International and Other ACH Transactions
Reprinted with Permission
Source: The BSA Examiner©
Volume 28, 1st Quarter 2008
Wayne Barnett Software
www.barnettsoftware.com
Coppell, Texas
The BSA Examiner© is a newsletter published by Wayne Barnett Software, a Texas Corporation. The goal of [the] newsletter is to inform independent bankers of issues that may affect their Bank Secrecy Act (BSA) & Anti-Money Laundering (AML) programs.
Case #1 – No one said it would be easy.
Bankers are being encouraged to search for suspicious international ACH transactions. We applaud the regulators for this recommendation; international ACHs are being used nefariously. However, your ability to address this issue may be constrained. An overview of international ACH transactions is presented below.
• The only international ACH transactions allowed at this time are outgoing credits; your customers can’t initiate outgoing international ACH debits.
• Incoming international ACH transactions are not allowed. However, all types of incoming and outgoing international ACH transactions will be allowed next year (starting March 20, 2009). New IAT Standard Entry Class (SEC) code will replace NACHA’s Consumer Cross-Border (PBR) and Corporate Cross-Border (CBR) SEC codes for international ACH transactions. This change will allow institutions to better identify international ACH transactions and help them comply with Office of Foreign Assets Control (OFAC) requirements. Visit www.frbservices.org/communications.fedach/072308.html for more information about international ACH transaction (IAT) survey results.)
• ACH transactions can only be sent to six countries. However, money sent to these countries via ACH can be wired to other countries—including those that you legally can’t do business with from the U.S. (for example, Cuba and Iraq).
• You can identify outgoing foreign ACH transactions by looking at the transaction file’s Batch Header Records. However, we’re aware of just one core banking system that currently highlights international ACHs. (This will surely change in the next year.)
• Our sources tell us that most International ACH transactions are being initiated through third-party payment companies (for example, MSBs and PayPal). So, even though your customer may be sending large amounts of money to Iran via a bank in Mexico, you’ll never know it; the only transaction your bank will see is a debit for settlement from the third-party company.
“We realize it’s difficult to monitor international ACH transactions,” said a senior regulatory official we spoke with. “But there are three things banks can do:
1. Identify the customers that are originating international ACH transactions.
2. Have a strategy for determining if international ACH transactions are suspicious.
3. Be working with vendors to develop new procedures for the aforementioned changes that commence in March of 2009.
Case #2 – A closer look is wise … and required.
A high number of regulators and consultants are now recommending that banks monitor the total debits and credits of their customers when searching for suspicious activity. Said a federal prosecutor we spoke with: “Dealers and terrorists are skilled at laundering funds. They’ll buy money orders with cash from MSBs and deposit them into their accounts. They’ll also take cash to an MSB and have funds deposited into their accounts via ACH. Ultimately they have to get the funds out of the country, and that’s where this new strategy becomes relevant.”
What the strategy entails is giving extra scrutiny to consumer accounts that have $20,000 or more a month in aggregate debits or credits. The same is true for commercial accounts having $100,000 or more. If the bank deems the activity suspicious, a SAR should be filed.
What makes this activity suspicious? “A consumer that consistently deposits or withdraws $20,000 a month is outside of the norm,” said the Prosecutor, “and they warrant consideration for reporting. Likewise, restaurants, bars and such that have a high number of incoming ACHs are aberrations and worthy of a closer look.”
Case #3 – No good deed goes unpunished.
The Government Accountability Office (GAO) commended the banking industry in a study released in February, for the work bankers do in filing CTRs. Per the study: “CTR requirements aid law enforcement by forcing criminals attempting to avoid reportable transactions to act in ways that increase chances of detection through other methods.”
The GAO noted that CTRs would be more effective if banks better utilized the reporting exemptions; it recommended the exemption rules be modified to encourage more filings. Said a Regulatory Official we spoke with: “That’s unlikely to happen. Instead, banks will be encouraged to acquire BSA software that facilitates the filing of exemptions. Banks that don’t file exemptions will have to explain why—and the cost of doing so will not be a good reason.””
Wayne Barnett Software is a Texas corporation that offers products to help financial institutions with BSA/AML compliance, kite and fraud detection, and wire transfer recordkeeping. For more information call Wayne Barnett at 877/945-4344 or email at wbarnett@barnettsoftware.
