What does FBAR compliance mean for business organizations in the US? Find the answer in this quick guide, which provides a comprehensive overview of the key regulatory requirements, the risks of non-compliance, common reporting mistakes, and the role of authorized signatories in maintaining financial transparency and adhering to regulatory standards.

What is FBAR?

FBAR, or Foreign Bank and Financial Account Reporting, is a regulatory requirement under the U.S. Bank Secrecy Act. It applies to certain ‘U.S. persons’, including both individual citizens or residents and organizations, with a financial interest or signature authority over foreign financial accounts, and requires them to report these accounts annually to FinCEN, the Financial Crimes and Enforcement Network of the U.S. Treasury Department.

The FBAR is not a tax return but rather an informational report aimed at preventing tax evasion and maintaining financial transparency. The mandate complements other reporting requirements like the IRS’s Foreign Account Tax Compliance Act (FATCA) in the fight against global financial crimes and money laundering.

FBAR compliance for companies

As mentioned in the previous section, under the FBAR regulation, the term 'U.S. person' extends beyond individuals to include U.S. business organizations. According to IRS’s guidelines, U.S. persons required to file an FBAR include U.S. citizens, residents, and entities such as corporations, partnerships, limited liability companies, trusts, or estates formed under U.S. laws.

If a company or U.S. person has foreign accounts that cumulatively exceed the threshold of $10,000 at any point during the year, it must file an FBAR. This applies even if the foreign account is solely in the name of the U.S. business and not an individual.

FBAR compliance for companies also includes assisting employees with their filing responsibilities. If a company is provided with documented authority, it can file FBARs on behalf of employees who have signature authority over the company’s foreign financial accounts.

The role of authorized signers in FBAR compliance

Authorized signers, who have control over the dispensation of funds in foreign accounts, are integral to FBAR compliance. Maintaining an up-to-date list of these signers is hence a must for all regulated entities.

Leveraging digital signatory management applications like Cygnetise can streamline this process, enhancing the governance and control of bank mandates. One of Cygnetise’s core features is its ability to maintain a complete audit trail of all individuals who have been authorized and granted permission to sign on foreign bank accounts at any given time. Additionally, by utilizing blockchain technology, the platform enables organizations to easily produce comprehensive digital reports, in a matter of minutes, significantly speeding up the process of compiling and verifying signatory data records for reporting purposes.

To learn more about Cygnetise, download a product overview here.

Risks of FBAR non-compliance

Non-compliance with FBAR can result in severe penalties, ranging from monetary fines for negligence to more substantial penalties for willful violations. These can include fines up to $100,000 or 50% of the account balance at the time of the violation, emphasizing the importance of thoroughly understanding and adhering to the FBAR regulatory requirements.

10 common FBAR compliance mistakes

Below, we’ve outlined the 10 most common FBAR compliance mistakes companies tend to make.

Failure to file: The most prevalent error is neglecting to file an FBAR. This oversight is often due to unawareness of the filing requirements. It's crucial to stay informed about FBAR obligations to avoid substantial penalties and potential criminal charges.
Misunderstanding the $10,000 threshold: There's a common misconception that the $10,000 threshold for FBAR filing applies only to individual accounts. However, it actually refers to the total aggregate value of all foreign accounts at any time during the calendar year.
Overlooking smaller accounts: All foreign financial accounts must be reported if their aggregate value exceeds $10,000 at any point during the year, irrespective of the balance in individual accounts.
Misconception about year-end balances: The obligation to file an FBAR is triggered if the aggregate balance of all foreign accounts exceeds $10,000 at any time during the calendar year, not merely at the year-end.
Failure to report beneficial ownership: This includes individuals with signature authority or those who are beneficial owners of foreign financial accounts.
Ignoring non-traditional accounts: Accounts like life insurance policies with a cash value, among others, fall under the broader definition of “financial account” and must be reported.
Overlooking entity obligations: All U.S. entities, including disregarded entities, with foreign accounts exceeding $10,000 must file an FBAR.
Individual reporting by majority owners: Majority owners of business entities must report the entity's foreign financial accounts via an FBAR filing.
Trust-related filing errors: Trustees, grantors, and beneficiaries of trusts face particular FBAR filing obligations, which are often misunderstood.
Non-compliance with record retention: It’s mandatory to retain detailed records of foreign financial accounts for at least five years to support FBAR filings.

Conclusion

In summary, FBAR regulatory compliance is critical for US organizations with foreign financial interests. Understanding FBAR rules, avoiding common mistakes, and maintaining proper records are key to preventing severe penalties. With diligent management and adherence to guidelines, companies can navigate these regulations effectively, ensuring legal and financial integrity in their global operations.

FBAR compliance: A company's quick guide