FBAR (Report of Foreign Bank and Financial Accounts)

The FBAR (Report of Foreign Bank and Financial Accounts) is an annual report required by the United States government for a specific group of people and entities. It's not a tax form—you don't pay anything with it—but rather an information return. Think of it as the U.S. Treasury's way of keeping tabs on money held overseas to combat tax evasion and other financial crimes. It’s officially known as FinCEN Report 114 and is mandated by the Bank Secrecy Act (BSA). If you are a 'U.S. person' and the combined value of your foreign financial accounts exceeded $10,000 at any point during the calendar year, you likely need to file one. This isn't just for billionaires hiding cash in the Cayman Islands; it can easily apply to an ordinary investor with a foreign brokerage account, an expat with a local checking account, or someone who inherited a small account from a relative abroad. Understanding the FBAR is a critical, non-negotiable step for anyone investing or holding money outside the U.S.

The rules are surprisingly broad. You’re on the hook if you are a “U.S. person” and meet the financial threshold.

This isn’t just about citizenship. The term covers:

• U.S. citizens (even if you live abroad)
• U.S. residents (green card holders or those meeting the 'substantial presence test')
• Entities like corporations, partnerships, and trusts created or organized in the United States.

This is where it gets interesting for investors. You need to file if the aggregate value of your foreign accounts tops $10,000 at any time during the year. “Aggregate” is the key word here. You don’t get a pass if you have five accounts with $3,000 each. You have to add them all up! If that total briefly touched $10,001 on a single day, you have a filing requirement for the entire year. You must report accounts where you have a financial interest (you are the owner of record) or signature authority (you can control the disposition of the money, even if it’s not yours, like a corporate officer on a company account).

The term “financial account” is wider than you might think. It’s not just about a checking or savings account at a foreign bank. The net is cast wide to include:

• Bank Accounts: Savings, checking, time deposits.
• Securities Accounts: Brokerage accounts holding stocks, bonds, or other financial instruments. This is a big one for international value investors.
• Commodity Futures or Options Accounts.
• Insurance or Annuity Policies with a cash value.
• Mutual Funds or similar pooled funds.
• Any other account maintained in a foreign financial institution.

Remember, the location of the institution, not the currency, is what matters. A U.S. dollar account at a bank in London is a foreign account. A Euro-denominated account at a bank in New York is not.

Just when you thought you had it figured out, another acronym enters the ring: FATCA (Foreign Account Tax Compliance Act). This often causes confusion because it also deals with foreign accounts, but it's a different beast with a different purpose. FBAR and FATCA reporting are separate obligations. You might need to file one, the other, or both. Here’s a quick cheat sheet:

• The What: FBAR is an anti-money laundering and tax evasion report. FATCA is purely a tax compliance tool.
• The Who: FBAR is filed with FinCEN (Financial Crimes Enforcement Network), a bureau of the Treasury Department. FATCA’s Form 8938 is filed with your annual tax return to the IRS (Internal Revenue Service).
• The When: FBAR’s threshold is simple: over $10,000 in aggregate. FATCA’s thresholds are much higher and vary based on your filing status and whether you live in the U.S. or abroad (e.g., for a single filer in the U.S., it starts at $50,000 on the last day of the year or $75,000 at any time during the year).

The bottom line: Don’t assume filing one takes care of the other. Check the requirements for both.

As a value investor, your hunt for undervalued assets might take you across borders. You might find a fantastic, overlooked company in Germany, Japan, or Brazil. Buying its stock through a local foreign broker could give you better execution or access. But the moment you open that foreign brokerage account, you step into the world of FBAR. This isn’t just annoying paperwork; it's a critical compliance step with teeth. The penalties for failing to file are severe and can be financially devastating. For a non-willful violation (i.e., you just didn't know), the penalty can be up to $10,000. For a willful violation (you knew and chose not to file), penalties can be the greater of $100,000 or 50% of the account balance at the time of the violation. Yes, you read that right—they could take half your money, and criminal charges are also possible. For the prudent investor, FBAR is simply part of the due diligence of international investing. It’s a box you must tick to protect your capital. The global market is full of opportunities, but navigating it successfully means understanding not just the assets, but also the rules of the road. Getting this wrong is an unforced error you can't afford to make.