International ACH Transaction (IAT) Frequently Asked Questions

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General Questions

1. What is IAT?

   IAT is a new standard class entry (SEC) code that will replace the CBR and PBR SEC codes that are currently in use today. NACHA rules will require the IAT code and format of all ACH payments entering or exiting the U.S.

2. What major changes can institutions expect with the new IAT SEC code?

   The IAT SEC code will be used for both consumer and corporate international ACH credits and debits. In addition to requiring data elements defined by the Bank Secrecy Act’s (BSA) "Travel Rule", OFAC screening indicators will be included with each payment to help RDFIs identify suspicious payments. Furthermore, all international inbound transactions will allow the use of a secondary SEC code to further identify the file type for all WEB, TEL, ARC, POP, BOC, and RCK transactions where applicable.

3. Why is the implementation of IAT necessary?

   IAT was developed to respond to OFAC’s request to align the NACHA Rules with OFAC compliance obligations and to make it easier for RDFIs to comply with those obligations. In the current environment, many U.S. financial institutions are receiving international payments that cannot be properly identified. These unidentifiable payments enter the U.S. through correspondent banking relationships and are often difficult to trace or accurately process as international payments. The new IAT code supports the end of anonymity and promotes traceability of international electronic payments.

4. Who does the IAT SEC code impact?

   The introduction of the IAT code will impact all U.S. financial institutions, including those that do not currently send or receive international payments as any financial institution is a potential receiver of an IAT transaction.

5. Do OFAC Rules apply to international ACH transactions?

   Yes, OFAC rules apply to all payments, both domestic and international. DFIs and their customers should consult with their internal compliance officer on their requirements. Further information can also be found on the OFAC website (Off-site).

Format Questions

This section includes questions related to IAT record layouts and format considerations.

1. What information should we expect to include in the mandatory addenda records for IAT?

   The new format will accommodate the following data elements:

   • Originator's name/address
   • Beneficiary's name/address
   • Originating bank name/ID/branch code
   • Foreign correspondent bank name/ID/branch code
   • Receiving bank name/ID/branch code
   • Reason for payment

   
   
2. Does the Foreign Correspondent Bank Information addenda record relate to the correspondent bank of the receiving depository financial institution, or the foreign originating financial institution?

   The Foreign Correspondent Bank addenda record refers to the correspondent bank of the foreign originating financial institution and is used only with inbound items.

3. Will the ACH Operators edit an IAT entry if the maximum number of addenda records is exceeded?

   ACH Operators will reject an IAT item when the maximum number of addenda records [12] is exceeded. Similarly, if the number of addenda records entered in Field 5 of the entry detail record does not match the number of actual addenda records edited, the item will also reject.

4. How many digits should be used for the ISO Destination Country Code given that the addenda record has a three-character field?

   Although the ISO Destination Country Code field found in the Company/Batch Header Record is two digits in length and the Originating DFI Branch Country Code field found in the addenda record is three digits in length, all ISO country codes are to be identified using a two digit alpha designation. The branch country code will occupy the two leftmost positions, with a space filling the third position. It is important to note that ACH Operators do not validate the contents of this mandatory field other than to confirm it does not contain all spaces or all zeroes.

5. Where in the IAT Detail Record will the OFAC screening indicator be located?

   There are two OFAC screening indicator fields in the IAT Record: In the Entry Detail Record, Field 10 is the Gateway Operator OFAC Screening Indicator, and Field 11 is the Secondary OFAC screening indicator.

6. What is the purpose of the IAT transaction type code field?

   The reason for payment must be included in IAT entries to provide relevant information in support of Regulation E. The IAT transaction type code field is a required field that will carry the three-character code indicating the reason for payment. Reason for payment is currently used for CBR / PBR transactions and the code listing can be found in Section 2.2 “Code Values” of the NACHA Rules book. With IAT, the use of the transaction type code field will be expanded for inbound IAT transactions to carry a secondary SEC code for WEB, TEL, ARC, POP, BOC, RCK, POS, SHR and MTE.

7. Where can I find examples of detailed record layouts for IAT?

   You can find extensive information about the new IAT format in the section of the 2008 ACH Rules entitled 2009 Rules Changes. To purchase your copy of the ACH Rules, please contact the nearest regional payments association which can be found through the following URL: http://www.nacha.org/ (Off-site).

8. Will a special routing number be used in the GO Identification/Receiving DFI Identification field in the IAT detail record for outbound IAT entries?

   The GO Identification/Receiving DFI Identification field in the IAT entry detail record will be populated just as CBR and PBR entries are formatted today. An RTN is currently used to represent each FedGlobal Service country. The RTNs of the service countries can be found in each corresponding FedGlobal Service Manual.

OFAC Questions

This section includes questions related to Office of Foreign Assets Control (OFAC) compliance and related responsibilities of financial institutions.

1. Who is responsible for OFAC compliance?

   All depository financial institutions, whether originating or receiving, are responsible for OFAC compliance. Likewise, OFAC compliance applies to third-party service providers, including processors and correspondent/respondent banks. Although a financial institution might contract with a third-party provider to do the actual OFAC review of the transactions, OFAC rules clearly indicate that a financial institution cannot contract away its liability for OFAC compliance.

2. Do OFAC rules apply to international ACH transactions?

   Yes. OFAC rules apply to all payments, both domestic and international. Depository financial institutions and their customers should consult with their internal compliance officer on their organizations’ requirements. Further information can also be found on the OFAC website (Off-site).

3. What role does a gateway operator play in OFAC requirements?

   Gateway operators are required to perform OFAC screening on all incoming IAT items. The gateway operator will flag each item with either a “1” to indicate a possible hit or a “0” to indicate that there was no hit. ACH operators acting as gateways operators are not required, however, to validate potential hits and will not block transactions or freeze funds. ODFIs acting as gateway operators, on the other hand, do have additional OFAC obligations. Further information can also be found on the OFAC website (Off-site)

4. Where in the IAT Detail Record will the OFAC screening indicator be located?

   There are two OFAC screening indicators for IAT records: in the Entry Detail Record, field 10 is the Gateway Operator OFAC Screening Indicator, and field 11 is the Secondary OFAC Screening Indicator.

5. If a gateway operator is going to perform OFAC due diligence on inbound IATs, what additional responsibilities does an RDFI have surrounding OFAC compliance?

   Ultimately, the receiving financial institution bears all responsibility for OFAC compliance. Although the gateway operator will perform inbound screening on inbound IAT items and populate the necessary fields, the receiving financial institution is still required to perform the necessary due diligence on IAT items in order to properly comply with OFAC obligations.

6. Does the Federal Reserve perform OFAC screening on all IAT items flowing through the ACH network?

   No. The Federal Reserve, in its capacity as a gateway operator, will only perform OFAC screening on those incoming IAT items that flow through FedGlobal Services. Inbound IAT items entering the country through another gateway operator will not be screened by the Federal Reserve but rather by that gateway operator.

FedACH Services

This section includes questions related to FedACH testing availability, gateway operator vs. ACH operator roles, processing differences, and FedGlobal^® enhancements.

1. Does the Federal Reserve conduct OFAC screening for IAT items?

   Yes, the Federal Reserve acting as a gateway operator will screen any inbound IAT items that are processed as part of our FedGlobal Services. As an ACH operator, the Federal Reserve is not obligated to screen IAT items coming from or to other ACH participants including other U.S. gateway operators.

2. Does the Federal Reserve, acting as a gateway operator, allow inbound debit entries through FedGlobal Services?

   No, the Federal Reserve, acting as a gateway operator, will not allow inbound debit entries through FedGlobal Services. The reasoning is because the Federal Reserve cannot offer the same warranties as an ODFI to ACH network participants regarding IAT items. ODFI warranties are outlined in the NACHA Rules.

3. What will the Federal Reserve do if it finds a match on the OFAC SDN list?

   The Federal Reserve acting as gateway operator will populate the Gateway Operator OFAC Screening Indicator, field 10 in the IAT entry detail record, with either a “1” to indicate a possible match or a “0” to indicate that there was no match. The Federal Reserve will not hold, pend or reject any IAT item, regardless of whether that item has been flagged as a potential match.

4. Does the Federal Reserve support prenotification and notification of change entries for international ACH items?

   As an ACH operator, the Federal Reserve will process all IAT items according to the ACH Rules, which allow for prenotification and notification of change (NOC) entries. However, as a gateway operator, the Federal Reserve will apply edits according to FedGlobal Services specifications and business operating procedures. These differences include, but are not limited to, prenotifications, NOCs, recalls and reversals. For additional details regarding FedGlobal Services, please refer to the appropriate service implementation manual.

5. Will a special routing number be used in the GO Identification/Receiving DFI Identification field in the IAT detail record for outbound IAT entries?

   The GO Identification/Receiving DFI Identification field in the IAT entry detail record will be populated just as CBR and PBR entries are formatted today. An RTN is currently used to represent each FedGlobal Service country. The RTNs of the service countries can be found in each corresponding FedGlobal Service Manual.

6. Will I be able to use FedACH Information Services (via FedLine Web or FedLine Advantage) to derive IAT return items?

   Yes, the “Derive a Return Item” feature in FedLine Web will be updated to support the return of IAT items.

7. Will the Federal Reserve offer any tools or services that will help my institution monitor IAT items?

   The Federal Reserve will offer the following tools that will readily identify IAT items sent to RDFIs:

   • The Federal Reserve will offer the ability for Receiving Points and RDFIs to choose to receive their IAT items in a separate file from their domestic items. The file will include all IAT forward items, but will not contain IAT return items (institutions interested in receiving their IAT returns as a separate file should contact their account executives). It is important to note that the file will contain all IAT items destined for RDFIs, both from FedGlobal ACH Payments and from other ODFIs acting as gateway operators. The IAT files will be available during each FedACH distribution window and will follow FedACH standard processing. Sign up is available through the FedACH Participation Agreement. It will allow Receiving Points and RDFIs to easily identify IAT items to perform necessary due diligence (i.e., OFAC screening) without having to interrogate the entire output file. This will result in potential overall processing efficiencies. Please refer to the FedACH Services fee schedule for pricing.
   • The FedPayments Reporter^® Service offers a report of IAT items for a given business day at the RDFI and (or) the customer level. The daily report includes all IAT forward items, but does not contain IAT return items (institutions interested in receiving IAT return items in the daily report should contact their account executive). End-of-day reports can be generated automatically on a fixed schedule or requested “on demand” for various date ranges. Reports include all relevant payment information in a user-friendly layout and are available in various user-selected formats (e.g., PDF, TXT, HTML). Established FedPayments Reporter Service fees apply.

   
   
8. Will FedGlobal Services expand its service offerings with the implementation of IAT?

   FedGlobal Services is currently exploring opportunities to expand the countries accessed as well as product features. To receive the latest news about FedGlobal enhancements, sign up for Email Alert Notification on FRBservices.org and select FedACH Services.

9. What paperwork does an institution need to complete to participate in each of the FedGlobal Services?

   Prior to participation, a DFI should complete and return the Service Request Form to the FedACH Services Sales Specialist at is servicing Reserve Bank. You may complete one form for all or any of the FedGlobal Services. The forms are available in the respective Service Implementation Manuals for each partner country, which are available on the FedGlobal Processing Resources.

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