Bank Seeks Exemption From FBAR Filing Requirements

The Bank of New York Mellon Corporation ("BNY Mellon") is pleased to provide comments on Form TD F 90-22.1, "Report of Foreign Bank and Financial Accounts" ("FBAR"). BNY Mellon is a global leader in providing a comprehensive array of services that enable institutions and individuals to manage and service their financial assets in more than 100 markets worldwide. These services include asset and wealth management, custody and asset servicing, and issuer servicing, including corporate trust services for pooled investment vehicles, all of which are described in greater detail below.

In Many Cases, FBAR Filings by BNY Mellon Would Not Further the Government's Objectives. Yet Would Impose Significant Administrative Burdens and Costs

The "Currency and Foreign Transactions Reporting Act," or "Bank Secrecy Act," was enacted in 1970 to address concerns that foreign financial accounts were being used for money laundering, asset concealment, and other criminal activities.¹ Under the Bank Secrecy Act, U.S. persons are required to keep records and file reports regarding transactions with foreign financial agencies.² Regulations promulgated by the Treasury Department under the Bank Secrecy Act require U.S. persons "having a financial interest in, or signature or other authority over" a foreign financial account to report such accounts to the Treasury by filing an FBAR.³

In at least three of its major lines of business, described below, BNY Mellon performs functions that place it within the class of persons required to file an FBAR, even though in that capacity: (1) it has no financial interest in the reported account; (2) it does not function in a capacity that would allow it to use the account for "money laundering, asset concealment, and other criminal activities;" and (3) it reports only the institutional account owner, who is unlikely to use a foreign account for such criminal purposes.

These lines of businesses are BNY Mellon's (1) corporate trust business; (2) custody business; and (3) institutional asset management business.

Corporate Trust. BNY Mellon's Corporate trust business involves servicing clients' debt securities. These services may include paying agency (payment of interest to security owners), redemptions, servicing conversions of debt securities to equity securities, etc. These services are are provided in connection with the full range of debt financing, the entire life of the security from pre-launch to maturity, and debt issued and held throughout the world.

Custody. Custody services involve the holding and administering of securities on behalf of third parties. These services include physical safekeeping, settlement of securities, and asset servicing. Asset servicing includes a variety of services to help ensure that investors receive the rights and fulfill the obligations associated with owning securities. The custodian performs a variety of services on the investors' behalf, including collecting dividends and interest; implementing corporate actions such as rights issues, re-denominations or corporate reorganizations; paying and/or reclaiming tax; and voting proxies at shareholder meetings. In providing asset servicing, the custodian serves as an information intermediary, facilitating communication between issuers and security holders.

Institutional Asset Management. Institutional asset management focuses on managing assets globally for institutional investors, including pension funds, governments and local authorities, charitable endowments, and corporate treasuries.

Under the rules as they are currently interpreted, BNY Mellon has signature authority for (but no financial interest in) tens of thousands of accounts related to these businesses. BNY Mellon therefore must file a detailed FBAR report, with no procedures available for filing electronically. BNY Mellon believes that, in such cases, its FBAR filings impose extraordinary administrative burdens and costs without furthering the government's objectives. Therefore, BNY Mellon respectfully requests that, in these circumstances, no FBAR filing be required, or, the FBAR filing requirements be simplified by allowing summary reporting for accounts over which BNY Mellon only has signature authority. In this regard, we find significant Congress' intention "to limit recordkeeping and reporting requirements to those which will be useful to carry out the purposes of the [Bank Secrecy Act] and not [be] unduly burdensome to legitimate business."⁴

Potential Solutions

BNY Mellon maintains tens of thousands of accounts for which it has signature authority but no financial interest. Although the FBAR allows filers with a financial interest in 25 or more financial accounts to report such interests in a summary fashion, there is no such formal summary reporting for accounts over which a filer has only signature authority.⁶ It is counterintuitive to require more detailed reporting where a taxpayer has no financial interest, but has only signature authority.

While Internal Revenue Service ("IRS") Headliner Volume 265,⁷ suggests that persons with signature authority over 25 or more foreign financial accounts may complete the FBAR in a summary fashion, the FBAR and its instructions do not provide explicitly for the summary reporting of signature authority accounts. The IRS Headliner states that a person with signature authority over 25 or more accounts may "check the 'Yes' box in Item 14, and enter the exact number of financial accounts for which the person has signature or other authority" and complete Part IV, Items 1 through 6 and 34 through 43.

It is unclear, however, why the filer with only signature authority is instructed in the IRS Headliner to check the "Yes" box in item 14 and enter the number of accounts for which the person has signature authority given that item 14 specifically asks whether the filer has a financial interest in 25 or more financial accounts, and, if so, to enter the total number of accounts. Neither the FBAR itself nor the instructions thereto indicate that item 14 should be used to indicate the number of accounts over which the filer has signature authority. The inconsistencies between the Headliner and the FBAR and instructions would appear to compromise the integrity of item 14 for data-collection purposes.

Further, requiring the completion of lines 34 through 43 where a taxpayer merely has signature authority requires a substantial review of multiple lines of business for multinational banks such as BNY Mellon. As indicated previously, this would entail reporting the name, taxpayer identification number, and address of tens of thousands of accounts including foreign subsidiaries. Any perceived benefit to tax administration would be far outweighed by the administrative burden placed on banks.

BNY Mellon requests that the Treasury Department confirm summary reporting for accounts in which the filer has signature authority, and incorporate such summary reporting into the FBAR form and instructions. Further, BNY Mellon requests that the Treasury Department not incorporate the requirement in IRS Headliner Volume 265 that such filer complete Part IV, Items 1 through 6 and 34 through 43. Again, requiring such filer to provide information about the name and taxpayer identification number of tens of thousands of account owners adds to the compliance burden disproportionately to the benefit obtained by the government.

The summary reporting for signature authority accounts could be similar to the summary reporting allowed for financial interest accounts: the filer could be instructed to (1) check a box if it has signature authority over 25 or more accounts and (2) enter the total number of such accounts. This summary reporting for signature authority accounts, like the current summary reporting for financial interest accounts, could also require the filer to retain the records generally required by the FBAR's record-keeping requirements.⁸

Conclusion

We respectfully request that the government weigh the administrative burden to businesses of reporting tens of thousands of signature authority accounts against the benefits gained by the government. As a global custodian, with exposure to the compliance rules of many countries, we view the U.S. rules as uniquely burdensome, without apparent corresponding proportionate benefits.

We appreciate the opportunity to provide these comments. We would be pleased to discuss our concerns in additional detail.

² 31 U.S.C. § 5314.

³ 31 C.F.R. § 103.24.

⁴ H.R. Rep. No. 91-975 (1970).

⁵See, e.g., 31 C.F.R. § 103.121 (customer identification programs); 31 C.F.R. § 103.34 (customer identification due diligence requirements); 31 C.F.R. § 103.33 (recordkeeping requirements for transfers); 31 C.F.R. § 103.18 (required reporting of "suspicious transactions").

⁶Compare Form TD F 90-22.1, Item 14 (allowing filer with a financial interest in 25 or more foreign financial accounts to check a box) with Form TD F 90-22.1, Part IV (requiring filer to provide certain information for foreign financial account over which it has signature authority but no financial interest).

⁷ Internal Revenue Service, "FBAR Reporting by Persons with only Signature Authority or Other Comparable Authority," available at http://www.irs.gov/businesses/small/selfemployed/article/0,,id=206219,00.html (published April 2, 2009; last updated June 30, 2009.

⁸See "Record Keeping Requirements" and "Explanations for Specific Items, Item 14," Form TD F 90-22.1 Instructions.