In my old day job I was responsible for enforcing a set of regulations that a lot of people found annoying and stupid. And, because I was on-site enforcing them, I got to hear about it. Often. And later when one of my areas of expertise was a new, but important area of regulation, I heard the complaints from both those enforcing the regulations as well as those who had to comply with them.
“Do we really have to be so hard on this firm just because they failed to properly identify who owns that account?” and “So what if we didn’t report that one little pattern of suspicious activity? Do you really have to fine us for it?”
Moment to moment, I could sympathize with their frustrations. When you have eight million things going on and deadlines and responsibilities, getting tripped up by something that seems minor or having to take a case for something that seems minor is frustrating.
What a waste, right? Everyone has better things to do, don’t they?
One of the rules that we enforced that people found most eye-roll-inducing was the requirement to file an FBAR. For those of you not in the know, an FBAR is a form that the U.S. government requires U.S. persons to file that “is used to report a financial interest in or signature authority over a foreign financial account.”
Basically, if you are a U.S. person and you have control over at least $10,000 worth of funds overseas, the U.S. government wants to know about it. And, if you fail to tell them about it and they can show you did so willfully you can owe up to $100,000 or 50% of the value of the account.
One little form. Screw it up and you lose half the value of the account. Seems absurd right?
Ah, but there’s a reason that form filing requirement exists. And a reason the penalty can be so high.
That’s because charging someone with failing to file that form is a hook a prosecutor can use to catch those who engage in activity they don’t want their government to know about.
Sometimes (often) it’s good old-fashioned tax evasion. Rich people love to hide their funds overseas where Uncle Sam can’t tax it. (Just Google UBS and tax evasion to get a small idea of the size of the issue.)
And sometimes it’s someone representing the interests of a foreign government against U.S. interests who wants to hide what they’re doing.
Either way, that little form is very handy when these things happen.
Proving tax evasion and money laundering and criminal intent can take a ton of effort and documentation and chasing money trails all over the world, and possibly years of effort to build the case. But proving that someone had over $10,000 stashed overseas and they failed to file that little form? That’s pretty damned easy to prove. (As we just saw.)
So all hail the mighty FBAR.
And the next time you’re tempted to complain about some useless regulation, remember: there’s usually a reason regulations exist.
M.L. Humphrey 