Will a business trip to the United States of America trigger a “chance” encounter with Mr. #FBAR?

Prologue: Circa 1948 – George Orwell anticipates the arrival of Mr. FBAR

‘By the way, old boy,’ he said. ‘I hear that little beggar of mine let fly at you with his catapult yesterday. I gave him a good dressing-down for it. In fact I told him I’d take the catapult away if he does it again.

‘I think he was a little upset at not going to the execution,’ said Winston.

‘ Ah, well — what I mean to say, shows the right spirit, doesn’t it? Mischievous little beggars they are, both of them, but talk about keenness! All they think about is the Spies, and the war, of course. D’you know what that little girl of mine did last Saturday, when her troop was on a hike out Berkhamsted way? She got two other girls to go with her, slipped off from the hike, and spent the whole afternoon following a strange man. They kept on his tail for two hours, right through the woods, and then, when they got into Amersham, handed him over to the patrols.’

‘What did they do that for?’ said Winston, somewhat taken aback. Parsons went on triumphantly:

‘My kid made sure he was some kind of enemy agent — might have been dropped by parachute, for instance. But here’s the point, old boy. What do you think put her on to him in the first place? She spotted he was wearing a funny kind of shoes — said she’d never seen anyone wearing shoes like that before. So the chances were he was a foreigner. Pretty smart for a nipper of seven, eh?’

‘What happened to the man?’ said Winston.

‘Ah, that I couldn’t say, of course. But I wouldn’t be altogether surprised if-‘ Parsons made the motion of aiming a rifle, and clicked his tongue for the explosion.

Chapter 5 of George Orwell’s 1984

Writing in 1948, George Orwell (in his book 1984) identified the need to identify and punish all things “foreign” as being important for domestic security.

1970 in the United States of America – Mr. FBAR was born

In 1970, the United States Congress, in the Bank Secrecy Act, enacted legislation to impose strict disclosure requirements on:

A. Many “U.S. Persons” engaging in transactions with “foreign” Financial Agencies; and

B. Many “Foreign Persons” engaging in transactions with “foreign Financial Agencies” while in the United States.

These rules are arguably the most enduring legacy  of the Nixon years.

The rules and their potential were not well understood until the administration of Barack Obama.

2011 – The administration of Barack Obama creates the FBAR Fundraiser

It is likely that “Uncle FATCA” will  be the most enduring creation and legacy of the Obama presidency.  At a bare minimum, the SPECTRE of Uncle FATCA has left banks all around the world cowering in fear. Cowering in fear of a 30% sanction applied to U.S. transfers to their accounts.

In addition to the creation of FATCA, the Obama administration has resurrected Mr. FBAR (or at least given him a “new lease on life”). The Obama administration created what is now known as “The FBAR Fundraiser“. American citizens abroad now cower in fear of the consequences of not disclosing full details of their “foreign” local financial accounts to the Financial Crimes division of U.S. Treasury.

Given the importance of Mr. FBAR in the life of a “U.S. Person”, I thought it would interesting to “Look For Mr. FBAR” and “Examine Mr. FBAR” once found. Mr. FBAR is the most feared person in America and outside of America. Yet few people know where to find him or recognize when they see him.

Like SPECTRE (created by Ian Fleming of James Bond fame), Mr. FBAR is everywhere and Mr. FBAR is nowhere. Mr. FBAR is the subject of much discussion. Some have heard of him. Some knew somebody who met him. But, very few know where to find him.

Locating Mr. FBAR …

Mr. FBAR is hidden deep inside Title 31 of U.S. laws. Specifically he is  found in:

U.S. CodeTitle 31Subtitle IVChapter 53Subchapter II › § 5314

He reads as follows:

Considering the need to avoid impeding or controlling the export or import of monetary instruments and the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency, the Secretary of the Treasury shall require a resident or citizen of the United States or a person in, and doing business in, the United States, to keep records, file reports, or 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. The records and reports shall contain the following information in the way and to the extent the Secretary prescribes:

(1) the identity and address of participants in a transaction or relationship.

(2) the legal capacity in which a participant is acting.

(3) the identity of real parties in interest.

(4) a description of the transaction.

(b) The Secretary may prescribe—

(1) a reasonable classification of persons subject to or exempt from a requirement under this section or a regulation under this section;

(2) a foreign country to which a requirement or a regulation under this section applies if the Secretary decides applying the requirement or regulation to all foreign countries is unnecessary or undesirable;

(3) the magnitude of transactions subject to a requirement or a regulation under this section;

(4) the kind of transaction subject to or exempt from a requirement or a regulation under this section; and

(5) other matters the Secretary considers necessary to carry out this section or a regulation under this section.

(c) A person shall be required to disclose a record required to be kept under this section or under a regulation under this section only as required by law.
(Pub. L. 97–258, Sept. 13, 1982, 96 Stat. 997.)

Understanding the Mr. FBAR Statute: What’s mandatory, what’s permissive, what’s up?

Parsing the statute …

The purpose …

Considering the need to avoid impeding or controlling the export or import of monetary instruments and the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency, (Surely the greatest Freudian slip of all time)

The mandatory directive …

the Secretary of the Treasury SHALL require

Mr. FBAR applies to two broad groups …

Group 1

a resident or citizen of the United States

Group 2

or a person in, and doing business in, the United States,

Members of Group 1 and Group 2 are required to …

to keep records, file reports, or 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. The records and reports SHALL contain the following information in the way and to the extent the Secretary prescribes:

(1) the identity and address of participants in a transaction or relationship.

(2) the legal capacity in which a participant is acting.

(3) the identity of real parties in interest.

(4) a description of the transaction.

But, the Secretary can free certain people from the “Yoke Of Mr. FBAR” as follows:

(b) The Secretary MAY prescribe —

(1) a reasonable classification of persons subject to or exempt from a requirement under this section or a regulation under this section; (Americans abroad specifically denied an exemption) and (visitors to the United States are specifically (at least temporarily) granted an exemption).

(2) a foreign country to which a requirement or a regulation under this section applies if the Secretary decides applying the requirement or regulation to all foreign countries is unnecessary or undesirable; (bank accounts in certain countries could be exempted. Perhaps countries could be invited to enter into FBAR treaties with the United States. Like the FATCA IGAs countries could agree to simply automatically disclose ALL bank accounts existing in the country, to the U.S. Treasury. Like the FATCA IGAs this would be a one way flow of information to the United States.)

(3) the magnitude of transactions subject to a requirement or a regulation under this section; (it’s been a $10,000 threshold since the 1970s)

(4) the kind of transaction subject to or exempt from a requirement or a regulation under this section; (should lawyers’ trust accounts be exempted?) and

(5) other matters the Secretary considers necessary to carry out this section or a regulation under this section.

(c) A person shall be required to disclose a record required to be kept under this section or under a regulation under this section only as required by law. (thank God for that!!!! This is the teaching of the July 2016 HOM case.)

“The Secretary”:  doing what is MANDATORY and doing what is PERMISSIVE?

It’s all in the regulations which are found here. The regulations are not particularly exciting.

They begin with:

§ 1010.350 Reports of foreign financial accounts.

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.

Notice that the regulation makes no reference to the $10,000 figure. Rather the regulation references the “form”. It in the “form” (who could have known) where the $10,000 reporting threshold is found. Future “FBAR Historians” may find the following to be of interest:

FBAR Line Item Filing Instructions

irsfbarreferenceguide

As noted by Virginia La Torre Jeker: FBAR rules do apply to children with Foreign Financial Accounts (George Orwell’s “little nipper of seven”)

New FBAR instructions were added on June 11 2014 to emphasize this.  The filing requirement for minors is clarified on Page 6 by adding the following text:

Responsibility for Child’s FBAR

Generally, a child is responsible for filing his or her own FBAR report. If a child cannot file his or her own FBAR for any reason, such as age, the child’s parent, guardian, or other legally responsible person must file it for the child.

Signing the child’s FBAR

If the child cannot sign his or her FBAR, a parent or guardian must electronically sign the child’s FBAR. In item 45 Filer Title enter “Parent/Guardian filing for child”

(Another excellent discussion of FBAR and the moral education and responsibilities of  the little nippers is here.)

“To Whom Mr.  FBAR Tolls” …

Most members of Groups 1 – “U.S. Persons” (citizens or residents) experience the “Terrorony” of Mr. FBAR.

But, what about members of Group 2 – “a person in, and doing business in, the United States”? While American CITIZENS abroad experience the “terrorony” of Mr. FBAR, “aliens” visiting the United States are currently exempted from the FBAR reporting requirements.

In 2009 the IRS decreed that:

Announcement 2009-51

The Internal Revenue Service is temporarily suspending the reporting requirement with respect to foreign bank accounts (Form TD F 90.22-1 (Report of Foreign Bank and Financial Accounts)) due on June 30, 2009, for those persons who are not citizens, residents, or domestic entities. The revised Form TD F 90.22-1 (October 2008) was issued with a change in the instructions to the definition of “United States person.” The IRS has received a number of questions and comments from the public concerning the new filing requirement that may require additional guidance.

a-09-51

In practical terms this means that for the purposes of FBAR reporting:

A “United States person” includes a citizen or resident of the United States, or a person in and doing business in the United States. Whether a person is considered, for FBAR purposes, to be in, and doing business in the United States is determined based on an analysis of the facts and circumstances of each case. Generally, a person is not considered to be in, and doing business in the United States unless that person is conducting business within the United States on a regular and continuous basis. Persons who are merely visiting the United States or who sporadically conduct business in the United States, are not in, and doing business in, the United States for FBAR reporting purposes.

Therefore …

Although the FBAR statue specifically REQUIRES Treasury to inflict Mr. FBAR on “a person in, and doing business in, the United States”, it is clear that Treasury is NOT requiring “visitors who are “in, and doing business, in the United States” to file an FBAR.

Yet, there must be millions of visitors to the USA every year who:

1. Are doing business while inside the United States; and

2. make a transaction or maintain a relation for any person with a foreign financial agency

It could be as simple as entering the United States and interacting with a “foreign financial agency” online. The possible danger of “aliens” visiting the United States was referenced In an August 17, 2016 speech, by Assistant Attorney General Caroline D. Ciraolo. Her remarks included:

Mr. Bergantino also admitted traveling to the United States to meet with clients, taking careful steps to conceal the purpose of his visits from U.S. law enforcement. He used private couriers to send clients’ account statements to the U.S. hotels where he stayed, so that he would not be caught traveling with clients’ statements in his possession, and obtained “travel” account statements for each client he intended to visit which were devoid of Credit Suisse’s logo and account or customer identification information, and used business cards that Credit Suisse provided that contained only his name and office number. On entering the United States, Mr. Bergantino provided misleading information regarding the nature and purpose of his visit to U.S. Customs and Border Protection authorities.

Mr. Bergantino had been a fugitive since 2011, unable to travel outside of Switzerland without risking arrest. He is the third fugitive to come to the United States and plead guilty to charges in this case. Two of Mr. Bergantino’s co-defendants, Andreas Bachmann and Josef Dörig, pleaded guilty to the superseding indictment in 2014 and were sentenced on March 27, 2015.
These cases demonstrate that tax evasion knows no geographic bounds and that the Justice Department will pursue these cases wherever the money travels. Not only will those individuals involved be held responsible, but also the entities that support and facilitate their conduct. The Justice Department remains committed to holding foreign financial institutions, corporate service providers, legal and financial professional firms, insurance companies and other entities accountable for their role in assisting U.S. taxpayers in concealing accounts and evading U.S. tax obligations.

Would Mr. FBAR have deterred the behavior of those who would visit the United States to facilitate tax evasion? We can’t know for sure. It is possible.

Does the failure to exempt Americans abroad from the FBAR requirement coupled with the exemption of “alien” visitors from the FBAR requirement, mean that U.S. Treasury presumes that that U.S. citizens are more prone to crime?

A Possible Recommendation for the Secretary of the United States Treasury:

ALL visitors to the United States should be required to file an FBAR before they are permitted to leave the United States.  Perhaps this could be linked to “online check in” for flights.  (Citizens of countries which had signed an “FBAR Treaty” with the United States would be exempted.) The inconvenience of the majority is not important. What is important is to punish a few people who engaged in online banking with a foreign bank while they were physically in the United States or who came to American to facilitate tax evasion.

It took the coming of the Obama administration to turn Mr. FBAR into a weapon against U.S. citizens (particularly against Americans living outside the United States). Perhaps a future Clinton administration could turn Mr. FBAR into a weapon against visitors to the United States. After all, it’s the sole decision of the U.S. Treasury.

Those who laugh consider this: One would never have expected that Mr. FBAR would have been used to confiscate the assets (largely under the guise of the OVDP programs) of American citizens. There is nothing to stop the further evolution of Mr. FBAR.

As it presently stands:

The infliction of FBAR Terrorony on visitors to the United States is the “removal of one FBAR exemption” away! Section 5314 of Title 31 requires FBARs to be filed by certain visitors to the United States.

Will the “SPECTRE” of an encounter with “Mr. FBAR” make people reluctant to visit the United States?

Mr. FBAR: “A small step for man and a large step for mankind!

 

John Richardson

FBAR Update:

On July 26, 2016 the Ninth Circuit Court of Appeals issued it’s ruling in the HOM case. The ruling suggests that the Treasury Department cannot designate anything it wants as a “Financial Agency” for the purposes of the FBAR Statute. This is a welcome development.

HOM: A small step for man. A large step for mankind!

HOM 14-16214