If you get a reclamation notice based on a claim that the second payee did not receive his or her portion of the funds, the initial risk of loss is yours. You will have no defense to the claim and you will pay it. Then, you will seek reimbursement from your member.
Your member already knew that if she deposited this item in person it would be turned away, but she has figured out that does not happen if she uses a foreign ATM. She will do it again.
Realizing that your connection to your clientele goes beyond simple contract terms, I suggest that any time your institution has had more than one opportuntity to classify a member as a threat you should terminate the relationship or be prepared to accept the consequences as you may have to do here.
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In this world you must be oh so smart or oh so pleasant. Well, for years I was smart. I recommend pleasant.