By: William Dunn, CPP

Manager of Government Relations for APA

The new rules on International ACH Transactions (IAT) are making some in our profession feel as though they have been deputized by the U.S. government.

The payroll profession accepted its role as the nation's tax collectors long ago. Withholding income tax from employees' pay and remitting it to the Internal Revenue Service comes with the territory. Employers may also feel like social workers, since they collect 70% of all child support in the United States by withholding it directly from employees' income.

But the new ACH rules may require employers to look further into the personal finances of their employees. This has caused some people to cry foul.

IAT BASICS

Direct deposit payments made through the U.S. ACH network are generally formatted using the Standard Entry Class (SEC) code "PPD." These formats do not identify either the payer or the payee by name or address.

Since September 18, 2009, any financial transaction coming into or leaving the United States through the ACH network must be formatted with the code "IAT." The IAT code also requires that an addendum record be completed. The addendum record has 12 data fields, of which seven are mandatory.

The mandatory fields include data that identifies both the payer and payee. If the fields are not properly completed, the ACH Operator will reject the transaction. The IAT format provides a level of transparency to ACH transactions equal to that of international wire transfers.

The rules were written by NACHA, the Electronic Payments Association, at the direction of the Office of Foreign Assets Control (OFAC), a law enforcement arm of the US Treasury. OFAC is responsible for enforcing U.S. laws that impact our financial system. That duty includes thwarting terrorists and narcotics traffickers who use the ACH system to fund their operations.

An employer that fails to properly format its IAT transactions may have its origination privileges suspended or revoked. Fines range from $10,000 to $100,000 per occurrence.

This applies only when the entire payment is transferred. If an employee residing in the United States regularly transfers a portion of his or her pay to family in another country, the IAT rules do not apply. Similarly, if an employee on foreign assignment transfers a portion of his or her pay into an account in the foreign country in order to have some spending money while on assignment, the transaction is not an IAT.

If you have questions or concerns please contact us!