Quick Overview
On July 25, 2020, a new Ministerial Directive (MD) was published in the Canada Gazette by the Minister of Finance on financial transactions associated with the Islamic Republic of Iran. On July 27, 2020, FINTRAC issued guidance on how to incorporate the MD into your anti-money laundering (AML) program, along with some indicators for determining if a transaction is associated with Iran. This MD requires that every transaction originating from or bound for Iran be treated as high risk, regardless of the amount. This includes identifying every client, performing customer due diligence, and recording certain information. It is vital that your AML compliance program documentation contains internal processes related to MDs, even if you do not conduct transactions with Iran (or North Korea, based on the previous MD issued December 9, 2017).
What is a Ministerial Directive?
MDs are specific requirements imposed by the Minister of Finance that are meant to mitigate risks associated with activities that pose elevated risk and safeguard the integrity of Canada’s financial system. To date, these areas of elevated risk have been identified by the Financial Action Task Force (FATF) as posing strategic deficiencies with regards to international standards for anti-money laundering and counter terrorist financing.
What does this Ministerial Directive require?
The guidance from FINTRAC states that every bank, credit union, financial services cooperative, caisse populaire, authorized foreign bank and Money Services Business (MSB) must:
- Treat every financial transaction originating from or bound for Iran, regardless of its amount, as a high-risk transaction;
- Verify the identity of any client (person or entity) requesting or benefiting from such a transaction;
- 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;
- Determine whether there are reasonable grounds to suspect the commission or attempted commission of a money laundering or terrorist financing offence and report all suspicious transactions to FINTRAC;
- Reporting all other reportable transactions (if applicable).
To be clear, 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. A couple of examples were provided in the FINTRAC Guidance:
- 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).
What does it mean to you?
It is important to understand that even if your business does not facilitate transactions involving Iran, it is expected that you have a process in place for adhering to MDs, including how the Compliance Officer stays up to date. Within your AML compliance program documentation, you need to have a section that talks about MDs generally, plus specific procedures related to handling the current MDs (transactions involving Iran and North Korea). In the FINTRAC guidance related to this MD, it states that during an examination, FINTRAC will assess your compliance with MDs and failures to do so are considered very serious and may result in a penalty.
What now?
In order to ensure familiarity for anyone who interacts with customers and their transactions, the list of FINTRAC’s indicators should be communicated immediately. Furthermore, the indicators should also be included in your procedure manuals and annual AML compliance training topics, allowing easy access to the information. Documenting the information and related processes for MDs is very important so you can demonstrate to FINTRAC your adherence to the requirements during an examination.
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