International ACH Transaction (IAT) Exception Handling. Presented by Laura Nelson, AAP, NCP Auditor/Education Specialist

Transcription

1 International ACH Transaction (IAT) Exception Handling Presented by Laura Nelson, AAP, NCP Auditor/Education Specialist

2 Audio Handouts Questions

3 International ACH Transaction (IAT) - Exception Handling Presented by: PAR/WACHA-The Premier Payments Resource Laura Nelson, AAP, NCP, APRP Education Specialist / Auditor or mbarlow@wacha.org 2018

4 Disclaimer WACHA, through its Direct Membership in NACHA, is a specially recognized and licensed provider of ACH education, publications and support. Regional Payments Associations are directly engaged in the NACHA rulemaking process and Accredited ACH Professional (AAP) program. NACHA owns the copyright for the NACHA Operating Rules & Guidelines. The Accredited ACH Professional (AAP) is a service mark of NACHA. This material is derived from collaborative work product developed by NACHA The Electronic Payments Association and its member Regional Payments Associations, and is not intended to provide any warranties or legal advice, and is intended for educational purposes only. This material is not intended to provide any warranties or legal advice, and is intended for educational purposes only. This document could include technical inaccuracies or typographical errors and individual users are responsible for verifying any information contained herein. No part of this material may be used without the prior written permission of WACHA/PAR 2018 PAR/WACHA All rights reserved

5 Definitions IAT-International ACH Transaction 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 OFAC- The U.S. Department of the Treasury s Office of Foreign Assets Control Administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against Targeted foreign countries Terrorists International narcotics traffickers Those engaged in activities related to the proliferation of weapons of mass destruction

6 Definitions SDN List Specially Designated Nationals List of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries Lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific Assets are blocked and U.S. persons are generally prohibited from dealing with them OFAC SDN Search:

7 Other Lists Consolidated Sanctions List Foreign Sanctions Evaders (FSE) List Sectoral Sanctions Identifications (SSI) List Palestinian Legislative Council (NS-PLC) list The List of Foreign Financial Institutions Subject to Part 561 (the Part 561 List) Non-SDN Iranian Sanctions Act (NS-ISA) List List of Persons Identified as Blocked Solely Pursuant to Executive Order (the List) Denied Persons List and the Entities FBI s Most Wanted List or any other FBI-issued watch list Debarred Parties Bank Secrecy Act and the USA PATRIOT Act Control List PEP CIA Non-Cooperative Countries and Territories Canadian Consolidated List (OSFI) World Bank Debarred Parties Blocked Officials File Government official of a designated country

8 OFAC Requirement Financial institutions are prohibited from processing payments or doing business with entities covered by any of the sanctions programs administered by OFAC Posting or memo posting of IAT transactions prior to reviewing the transactions for OFAC compliance can constitute doing business with a blocked party

9 OFAC Requirement It is OFAC's position that a financial institution that performs its OFAC screening after having credited a beneficiary's account increases its OFAC risk substantially When a financial institution credits a beneficiary's account with the proceeds of a transaction that is in violation of OFAC regulations, it has committed a violation by processing the transaction forward

10 OFAC Requirement A depository financial institution can conduct its own OFAC review or can contract with a third-party service provider to perform OFAC checks on its behalf U.S. law does not require the use of interdiction software to review transactions for compliance; however, this process has become a commercially reasonable standard

11 Using a Third Party to do Screening Financial Institution cannot contract away its liability related to OFAC compliance Financial institution is ultimately responsible for the thirdparty s compliance with the OFAC requirements Fully understand the role of their third-party with the screening of IAT transactions what fields the processor is screening what point the transaction is being screened what happens to transactions that are potential hits How often or how quickly any software is updated after the SDN list is updated

12 OFAC Penalties Both Criminal and Civil Vary by sanctions' program Can include: Imprisonment (employee) years depending on the program Fines per count (corporate and individuals) $50,000 - $10,000,000 per count Forfeiture of property

13 RDFI Screening Requirements OFAC does not specify how financial institutions must screen transactions but OFAC guidance on March 10, 2009 says: the suspect transaction should be removed from the batch and the financial institution should refuse to process. If a transaction is still within a batch it has not been processed If a transaction has been posted or memo posted (funds are available to the customer in memo post) the transaction has been processed Financial institutions that choose to screen IAT transactions themselves should do so prior to posting/memo posting Suspect IAT transactions should not show in a customer s available balance until they have been cleared by the financial institution

14 RDFI Screening Requirements For inbound IATs the RDFI is responsible for compliance with OFAC requirements Receiver s name Originator s name and physical address Originating financial institution name, identification, branch country code Receiving financial institution name, identification, branch country code Receiver s identification and physical address Payment related information contained in the optional remittance information Addenda Record

15 RDFI Screening Requirements If an RDFI receives notification from a Gateway that an inbound IAT debit destined for one of its accounts has been rejected due to the presence of a blocked party, the RDFI should take appropriate due diligence measures and include the information from the IAT in their BSA customer review

16 RDFI Screening Requirements Remember that any entry that is identified as a potential hit against the SDN list must be handled as an exception item Requiring investigation and closer examination by the RDFI Such transactions may not be automatically returned by the RDFI

17 Dollar Limit of Transactions? There is no minimum or maximum amount subject to the regulations

18 Blocking or Freezing" Way of controlling targeted property Must be placed into an interest-bearing account in the name of the violated party on your books from which only OFAC-authorized debits may be made OFAC regulations require that funds earn interest at a commercially reasonable rate Type of Account Separate accounts for each blocked transaction Omnibus accounts Example "Blocked Iranian Funds" Either method is satisfactory, so long as there is an audit trail that will allow specific funds to be unblocked with interest at any point in the future

19 OFAC Reporting Any transaction that has been blocked or rejected must be reported to OFAC within 10 business days from the date the property has been blocked Annual report of all property blocked as of June 30 each year is due to OFAC by September 30 Retention of reports for 5 years

20 Step by Step Procedures Step 1 Is the hit or match against OFAC s SDN list or targeted countries? Is it hitting for some other reason? Other Lists Can you not tell what the hit is If it s hitting against OFAC s SDN list or targeted countries, continue to Step 2 If it s hitting for some other reason, you should contact the keeper of whichever other list the match is hitting against

21 Step by Step Procedures Step 2 The hit is against OFAC s SDN list or targeted countries Must evaluate the quality of the hit Compare the name in your transactions with the name on the SDN list Is the name in your transaction an individual while the name on the SDN list is a vessel, organization or company (or viceversa)? If yes, you do not have a valid match If no, please continue to Step 3

22 Step by Step Procedures Step 3 How much of the SDN s name is matching against the name in your transaction? Are just one of two or more names matching (i.e., just the last name)? If yes, you do not have a valid match If no, please continue to Step 4

23 Step by Step Procedures Step 4 Compare the complete SDN entry with all of the information you have on the matching name in your transaction SDN entry often will have, for example, a full name, address, nationality, passport, tax ID or cedula number, place of birth, date of birth, former names and aliases Are you missing a lot of this information for the name in your transaction? If yes, go back and get more information and then compare your complete information against the SDN entry If no, please continue to Step 5

24 Step by Step Procedures Step 5 Are there a number of similarities or exact matches? If yes, call the hotline at If no, you do not have a valid match If OFAC requests the financial institution to return an entry, the entry should be returned using Return Reason Code R16 (Account Frozen/Returned per OFAC Request)

25 Step by Step Procedures If you have reason to know or believe that processing this transfer or operating this account would violate any of the Regulations, you must call the hotline and explain this knowledge or belief In all cases an appropriate officer should be notified immediately The name of the customer, the transaction and account details will be needed to file the appropriate report with OFAC

26 OFAC Reporting Report of Blocked Transactions to: OFAC HOTLINE

27 Should an Institution tell its Customer that it Blocked their Funds? May notify its customer that it has blocked funds in accordance with OFAC's instructions The customer has the right to apply to OFAC for the unblocking and release of the funds Information on OFAC's licensing procedures is available on the website

28 IAT Returns IAT entries can be returned for any valid reason Inbound IATs are returned using the domestic return time frames as outlined in the NACHA Operating Rules & Guidelines Entries are returned in U.S. dollars All IAT return entries should be checked against the most current SDN List

29 Unauthorized Debit Transactions In the situation of a fraudulent transaction where the person whose account is being debited has no knowledge of the debit request, OFAC would prefer to deal with these situations on a case-by-case basis. OFAC HOTLINE received from OFAC - May 5, 2008

30 QUESTIONS

31 Laura Nelson, AAP, NCP Upcoming WACHA events with CBANC Education: Reg CC ACH Error Resolution Reg E for Debit Card Errors Wed 6/6 at 1pm CT/2pm ET Wed 6/20 at 11am CT/12pm ET Mon 6/25 at 1pm CT/2pm ET