International ACH transactions

Despite economic conditions and industry pressures, the number of Automated Clearing House (ACH) payments topped 3.8 billion in the fourth quarter of last year, nearly 5 percent more than in the same period in 2007.

As ACH transaction volume increases, rules and regulations governing the U.S. ACH network continue to be developed and maintained by the National Automated Clearing House Association (NACHA).

NACHA’s most recent rule will take effect on Sept. 18, and it is perhaps the most significant in U.S. ACH network history. The introduction of the International ACH Transaction (IAT) Standard Entry Class code impacts every financial institution in the U.S., as well as any foreign or domestic organization sending payments into or receiving payments from the U.S. if the payments are processed through the ACH Network.

Paula Rowe of PNC’s treasury management group talked with Smart Business about IAT and how it may affect businesses and their financial institutions.

What is the IAT, and why is it needed?

The IAT is an ACH transaction type or Standard Entry Class code that will now be used in the U.S. ACH network for entries that involve a foreign financial agency or foreign financial institution. Currently, as ACH entries are processed through the network, those involving foreign financial agencies and foreign financial institutions cannot clearly be identified as international entries.

Specifically, the rules will:

  • Require originating depository financial institutions to classify payments that are transmitted to or received from a financial agency or institution outside the territorial jurisdiction of the U.S. as IATs
  • Carry data requirements requested by Treasury’s Office of Foreign Assets Control: OFAC enforces U.S. laws that prohibit trade with targeted foreign countries and individuals in support of U.S. foreign policy and national security goals.
  • Use one SEC Code for both consumer and business transactions

The identification of an entry as IAT and the informational fields required with an IAT entry will provide transparency as to the parties or entities involved in the transaction and make it easier for U.S. financial institutions to comply with OFAC regulations. The entries will be recognized and screened by financial institutions, similar to the screening process for domestic wire transfers.

What could the potential impact be on a company or organization?

ACH entries coded as IAT must include specific data elements, such as the name and address of the sender and receiver. This could require changes for companies or organizations in order to capture the additional data elements, as well as programming, to send a properly formatted ACH file to a financial institution. For those ACH-originated entries not involving a financial agency or financial institution located outside of the territorial jurisdiction of the United States, the ACH formats will not change.

What steps can a company take to help manage the effects of the new rules?

Because you cannot look at an ACH entry today and know if it will need to be coded as an IAT entry in September, NACHA has developed several representative scenarios to help you better understand when a specific ACH payment transaction would be deemed an IAT or domestic transaction. You can download the scenarios document at pnc.com/nacharules or at nacha.org. You will notice in the scenarios that the location of the financial agency or financial institution involved in the processing and settlement of the transaction is the key determining factor when assessing whether a transaction is considered IAT or domestic.

In addition to reviewing these scenarios, I’d also encourage you to:

  • Order the IAT Survival Guide from your ACH origination bank or from the nacha.org Web site. You may also want to order the 2009 ACH Rules. Both will have specific information about IAT origination formats and related rules and regulations.
  • Perform and demonstrate due diligence in regards to this ACH Rule. Talk with your internal compliance and process managers to review your ACH origination and OFAC obligations.
  • If your company or organization determines an obligation to send or receive IAT entries, contact your bank representative to inquire about testing time frames and procedures with the bank’s ACH services department.  
  • Lastly, if you currently originate ACH entries or plan on implementing an ACH program in the future, either on behalf of your company or on behalf of other entities, it is important to understand the ACH Rules and stay in compliance in order to avoid the possibility of ACH Rule violations and fines.  This includes the ACH Rules related to IAT entries.

Check nacha.org/IAT_Industry_Information periodically as IAT updates are certain to be posted and keep in close contact with your financial institution.

This article was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell securities or to engage in any specific transactions, and does not purport to be comprehensive. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other adviser regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.

©2009 The PNC Financial Services Group Inc. All rights reserved.

PAULA ROWE is a senior product manager in PNC’s treasury management group. Reach her at (412) 768-2103 or [email protected].

Leave a Reply

Your email address will not be published. Required fields are marked *