FINTRAC Guidance Related to the Ministerial Directive on Financial Transactions Associated with the Islamic Republic of Iran Issued on July 25, 2020

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.

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 must^{Footnote 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);
• 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 transaction;
• keep and retain a record of any such transaction, in accordance with the PCMLTFR; and
• report all such transactions to the Centre.

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. 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;
• 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; or
• 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).

** 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.

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:
  • If you are a bank, credit union, financial services cooperative or caisse populaire, you will find your record keeping requirements in the Record Keeping for Financial Entities Guidance, part 4;
  • If you are a money services business, you will find your record keeping requirements in the Record Keeping for Money Services Businesses Guidance, part 4;
• 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). You must record:

• the information included in a large cash transaction record, even if the transaction is below $10,000 CAD, and the information included in a foreign currency exchange transaction record, including the information that is required when a transaction is over $3000 CAD :
  • if you are a bank, credit union, financial services cooperative or caisse populaire, you will find your record keeping requirements in the Record Keeping for Financial Entities Guidance, in parts 2 and 5 respectively; or
  • if you are a money services business, you will find your record keeping requirements in the Record Keeping for Money Services Businesses Guidance, in parts 2 and 5 respectively;
• the source of funds of the transaction; and
• the purpose of the transaction.

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:

• the information included in a transaction record, even if the transaction is below $3,000 CAD:
  • if you are a bank, credit union, financial services cooperative or caisse populaire, and a client is redeeming any amount in one or multiple money orders, your record keeping requirements are referenced in the Record Keeping for Financial Entities Guidance, part 3a or b; or
  • if you are a money services business, and a client is redeeming money orders in any amount, your record keeping requirements are referenced in the Record Keeping for Money Services Businesses Guidance, part 3a or b.
• the source of funds of the transaction; and
• the purpose of the transaction.

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:

• EFTs that are under the reporting threshold of $10,000 CAD and do not aggregate to $10,000 CAD under the 24-hour rule must be reported using the Electronic Funds Transfer Report (EFTR) with the following addition:
  • Insert the prefix IR2020 before entering your REs report reference number. For example, if your REs report reference number is ABCD1234, then your REs report reference number would be IR2020ABCD1234.
• EFTs of $10,000 CAD or more, and EFTs resulting from aggregated transactions of $10,000 CAD or more captured under the 24-hour rule are to be reported normally:
  • No prefix is required.
  • If the threshold report is related to the MD, you must ensure that the originator or beneficiary address is Iranian.

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

• Any cash transaction that is received under the reporting threshold of $10,000 CAD that does not aggregate to $10,000 CAD under the 24-hour rule must be reported using the Large Cash Transaction Report (LCTR) with the following addition:
  • Insert the prefix IR2020 before entering your REs report reference number. For example, if your REs report reference number is ABCD1234, then your REs report reference number would be IR2020ABCD1234.
• Large cash transactions of $10,000 CAD or more, and large cash transactions that total $10,000 CAD or more when aggregated under the 24-hour rule are to be reported normally:
  • No prefix is required.
  • If the threshold report is related to the MD, you must ensure that the originator or beneficiary address is Iranian.

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

• Any negotiable instrument, and issuing or redeeming transaction that originates from or is bound for Iran, must be reported using the STR. The STR should also be used to report the exchange of a VC for Iranian rial. In order to identify these transactions, submit the STR with the following additions when the transactions do not meet the reasonable grounds to suspect the commission of ML/TF threshold:
  • Insert the prefix IR2020 before entering your REs report reference number. For example, if your REs report reference number is ABCD1234, then your REs report reference number would be IR2020ABCD1234.
  • Insert the prefix IR2020 into the G section of the STR as well.
  • Because the report is related to the MD, you must ensure that there is a connection to Iran, such as the Iranian rial, or the originator or beneficiary address is Iranian.

d. Reporting suspicious transactions and terrorist property:

• All transactions that are associated with Iran must be treated as high risk and must be monitored for the purpose of determining whether an STR or a Terrorist Property report (TPR) must be submitted to FINTRAC.
• See Reporting suspicious transactions to FINTRAC and What is a suspicious transaction report for more information.
• If you have property in your possession or control that you know or believe is owned or controlled by or on behalf of a listed person or a terrorist group you must submit a TPR to FINTRAC. This includes information about any transaction or proposed transaction relating to that property. See Submitting terrorist property reports to FINTRAC for more information.

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.

Guidance on how to conduct and document your risk assessment can be found in the Risk-based approach guide. 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.