ACH and OFAC|
by Mary Beth Guard, BOL Guru
NACHA has published a white paper titled The ACH Network and OFAC Compliance. It summarizes the impact of OFAC on the various parties involved in ACH transactions. Its main points are as follows:
Originators should not transmit funds to or from any OFAC-blocked party, nor should they be acting on behalf of an OFAC-blocked party.
ODFIs should verify that the Originator is not a blocked party and make a good faith effort to confirm the Originator is not transmitting funds to, from, or on behalf of a party subject to blocking under OFAC. An ODFI should have a process for determining whether any of its account holders is a blocked party on the SDN list, and it must comply with OFAC if it discovers an ACH transaction is subject to freezing or rejecting. When it is the RDFI that holds the account or is acting on behalf of a blocked person, the ODFI may rely on the RDFI for OFAC compliance.
ODFIs are encouraged to process international ACH transactions through a separate process to allow for sufficient transaction-level OFAC scrutiny.
RDFIs are subject to U.S. law and the NACHA Operating Rules, and are thus subject to OFAC requirements. An RDFI should have a procedure for determining whether any of their account holders are blocked parties. If an RDFI receives a transaction involving interests of a blocked party for whom the RDFI holds an account or on whose behalf the RDFI is acting, it must reject or freeze the proceeds of the transaction (depending upon the applicable OFAC sanction).
Receivers and their financial institutions are subject to OFAC and for violative ACH debits, Receivers may have the proceeds debited from the account and frozen pursuant to a blocking action.
Third-parties, such as correspondent banks, are also impacted by OFAC. If a third-party is acting on behalf of downstream Originators, for example, the ODFI will hold it accountable for ensuring that ACH transactions it introduces into the domestic ACH network are OFAC-compliant.
Credit entries: If an ODFI inadvertently transmits an unlawful ACH credit entry to a Receiver who is a blocked party, the RDFI should post the credit entry to the account, then freeze the account and report to OFAC.
Debit entries: If an ODFI inadvertently transmits an unlawful ACH debit entry, the RDFI should return the entry (marked with Return Reason Code R16), indicating the entry was to go to a blocked account and will be reported to OFAC.
Contracts between ODFIs and Originators should include a clause stating that the Originator acknowledges it may not initiate entries that violate U.S. laws and should indicate that ODFIs and Originators are subject to NACHA Operating Rules. It may also be helpful to have a clause indicating that there may be possible delays in transactions where enhanced scrutiny is necessary due to OFAC.
The original version appeared in the November 2002 edition of the Oklahoma Bankers Association Compliance Informer.
First published on BankersOnline.com 4/28/03