By Hugh Jones, Accuity
On September 18, 2009, an International ACH Transaction (IAT) rule from NACHA - The Electronics Payments Association, will become effective. The new rule will mandate all U.S. financial institutions and other organizations sending and receiving IATs incorporate additional remittance data identifying both the sender and recipients. This mandate also includes financial institutions that conduct domestic transactions only or do not process ACH payments. The coming IAT rule will require organizations to include all ancillary information that makes a payment fully understood and available for further investigation.The rule was made in response to a request by the U.S. Office of Foreign Assets Control (OFAC) and the Financial Action Task Force (FATF) to change the ACH requirements and rules for cross-border payments. The purpose of the IAT rule is to enable financial institutions to identify international ACH payments, and perform due diligence as required by OFAC.
Getting Ready for IAT The question for all organizations covered by the IAT requirements, however, is will they be prepared to comply with the new IAT rule when the implementation deadline arrives? Smaller banks in particular seem to be surprised or unaware of the upcoming change. NACHA decided to move the deadline after a survey it conducted showed a number of financial institutions and payment processors would not be in compliance with the new rule by the original IAT implementation date. NACHA has pushed back the "go live" date from March 20, 2009 to September 18, 2009.
All financial institutions that deal with payments processed through the U.S. ACH Network can receive fines that range from $11,000 to $1,000,000 per violation for non-compliance with the IAT measures. Financial institutions and corporations need to quickly prepare to comply with the new standards to protect themselves from the expense and embarrassment the penalties would bring.
How to Comply There are a couple of ways for an institution to comply with the screening requirements for IAT, while at the same time reducing the number of matches and, subsequently, decreasing their review time. First, it can structure an effective screening process. Second, it can limit false positives.
While there are challenges for organizations to adapt to the new message type, there is a wide range of information available to help with navigating them. A search of the Internet under the term "IAT readiness" for example, produces a slew of documents and Web pages from credit unions, banks and other payment processing entities on their efforts to meet the IAT requirements.
Federal Reserve Banks, which work with NACHA in the ACH network, has a checklist available online enabling its member institutions to review their IAT preparedness. NACHA's Web site also carries a wealth of information on the IAT conversion.
Below are several questions organizations should ask themselves to prepare for IAT:
• Are you working with screening software vendors that are prepared to handle these new message formats? • Are you set up to receive payments formatted as cross-border? (Even organizations that do not currently send or receive ACH payments need to be prepared to receive the new format) • Are your systems updated accordingly? • Has your process been reviewed with your ACH operator? • Has your process been reviewed with your customers? (If you originate International ACH Transactions)
Once organizations falling under the requirement meet its standards, perhaps the next question they should ask collectively is did it have an impact on controlling money laundering and maintaining the integrity of international financial transactions. While this issue is a different discussion, it is safe to say since money is involved with IAT transactions there will be a quantitative measure of how the requirements worked over a set time period.
Hopefully, at some point, officials from OFAC, NACHA, the Federal Reserve and other key agencies can review their statistics and make a definitive statement about the effectiveness of the IAT requirements and benchmarks those covered by it can understand. And if it doesn't reach the levels those advocating the IAT requirements desire, then modifications to the measure will be in order.
Hugh Jones is president of Accuity, a Skokie, Ill.-based provider of payments data routing and AML solutions.