FinCEN Amends Willful FBAR Regulations

Published date30 December 2021
Subject MatterFinance and Banking, Government, Public Sector, Financial Services, Money Laundering
Law FirmWinston & Strawn LLP
AuthorMr James N. Mastracchio, Susan Elizabeth Seabrook, Karl Kurzatkowski and Zachary Weit

On December 23, 2021, the United States ("U.S.") Department of the Treasury's Financial Crimes Enforcement Network ("FinCEN") announced amendments to the Bank Secrecy Act ("BSA") penalty regulations to remove certain civil penalty language (previously, 31 C.F.R. ' 1010.820(g)), despite FinCEN's previous failure to modify the regulations after the enactment of the American Jobs Creation Act of 2004 ("American Jobs Creation Act"), Pub. L. No. 108-357, ' 821, 118 Stat. 1418 (2004).

The changes made pursuant to FinCEN's announcement accordingly rescind section 1010.820(g) and cause paragraphs (h) and (i) in section 1010.820 to be redesignated as paragraphs (g) and (h), effective as of December 23, 2021.

Background

The BSA requires financial institutions to program recordkeeping and reporting requirements aimed at tackling money laundering, terrorist financing, and other tax or financial crimes. Regulations implementing the BSA have set forth filing requirements for a Foreign Bank Account Report ("FBAR"), which generally require each U.S. person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country to report such relationship for each year in which such relationship exists. Persons who fail to file an FBAR (or who file an incomplete or incorrect FBAR) may be subject to a civil monetary penalty, the amount of which depends on the willful or non-willful nature of the violation.

Conflicting Statutory and Regulatory Sections

Section 5321 has historically contained civil monetary penalties for BSA violations. In October 1986, Congress amended the provision to add section 5321(a)(5), authorizing a civil monetary penalty for willful violations of 31 U.S.C. ' 5314. Specifically, section 5321(a)(5)(B) gave the Secretary of the Treasury ("Secretary") the discretion to impose civil penalties for willful FBAR violations to the greater of (i) the amount of the transaction or an amount equal to the balance in the account at the time of the violation (but not to exceed $100,000) or (ii) $25,000. These penalty limitations were incorporated into the regulations at 31 C.F.R. ' 1010.820(g).

The American Jobs Creation Act, however, amended section 5321(a)(5), revising the manner in which the penalty is calculated and increasing the maximum amount that could be assessed for willful violations of section 5314. Specifically, newly added section 5321(a)(5)(C) provided that the maximum penalty for...

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