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:

  1. Why was this MD issued?
  2. When does this MD come into force and who does it apply to?
  3. What are the requirements of this MD?
  4. What records must you keep under this MD and what is the retention period?
  5. 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:

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:

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:

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:

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:

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:

** 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:

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). You must record:

c. Records of redeeming other negotiable instruments and records for issuing or redeeming transactions – of any amount:

Transactions originating from or bound for Iran also include the redemption of other negotiable instruments (for example, bank drafts, money orders, traveller's cheques, etc.) in any amount. These too will have to reflect a connection with Iran, such as the use of Iranian rial in the transaction, for the MD to be applicable. You must record:

d. Information on records and retention

If you are required by this MD to keep a record of information that is readily available in other records, you do not have to record the same information again. This means that if you keep the required information and can produce it during a FINTRAC examination, you do not need to create a new record to meet the obligations.

You must keep all records applicable to this MD in accordance with their associated record retention requirement, or for at least five years from the date the record was created.

5) How do you report the transactions captured under this MD?

a. Reporting an EFT in any amount to FINTRAC:

**Note: These transactions must have an Iranian address in at least one of the fields.

b. Reporting the receipt of any amount of cash to FINTRAC:

c. Reporting negotiable instruments and issuing or redeeming transactions or the exchange of VC for Iranian rial:

d. Reporting suspicious transactions and terrorist property:

e. Reporting timeframes

Other

Your compliance program's policies and procedures should already include information on how your organization becomes aware of MDs issued by the Minister of Finance and information on how your organization will respond. Once an MD has been issued, you must take steps to meet its requirements.

Your policies and procedures must also fully describe how you will make the determination that a transaction originates from or is bound for Iran and what specific mitigation measures you will take upon making this determination. For example, your policies and procedures could outline that you ask the purpose of a transaction. Similarly, you could research the origin or destination of a transaction to determine if the details about the sender, beneficiary or entities involved in the transaction, indicate that the transaction is originating from or bound for Iran.

Guidance on how to conduct and document your risk assessment can be found in the Risk assessment guidance. You are required to implement certain measures to mitigate the risk of transactions involving jurisdictions that are identified in MDs. Examples of these measures can be found in General information on Part 1.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act provided by the Department of Finance Canada.

During a compliance examination, FINTRAC may assess your compliance with any MD in order to verify that you have taken appropriate mitigating measures in relation to related transactions. FINTRAC may also review your overall risk assessment to verify that you have documented and assessed the risk related to your business activities and clients involving these jurisdictions. Failure to comply with the measures of an MD is a very serious offence. The existing administrative monetary penalties (AMP) regime extends to all MDs, and failure to comply with a directive could result in a penalty. Penalties applicable to the breach of a directive can be found in the Proceeds of Crime (Money Laundering) and Terrorist Financing AMP Regulations.

Annex: Frequently Asked Questions in relation to the Ministerial Directive on Financial Transactions Associated with the Islamic Republic of Iran

The Financial Action Task Force (FATF), which establishes international standards to combat money laundering and terrorist financing, issued a statement in February 2020 which expressed its 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 countermeasures to protect their financial sectors from such risks. Canada, as member of the FATF, responded by issuing a Directive from the Minister of Finance (Ministerial Directive) under provisions of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) designed to ensure the safety and integrity of Canada's financial system.

What does this Ministerial Directive apply to?

The Ministerial Directive applies to every financial transaction originating from, or bound for, the Islamic Republic of Iran ("Iran"), regardless of the amount.

Transactions originating from or bound for Iran may include, but are not limited to:

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:

Is the Ministerial Directive related to economic sanctions?

No, the requirements are distinct from any economic sanctions in relation to Iran. Even transactions permissible under economic sanctions are subject to the Ministerial Directive if they originate from, or are bound for, Iran.

Global Affairs Canada is responsible for the Canadian economic sanctions regime and sanctions imposed against foreign states, individuals or entities.

What does the Ministerial Directive require?

Banks (including authorized foreign banks), credit unions, financial services cooperatives, caisses populaires, and money services businesses (collectively "Financial Entity") are required to treat every financial transactions originating from, or bound for, Iran as high-risk. If you are sending, receiving and/or benefitting from such a financial transaction, your Financial Entity is required to verify the client's identity, obtain information on the source of funds involved and the purpose of the financial transaction, including additional information as required. In the case where you are a business sending, receiving and/or benefitting from such a financial transaction, your Financial Entity is also required to determine the beneficial ownership or control of the business. In addition, a Financial Entity is required to report all such financial transactions to FINTRAC.

** 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).   

Does this apply to transactions above a certain amount?

No, the Ministerial Directive applies to every financial transaction originating from or bound for Iran, regardless of its amount.

When did this come into effect? How long does it last?

The Ministerial Directive came into effect July 25, 2020. It remains in effect until rescinded by the Minister of Finance.

Should I be concerned that my financial transactions to or from Iran are being reported to FINTRAC?

The reporting of financial transactions under the Ministerial Directive does not equate to any presumption of wrongdoing nor does it ban or prohibit related transactions. The purpose of this Ministerial Directive is to implement countermeasures (enhanced due diligence and reporting of all transactions), called for by the Financial Action Task Force, in relation to the Islamic Republic of Iran, due to its significant strategic deficiencies in its regime to counter money laundering and terrorist activity financing. These countermeasures are to protect the international financial system from the ongoing money laundering and terrorist activity financing risks emanating from the Islamic Republic of Iran, by limiting or deterring prescribed transactions.   

FINTRAC already receives mandatory reporting of cash transactions and international electronic funds transfers of $10,000 or more. These are referred to as threshold reports, and must be reported to FINTRAC even when there is no presumption of wrongdoing. The reporting of financial transactions under the Ministerial Directive imposes a similar reporting obligation.

Will Iranian nationals or Iranian citizens have all their transactions scrutinized in this manner?

The Ministerial Directive applies to financial transactions originating from, or bound for, Iran. It is not based on nationality or citizenship.

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