FINTRAC guidance related to the Ministerial Directive on Financial Transactions Associated with Russia issued on February 24, 2024

From: Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)

This guidance explains the requirements of the Ministerial Directive on Financial Transactions Associated with Russia.

This guidance is related to the Ministerial Directive issued by the Minister of Finance that was published in the Canada Gazette and came into force on February 24, 2024.

1. Why this Ministerial Directive was issued

In accordance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, it has been determined that:  

• the anti-money laundering and anti-terrorist financing measures that Russia has implemented are ineffective and insufficient; and
• the risk that Russia may be facilitating the financing of threats to the security of Canada, could have an adverse impact on the integrity of the Canadian financial system or the reputational risk to that system

As such, Canada's Finance Minister issued this Ministerial Directive to ensure the safety and integrity of Canada's financial system.

This Ministerial Directive includes requirements that:

• enhance existing obligations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations; and
• extend obligations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

2. Who needs to apply this Ministerial Directive

This Ministerial Directive came into effect on February 24, 2024, and is applicable to every person or entity referred to in section 5 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

3. Requirements of the Ministerial Directive

Every person or entity referred to in section 5 of the Act must:

• treat every financial transaction originating from or bound for Russia, regardless of its amount, as a high-risk transaction for the purposes of subsection 9.6(3) of the Act
• verify the identity of any client (person or entity) requesting or benefiting from such a transaction in accordance with Part 3 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations
• exercise customer due diligence in relation to any such transaction, including ascertaining the source of funds or virtual currency, the purpose of the transaction and 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 Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, regardless of the monetary thresholds set out in those Regulations

3.1 Determining that a transaction originated from or is bound for Russia

When determining whether a transaction originates from or is bound for Russia, 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 Ministerial Directive. Transactions originating from or bound for Russia may include, but are not limited to:

• electronic funds transfers, remittances or other transfers that include a Russian originating or destination address - this may include transactions where the ordering person or entity, beneficiary, or third party details are Russian
• the activities of representatives of the Government of Russia (for example, transactions on an Embassy of Russia's bank account in Canada)
• receiving Russian ruble as a deposit to an account or for a virtual currency transaction
• conducting a foreign currency or virtual currency exchange transaction that includes Russian ruble (for example, Canadian dollar to Russian ruble, Russian ruble to US dollar, virtual currency to Russian ruble, etc.); and
• issuing or redeeming bank drafts or other negotiable instruments that include a Russian ruble component

This Ministerial Directive does not apply to transactions where there is no suspicion or explicit connection with Russia and there is no evidence of the transaction originating from or being bound for Russia. For example:

• a client who has previously sent funds to Russia requests an outgoing electronic funds transfer, where the transaction details do not suggest that this transaction is bound for Russia 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 Russia (for example, a transaction where the conductor's identification document is a Russian passport); or
• the details of a person, who is your client in Canada, are Russian, 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 Russia

For further clarity, if the details of your client in Canada include a Russian address and the client requests that funds be sent to a beneficiary in a country other than Russia, where additional facts, context and indicators (for example, beneficiary account details) point to an association with Russia, then this transaction must be considered as bound for Russia, and treated accordingly.

Similarly, if the details of your client in Canada include a Russian address and this client receives funds into their account from a sending account in a country other than Russia, but where additional facts, context and indicators (for example, sending account details), point to an association with Russia, then this transaction must be considered as originating from Russia, and treated accordingly.

Alternatively, if the details of your client in Canada include a Russian address and this client requests that funds be sent to a beneficiary in a country other than Russia, for which additional facts, context and indicators do not bring to light an association with Russia, then this transaction is not required to be considered for the purpose of the Ministerial Directive.  

Unless the transaction is being carried out by, or benefitting, a representative of the Government of Russia in Canada, then the details of your client in Canada are not likely enough to consider the transaction against the obligations of the Ministerial Directive.

3.2 Verifying the identity of every client who requests or benefits from a transaction originating from or bound for Russia

Under this Ministerial Directive, you must take enhanced identification measures that go beyond the identification triggers and requirements prescribed under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations. Transactions that fall below the reporting threshold amounts typically do not require that you verify the identity of clients. However, under this Ministerial Directive, 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 Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations; 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.

3.3 Additional measures required

You must treat all transactions originating from or bound for Russia as high risk. In addition to verifying the identity of any client requesting or benefiting from such a transaction, under this Ministerial Directive, 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 Reporting suspicious transactions to FINTRAC or Terrorist Property Report to FINTRAC
• apply enhanced measures to every client who meets the identification threshold (threshold transactions)
• obtain the purpose and the source of funds or virtual currency of any such transaction; and
• obtain the beneficial ownership or control information of any entity requesting or benefiting from such a transaction

4. Records you must keep and their retention period

4.1 Records of electronic funds and virtual currency transfers – of any amount

For an electronic funds or virtual currency transfer of any amount originating from or bound for Russia, you must keep:

• the information included in an electronic funds transfer record, and the information included in a record for virtual currency transfers, even if the transaction is below $1,000 CAD or an equivalent amount in virtual currency
• the source of funds or virtual currency of the transaction; and
• the purpose of the transaction

4.2 Records of receipt of funds or virtual currency – of any amount

You must keep a record of every transaction (any amount) that you receive that reflects a connection to Russia. You must record:

• the information included in a large cash or virtual currency transaction record, even if the transaction is below $10,000 CAD, the information included in a foreign or virtual currency exchange transaction record, and the receipt of funds including the information that is required when a transaction is over $3,000 CAD or an equivalent amount in virtual currency
• the source of cash or virtual currency of the transaction; and
• the purpose of the transaction

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

Transactions originating from or bound for Russia 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 Russia, such as the use of Russian ruble in the transaction, for the Ministerial Directive to be applicable. You must record:

• the information included in a transaction record, even if the transaction is below $3,000 CAD or an equivalent amount in virtual currency
• the source of funds or virtual currency of the transaction; and
• the purpose of the transaction

4.4 Information on records and retention

If you are required by this Ministerial Directive 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 Ministerial Directive in accordance with their associated record retention requirement, or for at least five years from the date the record was created.

Other

Your compliance program's policies and procedures should already include information on how your organization becomes aware of Ministerial Directives issued by the Minister of Finance and information on how your organization will respond. Once a Ministerial Directive 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 Russia 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 Russia.

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 Ministerial Directives. 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 Ministerial Directive 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 a Ministerial Directive is a very serious offence. The existing administrative monetary penalties regime extends to all Ministerial Directives, 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 Administrative Monetary Penalties Regulations.