FBAR and African Mobile Money Apps

The sometime intoxicating euphoria of starting a new life in a foreign country can cause many people to neglect the many financial adjustments that are necessary to maintain their new lifestyle. Among the biggest adjustments is how you pay for goods and services. If you have lived in Africa, Asia, or other developing and middle-income countries you should be very familiar with using mobile money platforms such as MPESA, Airtel, MTN and Vodacom. Primarily due to the inconvenience of carrying large sums of physical cash and the large portion of the population that do not have formal bank accounts, the utility of mobile money platforms has exploded in popularity and has become the dominant vehicle for everyday financial transactions in many of these countries. Although there are similarities to U.S. based platforms such as CashApp, Venmo, PayPal etc., most expats quickly discover that many of these platforms are much more sophisticated, user friendly and accessible than their Western counterparts. However, expats living in these countries and benefiting from these platforms should be mindful that use of these apps may trigger required reporting of their account information to the U.S. Government’s Department of Treasury Financial Crimes Enforcement Network (FINCEN).

Unfortunately, the vast majority of official and unofficial guidance primarily focuses on the conventions found in the wealthier nations of the world, but does not adequately account for the unique norms for the many people who have decided to expatriate or work in Africa and other parts of the developing or middle-income world. Thus, many expatriates that settle in these countries may unintentionally be putting themselves at risk with the U.S. government by operating upon information that is out of the contextual reality of their new adopted home. This article will focus on helping U.S. persons investing and/or living in Africa and similar economies ensure that they comply with the U.S. Department of Treasury’s FINCEN financial reporting requirement called the Report of Foreign Bank and Financial Accounts (FBAR) via Form 114 by accounting for the unique realities in these locations.

What is FBAR?

The Bank Secrecy Act (BSA) enabled the Department of Treasury to collect foreign financial account information from U.S. persons in order for the U.S. government to prevent individuals from sidestepping U.S. laws. All U.S. persons that have a financial interest in or signature authority over foreign financial accounts that exceeds $10,000 must annually submit FINCEN Form 114 (FBAR) by April 15^th (with an automatic extension to October 15^th). For the purposes of this report, a U.S. person is 1) Any citizen or resident of the U.S.; 2) Any entity created or organized under U.S. law (to include State, District of Columbia, Territories or possessions, and Indian Tribes); or 3) Estates formed under U.S. laws.

               Foreign Financial Accounts

The two most critical elements for any U.S. person with foreign financial accounts, but particularly those that live in or have financial interest in Africa, are understanding what is considered a foreign financial account and what is meant by aggregate maximum/peak value.

The U.S. government’s primary concern is identifying where U.S. persons are keeping their money if it is outside of the United States. Thus, where the account is located determines whether it is foreign. The ‘nationality’ of the financial account is irrelevant in determining whether it is foreign. For example, if a U.S. person opened a financial account at a U.S. branch of a British financial institution, there would be no need to file FINCEN Form 114. Conversely, if the same person opened U.S. financial institution account in a branch in Japan, it would be considered a foreign financial account, and a Form 114 would need to be filed.

The following are the types of accounts that must be reported if the aggregate value exceeds $10,000 at any point during the calendar year.

• Bank accounts such as savings and checking accounts, and time deposits,

• Securities accounts, such as brokerage accounts, securities derivatives accounts, or other financial instruments accounts;

• Commodity futures or options accounts;

• Insurance or annuity policies with a cash value (such as a whole life insurance policy);

• Mutual funds or similar pooled funds (i.e. a fund available to the public with a regular net asset value determination and regular redemption), and;

• Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution.

The broadness of the first and last bullets are what can put a lot of people investing and/or living in Africa and similar locations in a tough spot if they are not mindful. It must be kept in mind that the FBAR reporting is only informational and does not necessarily require any additional fiscal obligations by the reporter.

              Maximum and Aggregate Value

Another area that can trip people up is properly determining the maximum (peak) aggregate value of your foreign accounts. Maximum or peak value is the highest total combined balance amount that you reach at any point during the year. For example, if the aggregate value of your foreign financial accounts for the year peaked at $10,001 on May 8^th but goes down to $9,999 on May 9^th and never again exceeds $10,000 for the year, you are still required to file Form 114. Remember, you are required to report your foreign account(s) if the maximum aggregate value exceeds $10,000 on any day of the year. Even if it is just one penny over, you must still file an FBAR.

Aggregate value is the total combined value of all your foreign financial accounts. So, on a given day if a person’s foreign mutual fund reached a value of $4,500 and their foreign bank account balance reached a value of $7,000, FBAR would require the account holder to total the two amounts to determine if the aggregate peak value was reached that day. Since the total in this example equals $11,500, a Form 114 would need to be filed.

Why can this be tricky for People with Financial Interests in Africa and similar locales?

Many people who live and/or invest in Africa are aware of FBAR but assume that they are not required to file because they do not hold a traditional foreign bank account, mutual fund, or any of the other conventional financial account as described in FINCEN’s guidance. But please remember that these guidelines do not necessarily account for the unique intricacies of being an investor or expat in Africa and similar locales around the world.

For illustrative purposes, let’s walk through a very typical scenario that many expats in the southern hemisphere are likely to face.

Marcus gets a new position with a Non-Government Organization (NGO) based in Kenya, and moves from Florida to Kenya on January 1, 20X5. Because his position term is indefinite, he decides to fully settle into his new home and open a local checking account with $6,000. This $6,000 represents the peak value of his bank account for the year and never decreases. A few weeks later, he discovers that the most common and convenient way to make everyday financial transactions in Kenya is by using the mobile money platform, MPESA. As he gets accustomed to life in Kenya, he finds himself using MPESA on almost a daily basis and regularly adds money to his account in order to make purchases and pay bills. On July 27^th, he needs to make a big purchase and adds $5,000 to his MPESA account, which equals the app’s daily balance limit. This MPESA should be included when calculating Marcus’ foreign account aggregate maximum value for the year. Thus, when the two accounts are combined, his total aggregate value is $11,000 for the year.

The mistake that many expats make is only taking the narrow conventional approach and assuming that Marcus only needs to account for his local bank account and thus not required to file Form 114. However, although there is not clear and definitive guidance on foreign mobile money platforms, it can certainly be interpreted that ‘Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution’ applies to these apps which effectively act as mobile bank accounts in many parts of the world. The takeaway is that it is probably best to play it safe and assume that the Department of Treasury wants to know about these types of accounts.

Therefore, it is highly recommended that people take a very conservative approach to reporting. While there is no real downside to reporting information that you may not quite be sure needs to be reported, there is tremendous downside in the form of very steep penalties if you neglect to report something that you may have been on the fence about that indeed did require reporting. The extra few hours needed to provide an information return that could possibly be unnecessary, far outweighs the heavy consequences of not filing in the case that you were required to. Do yourself a huge favor and take the ‘no harm no foul’ approach. If you are on the fence about what to report, seek professional guidance to make the best decision.

If you need help sorting through this requirement and similar requirements, we are here to help you. Please don’t hesitate to reach out to us here.

The information in this article is for education and informational purposes only and does not constitute professional tax, legal, or financial advice. Because tax laws are complex and subject to change, it is always best to consult with a qualified tax professional regarding your specific situation.