By Stephen J. Dunn
The Bank Secrecy Act, 31 USC 5314, authorizes the U.S. Treasury to enact regulations concerning transactions by a United States person with a foreign financial agency. A Regulation under the Bank Secrecy Act, 31 CFR 1010.350(a), provides that, “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.” Interpreting this language, the instructions to Form FinCEN 114 (“FBAR”) provide at page 4 that “[a]n account maintained with a branch of a foreign bank that is physically located in the United States is not a foreign financial account.”
Assume, for example, that Bank conducts business in a Zurich, Switzerland, office. Bank has a branch located in New York, New York. Clients (yes, that is what Bank calls them, not “customers”) enter the New York branch, talk with Bank staff there, and sign documents to open depository and brokerage accounts there. Bank does not issue paper statements to its clients, but clients can enter the New York branch during business hours and view a statement of their account on a computer screen. Bank advertises in U.S. media, and periodically sends its marketing representatives into the U.S. to solicit depository and brokerage accounts in this country. The marketing representatives meet prospective clients in the New York Branch. Bank’s marketing representatives speak the targeted individuals’ native language. It is unclear whether Bank’s Zurich operation is the headquarters, or the Zurich and New York offices are branches of a headquarters located somewhere elsewhere. In dealing with accounts maintained at its New York branch, sometimes Bank uses the name of its Zurich operation, and sometimes it uses the name of its New York operation.
Bank’s New York branch is not a foreign financial agency for purposes of the Bank Secrecy Act or Regulations thereunder. Accordingly, U.S. persons need not file an FBAR for accounts maintained with Bank’s New York branch. Surely the facts are so muddled as undermine assessment of the draconian penalty of 31 USC 5321(a)(5)(C) against Bank’s U.S. clients for willful failure to file an FBAR.
And by carrying out its threat to disclose information about its U.S. clients to the Swiss or U.S. governments, Bank clearly would breach its fiduciary and implied contractual duties of confidentiality to its subject U.S. clients.