Blocked Parties, ACH, and OFAC

by Mary Beth Guard, BOL Guru

Question: I just read your article titled "ACH and OFAC" and I need some clarification. You indicated the ODFI should verify that the Originator is not a blocked party, which I agree with, since the originator would be the originating bank's customer. You go on to say the ODFI must make a good faith effort to confirm the Originator is not transmitting funds to, from, or on behalf of a party subject to blocking under OFAC. Are you referring to the beneficiaries of the ACH? For example the originator's transaction is payroll. Are we required to verify all of the recipients of that ACH payroll against the OFAC or just the ones that would have an account with us which would have already been verified. My understanding was as long as we have stated in our agreement with the originator that they must comply with the requirements of OFAC this would put the burden on the originator not the originating bank. I agree for all international ACHs we must verify both originator and receiver.

Answer: The NACHA guidance on which this article was based is somewhat confusing. You can find the NACHA white paper online at: http://www.nacha.org/ofac_ACH_compliance_guide--final1.pdf

It discusses the subject of your question starting at the bottom of page two. The text indicates that with respect to domestic ACH transactions, an ODFI can rely on the RDFI to comply with the OFAC rules regarding whether or not a recipient of the ACH is subject to blocking under OFAC. As noted in my article, an ODFI is responsible for determining whether or not the Originator is a blocked party and can rely on the RDFI to make the same determination regarding the RDFI's customer. Elsewhere in the guidance, however, it does state that "The NACHA Rule reflects the Know Your Customer principle that the ODFI will verify the Originator is not a blocked party and that a good faith effort will be undertaken to determine through the normal course of business that the Originator is not engaged in transmitting funds to, from, or on behalf of a party subject to a blocking action."

In order to guard against the Originator transmitting funds to a blocked party, the Originator will need to be educated about the OFAC requirements, so the Originator will know how and when to check the OFAC list.

The original version appeared in the April 2003 edition of the Oklahoma Bankers Association Compliance Informer.

First published on BankersOnline.com 10/13/03