- Elizabeth A. McMorrow
FATCA: Responsible Officer Basics
FATCA vocabulary has become second nature to those of us actively working on FATCA-related issues. However, clients and newcomers to the world of FATCA may not have a complete understanding of the lexicon. Certain terms are of critical importance especially the words “Responsible Officer” which is frequently abbreviated as “RO”.
What Is a “Responsible Officer”?
An RO is the individual in charge of overseeing a Participating Foreign Financial Institution’s (PFFI’s) compliance with the terms of the Internal Revenue Service’s (IRS’) Foreign Financial Institution (FFI) Agreement.
The FFI Agreement outlines the tasks a PFFI must undertake and the RO certifies that she will ensure that the PFFI completes these tasks. In general the tasks are:
Identification and documentation of account holders
Who May Be an RO?
FATCA and the FATCA regulations do not specify an individual position or title within the PFFI. However, based on the RO’s obligations, it would be helpful if the PFFI selects a person who an understanding of:
BSA/AML/KYC (More acronyms! Bank Secrecy Act / Anti Money Laundering / Know Your Customer)
To ensure actual compliance, it is critical that the PFFI appoints an individual who has the authority to enforce the FATCA compliance program. Although an officer or director level person may be a good fit to be the RO, there is no FATCA requirement that the RO be such a senior person.
What Are the RO’s Responsibilities?
In order for the RO to ensure the PFFI completes the tasks required by the FFI Agreement, the RO must:
Establish a compliance program for the PFFI that includes policies, procedures, and processes; and
Periodically review the FATCA compliance program and the PFFI’s compliance.
The RO may delegate these responsibilities but the RO is ultimately responsible for any delegated compliance tasks.
What Are RO Certifications?
The RO provides the IRS a certification at the time the PFII registers with the IRS. This process is often called “GIIN Registration” with “GIIN” meaning Global Intermediary Identification Number. However, it is more than signing up to receive an identification number as it is the point at which the RO enters into the IRS FFI Agreement on behalf of the PFFI.
The RO also provides the IRS periodic certifications certifying to the IRS that the PFFI has:
Established a compliance program;
Not created any avoidance processes or programs;
Has not had any material failures for the certification period (or if it had, the PFFI took appropriate actions to remediate the failure and prevent the failure from reoccurring; and
Paid any taxes, penalties and interest with filed returns for any failure to withhold, deposit, or report.
To the extent the RO identifies an event of default or a material failure, the RO may make a qualified certification in which the RO certifies that (if requested) she will provide the IRS with a description of each material failure and a written plan to correct each such failure.
RO as a Best Practice
Although the FATCA regulations do not require Model I IGA FFIs to appoint an RO to take on the responsibilities outlined above, the Model 1 IGA FFI should do so. This will ensure the organization has consistent global compliance and a centralized enforcement of strong internal controls (which is always important for audit).
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