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The Foreign Account Tax Compliance Act (FATCA) takes effect on July 1. The law imposes a 30 percent withholding tax on payments of american-source income. Treasury departments are making sure they know what they need to do.
The Foreign Account Tax Compliance Act (FATCA) takes effect on July 1. The law imposes a 30 percent withholding tax on payments of american-source income. Treasury departments are making sure they know what they need to do.
The Foreign Account Tax Compliance Act (FATCA) takes effect on July 1. The law imposes a 30 percent withholding tax on payments of american-source income. Treasury departments are making sure they know what they need to do.
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Payments May 2014 AFPYour Daily Resource Obey or Pay: Its Time for Treasurers to Act on FATCA Andrew Deichler In the May Payments This month, we bring you exclusive coverage of the recent AFP Treasury Advisory Group (TAG) Meeting and the 2014 AFP Retail Roundtable, both of which were held this month in Dallas. The Foreign Account Tax Compliance Act (FATCA) was a major topic of discussion at the TAG meeting, with the July 1 deadline a little over a month away. Also discussed were the security measures that treasurers are taking in the wake of the massive Target breach. A major topic of discussion at the Retail Roundtable was the EMV liability shift, slated to occur in 2015. However, as one retail treasurer pointed out, if your business does not incur a large amount of fraud, the shift is not something you need to worry too much about. Also, we bring you more coverage from the recent NACHA Payments conference, including a write-up of the discussions around modernizing the U.S. payments system, and an in-depth look at Canadas anti-money laundering laws. s Continued on page 2 With the Foreign Account Tax Compliance Act (FATCA) scheduled to take effect on July 1, many treasury departments are mak- ing sure they know what they need to do to comply. Not surprisingly, the law was a major topic of discussion at the recent AFP Treasury Advisory Group meeting in Dallas. FATCA basics FATCA imposes a 30 percent withhold- ing tax on payments of American-source xed, determinable, annual or periodical (FDAP) income paid to certain foreign nancial institutions (FFIs) and some nonnancial foreign entities. S. Michael Chittenden, a senior associate with Miller & Chevalier who spoke to the TAG at- tendees, joked that FATCA is basically extortion, as the U.S. government is essentially saying, If you dont give us the information on your U.S. customers, were going to take 30 percent of all of your U.S. source earnings. In the future, it will only get tougher for companies, added Chittenden. Effective in 2017, the government will take 30 percent of the gross proceeds from the sale of as- sets that produce U.S.-source interest and dividends. As an example, lets say you bought $100,000 of IBM stock as a nan- cial institution, he said. You sell it a few years later for $50,000 because something really bad happened to IBM. The federal government would take $15,000 of that, leaving you with $35,000 of your original $100,000 investment. Earlier this month, the Internal Revenue Service (IRS) announced that 2014-2015 would be treated as a transition period for FATCA. Still, Chittenden is wary of this grace period and advises nonnancial companies to keep working to comply under the original timeline. Speaking from a legal perspective and as someone who works with companies when the IRS comes knocking to impose penalties, we dont like this very much at all, he said. Its a very nebulous standard; its up to the agent to decide whether or not you complied in good faith. You prob- ably are going to have to go to appeals and ght about it, which involves hiring law- yers. So basically, keep working, and try to comply. This did not delay the effective date of FATCA. It is still effective July 1. First steps Companies should begin by reviewing their entire organizational chart for poten- tial foreign nancial institutions (FFIs), including corporate afliates, partnership interests, and branch operations. Because of the deadline for registering the FFIs, you have to start by documenting all your foreign entities, said Chittenden. It is important that every organization consider who is in their expanded afli- ated group (EAG). These are all the entities that share: 50 percent of the value and 50 percent of the prots (for corporations) 50 percent of the value or 50 percent of the prots (for partnerships) 50 percent of the benecial interest (for trusts). Not an AFP Member? Join today. wwwAFPonline.org Page 2 Copyright 2014 Association for Financial Professionals, Inc. All Rights Reserved May 2014 Payments Published by the Association for Financial Professionals, Inc. Editor Andrew Deichler President and CEO James A. Kaitz Managing Director, Communications Elizabeth Johns Editorial Manager Ira Apfel Publications Manager Amy Cooley Payments Editorial Advisory Board Fred Buttereld, CTP Trust Company of America Anand Goel Optimized Payments Consulting
Katria Kowal, CTP AFP Board of Directors
Sharon Petrey, CTP The Coca-Cola Co.
Chuck Phipps, AAP, CTP NetSpend Corporation Cristina Pintado Deutsche Bank Randy Sabett ZwillGen, PLLC Claudia Swendseid Federal Reserve Bank of Minneapolis Advertising Advertise in Payments to reach out to decision makers seeking new payments technology. To reserve space today, contact the AFP Sales Team at 301.961.8833. Subscriptions www.AFPonline.org/newsletters Copyright 2013 Association for Financial Profession- als, Inc. Copying and redistributing prohibited without permission of the publisher. This information is provided with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. If legal or other expert assistance is required, the services of a competent professional person should be sought. Association for Financial Professionals 4520 East-West Highway, Suite 750 Bethesda, MD 20814 Phone: 301.907.2862 Website: www.AFPonline.org Email: AFP@AFPonline.org Blog: http://blogs.afponline.org/Payments/ Twitter: http://twitter.com/afponline LinkedIn: http://www.linkedin.com/companies/ association-for-nancial-professionals Join the Distribution List Each month, Payments will bring you timely news on payments. Sign up today at http:www.AFPonline.org/afppayments. Obey or Pay: Its Time for Treasurers to Act on FATCA continued AFP Seeks Board of Directors Candidates Interested practitioner members in nancial planning and analysis (FP&A), corporate nance or treasury should submit the following information to AFP: Biographical sketch containing relevant volunteer experience, especially experience serving on AFP committees, task forces or regional association boards Resume, including a brief overview of current responsibilities Letter of recommendation from an immediate supervisor, as well as information on the candidates employer, such as an annual report. Candidates with treasury, corporate nance or FP&A experience, those with international expertise, as well as CTP/CCMs are encouraged to apply. Mail applications to: AFP Nominating Committee AFP, 4520 East West Highway, Suite 750, Bethesda, MD 20814 or email to driggs@AFPonline.org If you have questions, please call AFPs Executive Ofce at 301.907.2862 or e-mail driggs@AFPonline.org. Deadline: June 6, 2014 EAGs that contain FFIs may have registration requirements and due diligence require- ments for any accounts that they maintain. Because local banking laws in foreign jurisdictions may prevent FATCA compliance, the U.S. Treasury Department has been working with more than 80 countries on intergov- ernmental agreements (IGAs), which are similar to treaties. More than 30 countries have signed an IGA, and about another 30 are treated as having one in place. These agreements primarily affect the obligations of FFIs, but can also have an impact on U.S. withholding agents. For example, some payees in IGA jurisdictions will have a different Chapter 4 status than they would under the [FATCA] regulations, Chittenden said. So when youre going through your chart and looking at all your afliates, if theyre in an IGA jurisdiction, you might need to look at the IGA to gure out whether or not theyre an FFI. We have clients who, under the regulations, would have an entity thats an FFI but under the IGA its not. Times almost up In many companies, tax has been taking the lead on FATCA, and many TAG members noted that their tax groups are. However, others revealed that their tax departments have taken a hands-off approach. My tax department thinks its not a big deal, said a treasurer. Another treasurer said that his companys tax department is not doing anything at all about FATCA. Regardless, treasurers need to be involved and if necessary, take the reins. The reality is, youre going to have compliance problems, and youre going to have 30 percent withholding stuck on you if you dont [comply with FATCA], Chittenden said. So its really important that treasury get buy-in from the very top; that the general counsel cant come in and demand you send money immediately without any documentation. You just cant do it. The treasury clerk who is wiring the money has to be empowered to say, No. s www.AFPonline.org Copyright 2014 Association for Financial Professionals, Inc. All Rights Reserved Page 3 Continued on page 4 Issued by HSBC Bank Canada *As measured between 15 July 2013 and 31 December 2014. **Available to qualifying new and current HSBC customers, subject to credit approval. WEVE DOUBLED OUR COMMITMENT TO HELPING BUSINESSES GROW INTERNATIONALLY. In 2013, HSBC provided Canadian businesses $1 billion to help unlock the potential of international markets. In 2014, were doubling this funding so we can help more companies realize their expansion goals.* Why not see where $2 billion could take your business?** Visit hsbc.ca/seeit for details. If you see it, we see it. Fear of the Unknown: EMV Tops Retail Treasurers Concerns Andrew Deichler Treasurers at the 2014 AFP Retail Round- table in Dallas said that their biggest concern is EMV migration. The retail treasurers cited cost, customer resistance, and nagging doubts that switching to the chip-and-PIN equipment is the right tech- nology to ght future fraud attempts. The retail treasurers concerns were heightened by the EMV liability shift com- ing in October 2015. That shift, which places more of a burden on retailers, has some treasurers at the Retail Roundtable making plans to change over to EMV in the next year or so. One treasurer for a major restaurant chain said that migrat- ing to EMV depends on how much you fear the liability shift. Big box retailers generally see a lot of fraud, so if they do not make the transition, they will see substantial fraud costs shift to them, he pointed out. Conversely, retailers that do not see much fraud are less concerned with the October 2015 deadline. Restaurants, the aforementioned treasurer explained, typi- cally have very low fraud rates. A lot of big box retailers would kill to have our fraud rate, he said. Moreover, there is no actual requirement to move to EMV. The treasurer added that most retail- ers will eventually make the shift, but the retailers with low fraud risk will likely be late adopters. Regarding EMVwere all going to have to do it. The only variable is when, he said. Outdated technology One of the arguments against imple- menting EMV is that it is 30-year-old technology. It is much more secure than magnetic-stripe cards, but not a particu- larly innovative solution. Some retailers are looking at mobile instead as a more effective tool to combat fraud at the point of sale. Page 4 Copyright 2014 Association for Financial Professionals, Inc. All Rights Reserved May 2014 CTP, Certied Treasury Professionals and the CTP logo are registered trademarks of the Association for Financial Professionals. 2/14. Showcase your expertise. Improving collection and disbursement processes Managing cross-border funds movement Mitigating payment risk exposures P P P Become a CTP. www.CTPcert.org The problem is, mobile is still new. But mobile as a fraud-ghting tool is better than a card with a chip in it, said the res- taurant treasurer. He believes it is unlikely that a large percentage of retailers will be EMV-compliant by October 2015. Perhaps the deadlines will be pushed back, he said. But mag stripes will remain on cars for a long time, probably 10 years or more. Contactless cards One treasurer for a major sporting goods retailer was curious whether there might be any interchange discount for retailers who have EMV capability by 2015. Will Visa and MasterCard provide one? she asked. I wont believe that until I see it, replied the restaurant treasurer. He noted that his company tested contactless cards nearly a decade ago. A lot of the same ar- guments being made for the security that EMV provides were being made about contactless cards back then. There was never a discount for contactless, he said. We ended up taking it out several years later because no one is using it. Meanwhile, the treasurer for a major drug store chain noted that his company also implemented contactless card termi- nals and the results were the same. We also took them out because they werent being used, he said. The restaurant treasurer added that retailers who elect to take contactless pay- ments at their establishment are going to accept mobile payments as well. Contact- less terminals cant distinguish between a contactless card and phone-based NFC, he said. Youre selecting a mobile solu- tion, like Google Wallet or Isis. If you enable contactless for plastic cards, youre enabling mobile payments. It is for that reason that some retailers, including 7-11 and Best Buy, have stopped accepting contactless cards; they didnt want mobile solutions in their establishments. Retraining consumers Treasurers at the Dallas event agreed that the lack of customer adoption for contactless cards could be an indicator of how EMV adoption could play out for consumers. In their experience, consumers generally dont want to have to do some- thing new when paying. Shifting to EMV, then, not only would require an investment for retailers in technology and staff training; it will require them to train consumers. Everyone is fo- cused on putting terminals in, getting cer- tication, the hardware, said one treasurer at the Retail Roundtable. But another problem is American consumers are going to have to be retrained to put their card in, leave it there, enter their PIN, etc. About 150 million people used to swiping a card are going to have to be retrained. The treasurer added that most retailers probably have one group focusing all of their efforts on EMV, with another group working on a mobile solution. That mobile solution might ultimately create a very differentand preferableexperience for the consumer than using a chip card. If consumers like using mobile better, theyre going to do that versus EMV, he said. Therefore, many retailers are waiting on EMV to see what they could do with mobile. s Click here for more EMV and payments information and advice. The problem is, mobile is still new. But mobile as a fraud-ghting tool is better than a card with a chip in it. Fear of the Unknown: EMV Tops Retail Treasurers Concerns continued www.AFPonline.org Copyright 2014 Association for Financial Professionals, Inc. All Rights Reserved Page 5 Treasury and nance professionals who are focused on payments are looking for ways to modernize the United States payments system, if discussions at the recent NACHA Payments conference in Orlando, Fla. are any indication. The question is, will it ever actually happen? The next step is to address issues related to governance and ownership. In order to install trust and credibility it has been suggested that the banks play a signicant role. At the same time it is not necessarily in the best interest of the users if banks are dominant actors. The meeting ended with a request for comment of the current proposal. The outcome will be shared in future meetings. The Remittance Coalition meeting at the AFP Conference in November should be a good venue for this. Future of the U.S. payment system The future of the U.S. payment system was highlighted in a conference session led by experts from the Federal Reserve. The Fed staffers shared some of the ndings from their pub- lication, Payment System ImprovementPublic Consulta- tion Paper released this past fall. Not surprisingly, the paper concluded that faster payment features are preferred. What is meant by this is, for the most part, is payments notication and conrmation of good funds at initiation. Fast availability of funds for businesses is the most important feature. Other ndings include priority of domestic payment sys- tems over global, problems switching from paper checks to electronic for B2B payments, too many regulations and card fraud. Regarding checks, there seems to be an opinion that they should be allowed to evolve, but not at the expense of the development of electronic alternatives. This could prove problematic as it creates less of an incentive to develop more modern payment systems. ISO 20022 standard Since many key global payments entities, such as the SEPA, are implementing the ISO 20022 standard, any discussion regarding modernizing the U.S. payment systems should also include the ISO 20022. Some initial steps have been taken, and a business case study has been conducted to assess the potential adoption of the ISO 20022 standard for U.S. compa- nies. This issue was also addressed in sessions at the conference. Takeaways The Feds consultation paper raised awareness of the indus- trys preferences when modernizing payments. Shifting from paper checks to electronic payment methods makes sense not only from efciency and security standpoints, but also from a business case scenario since corporations have the opportunity to save money. Along with electronic payments is the discussion regarding standards and particularly the business case discussion of implementing the ISO 20022 standard for U.S. corporations. s Magnus Carlsson, Manager, Treasury & Payments, AFP Moving American Payments Forward: Whats the Holdup? Magnus Carlsson Many companies still cite the difculty of convincing trading partners to switch from paper checks to ACH transactions, as well as problems with ACH remittance information. One of the main barriers is a reluctance to provide bank information and account numbers. Migration to electronic payments Electronic payments continue to gain traction in the U.S. However, many companies still cite the difculty of convincing trading partners to switch from paper checks to ACH transac- tions, as well as problems with ACH remittance information. One of the main barriers is a reluctance to provide bank infor- mation and account numbers. Some companies did share their success stories moving from paper checks to electronic payments in several conference ses- sions. During one discussion, Johnson & Johnson and Ameren Services revealed the benets they reaped by switching to elec- tronic payments and remittance alternatives. The electronic payments issue also was addressed at length at the Remittance Coalition meeting on Sunday prior to the start of the conference. One of the projects discussed was the B2B Directory project, which will help address the issue of sharing sensitive information. The core B2B Directory working group has produced a document addressing pain points as well as clear directions for what the directory should contain and how it should work. Page 6 Copyright 2014 Association for Financial Professionals, Inc. All Rights Reserved May 2014 AFP Fraudwatch Andrew Deichler AFP compiles the most alarmingand informativefraud news relevant to corporates in Fraudwatch. This column is part of AFPs Payments Fraud Resource Center and is intended to keep you aware of the latest threats to your organization. Post-Target, Treasurers Take Proactive Measures Fraud has always been a concern for treasurers, and in the post-Target environ- ment, it has only become even more of a priority. At the latest meeting of AFPs Treasury Advisory Group in Dallas, prac- titioners discussed the new fraud issues they face, and the steps they are taking to address them, in the wake of the Target security breach. One treasurer for a major retailer said that immediately following the Target breach, his company saw a huge spike in fraud on gift cards that customers can reload online. We saw in a two-month period as much fraud as we typically see in a year, he noted. We didnt have very sophisticated antifraud tools; we were just using basic stuff. The fraudsters sophistica- tion level is to the point now where they are just blowing all of our protections away. Since then, the retailer has implemented a fraud scoring tool by security vendor ThreatMetrix for its e-commerce business. Like a credit bureau score, it will score a credit card transaction, the treasurer said. You can just deny transactions that score too low. It looks at everythingwhether youre using a Yahoo address, what IP youre coming from, how many times youve used that credit card, etc. It even looks at the type of device you are using. Another treasurer at the TAG meeting said that her company uses a similar tool for its prepaid products. They are very effective; its amazing what they can do, she said. We picked it up through an ac- quisition of another company. Thats who they were using and had integrated. Thats how it came into our portfolio. But Im More AFP Fraudwatch on page 7 going to go back and ask if they looked at it recently or thought about an RFP with other vendors. The rst treasurer said that he has spo- ken to several of his retail peers and they informed him that they are also looking at technology vendors who offer similar fraud protections for their e-commerce operations. If youre an e-commerce business like Amazon, youve done this stuff years ago, he said. But if youre not primarily an e-commerce merchant, youve been pretty vulnerable up to this point. Its time to be more sophisticated. A third treasurer said that although his company has previously not addressed cyber risk, it is rethinking that approach. The head of our IT security has been tasked with re-evaluating that, he said. Post-Target, the board has had conversa- tions about it. The treasurer compared the Target breach to the TJ Maxx breach in 2007 that compromised more than 45 million credit and debit cards. The compensation of those that were affected has changed dramatically, he said. It used to be a cash payout, which is pretty signicant. Now its, Well give you free credit monitoring, which you may or may not use. So thats another thing thats changedthe solu- tions to pay folks. Fallout from Target Breach Culminates in CEO Ousting First it was Targets chief information of- cer. Now its the big box retailers CEO who has been shown the door. Target has relieved Chairman and CEO Gregg Steinhafel of his duties, follow- ing the massive holiday data breach that compromised 110 million customers, hurt Targets fourth quarter 2013 prots and seriously damaged the companys reputa- tion. CIO and executive vice president for technology services Beth M. Jacob resigned in March, clearly another corporate casu- alty of the breach. Additionally, Target launched an expan- sion into Canada last year that was not well-received, which also likely played a role in Steinhafels departure. After extensive discussions, the board and Gregg Steinhafel have decided that now is the right time for new leadership at Target, Targets board said in a statement. CFO John Mulligan has been named interim CEO until a replacement is found, while board member Roxanne Austin will serve as interim non- executive chairman of the board. Steinhafel, a 35-year veteran of the com- pany, assumed the role of CEO in 2008 and was named chairman of the board in 2009. He will serve in an advisory capacity as Target searches for its new CEO. The company said it is looking at both internal and external candidates, as well as candi- dates from outside the retail industry. Now is the right time for new leader- ship at Target, Steinhafel wrote in a letter to the board. Upon the news of Steinhafels removal, Brian Krebs, who originally broke the Tar- get breach story, provided a list of numbers pertaining to the incident. He noted that Target has pledged to spend $100 million upgrading its terminals to support chip- and-PIN enabled cards. However, such technology would have protected exactly zero cards even if it had been put in place prior to the breach. Without end-to-end encryption of card data, the card numbers and expiration dates can still be stolen and used in online transactions, he wrote. Also numbering zero are individuals that currently hold the title of chief information security ofcer (CISO) and chief security ofce (CSO) at Target. Hackers who sold about 2 million of the cards are believed to have made about $53.7 million. Meanwhile, between 1 million and 3 million cards are estimated to have been successfully sold on the black market and used for fraudulent transactions before they were cancelled. Lastly, Krebs noted that Steinhafel stands www.AFPonline.org Copyright 2014 Association for Financial Professionals, Inc. All Rights Reserved Page 7 AFP Fraudwatch Continued to make about $55 million in executive com- pensation and benets on his departure. Interestingly, some experts believe that Targets recent struggles could be indica- tive of a different problem. In a note, Stifel, Nicolaus & Company wrote that the retail- er has recovered somewhat since a weak December in the U.S. and a weak start in Canada. However, [Target] continues to face the issue of the younger, more afu- ent, more urban discount shopper simply not wanting to go to stores in the same way as their predecessors, the brokerage and investment banking rm noted. Microsoft Issues Fix for IE Vulnerability Microsoft issued an emergency security update last week to x a recently discov- ered zero day vulnerability found in all versions of Internet Explorer. Should an IE user view a specially crafted webpage, an attacker who has successfully exploited the vulnerability can control processes on the system and install malware. Security rm FireEye, which is cred- ited with discovering that exploit, said in anadvisory that vulnerable versions of IE represent about a quarter of the total browser market. FireEye said the exploit leverages a previously unknown use-after- free vulnerability, and uses a well-known Flash exploitation technique to bypass Windows ASLR and DEP protections. Microsofts update modies the way that IE handles objects in memory. Most users have automatic updating enabled and do not need to take any action. However, any users that have not turned on automatic updates should do so immediately. Even users of Windows XPwhich Microsoft is no longer supporting as of last monthwill get the update. However, Adrienne Hall, general manager, trustwor- thy computing for Microsoft, urged users to move on from XP as soon as possible. The reality is that the threats we face today from a security standpoint have really outpaced the ability to protect those customers using an operating system that dates back over a decade, she said. This is why weve been encouraging Windows XP customers to upgrade to a modern, more secure operating system like Win- dows 7 or Windows 8.1. New Yorks Banks to be Held to Higher Cybersecurity Standards The New York Department of Financial Services (DFS) will conduct cybersecurity assessments for the states banks, following the release of a report that revealed that cyberattacks are becoming more frequent, sophisticated and widespread. The assessments will evaluate banks cybersecurity preparedness. Banks will be asked questions in the areas of IT manage- ment and governance, incident response and event management, access controls, network security, vendor management and disaster recovery. The process is intended to provide a holistic view of banks cyber readiness. Governor Andrew Cuomo said in a statement that the assessments aim to protect New Yorkers nances in the face of growing cyber threats. Targeted cybersecurity assessments for banks will better safeguard nancial institutions from attacks and secure personal bank records from being breached, he said. When consumers sign up for online banking they expect their personal information to be secure and we are working to make sure nancial institutions take the proper precautions to safeguard it. The assessments follow a 2013 industry survey on cybersecurity, in which DFS polled 154 nancial institutions on their cybersecurity programs, costs and future plans. According to banks, the greatest challenges to building an efcient cyberse- curity program are the increasing sophisti- cation of threats (71 percent) and emerging technologies (53 percent). The majority of FIs experience intru- sions or attempted intrusions into their IT systems in the past three years. Meth- ods used included malware (22 percent), phishing (21 percent), pharming (7 per- cent), and botnets or zombies (7 percent). The most frequent types of criminal activity resulting from a breach were ac- count takeovers (46 percent), identity theft (18 percent) telecommunication network disruptions (15 percent), and data integrity breaches (9.3 percent). Both small and large institutions reported third-party pay- ment processor breaches (18 percent and 15 percent, respectively). Large institutions also experienced mobile banking exploita- tion (15 percent), ATM skimming/point- of-sale schemes (23 percent), and insider access breaches (8 percent). Due to the rising threats, most banks are upping their game when it comes to cyber- security. DFS report found that 77 percent of all nancial institutions increased their information security spending over the past three years. Most of the remaining institutions (18 percent) reported that that budget spending remained the same; virtu- ally no banks reported a decrease. Fully 79 percent said they expect to increase information security spending in the next three years. DFS has recommended that all New York State-chartered depository institu- tions become members of the Financial Services-Information Sharing and Analysis Center (FS-ISAC), in order to receive notications and information tailored to help protect their systems against cyber threats. s Take the Payments Continuing Education Quiz: www.AFPonline.org/CEQuiz Page 8 Copyright 2014 Association for Financial Professionals, Inc. All Rights Reserved May 2014 News Staff Writers Cash: The Once, Current and Future King, Says Fed New data from several Federal Reserve Banks indicates that U.S. consumers still prefer to use cash over any other payment method, including debit and credit cards. In a new report, the Cash Product Ofce (CPO) of the San Francisco Fed explained that while many electronic payments pundits have been predicting the demise of cash for years, the data tells a different story. According to the Diary of Consumer Payment Choice (DCPC), conducted in October 2012 by the Boston, Richmond, and San Francisco Federal Reserve Banks, cash dominates low-value transactions, is the top payment instru- ment for many types of purchases, and is the key alternative when other payment options are unavailable. In October 2012, the average American consumer completed 59 transactions, and 23 of these payments were in cash. At about 40 percent, cash made up the single largest share of consumer transaction activity, followed by debit cards at 25 percent and credit cards at 17 percent. Electronic methods and checks came in at 7 percent each. However, the CPOs ndings suggest that consumers typically reserve electronic methods and checks for higher-value transactions. Electronic methods make up 27 percent of payments by value and checks make up 19 percent. Cash, meanwhile, only accounts for 14 percent. The average value of a cash transaction is only $21, compared with $168 for checks and $44 for debit cards, the report reads. Nevertheless, consumers complete a lot of low-value cash transac- tions. About one-third of the average consumers monthly payments have a ticket value of less than $10, and cash is used in about two- thirds of these transactions. Consumers typically use cash for half of all of transactions valued at less than $50. The CPO noted that while the actual number of cash transactions and cashs share of all transactions decrease as the ticket size rises, the number of card payments remains roughly the same regardless of ticket size. Electronic payments and checks are the top methods for ticket prices over $100 at 30 percent and 20 percent respectively, largely due to their use in bill payments. Differences with UK The CPOs report contrasts dramatically with new data released from the UKs Halifax, a division of the Bank of Scotland. Halifax reported that cash is in decline, representing 17 percent of payment activity, down 1.8 percent from last year. It accounts for about 18 percent of every 100 spent. Meanwhile, debit cards are now used in 56 percent of UK transac- tions, Halifax said. For every 100 spent, over a quarter of all payments are made using debit cards, while another quarter are comprised of automated payments. Direct debits make up about 20 percent. Magnus Carlsson, AFPs director of treasury and payments, noted that the difference in trends in the two reports may boil down to cultural differences and traditions. For example, in the UK, checks are not really used at all for personal use anymore while they are still fairly popular in the U.S. for certain transactions, he said. Also, as opposed to the UK, many transactions in the U.S. include tipping, which is much easier facilitated with cash. Additionally, transactions such as direct debits have been accepted and commonly used in the UK for quite some time, but they have not gained the same acceptance in the U.S., Carlsson added. One reason for this may be a generally more protective attitude of keep- ing bank account information private in the U.S., as well as a certain uneasiness about having an external party extracting funds from ones bank account, he said. NACHA Requests Feedback from Network End Users on Same-Day ACH NACHA is requesting feedback from treasury and nance profes- sionals on use cases, benets and potential transaction volume of a ubiquitous same-day settlement capability across the ACH Network. The features of this capability would likely consist of two new same-day settlement times each banking day, in addition to the ex- isting overnight settlement capability. For the purpose of providing feedback, network end-users are asked to assume the following: New settlement window # 1 9:00 a.m. ET Deadline for originator to submit ACH les to ODFI 10:00 a.m. ET Deadline for ODFI to submit ACH les to ACH Operator 11:00 a.m. ET Latest time RDFIs receive ACH les from ACH Operator 12:00 noon ET Inter-bank settlement occurs New settlement window #2 2:00 p.m Deadline for originator to submit ACH les to ODFI 3:00 p.m. Deadline for ODFI to submit ACH les to ACH operator 4:00 p.m. Latest time RDFIs receive ACH les from ACH operator 5:00 p.m. Inter-bank settlement occurs All SEC codes, including credits and debits, would be eligible for same-day settlement except IAT. Individual Same-Day ACH transactions would be limited to $25,000, and funds availability for same-day ACH credits would be no later than 5:00 p.m. the RDFIs local time. Network end-users can provide comment to NACHA here. More information on ubiquitous same-day ACH settlement is available here. s www.AFPonline.org Copyright 2014 Association for Financial Professionals, Inc. All Rights Reserved Page 9 Navigating Canadas Anti-Money Laundering Laws Andrew Deichler Understanding regulations around Canadian payments is critical for corporate practitioners operating north of the borderand south of it as well. Because the two nations are each others largest trading partners, treasury and nance professionals on both sides of the border should pay close attention. Jacqueline Dawn Shineld, partner with Toronto-based Blake, Cassels & Graydon LLP, one of the largest law rms in Canada, offered the following guidelines for navigating Canadas regulatory regime at the recent NA- CHA Payments conference in Orlando, Fla. in Canada, the requirement is to comply with the legislation. Theres no state licens- ing in which people are looking at your nancials, capital requirements or require- ments to hold funds in trustwe dont have anything like that. Shineld noted that Canadas AML legislation is currently in a state of ux Canada continues to introduce more and more AML laws to catch up to the U.S. Re- cently, Bitcoin and virtual currencies came under the scope of AML regulation. Taking a cue from the Financial Crimes Enforce- ment Network (FinCEN) in the U.S., the Canadian federal government in February introduced anti-money laundering and an- ti-terrorist nancing regulations for virtual currencies in its 2014 Budget document. The government has also turned its atten- tion to online casinos, which will now be subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. When a Canadian entity that is subject to AML law sends or receives a cross-border electronic payment in excess of C$10,000 it The Canadian denition of an EFT is very broad and includes instructions for a transfer of funds. So if someone asks you to send money, but because of your back-ofce procedures, you dont have to actually move the money across the borderyou can instruct one of your cor- respondent banks somewhere to move that moneyits still [considered EFT], because your client gave you instructions to receive or send funds, Shineld said. There is no ling threshold for suspicious transactions in Canada, Shineld added. If the transaction is suspicious, you are required to le, regardless of the amount. Even if its only an attempt at a transaction, you are still required to le. Say someone comes to you and says they want to send a cross-border wire transfer of C$11,000. You say, Okay, well need some ID, and they reply Oh you need ID? Nevermind, thats okay. Thats an attempted transaction and you have to le, she said. When receiving a cross-border EFT, entities are required to take reasonable measures to ensure that the transfer you receive has all of the senders required in- formation. Taking reasonable measures is not saying, Oh, the information isnt here; thats too bad. Taking reasonable measures has been interpreted as actually reaching out to asking and trying to get that infor- mation, Shineld noted. Furthermore, if an entity sends or receives an EFT of over C$100,000, it has to use rea- sonable measures to determine whether the sender is a politically exposed foreign person (PEFP) within 14 days of the transfer. A PEFP is a foreign national who works for the gov- ernment, a government-owned state bank or the military, as well as their family members and even close associates. The receiving entity must determine the source of funds for the transaction if possible, have a senior ofcer review that transaction, and keep a record of the entire event. s A longer version of this story will appear in the June edition of AFP Exchange. Unlike money service businesses in the U.S. that have state-by-state licensing, in Canada, the requirement is to comply with the legislation. Theres no state licensing in which people are looking at your nancials, capital requirements or requirements to hold funds in trust we dont have anything like that. Anti-money laundering laws Canada denes a money service busi- ness (MSB) as any person or business that transmits funds, exchanges currencies, or cashes/sells money orders or travelers checks. However, according to Canadas an- ti-money laundering (AML) regulator, the Financial Transactions and Reports Analysis Center of Canada (FINTRAC), merchant acquirers are not considered MSBs. There- fore, while merchant acquirers in the U.S. are regulated under AML, they are not in Canada. Canadian credit card networks are also not regulated under AML. Its a very different regime, Shineld said. Unlike money service businesses in the U.S. that have state-by-state licensing, has to le an electronic funds transfer (EFT) report with FINTRAC. Additionally, there is a new requirement that the entities would also have to le an EFT report with the Canada Revenue Agency (CRA). The Cana- dian entity must also verify the identity of the sender/receiver in cross-border EFTs. Two or more transactions made within a 24-hour period that total C$10,000 or more would also have to be reported, because they would be viewed as a single transaction. So if I send $8,000 at the close of business one day and the next morn- ing I send more, it trips the C$10,000 because its been less than 24 hours. And you keep ling as you get more consecutive C$10,000 amounts on the rolling clock.