Comptroller Fiscal Year Memo Letter Head


M E M O R A N D U M

To:Chief Fiscal Officers and Payroll Directors
From:James A. MacDonald, Assistant Treasurer, Massachusetts State Treasury
Kathy M. Sheppard, Deputy Comptroller, Office of the Comptroller
Date:September 25, 2009
Re:International ACH Transactions (IAT) Rules Advisory

Comptroller Memo
FY#2010-07


Executive Summary

This advisory is to alert all Massachusetts departments and agencies of amendments to the National Automated Clearing House Association (NACHA) Operating Rules that went into effect September 18, 2009. The amendments are contained within a subsection of the NACHA Operating Rules and are referred to as International ACH Transactions rules ("IAT rules"). The amended rules affect the payment transaction processors as well as any employees or vendors transferring their entire payments to banks in other countries.

Both payroll direct deposit and vendor electronic funds transfer (EFT) as well as originating ACH debits to draft payers' accounts (for collecting funds) are considered ACH transactions. As a result of the reporting requirement, the Commonwealth enrollment forms have been updated to comply with this advisory. The new forms should be used for all requests immediately.








The IAT rules are a result of NACHA amending the ACH Operating Rules to align them with requirements of the Office of Foreign Assets Control (OFAC). The requirements of OFAC are in accordance with federal law pertaining to economic and trade sanctions against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. According to OFAC, all U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, all U.S. incorporated entities and their foreign branches. This definition of applicability includes governmental entities.

Any departments that originate electronic payments through the ACH network should have received correspondence from their originating bank regarding the IAT rules, but may not have realized that the rules apply to them. While on the surface it may appear that the Commonwealth is not affected by the IAT rules since we do not ordinarily make international ACH payments, in fact any entity that remits domestic ACH payments is potentially affected.

Employee's Responsibility to Comply with the IAT Rules

In order to verify that payments the Commonwealth originates through the ACH network comply with all US Laws, the Commonwealth must rely upon the employee to advise their payroll department if the full amount of the payment the employee receives electronically is being forwarded to a bank in another country. In order for the IAT rule to apply, the entire amount of the payment must be forwarded.

For new enrollments or changes in a direct deposit, the direct deposit enrollment form has been updated with a check box for the employee to affirm whether the entire payment amount is or is not subject to being forwarded to a bank in another country. Should the IAT status change at any time in the future, the employee should update their enrollment form.

Should the employee receive their payroll via direct deposit at a U.S. financial institution and then have the entire payroll amount forwarded to a bank in another country, the employee should advise their payroll department and complete the updated direct deposit enrollment form. If employees do not advise their payroll department that he or she meets the definition of an IAT payee, the employee will be presumed to be a non-IAT payee. Should the employee IAT status change at any time in the future, the employee should notify their payroll department.

Vendor's Responsibility to Comply with IAT Rules

Should the vendor receive its payment via EFT at a U.S. financial institution and then have the entire payment amount forwarded to a bank in another country, the vendor must advise the contracting department and complete the updated EFT enrollment form. If the vendor does not advise their contracting department that they meet the definition of an IAT payee, the vendor will be presumed to be a non-IAT payee. Should the vendor's IAT status change at any time in the future, the vendor must update its EFT form and send it to its contracting department.

Department's Responsibility to Comply with IAT Rules

Departments need to communicate the new requirements for compliance with IAT rules with employees and vendors. In addition, the accounts payable and payroll departments should begin using the new forms and develop procedures for compliance.

If the employee or vendor identifies themselves as a IAT payee, the payroll or contracting department should contact James MacDonald at the State Treasury for further instructions. The Treasury and Comptroller's offices will coordinate IAT requirements for all originating payments from the Commonwealth's central systems: MMARS, HR/CMS, and pensions payments. Origination of electronic payments includes submitting ACH credits to payees (for disbursements), as well as originating ACH debits to draft payors' accounts (for collecting funds).

If the IAT rules are determined to apply to your entity, you must take the necessary actions to comply. Information in the IAT Rules Advisory document found on the NACHA website . http://www.nacha.org/c/IATIndustryInformation.cfm

Questions can be addressed to James MacDonald, Assistant Treasurer, TRE, at 617.367.9333 x or Kathy Sheppard, Deputy Comptroller, CTR, at 617.973-2666..



Attachments

Payroll Authorization Form for Direct Deposit doc format of    dir_dep_frm.doc

Electronic Funds Transfer Sign Up Form doc format of    eft_frm_iat.doc

International ACH Transactions (IAT) Rules for Employees rtf format of    iat_rules.rtf





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