New International ACH Rules Take Effect September 18
August 13, 2009
International ACH transactions (IATs) will soon need to follow new formatting rules in order to ensure that sufficient information is attached to facilitate screening required by the Office of Foreign Assets Control (OFAC), an arm of the Treasury Department. Colleges and universities, which may be both originators and receivers of these transactions, should work with their banks to ensure that they are prepared for the changes.
NACHA, the association that oversees the U.S. electronics payments network, issued the changes to its operating guidelines in response to a request from OFAC. OFAC is charged with administering and enforcing U.S. economic and trade sanctions combating money laundering, narcotics trafficking, and terrorism. Penalties for failure to comply with OFAC requirements may include incarceration of employees and fines ranging from $10,000 to $10 million. The IAT rules only apply to transactions using the U.S. ACH network, not wire transfers or payments made through a financial institution's proprietary network. A presentation prepared by NACHA staff for a Treasury Institute conference earlier this year provides an overview tailored to academic institutions.
Originators of payments need to take steps to identify IATs, collect the information that must be transmitted with the IAT, and format it according to the new rules. In addition to flagging ACH payments that are being sent to foreign banks and are clearly identifiable as IATs, payments that are sent to domestic banks and then transferred to foreign banks (often through correspondent relationships between the domestic and foreign financial institutions) are also IATs. One concern that has been raised by colleges and universities relates to identifying payments that may subsequently be transferred to foreign banks. While the example used by NACHA in its explanatory materials relates to pension payments to retirees living overseas, higher education institutions may also process certain payments such as credit balance refunds to international students and payments to visiting faculty.Originators of ACH transactions are required to exercise "due diligence" in determining whether a transaction is an IAT. The required due diligence does not need to be burdensome, however, according to clarification NACUBO received from NACHA staff. Institutions should communicate with individuals to whom they make ACH payments informing them of the need to identify IATs and collect additional information for such payments, and asking them to inform the institution if payments will be transferred to a foreign financial institution. These communications need not be individualized, but could be posted on a Web site, included as part of other material, or noted on the form used to collect bank account routing information. NACHA staff suggested that institutions modify sample language developed by NACHA for corporate communications. This language and many other explanatory documents are posted on NACHA's Web site. (Note: the IAT Corporate Tool Kit section is most relevant to colleges and universities.)
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