22 December 2020
Earlier this month Arthur Bedrosian, the former CEO of a US pharmaceutical company, was found liable for a $1 million penalty for having failed to report a foreign bank account.
This case serves as a reminder for companies and individuals to stay on top of their foreign asset reporting obligations, which may arise as a result of operating international incentive plans.
Foreign asset reporting in the US - a reminder
In the US, there are various foreign asset reporting requirements, including under the Bank Secrecy Act. Under those requirements, individuals must report certain foreign financial accounts by filing a Report of Foreign Bank and Financial Accounts (FBAR).
This filing applies to all US persons who have an interest in (or signature authority over) one or more covered non-US financial accounts (certain "non-covered" accounts are exempt), whose aggregate value exceeds USD10,000 at any time during a calendar year.
The FBAR is an annual report, which should be filed by the 15 April following the calendar year being reported.
Summary of the case
In this case, Bedrosian was found to have acted carelessly in failing to review his signed tax forms. These forms failed to disclose a Swiss bank account containing approximately $1.9 million.
The US courts had previously concluded in 2017 that Bedrosian’s conduct was not ‘wilful’. Now the case has reached the federal court and in their view: Bedrosian knew about the FBAR reporting requirement, was taking measures to avoid the account’s detection, had a significant amount in his account, and ultimately signed his tax forms despite claiming not to review them.
On this basis, Bedrosian was found to have acted deliberately, and in doing so was liable for a severe fine of 50% of the amount in the account.
This case is a clear reminder of the potentially severe consequences that can arise when foreign asset reporting requirements are not complied with.
With the headline grabbing fine being 50% of the amount not reported, companies and individuals should ensure they keep on top of the FBAR reporting requirements.
It is also worth noting that whilst these requirements are particularly strict in the US, such requirements do not only exist there. Similar obligations arise all around the world and when operating incentive plans globally, it is important to be aware of the obligations that could be being created for local employing entities and participants, which maybe unfamiliar to them. Whilst some companies see this as the individuals’ responsibility, many others choose to share such information with their participants if they want to be particularly helpful in this area.
For our OnTap subscribers, the foreign asset reporting requirements are found in the Legal Report for each country.
If you would like to discuss this update, or any other foreign asset reporting requirements, please do contact us.
We would like to thank Harter, Secrest & Emery LLP for bringing this case to our attention.
Sally Blanchflower and Tom Parker