By Hugh Jones
Given the digital, information-laden age in which we live, it is odd that so many electronic fund transfers are still carried out via data message strings that contain very little information. After all, businesses today are so data-savvy they can predict consumers’ spending habits even before they make purchases based on the historical data collected about them.
The time has come for financial institutions to be able to track data that identifies payment processing to enable readily available information if, for instance, a payment investigation scenario comes up.
The International Automated Clearing House Transaction rules from NACHA/The Electronic Payments Association contain some of the most important changes on the horizon for U.S. anti-money laundering (AML) efforts. NACHA is mandating all U.S. financial institutions and other organizations sending and receiving international automated transactions (IATs) incorporate additional remittance data identifying both the sender and recipient. This mandate also includes financial institutions that conduct only domestic transactions or do not process automated clearing house (ACH) payments.
The rule, which became effective on Sept. 18, 2009, was made in response to a request by the U.S. Office of Foreign Assets (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. The rule requires organizations to include all the ancillary information that makes a payment fully understood and available for further investigation.
The question for all organizations covered by the IAT requirements, however, is whether they were prepared to comply with the new IAT rule. 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. Smaller banks, in particular, seemed to be surprised or unaware of the upcoming change.
Originally, NACHA set the implementation deadline date for March 20, 2009, but then extended the deadline six months to Sept. 18, 2009.
How to comply
With fines that can range from $11,000 to $1 million per violation for non-compliance with the IAT measures, which are applicable to any organization able to receive ACH payments whether or not it uses the IAT format, financial institutions and corporations need to comply with the new standards to protect themselves from the expense and embarrassment the penalties would bring. While payment processing and screening are typically the jurisdiction of large financial institutions, IAT payments do not necessarily fall into that category. Often, even the larger financial institutions have not screened ACH payments because there was no requirement formally mandating they take such action.
With the larger volumes of cross-border payments and the accompanying mass of data to screen from their numerous business lines and financial activities, financial institutions require screening processes that meet the IAT compliance standards and are efficient.
For many corporations, complying with IAT standards may be challenging. Corporations may have limited knowledge about IAT compliance, as they frequently rely on banks to assist them with the screening of incoming and outgoing cross-border payments. Corporations are also concerned about the payroll payments they send cross-border to compensate their overseas employees. With this great amount of information, like financial institutions, corporations require an efficient process for the screening of their vendors and payroll files that meets the IAT compliance standards as well.
Regardless of their challenges, now that the new IAT requirements are live, financial institutions and other payment processing organizations of all sizes covered by the rule must now adhere to those guidelines.
While there are challenges for organizations to adapt to the new message type, many of them have initiated programs to ensure they comply. 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.
The Federal Reserve Banks, which works with NACHA in the ACH network, has a checklist available online enabling its member institutions to review their IAT preparedness. NACHA’s Web site (at www.nacha.org) also carries a wealth of information on the IAT conversion.
Hugh Jones is president of Accuity and NRS and currently leads these global businesses. He is ultimately responsible for the overall management of the companies as well as for the creation of world class payment and compliance solutions for their diverse global customer base. Jones can be reached at firstname.lastname@example.org.