I know the RDFI is not responsible for checking the originator but our system does check all parties. Are we creating more work than most banks or do most check both parties regardless of whether they are the ODFI or RDFI?

no one is required to perform any OFAC checking at all...you are simply not allowed to affect a payment to/from a person on the OFAC list...it is the risk based decision of a bank what they do or do not check.

I believe that NACHA rules (as opposed to Federal Regulation) require screening of IAT transactions by the RDFI.

NACHA rules state that a RDFI will reject and freeze transactions in of a blocked party for whom the rdfi holds an account, but makes no mention of required screening.

@Happy, circles back to your point of putting a sticky topic of "required to check OFAC" at the top of the BSA forum.

yeah, strangely, no Gurus have responded to that

Perhaps that is because NACHA understands that the RDFI will have to have screened its customer or will screen its new customer in order to realize the customer is a blocked party.

For domestic achs are we responsible for the sender of the transaction or can we rely on the ODFI?

I am trying to determine if it would generally be considered acceptable to change our review and screening process as we get a lot of false positive ACH hits for non-customers on ACH transactions. The review of these is very time consuming. Does anyone else have this issue or does anyone have a solution for this issue? Thanks in advance for your responses.

what you do or don't scan for OFAC is solely a risk-based decision made by your bank. "i relied on the other bank" is not a valid defense if you move funds to someone on the restricted lists.

Does this section from FFIEC manual not state that we can rely on the other bank?

OFAC Screening
ACH transactions may involve persons or parties that are subject to the sanctions programs administered by OFAC. (Refer to core overview section, "Office of Foreign Assets Control," page 142, for additional guidance.) OFAC has clarified its interpretation of the application of its rules for domestic and cross-border ACH transactions and provided more detailed guidance on cross-border ACH.216

With respect to domestic ACH transactions, the ODFI is responsible for verifying that the Originator is not a blocked party and making a good faith effort to ascertain that the Originator is not transmitting blocked funds. The RDFI similarly is responsible for verifying that the Receiver is not a blocked party. In this way, the ODFI and the RDFI are relying on each other for compliance with OFAC regulations.

If an ODFI receives domestic ACH transactions that its customer has already batched, the ODFI is not responsible for unbatching those transactions to ensure that no transactions violate OFAC's regulations. If an ODFI unbatches a file originally received from the Originator in order to process "on-us" transactions, that ODFI is responsible for the OFAC compliance for the on-us transactions because it is acting as both the ODFI and the RDFI for those transactions. ODFIs acting in this capacity should already know their customers for the purpose of compliance with OFAC and other regulatory requirements. For the residual unbatched transactions in the file that are not "on-us," as well as those situations where banks deal with unbatched ACH records for reasons other than to strip out the on-us transactions, banks should determine the level of their OFAC risk and develop appropriate policies, procedures, and processes to address the associated risks. Such policies might involve screening each unbatched ACH record. Similarly, banks that have relationships with TPSP should assess the nature of those relationships and their related ACH transactions to ascertain the bank's level of OFAC risk and to develop appropriate policies, procedures, and processes to mitigate that risk.

solely my opinion...

if the originator is listed as a company, lets say called "Diversified Investing", and DI is not on an OFAC list, i have no way of knowing that DI is owned by El Chapo, only the ODFI knows that. From that standpoint, yes, the ODFI has to know who is the owner of the originating company, no OFAC scan i run will show me that.

But, if the originator is listed as El Chapo, then i would have a hard time explaining to OFAC why i passed this transaction.

"Does this section from FFIEC manual not state that we can rely on the other bank?"

Yes, until something happens. If one of your customers is getting domestic ACHs totaling hundreds of thousands a year from an SDN, and you didn't know because you're not looking at it, you've allowed those transactions and are in violation of OFAC. Just because the other bank should have known first and shouldn't have put you in that position doesn't change that fact, but it would hopefully be used as a mitigating factor when the Treasury is trying to decide your penalties.

I'm NOT saying you need to screen these originators, just that the exam manual isn't going to exonerate you. Review or complete an OFAC risk assessment and use that as your guide for how much and where your resources need to be allocated to avoid problems. I'd be willing to wager there are no banks here screening the maker of every domestic check that's deposited in your institution, but that's not because you can't get in trouble if it happens, it's because the risk is low and the cost is high.