IAH Information for Employees

Important Information for Employees
International ACH Transactions (IAT) Rules

New Banking Industry Rules
There has recently been a change in the banking industry rules (NACHA Operating Rules) which the State of North Carolina must adhere to when remitting employees their payments via Direct Deposit. The new rules require the State, as originator of electronic payments made through the ACH network, to identify payments made to payees where the entire payment amount is subject to subsequently be transferred to a foreign bank account. The rules are referred to as “International ACH Transaction (IAT) rules” and are pursuant to requirements of the Office of Foreign Assets Control (OFAC). The IAT rules became effective September 18, 2009.

Purpose of IAT Rules
Under US Law, banks are required to screen all ACH payments to ascertain if the funds associated with a payment are being remitted to (or being received from) any party subject to OFAC sanctions. OFAC administers and enforces economic and trade sanctions based on US foreign policy and national security goals 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. OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze assets under US jurisdiction. The IAT rules are intended to assist the banking industry in performing this screening process.

State’s Responsibility to Comply with the IAT Rules
In order for the State to comply with the IAT rules and the applicable US Law, employees are being notified of the new rules. Additionally, in cases where current employees meet certain criteria to consider them as a potential IAT payee, an inquiry may be made of the employee, requesting additional information regarding the designation of payments made to them electronically. For employees that are identified as an IAT payee, the State is required to submit all future electronic payments to the employee’s bank either in a special format, or remit the payment to the employee via paper check.

Employee’s Responsibility to Comply with the IAT Rules
In order to warrant that payments the State originates through the ACH network comply with all US Laws, the State must rely upon the employee to advise 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.

Responsibility of Employees Currently Enrolled in Direct Deposit
Should you receive your payroll via direct deposit at a U.S. financial institution and then have the entire payroll amount forwarded to a bank in another country, you should advise your payroll department. Your payroll department may provide a general notice regarding the IAT rules, or it may make a specific inquiry of you. If you do not advise your payroll department that you meet the definition of an IAT payee, you will be presumed to be a non-IAT payee. Should your IAT status change at any time in the future, you should notify your payroll department.

Responsibility of Employees Not Yet Enrolled in Direct Deposit
Going forward, upon enrolling in a direct deposit program, the Enrollment Form will have a place for you to affirm whether the entire payment amount, is or is not, subject to being forwarded to a bank in another country. Should your IAT status change at any time in the future, you should notify the State or the inquiring agency.

Know Your Customer Principle
The NACHA Rules specifically require all parties to adhere to all US Laws, and transactions conducted through the ACH network carry such warranties with them. The NACHA Guidelines indicate that all parties have an obligation to “know their customer.” In many cases, the state agency is in the best position to know that the payment to an employee could potentially be part of a transaction where the funds could be remitted upstream to a party that is sanctioned by the OFAC.

NACHA acknowledges, partly because of bank privacy regulations, that it is not always possible for the State, functioning as an originating company, to know whether funds remitted to a payee’s designated financial institution are subject to being subsequently forwarded to a foreign bank. Information known by the agency alone is not necessarily a sufficient reason to designate payments to the employee as an IAT, but it can be enough to prompt the agency to make a due diligence inquiry of the employee. Any inquiry made of an employee by a state agency is done to fulfill its due diligence obligation to adhere in spirit with the US law and the IAT rules.

Impact on Employee Designated as an IAT-Payee
Being designated as an IAT payee, by virtue of your payment being forwarded to a foreign bank should have a minimum affect on the payment being credited to your designated bank account. There should only be a problem if your name is one that is contained on OFAC’s sanction list. However, availability of funds credited to the account will be subject to your receiving financial institution’s policies and procedures.

Multiple Employee Payroll Systems - Questions
The State of North Carolina has multiple payroll systems, each one of them being maintained by different offices. The State Controller’s Office has two payroll systems that serve most general government agencies, and several universities (BEACON Payroll and Central Payroll). Some of the universities, all of the community colleges, and all of the local school systems each maintain their own payroll system. Miscellaneous agencies (e.g., boards, commissions, General Assembly) may administer their own payroll system.

The process and procedures used to notify employees of the IAT rules and to administer the method of payment for employees identified as an IAT payee may vary from one payroll system to the next. Some of the payroll systems may be able to create the special formatted ACH file required by the banking industry, while others may not have the capability. Consequently, all questions should be directed to your agency’s Human Resources department.

You are reminded that the IAT rules do not apply if you are receiving your payroll via paper check. 

IAT Resources