International ACH Transactions IAT

1. 1 International ACH Transactions(IAT)

2. 2 Scope of the new IAT issue Beginning September 18, 2009, any financial institution that participates in the ACH network has the potential to receive an IAT and must process it in accordance with OFAC policies. All international ACH transactions must be identified so that they can be screened for unlawful entries by certain parties considered to be engaged in terrorism or criminal activity.

3. 3 What is an IAT? An IAT is an ACH debit or credit entry that is part of a payment transaction originating from or transmitted to an office of a financial institution located outside the territorial jurisdiction of the United States. The distinguishing feature of an IAT is the geographical location of the financial institution involved in the payment transaction. It does not depend on the location of the originator or receiver of the transaction.

4. 4 The NACHA Rule for IAT Creates a new type of cross-border code transaction identified by the Standard Entry Class (SEC) code �IAT� IAT will replace PBR and CBR codes for international payments

5. 5 RDFI Responsibilities RDFIs must have a documented OFAC compliance policy for: Handling IAT transactions Meeting OFAC compliance obligations OFAC has recommended that RDFIs (these are not NACHA requirements) Review all incoming IAT debits Post any clean transactions Investigate any suspects Post cleared transactions Report suspects confirmed as an OFAC hit to OFAC

6. 6 ODFI Responsibilities ODFIs must have a documented OFAC compliance policy that includes: Determining if it has Originators that are currently originating ACH transaction that meet the definition of the IAT, Educating its staff on the implications of the IAT changes, and Educating its Originators on the obligations with the IAT rule changes. OFAC has recommended that ODFIs (these are not NACHA requirements) Review all inbound IAT debits, including parties to the transaction and all remittance data Segregate any suspect transaction into an OFAC review queue Populate the Gateway Operator OFAC Screening Indicator for clean transactions with �0�. (This field is optional under NACHA Operating Rules, but its use is strongly encouraged.)

7. 7 ODFI Responsibilities, cont. Rebalance original batch and file, if necessary, and send to ACH Operator Investigate any suspects Post cleared transactions Populate the Gateway Operator OFAC Screening Indicator with �0�. Batch cleared transactions and send to ACH Operator Suspects confirmed as an OFAC hit Cease processing of the entry Notify the Foreign Gateway Operator Notify OFAC within 10 business days Notify the RDFI that transaction for one of its customers has been rejected and provide a copy of the transaction

8. 8 Why the additional scrutiny? Treasury believes that cross-border ACH transactions currently do not contain sufficient mandatory field information to permit an adequate degree of scrutiny of transactions for OFAC compliance.

9. 9 IAT Transaction Requirements The information that must be included in an IAT is the same as the information in an international wire transfer. Name and physical address of the originator Name and physical address of the receiver (beneficiary) Account number of the receiver Identity of the receiver�s bank Correspondent bank�s name, Bank ID number and Bank Branch Country Code Reason for the payment

10. 10 Summary Beginning September 18, 2009, non-compliant entries will be rejected (returns or NOCs for those entries will be supported until March 19, 2010). Given the potential for non-payment and/or sanctions, it is incumbent upon financial institutions to: Understand the definition of an IAT and the impact to your organization, Develop an OFAC compliance policy incorporating the IAT rules, and �Know Your Customer!�

11. 11 Where to Get More Information www.nacha.org/IAT_Industry_Information www.ustreas.gov.offices.enforcement/ofac/