Final Regulations issued by the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“Treasury”) recently became effective relating to filing Reports of Foreign Bank and Financial Accounts (FBAR).
What Is FBAR?
Any United States person who has signature or other authority over, or a financial interest in, any foreign financial accounts must report that relationship by filing an FBAR with Treasury on or before June 30 if the aggregate value of these financial accounts exceeds $10,000 at any time during the prior calendar year.
While most investment advisors and certain employees will have signature authority over their clients’ or funds’ accounts, this will only apply to you if your client or fund has opened a foreign bank, foreign brokerage or foreign custody account.
When Is FBAR Due?
FBARs must be filed by June 30, 2011, with respect to foreign financial accounts maintained in the calendar year 2010.
A revised FBAR form (Form TD-F-90-22.1) should be used for the June 30, 2011 filing deadline.
What Requires a Filing?
FBAR reporting is required for a U.S. investment advisor’s signature authority over a U.S. or offshore client’s or fund’s foreign financial account.
FBAR reporting is required for any foreign financial accounts owned by a U.S. advisory client or U.S. private investment fund, e.g., a domestic fund’s economic interest in a foreign bank or brokerage or custody account.
What Does Not Require a Filing?
An offshore private investment fund, such as a foreign hedge fund or foreign private equity fund, is not a foreign financial account. Ownership or management of such a fund is not reportable. (However, management of a foreign account of such a fund is reportable).
An account is not a foreign account under FBAR if it is maintained with a financial institution located in the United States (e.g., a U.S. branch of a foreign institution).
Purchases of securities of a foreign company through a securities broker in the United States are not required to be filed on a FBAR.
When a U.S. bank acts as a global custodian and holds a pool of assets on behalf of its customers in an account located outside the United States, the U.S. bank’s customers do not have to report this foreign sub-custody account.
Where an entity (e.g., a fund general partner) is given authority over a foreign financial account, the individual(s) who can exercise that authority and not the entity are required to report the signature authority, although the management firm likely would assist with such filing. The entity would file if it has economic interest in the foreign account. This regime can lead to duplicate and confusing reporting. If you manage a foreign financial account, experienced counsel can answer your questions regarding the form.
Rules to Simplify FBAR Filings
The Final Regulations state that a U.S. advisor or employee with signature or other authority over 25 or more foreign financial accounts, or a U.S. client 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 FBAR form. Detailed information concerning each account must be provided upon request.
Treasury also indicated its plans to allow electronic filing of FBAR forms at some point in the future.