The National Automated Clearing House Association (NACHA), the association that oversees the electronic funds transfer system known as the ACH Network, is implementing a new rule on September 18, 2009, that may affect customers who originate or receive ACH transactions.
The rule change, made at the request of the Office of Foreign Assets Control (OFAC), requires additional information on certain ACH transactions that will enable banks to identify and screen a payment transaction involving a financial agency's office located outside the U.S.
Why the change was needed
Even though BBVA does not currently offer cross-border ACH transactions, some domestic transactions may be directly funded from outside the U.S. or forwarded to people outside the U.S.
Currently, there are internationally funded payments that are originated into the U.S. ACH network that cannot be identified as international transactions. OFAC requested that NACHA modify the NACHA Operating Rules to adequately identify international transactions and have banks review them for OFAC compliance. This is very similar to what we currently do for all incoming and outgoing wire transfers.
As a result of the request, NACHA has created a new transaction code called IAT, which stands for International ACH Transaction. An IAT is 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 United States.
How you may be affected
Both originators and receivers of ACH transactions may be affected by the new rule. Originators are usually businesses, while receivers may be either businesses or individual consumers.
What it means for you
International ACH Transaction (IAT)
New Automated Clearing House (ACH) Rules May Impact Your Company
On September 18, 2009, an amendment to the National Automated Clearing House Associated (NACHA) Operating Rules will become effective that has the potential to impact most U.S. businesses that send or receive ACH payments. This amendment requires all payments funded internationally or sent to another country via the ACH Network be identified as International ACH Transactions (IATs). The new rule also requires that IATs include additional information defined by the Bank Secrecy Act's (BSA) “Travel Rule.”
Currently, there are internationally funded payments that are originated into the U.S. ACH that cannot be identified as international transactions. The Office of Foreign Assets Control (OFAC) requested that NACHA modify the NACHA Operating Rules to adequately identify international transactions and have banks review IATs for OFAC compliance. The new rule will make it easier to comply with U.S. law.
What is an IAT?
An IAT is 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 United States.
Specifically, an office of a financial agency is involved in the payment transaction if it:
- holds an account that is credited or debited as part of a payment transaction; or
- receives funds directly from a person/organization or makes payment directly to a person/organization as part of a payment transaction; or
- serves as an intermediary in the settlement of any part of a payment transaction.
A payment transaction:
- is an instruction of a sender to a bank to pay or to obtain payment of an 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.
Will the IAT rule change impact me?
The following are some questions that you need to consider in determining if the IAT rule change will impact your company:
- Is your company a subsidiary of a multi-national company?
- Does your company have foreign subsidiaries?
- Does your company buy or sell to organizations or individuals outside the territorial jurisdiction of the United States?
- Are your ACH transactions or ACH file directly funded (whether via ACH transaction or any other transaction, such as wire transfer) from a source outside the territorial jurisdiction of United States?
- Does your company send credits (i.e. payroll, pension, vendor or other benefit payments) or debits via the ACH Network to individuals or organizations that have permanent addresses outside the territorial jurisdiction of the United States?
How do I determine if any of my ACH transactions should be IATs?
There are three things to consider when determining if an ACH transaction should be formatted as an IAT:
- Payment Transaction – A payment instruction to create ACH transactions (or a file already created) plus explicit funding for the ACH file. The funding and data do not necessarily have to be included in the same file.
- Financial Agency - Funding for the transaction is transmitted to or received from a financial agency located outside the territorial jurisdiction of the United States.
- U.S. ACH Network - Any part of the transaction is processed through the U.S. ACH Network.
For additional guidance, please review the IAT Scenarios fact sheet.
Additional Information Required with IATs
The IAT format will include additional information required by the BSA's “Travel Rule” as follows:
- Name and physical address of the originator
- Name and physical address of the receiver
- Account number of the receiver
- Identity of the receiver's bank
- Foreign correspondent bank name, bank ID number and bank branch country code
Additional Considerations
If any of your current ACH transactions fall within the definition of an IAT, please be aware that BBVA may, from time to time, need to temporarily suspend processing of an IAT for greater scrutiny or verification in accordance with OFAC requirements. This may affect settlement and/or availability of an IAT to your receiver.
For additional information regarding IAT transactions, please refer to the IAT Corporate Tool Kit published by NACHA at http://www.nacha.org/IAT_Industry_Information/.
We strongly encourage you to review the IAT Corporate Tool Kit to assist you in evaluating the applicability of the IAT code to your ACH transactions. You will be responsible for determining if your transactions meet the new requirements; we cannot do it for you, but we are happy to help. Please be aware that you are subject to U.S. law, including OFAC-enforced sanctions, when initiating ACH entries.
International ACH Transaction (IAT)
Important information for individuals who receive ACH transactions.
On September 18, 2009, a new rule goes into effect for companies that originate transactions using the electronic funds transfer system known as the Automated Clearing House (ACH) Network. Direct deposit of payroll is a typical example of how businesses use the ACH Network.
What will change?
The new rule requires additional information on ACH transactions to identify payments funded internationally or sent to another country via the ACH Network. As part of the rule change, a new ACH category has been created called an International ACH Transaction or IAT.
When is an IAT needed?
An IAT is required when any part of a payment transaction involves a financial agency's office that is not located in the territorial jurisdiction of the United States. For example, a retiree living outside the U.S. who receives pension payments via direct deposit.
How will the new IAT rule affect me?
If you receive funds via an IAT, you may be affected two ways:
- The company originating the IAT may request additional information from you such as you physical address.
- The additional screening required for an IAT could delay settlement and/or availability of that item.
Helpful resources
Additional information about the new IAT rule is available at: http://www.nacha.org/IAT_Industry_Information/.
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