Compliance FAQs
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What is NACHA?
The National Automated Clearing House Association (NACHA) is an organization that manages the development, administration, and governance of the Automated Clearing House (ACH) network.
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What is OFAC?
The Office of Foreign Assets Control (OFAC) is an agency of the United States Department of the Treasury that administers and enforces economic and trade sanctions based on United States foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction.
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Who must comply with OFAC regulations?
All U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located.
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As a corporate originator/receiver, do I have OFAC responsibilities?
Yes, ACH receivers and originators are subject to U.S. law, including OFAC sanctions.
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What does SDN mean?
As part of its enforcement efforts, OFAC publishes a list of individuals and companies owned or controlled by or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. Collectively, such individuals and companies are called Specially Designated Nationals (SDNs). Their assets are blocked and United States persons are generally prohibited from dealing with them.
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What is an SEC code?
Standard Entry Class (SEC) codes are used to distinguish different types of entries in ACH transactions. The codes have different formats and requirements. Some of the more commonly used codes are:
- PPD – Prearranged Payment and Deposit Entry: typically used for direct deposit of payroll;
- CTX – Corporate Trade Exchange: typically used between corporations for trade payments and can carry addenda records with remittance detail;
- WEB – Internet Initiated Entry: initiated via the internet to effect a transfer from a consumer account;
- TEL – Telephone Initiated Entry: an oral authorization obtained over the telephone; and
- ARC – Accounts Receivable Entry: typically a consumer check sent to a lockbox and converted to an ACH transaction
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What are the penalties for violating OFAC regulations?
The fines for violations can be substantial. OFAC violations can be both criminal and civil and include both jail time and fines. Depending on the program, penalties for violations can include fines ranging up to $20 million and imprisonment of up to 30 years.
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What if I don’t comply with NACHA regulations?
Not complying with the requirements of the new IAT SEC code could have a number of consequences. NACHA rules violations carry fines. If these fines are levied against the financial institution they may be passed back to the corporate originator depending on the specifics of the case and the details of their contract with the financial institution.
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What is Know Your Customer?
Know your customer (KYC) is the process used by a business to verify the identity of their clients. Knowing whom you are doing business with can prevent your organization from inadvertently facilitating money laundering. An inadequate or nonexistent Know Your Customer system can result in the firm, as well as individual employees, being subject to civil and/or criminal penalties.
