Workshop: Preparing Payroll for IAT

May 21, 2009

Speakers:
Debbie Barr, Senior Director, Network Rules Process, NACHA
Kristin S. Walle, AAP, CCM, Vice President, Finance, ADP Inc.

No More Delays for New Rules Covering IATs

With four months to go before strict new rules take effect for international ACH transactions, employers are scrambling to gear up for the most comprehensive tracking system of payroll funds.

“It’s like an onion,”  Debbie Barr, senior director of network rules processes for NACHA, the electronic payments association, said of the new rules. “The more you peel back, the more you cry.”

The rules were originally scheduled to have taken effect in March, but employers said they needed more time to prepare for the changes, so NACHA was granted a six-month delay to ensure compliance, Barr said.

 “This will not be delayed again,” Barr said. “This is going to happen.”

Barr and Kristin S. Walle, vice president of finance at ADP Inc., addressed the workshop “Preparing Payroll for IAT” on Thursday at  the 27th annual American Payroll Association Congress in Long Beach, Calif. The new rules, which take effect Sept. 18 but are still evolving, have been more than five years in the making, said Barr, who was a member of the committee that developed them.

“This has been unheard of for us,” she said. “Usually it takes six months from approval to enactment of a NACHA rule.”

The Office of Foreign Assets Control (OFAC), in seeking closer scrutiny of international ACH transactions (IATs), allowed NACHA to self-regulate its industry by focusing on how cross-border payroll transactions are sent to or from financial institutions in the United States. The rule provides financial institutions with sufficient information to conduct a review of the transactions as required by U.S. law. OFAC simply wants to know if any funds might be headed to terrorists, drug traffickers, or those engaged in the proliferation of weapons of mass destruction, along with those who are listed on the Specially Designated Nationals (SDN) list maintained by OFAC.

Not all IATs need to be reported to OFAC, however. As long as the payment never leaves the United States, it is not considered an IAT. Barr said the agency is mostly interested in full payroll transactions, not partial or divided transfers.

“It only matters if you move all of the transaction, not just part of it,” she said. Such a scenario could be a worker living abroad who requests that part of a paycheck be sent to a foreign address, but the rest of the payment remain in a U.S. bank.

Such a scenario could indicate a loophole in the regulation, however, one that would likely have to be modified. For OFAC, whatever information can be learned about IATs is information the agency did not have previously, Walle said.

Educating employers about the new rules is ongoing, but Walle said the process is slightly behind schedule for completion. Employers should become familiar with the new rules and scenarios for appropriate application to their payroll departments.

Stiff penalties, both civil and criminal, can be applied to those who do not comply, Barr said. Penalties include imprisonment of an employee for 10 to 30 years, fines of $10,000 to $10 million per count, and forfeiture of property, she said.

“Every party to the transaction has a responsibility to OFAC to know the rules and check the [SDN] list,“ Barr said. Among the information OFAC requires are the names and full addresses of the originator of the funds and the recipient. If a payroll department is doing business with an international bank that might have operations in a banned country, such as Cuba, doing business with the bank is probably not a good idea, she said.

“It comes down to knowledge,” Barr said. “OFAC says that if you have knowledge that funds are moving out of the country, then it is an IAT.”