FINTRAC guidance related to the Ministerial Directive on Financial Transactions Associated with the Islamic Republic of Iran issued on July 25, 2020 FINTRAC guidance related to the Ministerial Directive on Financial Transactions Associated with the Islamic Republic of Iran issued on July 25, 2020 February 2021 This guidance is related to the Ministerial Directive (MD) issued by the Minister of Finance that was published in the Canada Gazette and came into force on July 25, 2020. This guidance will answer the following questions: Why was this MD issued? When does this MD come into force and who does it apply to? What are the requirements of this MD? What records must you keep under this MD and what is the retention period? How do you report the transactions captured under this MD? 1) Why was this MD issued? The Financial Action Task Force (FATF) issued a statement in February 2020 which expressed its particular and exceptional concerns regarding Iran’s failure to address strategic deficiencies in its anti-money laundering and combatting the financing of terrorism (AML/CFT) regime, and the serious threat this poses to the integrity of the international financial system. The FATF called on its members to apply effective counter-measures to protect their financial sectors from such risks. As such, Canada’s Finance Minister, under subsection 11.42(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) issued this MD to ensure the safety and integrity of Canada’s financial system.This MD includes requirements that: enhance existing obligations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR); and extend the obligations of the PCMLTFR. 2) When does this MD come into force and who does it apply to? This MD comes into effect on July 25, 2020, and is applicable to every person or entity referred to in paragraphs 5(a), (b) and (h) of the PCMLTFA. The specific persons and entities that are to take action in response to this MD are banks, credit unions, financial services cooperatives, caisses populaires, authorized foreign banks and money services businesses (MSBs). 3) What are the requirements of this MD? Every bank, credit union, financial services cooperative, caisse populaire, authorized foreign bank and MSB mustFootnote 1: treat every financial transaction originating from or bound for Iran, regardless of its amount, as a high-risk transaction for the purposes of subsection 9.6(3) of the PCMLTFA; verify the identity of any client (person or entity) requesting or benefiting from such a transaction in accordance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR)Footnote 2; exercise customer due diligence, including ascertaining the source of funds in any such transaction, the purpose of the transaction and, where appropriate, the beneficial ownership or control of any entity requesting or benefiting from the transactionFootnote 3; keep and retain a record of any such transaction, in accordance with the PCMLTFRFootnote 4; and report all such transactions to the CentreFootnote 5. a) Determining that a transaction originated from or is bound for Iran When determining whether a transaction originates from or is bound for Iran, you need to look at a variety of elements because the circumstances of each transaction are different. You must consider the facts, contexts and indicators of a transaction to determine whether it is subject to the MD. Transactions originating from or bound for Iran may include, but are not limited to: electronic funds transfers, remittances or transfers (EFTs) that include an Iranian originating or destination address – this may include transactions where the ordering person or entity, beneficiary, or third party details are Iranian; the activities of representatives of the Government of Iran (for example, transactions on an Embassy of Iran’s bank account in Canada); receiving Iranian rial as a deposit to an account or for a virtual currency (VC) transaction; conducting a foreign currency or VC exchange transaction that includes Iranian rial (for example, Canadian dollar to Iranian rial, Iranian rial to US dollar, VC to Iranian rial, etc.); and issuing or redeeming bank drafts or other negotiable instruments that include an Iranian rial component. For further clarity, this MD does not apply to transactions where there is no suspicion or explicit connection with Iran and there is no evidence of the transaction originating from or being bound for Iran. For example: a client who has previously sent funds to Iran requests an outgoing EFT, where the transaction details do not suggest that this transaction is bound for Iran and you are unable to obtain further details about the transaction destination; the client’s identification information is the only suggestion of a connection to Iran (for example, a transaction where the conductor’s identification document is an Iranian passport); or the details of a person, who is your client in Canada, are Iranian, but there are no additional details on the entity involved, or the sender of, or the recipient to, the transaction, to suggest the transaction is associated with Iran. For further clarity if the details of your client in Canada include an Iranian address and the client requests that funds be sent to a beneficiary in a country other than Iran, where additional facts, context and indicators (for example beneficiary account details) point to an association with Iran, then this transaction must be considered as bound for Iran, and treated accordingly. Similarly, if the details of your client in Canada include an Iranian address and this client receives funds into their account from a sending account in a country other than Iran, but where additional facts, context and indicators (for example sending account details), point to an association with Iran, then this transaction must be considered as originating from Iran, and treated accordingly. Alternatively, if the details of your client in Canada include an Iranian address and this client requests that funds be sent to a beneficiary in a country other than Iran, for which additional facts, context and indicators do not bring to light an association with Iran, then this transaction is not required to be considered for the purpose of the MD. Unless the transaction is being carried out by, or benefitting, a representative of the Government of Iran in Canada, then the details of your client in Canada are not likely enough to consider the transaction against the obligations of the MD. ** Note: When you have determined that a transaction originated from or was bound for Iran, you must apply the measures outlined in the MD. b) Verifying the identity of every client who requests or benefits from a transaction originating from or bound for Iran Under this MD, you are required to take enhanced identification measures that go beyond the identification triggers and requirements prescribed under the PCMLTFR. Transactions that fall below the reporting threshold amounts (outlined in the PCMLTFR) typically do not require that you verify the identity of clients. However, under this MD, you must: verify the identity of every client (including those you have a business relationship with) that requests or benefits from such a transaction in any amount in accordance with the methods prescribed in the PCMLTFR; and for transactions that meet the reporting threshold amounts, apply enhanced measures to verify the identity of each client, as described in FINTRAC’s Ongoing monitoring guidance. Enhanced measures could include obtaining additional information on the client (for example, occupation, volume of assets, information available through public databases, Internet, etc.); gathering additional documents, data or information; or taking additional steps to verify the documents obtained, etc. c) Additional measures required You must treat all transactions originating from or bound for Iran as high risk. In addition to verifying the identity of any client requesting or benefiting from such a transaction, under this MD, you must: apply customer due diligence measures to these clients for all transactions (any amount); assess the client information to determine whether there are reasonable grounds to suspect the commission or attempted commission of a money laundering or terrorist activity financing infraction and to report it through a Suspicious Transaction Report (STR) or Terrorist Property Report (TPR) to FINTRAC; apply enhanced measures to every client who meets the identification threshold (threshold transactions)Footnote 6; obtain the purpose and the source of funds of any such transaction; and if applicable, obtain the beneficial ownership or control information of any entity requesting or benefiting from such a transaction. ** Note: It is the RE that owns the relationship with the client that is required to carry out the additional measures outlined in the Directive (i.e., verifying the identity of the client, and exercising the customer due diligence measures). 4) What records must you keep under this MD and what is the retention period? a. Records of electronic funds transfers– of any amount For an EFT of any amount originating from or bound for Iran, you must keep: the information included in an electronic funds transfer record, even if the transaction is below $1000 CAD: the source of funds of the transaction; and the purpose of the transaction. b. Records of receipt of Cash – of any amount You must keep a record of every cash transaction (any amount) that you receive that reflects a connection to Iran (such as cash received for the issuance of negotiable instruments or foreign exchange using Iranian rial). [Read More]