September 18, 2009
NACHA Rule Change
International ACH Transactions
(IAT)
Transactions Involving a
Foreign Financial Institution
or Foreign Agency
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IAT Agenda
• IAT Definition and Payment Transaction Guidance
• Why NACHA is Implementing IAT?
• OFAC – Their Involvement and Needs
• Why Should ACH Participants Understand the IAT Rule?
• ACH Participants Most Likely Needing to Understand the IAT Rule
• Scenarios to Help Understand When to Use the ACH IAT
• Next Steps
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IAT Definition
Definition
• An ACH entry that is part of a payment transaction involving a
financial agency’s office that is not located in the territorial
jurisdiction of the U.S.
An office of a financial agency is involved if one or more applies.
The financial agency / financial institution:
• Holds an account that is credited or debited as part of a payment
transaction
• Receives funds directly from a Person or makes payment directly to
a Person as part of a payment transaction
• Serves as an intermediary in the settlement of any part of a payment
transaction
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Payment Transaction Guidance
“Payment Transaction” is not defined within the ACH Rules. OFAC requested
that the following guidance be included in the ACH Operating Guidelines.
A Payment Transaction is:
• An instruction by a sender to a bank to pay, or to obtain payment of, or to
cause another bank to pay or to obtain payment of, a fixed or determinate
amount of money that is to be paid to, or obtained from, a Receiver, and
• Any and all settlements, accounting entries, or disbursements that are
necessary or appropriate to carry out the instruction.
From an ACH participant perspective, this is a broad definition and can be open to interpretation.
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IAT Key Determining Factors
1. Movement of funds into or out of the U.S. with the payment
transaction
2. Location of the financial institution (agencies) involved in the
transaction
(Location of the beneficiary and originator is not considered in the
identification of IAT transactions).
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Characteristics of IAT Entries
• Can be either a debit or credit to the Receiver’s account
• Receiver can be a consumer or corporate accountholder
• IAT are entries flowing through the domestic ACH network and
settle in U.S. dollars. (If the entry does not touch the ACH
network, then it does not need to be an IAT entry and is not
covered by the ACH Rules).
• ACH IAT formats are significantly different from other ACH
entries. The formats of other ACH entries do not change.
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Why NACHA is implementing IAT?
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•
In response to the request of the Office of Foreign Assets Control
(OFAC) and the Financial Action Task Force (FATF) Special
Recommendation VII
•
To identify Entries processed through the domestic ACH network
which are being introduced by or involve funding from foreign
financial agencies or foreign financial institutions
•
Because Entries currently coded with the usual ACH SEC (Standard
Entry Class) code of PPD, CCD, or CTX and are in USD so the ACH
entries involving a foreign financial agency cannot be distinguished
from a domestic ACH entry
•
New IAT formats with new fields, will give the entries greater visibility
to identify all parties to the ACH IAT entry
OFAC – Office of Foreign Assets Control
• Financial institutions currently have the obligation to screen wire transfers
against the list of names maintained by OFAC, in accordance with the Travel
Rule of the Bank Secrecy Act
• Similarly, financial institutions will need to screen ACH IAT entries in accordance
with OFAC regulations and NACHA Operating Rules
Background on OFAC:
OFAC is the Office of Foreign Assets Control, an office of the Department of the Treasury that
administers and enforces economic and trade sanctions in support of U.S. foreign policy and
national security goals. The sanctions programs are used by the U.S. government to prevent
targeted countries, entities, and individuals from, among other things, accessing our financial
system for purposes that are contrary to U.S. foreign policy and national security.
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OFAC – Office of Foreign Assets Control
• No U.S. person or company can engage in trade or financial
transactions with individuals, companies, or government institutions
designated under OFAC sanctions programs, or with persons or
entities acting for or on behalf of these countries, entities, or
individuals.
• Names of individuals, banks, companies, and other entities
designated by OFAC as threats to the U.S. economy, foreign policy, or
national security are placed on the Specially Designated Nationals and
Blocked Persons List (SDN list), which can be found on OFAC’s
website: www.treas.gov/ofac or
www.treas.gov/offices/enforcement/ofac/
• SDN List will be used by financial institutions to screen against the
content of the ACH IAT entries
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Why Should ACH Participants Understand
IAT?
• Financial Institutions will be required to OFAC screen both
inbound and outbound ACH IAT entries so there may be delays
in posting if an IAT entry needs to be researched further
• All companies are subject to U.S. law, including OFAC
sanctions
• Originator is required to warrant that they will comply with the
NACHA Rules and will not initiate ACH entries that violate the
laws of the United States
• In addition, ACH Originating Financial Institutions will obligate
an Originating Company or Third Party Sender through the
warranties in their ACH origination agreement or Terms &
Conditions.
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ACH Participants Most Likely Needing to
Understand the IAT Rule
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•
Companies headquartered outside of the U.S. with U.S. operations
•
U.S. companies with pensioners or employees located outside of the U.S.
•
Third-party Senders or Payment Aggregators
•
U.S. companies with vendors located in Canada
•
U.S. companies receiving ACH credit entries from offshore entities
ACH IAT Determination Can Be a Challenge
Location of
originator &
receiver not
relevant
Instruction +
Settlement
Payment
Transaction?
No
Message
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Yes
Financial
Agency
outside
U.S.?
Yes
No
Domestic
ACH
Not an IAT
At any point
U.S. ACH
Network?
Yes
IAT
No
Foreign/
Proprietary
Still
subject to
OFAC
rules!
NACHA’s IAT Scenarios Document
• The two versions of the NACHA scenarios document are intended to help
originating companies determine whether they need to originate ACH entries using
the IAT format:
•
Original NACHA Scenarios document is posted on our web site:
• www.pnc.com/nacharules
•
A simplified version of the Scenarios document is posted on:
• www.nacha.org/IAT_Industry_Information
• (scroll down to the IAT Corporate Tool Kit section)
• Of the NACHA documented Scenarios, if you are or will be an ACH Originator,
then Scenarios C, F, and G are those that require more scrutiny in comparison
to Scenarios E and H that are more narrowly tied to specific consumer services.
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www.nacha.org/IAT_Industry_Information
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Scenarios C – Alternative #1 and #2
Foreign financial institution funding of Payroll, Pension or Vendor Payments
A U.S domiciled company which is a subsidiary of an offshore multinational is
originating ACH credits into the ACH network. They could be payroll, pension, or
vendor payments.
•
Instructions for the ACH entries could be in the form of an ACH-formatted file or
another message type and could originate from either the U.S. or outside of the U.S.
•
Funding for the ACH origination file is from the parent company through a foreign
financial institution or foreign financial agency located outside the territorial
jurisdiction of the U.S.
ACH entries should be coded as IAT entries when the non-U.S. financial institution is
involved in the explicit funding the of the ACH settlement amount needed to execute the
ACH instructions.
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NACHA Clarifications to Scenario C
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•
If the foreign parent company or U.S. subsidiary is transferring funds as a
result of the company performing the daily treasury management routine
of setting their daily cash position, then the ACH entries should not be
coded as IAT entries.
•
If an Originator is sending IAT credit entries to employees, the tax
payment obligations or wage garnishments to state agencies still would be
sent using the current standard of a CCD+ or CTX formatted entry.
Scenario G
ACH credits payments to Foreign Receiver(s)
•
A foreign financial institution offers a service allowing companies in the U.S. to send
credit payments to persons or businesses holding accounts outside of the U.S.
•
Credit payments with or without remittance data from U.S. companies are sent to the
foreign bank’s U.S. correspondent via the ACH network.
•
Daily, the U.S. correspondent consolidates ACH entries collected out of the ACH
network. The U.S. correspondent sends an EDI file with the individual entry detail and
remittance information to the foreign financial institution.
•
Settlement between the foreign financial institution and their U.S. correspondent bank
occurs daily and the foreign financial institution forwards the detail on to their customer
and settles the funds with an entry posted to the customer’s account.
ACH credits originated by the U.S. originating companies should be IAT entries.
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Scenario F
Pension Payments
• A U.S. domiciled company makes pension payments to retirees residing
outside the territorial jurisdiction of the United States (expatriates) using
Direct Deposit.
• For some of the expatriates, the company has instructions to send the funds
through the ACH Network to a Gateway Operator, with further instructions to
send to a financial agency in a foreign country.
• If there are standing instructions to send the pension payment through
various means to a foreign financial agency, then the entry should be coded
as an IAT transaction.
This has been the most controversial scenario as it is not always possible for the
Originator to know whether funds have been forwarded. Receiver’s address may not be
the best indicator but may be indicative of the need to request more information.
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Scenario E
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•
ACH Debits for Payments to Foreign Receiver(s)
•
A foreign bank (Originating Bank) allows non-bank customers to originate payments to
consumers in their country
•
A person (Originator) in the U.S. logs on to the foreign bank site and originates a
payment to a relative (Receiver) in that country, providing the bank with their routing and
transit number (ABA number) and account number at their U.S. bank along with the
routing, account number and physical address of the Receiver in the foreign country
•
The foreign Originating Bank sends a SWIFT message to their U.S. correspondent bank
with instructions to send an ACH debit to the Originators account at their U.S. bank
along with the name and physical address of the Receiver in the foreign country
•
The U.S. bank processes the debit to the U.S. Originators bank and credits the
correspondent account at their bank for the foreign Originating Bank
•
The foreign Originating Bank sends a credit payment to the Receiver’s account at the
bank in their country
Scenario H
Money Transmitters
A U.S.-domiciled money transmitter receives a payment order from a foreign
customer at one of its foreign branch offices to send funds to a Receiver in
the U.S.
• Money transmitter makes a book entry to record the transaction on the
books of its offices in both countries, and creates an ACH credit entry to
send the funds to the Receiver in the U.S.
ACH credit to the Receiver the U.S. should be coded as an IAT credit
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ACH IAT Next Steps
NACHA-published IAT Scenarios are not all encompassing.
 ACH Originators need to examine their file and funding
practices if a non-U.S. financial institution is part of their payables
flow.
 ACH Originators need to know their Receivers. The address of
the beneficiary or supplier could be indicative of cross-border
forwarding.
 ACH Originators should seek help from their ODFI or NACHA if
they need assistance in determining whether their ACH entries
should be coded as IAT entries.
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ACH IAT Next Steps
If originating IAT entries, then allow enough time for IAT format preparation.
 Request the IAT Survival Guide from EFT Product
 Understand the content of the 7 addenda records required with each entry
 Collect information on Receivers and Receiving Bank to formulate IAT entries
 Contact PNC to indicate need for specific testing instructions
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