This article provides an analysis of how corporate Foreign Bank Account Reporting (FBAR) requirements have evolved over time and what the resulting impact has been on U.S. treasury groups. We conclude by evaluating the modern technologies, strategies, and workflows that organizations are using to manage FBAR today.
Table of Contents
- 2001-2010: Revisions to U.S. FBAR Legislation Cause Treasury Disruption
- 2011-2017: A Bumpy Road to Compliance
- 2018 Onward: How do Most Treasury Groups Manage FBAR Today?
Final Thoughts: Next Steps for Optimizing Your FBAR Filing Process
Setting the Stage: 2001-2010 FBAR Revisions Disrupt the Treasury Community
Although U.S. Foreign Bank Account Reporting (FBAR) has existed since the formation of the Bank Secrecy Act in 1970, the full scope of regulatory oversight exercisable through FBAR did not begin to impact treasury groups until the early 2000s, when a number of new amendments were introduced.
In 2001, the USA PATRIOT Act was ratified by the U.S. government as part of a major effort to crack down on tax evasion, money laundering, and other types of financial crimes. Through this act, the Financial Crimes Enforcement Network (FinCEN), a wing of the U.S. Department of Treasury, was tasked with enforcing compliance and managing the structure and analysis for a number of new regulatory measures. Among these was the annual FBAR filing.
Up until this point, foreign bank accounts held by U.S. citizens and entities had not been scrutinized by the U.S. government with any meaningful effort. As a result, it was not uncommon for companies in the 1980s and 90s to hold assets in unreported offshore bank accounts in Europe, the Caribbean, or other regions. Harboring these accounts often saved the firm money through the evasion of U.S. taxes and other types of fees. However, this practice became much more difficult after the passing of the PATRIOT Act, and as the U.S. government began cracking down on illicit financial practices and improving their framework for monitoring compliance, FinCEN and FBAR were poised to play key roles.
In the years following 2001, FinCEN joined forces with the Internal Revenue Service (IRS) to prioritize the rollout of an improved FBAR compliance process. They started by introducing a mandatory online BSA e-filing system that corporates could use to submit their FBARs electronically. They also began updating the language regarding Form 114, which dictates exactly which U.S. organizations and signers are required to file a FBAR.
As part of these updates, it was mandated that U.S. organizations with $10,000 or more held in offshore accounts would be required to report those holdings annually. Within this report, companies needed to submit a comprehensive file of information to FinCEN, including a list of all offshore bank accounts and the associated bank information, the highest-recorded cash balance in each account for the year, and a list of all U.S. employees with signature authority over each account. For each U.S. signer, FinCEN also required detailed information regarding their citizenship and employment status.
The concern for treasury?
For multinational organizations operating with dozens of banks, hundreds or thousands of accounts, and large groups of U.S. employees around the world, collecting and organizing all the information required to file FBAR was incredibly complicated.
In the early 2000s, very few treasury groups were tracking their company’s banking data in a format that was conducive to FBAR filing. Specialty tools for electronic bank account management (eBAM) and banking compliance were not yet mainstream, and few Fintech vendors had been focused on building solutions to manage FBAR. As a result, excel spreadsheets and paper files were often the primary reporting tools at treasury’s disposal, and it took sustained, manual effort to analyze these documents.
Unsurprisingly, the new FBAR requirements quickly became a major headache for U.S. treasury groups. Some even pondered whether complying with the new statutes was worth the effort. But with penalties for noncompliance slated to reach $10,000 or more for every violation, the financial and reputational risks of ignoring FBAR could be catastrophic.
From 2010 to 2017: Numerous Obstacles Delay FinCEN’s Corporate FBAR Rollout
When FinCEN and the IRS first introduced their updated FBAR amendments in February 2010, they believed that most U.S. businesses could achieve compliance within two years. In-line with these projections, they mandated that 2011 would be the first year where corporates would be required to file in accordance with the new guidelines. Hence, the 2011 filing deadline was officially set for April 2012.
However, this timeline was impeded almost immediately by a variety of factors.
First, the effort it took by businesses to gather all the information necessary for FBAR filing was way greater than FinCEN ever anticipated, especially for large multinational companies. It often required treasury personnel to sift through thousands of pages of bank statements to confirm minor details, such as the highest account balances for the year in USD or the complete list of U.S. signers over each account. For each U.S. signer at the company, FinCEN also required that corporates file details like their name, address, social security number, and employment status. This data took additional time to collect and because of the sensitive nature of employee records, it had to be handled with extreme caution and security.
When combined with their other responsibilities, the sheer scope of information that treasury groups were required to collect and organize for FBAR was simply too much to manage in the allotted timeframe.
To make matters worse, FinCEN and the IRS were constantly introducing revisions to their FBAR filing guidelines that often-left businesses with more questions than answers regarding the correct way to submit their reports. With other similar legislation like FATCA also coming into effect around the same time as FBAR, many companies were unsure of how these regulations coincided or offset. Although online FAQ pages and even an IRS hotline were established to field inquiries about the filing process, many questions were left unanswered or took weeks to receive feedback on.
As a final nail in the coffin, the online e-filing portal created by FinCEN for automating the reporting process suffered from a number of early-stage setbacks and glitches. Batch filings submitted by corporates were often not accepted, and the ensuing format anomalies ultimately caused reporting failures. As these setbacks amassed, it ultimately became clear that the annual corporate FBAR filings could not continue on the original timeline. Instead, the IRS and FinCEN delayed the filing until end-of-year (EOY) 2012.
Then 2013, followed by 2014.
In the end, corporate compliance with the new FBAR filing procedure was delayed a total of seven years, from 2011 to 2017.
2018 Onward: Technology Innovation Helps Treasury Simplify the FBAR Filing Process
Finally, after seven successive years of delays, FinCEN’s new FBAR filing process went into effect for U.S. organizations in 2018. By this time, clarity surrounding the revised FBAR amendments had improved significantly, and treasury groups had been given 5-7 years longer than anticipated to confirm the scope of their filing responsibility and implement processes for complying. In fact, clarity had improved so significantly that 59% of U.S. treasury practitioners in 2018 considered themselves knowledgeable or fairly knowledgeable on FBAR, compared to just half that number a few years prior.
In addition to their improved knowledge levels, many treasury groups had also used the extended filing delay to implement technology that could automate their reporting workflows.
As highlighted through this survey, 1 in 5 U.S. organizations were already using a bank account management system with balance feeds to help automate their reporting process in 2018. Another one in five were using a TMS module or similar platform. Only 40% of companies were still using an entirely manual process (i.e., spreadsheets and paper files).
Now in 2021, the solutions available to companies for streamlining the FBAR filing process have continued to become stronger and more democratized. As corporates familiarize themselves with their respective requirements, technology can be quickly incorporated to automate the collection and organization of relevant data sets, including bank account numbers, month-end cash balances, and annual U.S. signer lists. Today, this automation is commonly achieved through the use of an electronic bank account management (eBAM) solution, or by implementing the BAM module(s) of an ERP, TMS, or Payment Hub.
As a real-world example of FBAR automation, consider the case of a U.S. non-profit that uses 50 banks, 250 bank accounts, and has 10-15 U.S. signers worldwide.
Per a recent conversation with TIS, this organization shared how they quickly realized that their manual FBAR reporting workflows would be impossible to manage long-term. It had taken them over 12 months to collect, organize, and file their FBAR for the first year, and their Treasury Director knew this timeframe was much too long and labor-intensive.
To alleviate the burden that FBAR was causing, the organization’s treasury group made it a top priority to automate the reporting process as much as possible using their recently-implemented ERP.
To achieve this ERP automation, there were two main FBAR challenges facing the NGO:
Identifying the highest annual USD balance for each bank account during the year (alongside other relevant data such as account numbers, addresses, etc.), and
Determining the list of authorized signers for each bank account that were obligated to file.
Between 2015-2020, the organization worked hard to upgrade their bank account management structure to support these new requirements. They began by adding a set of new data fields in the BAM module of their ERP platform, and followed up by implementing a new payments solution to centralize their global account reporting process. These upgrades enabled them to tackle the first challenge of tracking month-end account balances, and it also provided them with a full spread of other relevant banking data directly within their ERP. Now, as year-end FBAR reports become due, the account balance requirements can be compiled and exported in a matter of minutes.
Although the second challenge of tracking every authorized U.S. signer in their organization has yet to be solved, the automation already achieved by this NGO led them to successfully complete their 2020 FBAR filing process in just 1-2 months. This is over 90% faster than they completed their first filing. And while there is undoubtedly more optimization and control that can be achieved, the NGO’s treasury group is pleased with the progress so far and confident that they can enhance the process further in the years to come.
But while this NGO ultimately used an ERP to automate FBAR, companies without an ERP or that prefer a different approach have a range of other tools available to them. These options include TIS’ bank account manager. For companies that use a payment hub like TIS to manage global bank connectivity and enterprise payments, leveraging the bank account manager module provides an easy route for automating FBAR. This is because bank account data is already being captured by TIS as a component of our payment processing and cash management workflows, and many of the fields associated with FBAR can be easily tracked and managed directly within our platform.
So then, considering the past decade of FBAR evolution and the subsequent technology innovations that have occurred, how should organizations prepare to manage FBAR in 2021, 2022, and beyond?
Final Thoughts: In 2021, FBAR Should No Longer Pose a Major Disruption for Treasury
While the FBAR-related events from the past decade have undoubtedly caused considerable headache for treasury and finance teams, the reality is that these mandates should no longer be the source of strain they once were. Since 2018, FinCEN and the IRS have rarely instituted new changes to FBAR filing rules. And because so much progress has been made with cloud-based software over the past decade, organizations have exponentially more automation available to them now than a decade ago.
For multinational companies with hundreds or thousands of bank accounts, this technology automation is not a luxury, but a necessity.
For complex firms, adopting bank account management software is critical for streamlining the information reporting process. Although specialized eBAM software can help with this, the API integrations and cloud-based connectivity available through modern fintech solutions has created additional options for companies to automate FBAR. This includes the ERP automation achieved by the aforementioned NGO, as well as the enterprise payments and bank connectivity solutions offered by TIS.
Moving forward, any organization that continues to suffer from a lack of clarity or automation surrounding their FBAR process is putting themselves at a major disadvantage. Given the democratized solutions on the market today, companies have a wealth of resources at their disposal for developing an automated FBAR filing structure. Failing to leverage these resources will place unnecessary strain on treasury and finance personnel, and in a worse-case scenario, it can result in erroneous filings and hefty penalties from the IRS.