The Bank Secrecy Act was passed into law in the United States in 1970 in an attempt to combat money laundering in the US As a result of this Act, foreign financial accounts including bank accounts, brokerage accounts, mutual funds, unit trust and other financial accounts came under scrutiny as the United States Government became wary of United States persons utilising these accounts outside the US in an attempt to evade more stringent US laws. The Internal Revenue Service (IRS) began to enforce the disclosure of such foreign financial accounts by means of the Report of Foreign Bank and Financial Accounts (FBAR).
Who Must Report
The instructions accompanying the FBAR form state that any “United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.” These instructions go on to define a “United States person” as a citizen or resident of the United States, entities including corporations, partnerships and limited liability companies and estates and trust formed in accordance with US laws.
Failure To Report
The FBAR report must be filed with the Department of the Treasury by 30th June of the year following the year that the $10,000 threshold was met.
Failure to properly file an FBAR can result in a civil penalty of up to $10,000 per offence. If there is reasonable cause for the failure to properly file, and the balance on the foreign financial account is then properly reported, this penalty will not be imposed.
However, anyone who is found to have wilfully failed to report can face a penalty of either $100,000 or 50% of the balance in the account at the time of the offence, whichever amount is the higher.
Criminal sanctions can be imposed in addition to, or in replace of, the above civil penalties.
In addition, records of accounts required to be reported by way of an FBAR must be retained for a period of five years. Failure to maintain such records can also result in civil penalties, criminal penalties or both.
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