Federal law requires individuals and businesses with certain financial interests abroad to disclose these interests annually. The Financial Crimes Enforcement Network (FinCEN) has created a form for this disclosure, known as FinCEN Form 114, Report of Foreign Bank and Financial Accounts, or “FBAR.” U.S. citizens and residents, as well as businesses and other entities organized under U.S. law, must file the form. Failure to do so could result in a civil penalty of up to $10,000. Willful failure to file a required Federal tax form could be subject to greater penalties.
Statutory Authority for the FBAR
The Bank Secrecy Act (BSA) of 1970 authorizes FinCEN, which is part of the U.S. Department of the Treasury, to require individuals and businesses to file the FBAR. The purpose of the BSA is to give the government tools to combat financial crimes like money laundering and tax evasion. Critics of the FBAR argue that it casts far too wide a net and inundates the government with paperwork. The IRS maintains that the FBAR is necessary because of possible disparities between disclosure laws for U.S. financial institutions and those in other countries. To put that another way, since other countries might not require as much financial disclosure by their banks and securities firms, the U.S. requires its own citizens to make up the difference.