Ach Tax Payment Agreement

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Ach Tax Payment Agreement Powered By Docstoc
					        September 18, 2009
        NACHA Rule Change


    International ACH Transactions
                  (IAT)

      Transactions Involving a
     Foreign Financial Institution
         or Foreign Agency


1
    IAT Agenda


    • IAT Definition and Payment Transaction Guidance
    • Why NACHA is Implementing IAT?
    • OFAC – Their Involvement and Needs
    • Why Should ACH Participants Understand the IAT Rule?
    • ACH Participants Most Likely Needing to Understand the IAT Rule
    • Scenarios to Help Understand When to Use the ACH IAT
    • Next Steps




2
    IAT Definition

    Definition
    • An 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 U.S.

    An office of a financial agency is involved if one or more applies.
    The financial agency / financial institution:
    • Holds an account that is credited or debited as part of a payment
       transaction
    • Receives funds directly from a Person or makes payment directly to
       a Person as part of a payment transaction
    • Serves as an intermediary in the settlement of any part of a payment
       transaction



3
        Payment Transaction Guidance

    “Payment Transaction” is not defined within the ACH Rules. OFAC requested
      that the following guidance be included in the ACH Operating Guidelines.

    A Payment Transaction is:
    • An instruction by a sender to a bank to pay, or to obtain payment of, or to
      cause another bank to pay or to obtain payment of, a fixed or determinate
      amount of money that is to be paid to, or obtained from, a Receiver, and

    • Any and all settlements, accounting entries, or disbursements that are
      necessary or appropriate to carry out the instruction.

    From an ACH participant perspective, this is a broad definition and can be open to interpretation.




4
    IAT Key Determining Factors

    1. Movement of funds into or out of the U.S. with the payment
       transaction

    2. Location of the financial institution (agencies) involved in the
       transaction

    (Location of the beneficiary and originator is not considered in the
       identification of IAT transactions).




5
    Characteristics of IAT Entries

    • Can be either a debit or credit to the Receiver’s account

    • Receiver can be a consumer or corporate accountholder

    • IAT are entries flowing through the domestic ACH network and
      settle in U.S. dollars. (If the entry does not touch the ACH
      network, then it does not need to be an IAT entry and is not
      covered by the ACH Rules).

    • ACH IAT formats are significantly different from other ACH
      entries. The formats of other ACH entries do not change.



6
        Why NACHA is implementing IAT?

    •    In response to the request of the Office of Foreign Assets Control
         (OFAC) and the Financial Action Task Force (FATF) Special
         Recommendation VII

    •    To identify Entries processed through the domestic ACH network
         which are being introduced by or involve funding from foreign
         financial agencies or foreign financial institutions

    •    Because Entries currently coded with the usual ACH SEC (Standard
         Entry Class) code of PPD, CCD, or CTX and are in USD so the ACH
         entries involving a foreign financial agency cannot be distinguished
         from a domestic ACH entry

    •    New IAT formats with new fields, will give the entries greater visibility
         to identify all parties to the ACH IAT entry

7
    OFAC – Office of Foreign Assets Control

     • Financial institutions currently have the obligation to screen wire transfers
       against the list of names maintained by OFAC, in accordance with the Travel
       Rule of the Bank Secrecy Act

     • Similarly, financial institutions will need to screen ACH IAT entries in accordance
       with OFAC regulations and NACHA Operating Rules

    Background on OFAC:
    OFAC is the Office of Foreign Assets Control, an office of the Department of the Treasury that
    administers and enforces economic and trade sanctions in support of U.S. foreign policy and
    national security goals. The sanctions programs are used by the U.S. government to prevent
    targeted countries, entities, and individuals from, among other things, accessing our financial
    system for purposes that are contrary to U.S. foreign policy and national security.




8
      OFAC – Office of Foreign Assets Control

    • No U.S. person or company can engage in trade or financial
      transactions with individuals, companies, or government institutions
      designated under OFAC sanctions programs, or with persons or
      entities acting for or on behalf of these countries, entities, or
      individuals.

    • Names of individuals, banks, companies, and other entities
      designated by OFAC as threats to the U.S. economy, foreign policy, or
      national security are placed on the Specially Designated Nationals and
      Blocked Persons List (SDN list), which can be found on OFAC’s
      website: www.treas.gov/ofac or
      www.treas.gov/offices/enforcement/ofac/

    • SDN List will be used by financial institutions to screen against the
      content of the ACH IAT entries


9
     Why Should ACH Participants Understand
     IAT?

     • Financial Institutions will be required to OFAC screen both
       inbound and outbound ACH IAT entries so there may be delays
       in posting if an IAT entry needs to be researched further

     • All companies are subject to U.S. law, including OFAC
       sanctions

     • Originator is required to warrant that they will comply with the
       NACHA Rules and will not initiate ACH entries that violate the
       laws of the United States

     • In addition, ACH Originating Financial Institutions will obligate
       an Originating Company or Third Party Sender through the
       warranties in their ACH origination agreement or Terms &
       Conditions.



10
         ACH Participants Most Likely Needing to
         Understand the IAT Rule


     •   Companies headquartered outside of the U.S. with U.S. operations

     •   U.S. companies with pensioners or employees located outside of the U.S.

     •   Third-party Senders or Payment Aggregators

     •   U.S. companies with vendors located in Canada

     •   U.S. companies receiving ACH credit entries from offshore entities




11
     ACH IAT Determination Can Be a Challenge
                                           Location of
                Instruction +             originator &              At any point
                 Settlement               receiver not
                                            relevant

                                Financial
       Payment        Yes        Agency         Yes      U.S. ACH         Yes
     Transaction?                outside                 Network?                  IAT
                                  U.S.?


           No                        No                        No

                                                                              Still
                                Domestic                  Foreign/
       Message                                                             subject to
                                  ACH                    Proprietary
                                                                             OFAC
                                                                             rules!

12
                                 Not an IAT
     NACHA’s IAT Scenarios Document

     • The two versions of the NACHA scenarios document are intended to help
       originating companies determine whether they need to originate ACH entries using
       the IAT format:

     •   Original NACHA Scenarios document is posted on our web site:
          • www.pnc.com/nacharules

     •   A simplified version of the Scenarios document is posted on:
           • www.nacha.org/IAT_Industry_Information
           • (scroll down to the IAT Corporate Tool Kit section)

     • Of the NACHA documented Scenarios, if you are or will be an ACH Originator,
       then Scenarios C, F, and G are those that require more scrutiny in comparison
       to Scenarios E and H that are more narrowly tied to specific consumer services.



13
     www.nacha.org/IAT_Industry_Information




14
         Scenarios C – Alternative #1 and #2

     Foreign financial institution funding of Payroll, Pension or Vendor Payments

     A U.S domiciled company which is a subsidiary of an offshore multinational is
     originating ACH credits into the ACH network. They could be payroll, pension, or
     vendor payments.

     •   Instructions for the ACH entries could be in the form of an ACH-formatted file or
         another message type and could originate from either the U.S. or outside of the U.S.

     •   Funding for the ACH origination file is from the parent company through a foreign
         financial institution or foreign financial agency located outside the territorial
         jurisdiction of the U.S.

     ACH entries should be coded as IAT entries when the non-U.S. financial institution is
     involved in the explicit funding the of the ACH settlement amount needed to execute the
     ACH instructions.


15
         NACHA Clarifications to Scenario C


     •   If the foreign parent company or U.S. subsidiary is transferring funds as a
         result of the company performing the daily treasury management routine
         of setting their daily cash position, then the ACH entries should not be
         coded as IAT entries.

     •   If an Originator is sending IAT credit entries to employees, the tax
         payment obligations or wage garnishments to state agencies still would be
         sent using the current standard of a CCD+ or CTX formatted entry.




16
         Scenario G

     ACH credits payments to Foreign Receiver(s)

     •   A foreign financial institution offers a service allowing companies in the U.S. to send
         credit payments to persons or businesses holding accounts outside of the U.S.

     •   Credit payments with or without remittance data from U.S. companies are sent to the
         foreign bank’s U.S. correspondent via the ACH network.

     •   Daily, the U.S. correspondent consolidates ACH entries collected out of the ACH
         network. The U.S. correspondent sends an EDI file with the individual entry detail and
         remittance information to the foreign financial institution.

     •   Settlement between the foreign financial institution and their U.S. correspondent bank
         occurs daily and the foreign financial institution forwards the detail on to their customer
         and settles the funds with an entry posted to the customer’s account.

     ACH credits originated by the U.S. originating companies should be IAT entries.




17
     Scenario F

     Pension Payments

     • A U.S. domiciled company makes pension payments to retirees residing
       outside the territorial jurisdiction of the United States (expatriates) using
       Direct Deposit.

     • For some of the expatriates, the company has instructions to send the funds
       through the ACH Network to a Gateway Operator, with further instructions to
       send to a financial agency in a foreign country.

     • If there are standing instructions to send the pension payment through
       various means to a foreign financial agency, then the entry should be coded
       as an IAT transaction.
       This has been the most controversial scenario as it is not always possible for the
       Originator to know whether funds have been forwarded. Receiver’s address may not be
       the best indicator but may be indicative of the need to request more information.



18
         Scenario E

     •   ACH Debits for Payments to Foreign Receiver(s)

     •   A foreign bank (Originating Bank) allows non-bank customers to originate payments to
         consumers in their country

     •   A person (Originator) in the U.S. logs on to the foreign bank site and originates a
         payment to a relative (Receiver) in that country, providing the bank with their routing and
         transit number (ABA number) and account number at their U.S. bank along with the
         routing, account number and physical address of the Receiver in the foreign country

     •   The foreign Originating Bank sends a SWIFT message to their U.S. correspondent bank
         with instructions to send an ACH debit to the Originators account at their U.S. bank
         along with the name and physical address of the Receiver in the foreign country

     •   The U.S. bank processes the debit to the U.S. Originators bank and credits the
         correspondent account at their bank for the foreign Originating Bank

     •   The foreign Originating Bank sends a credit payment to the Receiver’s account at the
         bank in their country




19
      Scenario H

     Money Transmitters

     A U.S.-domiciled money transmitter receives a payment order from a foreign
     customer at one of its foreign branch offices to send funds to a Receiver in
     the U.S.

     • Money transmitter makes a book entry to record the transaction on the
       books of its offices in both countries, and creates an ACH credit entry to
       send the funds to the Receiver in the U.S.

     ACH credit to the Receiver the U.S. should be coded as an IAT credit




20
     ACH IAT Next Steps

     NACHA-published IAT Scenarios are not all encompassing.

      ACH Originators need to examine their file and funding
     practices if a non-U.S. financial institution is part of their payables
     flow.

      ACH Originators need to know their Receivers. The address of
     the beneficiary or supplier could be indicative of cross-border
     forwarding.

      ACH Originators should seek help from their ODFI or NACHA if
     they need assistance in determining whether their ACH entries
     should be coded as IAT entries.

21
        ACH IAT Next Steps

     If originating IAT entries, then allow enough time for IAT format preparation.

      Request the IAT Survival Guide from EFT Product

      Understand the content of the 7 addenda records required with each entry

      Collect information on Receivers and Receiving Bank to formulate IAT entries


      Contact PNC to indicate need for specific testing instructions




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