total Annual Burden: 500,000 hours.
FinCEN received one comment on the estimated number of filers. The
commenter believed that the number of filers should be higher. The
commenter stated that estimates of Americans living abroad may be as
high as 5 million, and that approximately 2 million of those Americans
might be affected by the FBAR rules. The commenter did not provide a
verifiable source or methodology for arriving at those estimates. As
stated above, the rule contained in this document addresses the FBAR
rules that have been in existence since 1972. FinCEN's estimate of the
number of affected filing individuals and entities (400,000) is based
on the number of FBARs annually filed in recent previous years.
One commenter noted that several of its clients had spent
considerably more time than the NPRM estimated for complying with the
FBAR requirement. FinCEN believes that changes made by the NPRM and
incorporated in this document, such as addressing the scope of persons
that are required to file reports of foreign financial accounts,
specifying the types of reportable accounts, and providing relief in
the form of exemptions for certain persons with signature or other
authority over foreign financial accounts from filing reports, will
assist filers in complying with the rule. Further, clarifications in
this document regarding the scope of terms in the NPRM, such as
reportable accounts and financial interest, as well as revisions to the
definition of signature authority and the provision of truncated
filing, will assist filers in complying with the rule. Accordingly,
FinCEN has not increased the average estimated burden.
Finally, several commenters recommended that filers be allowed to
file the FBAR electronically. As noted earlier in this document, FinCEN
is in the process of modernizing its IT system and has plans to include
the ability to file FBARs electronically.
VII. Unfunded Mandates Act of 1995 Statement
Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded
Mandates Act''), Public Law 104-4 (March 22, 1995), requires that an
agency prepare a budgetary impact statement before promulgating a rule
that may result in expenditure by State, local, and Tribal governments,
in the aggregate, or by the private sector, of $100 million or more in
any one year. If a budgetary impact statement is required, section 202
of the Unfunded Mandates Act also requires an agency to identify and
consider a reasonable number of regulatory alternatives before
promulgating a rule. FinCEN has determined that it is not required to
prepare a written statement under section 202 and has concluded that on
balance the proposals in the Notice of Proposed Rulemaking provide the
most cost-effective and least burdensome
[[Page 10245]]
alternative to achieve the objectives of the rule.
List of Subjects in 31 CFR Part 1010
Administrative practice and procedure, Banks, Banking, Brokers,
Currency, Foreign banking, Foreign currencies, Gambling,
Investigations, Penalties, Reporting and recordkeeping requirements,
Securities, Terrorism.
Amendment
For the reasons set forth above in the preamble, 31 CFR part 1010,
published October 26, 2010 (75 FR 65812), is amended as follows:
PART 1010--GENERAL PROVISIONS
0
1. The authority citation for part 1010 continues to read as follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314
and 5316-5332; title III, sec. 314, Pub. L. 107-56, 115 Stat. 307.
0
2. Section 1010.350 is revised to read as follows:
Sec. 1010.350 Reports of foreign financial accounts.
(a) In general. Each United States person having a financial
interest in, or signature or other authority over, a bank, securities,
or other financial account in a foreign country shall report such
relationship to the Commissioner of Internal Revenue for each year in
which such relationship exists and shall provide such information as
shall be specified in a reporting form prescribed under 31 U.S.C. 5314
to be filed by such persons. The form prescribed under section 5314 is
the Report of Foreign Bank and Financial Accounts (TD-F 90-22.1), or
any successor form. See paragraphs (g)(1) and (g)(2) of this section
for a special rule for persons with a financial interest in 25 or more
accounts, or signature or other authority over 25 or more accounts.
(b) United States person. For purposes of this section, the term
``United States person'' means--
(1) A citizen of the United States;
(2) A resident of the United States. A resident of the United
States is an individual who is a resident alien under 26 U.S.C. 7701(b)
and the regulations thereunder but using the definition of ``United
States'' provided in 31 CFR 1010.100(hhh) rather than the definition of
``United States'' in 26 CFR 301.7701(b)-1(c)(2)(ii); and
(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 the Indian Tribes.
(c) Types of reportable accounts. For purposes of this section--
(1) Bank account. The term ``bank account'' means a savings
deposit, demand deposit, checking, or any other account maintained with
a person engaged in the business of banking.
(2) Securities account. The term ``securities account'' means an
account with a person engaged in the business of buying, selling,
holding or trading stock or other securities.
(3) Other financial account. The term ``other financial account''
means--
(i) An account with a person that is in the business of accepting
deposits as a financial agency;
(ii) An account that is an insurance or annuity policy with a cash
value;
(iii) An account with a person that acts as a broker or dealer for
futures or options transactions in any commodity on or subject to the
rules of a commodity exchange or association; or
(iv) An account with--
(A) Mutual fund or similar pooled fund. A mutual fund or similar
pooled fund which issues shares available to the general public that
have a regular net asset value determination and regular redemptions;
or
(B) Other investment fund. [Reserved]
(4) Exceptions for certain accounts.
(i) An account of a department or agency of the United States, an
Indian Tribe, or any State or any political subdivision of a State, or
a wholly-owned entity, agency or instrumentality of any of the
foregoing is not required to be reported. In addition, reporting is not
required with respect to an account of an entity established under the
laws of the United States, of an Indian Tribe, of any State, or of any
political subdivision of any State, or under an intergovernmental
compact between two or more States or Indian Tribes, that exercises
governmental authority on behalf of the United States, an Indian Tribe,
or any such State or political subdivision. For this purpose, an entity
generally exercises governmental authority on behalf of the United
States, an Indian Tribe, a State, or a political subdivision only if
its authorities include one or more of the powers to tax, to exercise
the power of eminent domain, or to exercise police powers with respect
to matters within its jurisdiction.
(ii) An account of an international financial institution of which
the United States government is a member is not required to be
reported.
(iii) An account in an institution known as a ``United States
military banking facility'' (or ``United States military finance
facility'') operated by a United States financial institution
designated by the United States Government to serve United States
government installations abroad is not required to be reported even
though the United States military banking facility is located in a
foreign country.
(iv) Correspondent or nostro accounts that are maintained by banks
and used solely for bank-to-bank settlements are not required to be
reported.
(d) Foreign country. A foreign country includes all geographical
areas located outside of the United States as defined in 31 CFR
1010(hhh).
(e) Financial interest. A financial interest in a bank, securities
or other financial account in a foreign country means an interest
described in this paragraph (e):
(1) Owner of record or holder of legal title. A United States
person has a financial interest in each bank, securities or other
financial account in a foreign country for which he is the owner of
record or has legal title whether the account is maintained for his own
benefit or for the benefit of others. If an account is maintained in
the name of more than one person, each United States person in whose
name the account is maintained has a financial interest in that
account.
(2) Other financial interest. A United States person has a
financial interest in each bank, securities or other financial account
in a foreign country for which the owner of record or holder of legal
title is--
(i) A person acting as an agent, nominee, attorney or in some other
capacity on behalf of the United States person with respect to the
account;
(ii) A corporation in which the United States person owns directly
or indirectly more than 50 percent of the voting power or the total
value of the shares, a partnership in which the United States person
owns directly or indirectly more than 50 percent of the interest in
profits or capital, or any other entity (other than an entity in
paragraphs (e)(2)(iii) through (iv) of this section) in which the
United States person owns directly or indirectly more than 50 percent
of the voting power, total value of the equity interest or assets, or
interest in profits;
(iii) A trust, if the United States person is the trust grantor and
has an ownership interest in the trust for United States Federal tax
purposes. See 26 U.S.C. 671-679 and the regulations thereunder to
determine if a grantor has an ownership interest in the trust for the
year; or
(iv) A trust in which the United States person either has a present
beneficial interest in more than 50 percent of the
[[Page 10246]]
assets or from which such person receives more than 50 percent of the
current income.
(3) Anti-avoidance rule. A United States person that causes an
entity, including but not limited to a corporation, partnership, or
trust, to be created for a purpose of evading this section shall have a
financial interest in any bank, securities, or other financial account
in a foreign country for which the entity is the owner of record or
holder of legal title.
(f) Signature or other authority--(1) In general. Signature or
other authority means the authority of an individual (alone or in
conjunction with another) to control 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.
(2) Exceptions--(i) An officer or employee of a bank that is
examined by the Office of the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, or the National Credit
Union Administration need not report that he has signature or other
authority over a foreign financial account owned or maintained by the
bank if the officer or employee has no financial interest in the
account.
(ii) An officer or employee of a financial institution that is
registered with and examined by the Securities and Exchange Commission
or Commodity Futures Trading Commission need not report that he has
signature or other authority over a foreign financial account owned or
maintained by such financial institution if the officer or employee has
no financial interest in the account.
(iii) An officer or employee of an Authorized Service Provider need
not report that he has signature or other authority over a foreign
financial account owned or maintained by an investment company that is
registered with the Securities and Exchange Commission if the officer
or employee has no financial interest in the account. ``Authorized
Service Provider'' means an entity that is registered with and examined
by the Securities and Exchange Commission and that provides services to
an investment company registered under the Investment Company Act of
1940.
(iv) An officer or employee of an entity with a class of equity
securities listed (or American depository receipts listed) on any
United States national securities exchange need not report that he has
signature or other authority over a foreign financial account of such
entity if the officer or employee has no financial interest in the
account. An officer or employee of a United States subsidiary of a
United States entity with a class of equity securities listed on a
United States national securities exchange need not file a report
concerning signature or other authority over a foreign financial
account of the subsidiary if he has no financial interest in the
account and the United States subsidiary is included in a consolidated
report of the parent filed under this section.
(v) An officer or employee of an entity that has a class of equity
securities registered (or American depository receipts in respect of
equity securities registered) under section 12(g) of the Securities
Exchange Act need not report that he has signature or other authority
over the foreign financial accounts of such entity or if he has no
financial interest in the accounts.
(g) Special rules--(1) Financial interest in 25 or more foreign
financial accounts. A United States person having a financial interest
in 25 or more foreign financial accounts need only provide the number
of financial accounts and certain other basic information on the
report, but will be required to provide detailed information concerning
each account when so requested by the Secretary or his delegate.
(2) Signature or other authority over 25 or more foreign financial
accounts. A United States person having signature or other authority
over 25 or more foreign financial accounts need only provide the number
of financial accounts and certain other basic information on the
report, but will be required to provide detailed information concerning
each account when so requested by the Secretary or his delegate.
(3) Consolidated reports. An entity that is a United States person
and which owns directly or indirectly more than a 50 percent interest
in one or more other entities required to report under this section
will be permitted to file a consolidated report on behalf of itself and
such other entities.
(4) Participants and beneficiaries in certain retirement plans.
Participants and beneficiaries in retirement plans under sections
401(a), 403(a) or 403(b) of the Internal Revenue Code as well as owners
and beneficiaries of individual retirement accounts under section 408
of the Internal Revenue Code or Roth IRAs under section 408A of the
Internal Revenue Code are not required to file an FBAR with respect to
a foreign financial account held by or on behalf of the retirement plan
or IRA.
(5) Certain trust beneficiaries. A beneficiary of a trust described
in paragraph (e)(2)(iv) of this section is not required to report the
trust's foreign financial accounts if the trust, trustee of the trust,
or agent of the trust is a United States person that files a report
under this section disclosing the trust's foreign financial accounts.
Dated: February 16, 2011.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2011-4048 Filed 2-23-11; 8:45 am]
BILLING CODE 4810-02-P