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AML Compliance in UAE
Anti-Money Laundering Compliance Services in Dubai, UAE
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The purpose of these Anti-Money Laundering and Combating the Financing of Terrorism and the Financing of Illegal Organisations Guidelines for Designated Non-Financial Businesses and Professions (DNFBPs) (Guidelines) is to provide guidance and assistance to supervised institutions that are DNFBPs, in order to assist their better understanding and effective performance of their statutory obligations under the legal and regulatory framework in force in the United Arab Emirates (UAE or State).
Specifically, and without prejudice to the definition of a DNFBP as provided for in the relevant legislative and regulatory framework of the State, they are applicable to all such natural and legal persons in the following categories:
- Auditors and accountants
- Lawyers, notaries and other legal professionals and practitioners
- Company and trust service providers;
- Dealers in precious metals and stones
- Real estate agents and brokers
- Any other DNFBP not mentioned above
The Competent Authorities of the UAE have taken a number of substantive actions, including:
- Enhancing the federal legislative and regulatory framework, embodied by the introduction of the new AML/CFT Law and Cabinet Decision, which incorporate the FATF standards;
- Conducting the National Risk Assessment (NRA) to identify and assess the ML/FT threats and inherent vulnerabilities to which the country is exposed, as well as to assess its capacity in regard to combating ML/FT at the national level;
- Formulating a National AML/CFT Strategy and Action Plan that incorporate the results of the NRA and which are designed to ensure the effective implementation, supervision, and continuous improvement of a national framework for the combating of ML/FT
The ML Phases
Phase 1. Placement
In this phase, criminals attempt to introduce Funds or the Proceeds of Crime into the financial system using a variety of techniques or typologies:
- Blending of funds: Commingling of illegitimate funds with legitimate funds, such as placing the cash from illegal narcotics sales into cash-intensive, locally owned businesses.
- Foreign exchange: Purchasing of foreign exchange with illegal funds.
- Breaking up amounts: Placing cash in small amounts and depositing them into numerous bank accounts in an attempt to evade attention or reporting requirements.
- Currency smuggling: Cross-border physical movement of cash or monetary instruments.
- Loans: Repayment of legitimate loans using laundered cash.
Phase 2. Layering
Once the Funds or Proceeds are introduced, or placed, into the financial system, they can proceed to the next phase of the process; often, this is accomplished by placing the funds into circulation through formal financial institutions, and other legitimate businesses, both domestic and international. In this layering phase, criminals attempt to disguise the illicit nature of the Funds or Proceeds of Crime by engaging in transactions, or layers of transactions, which aim to conceal their origin. It Includes:
- Electronically moving funds from one country to another and dividing them into advanced financial options and/or markets;
- Moving funds from one financial institution to another or within accounts at the same institution; .
- Converting the cash placed into monetary instruments;
- Reselling high-value goods and prepaid access/stored value products;
- Investing in real estate and other legitimate businesses;
- Placing money in stocks, bonds or life insurance products;
- Using shell companies to obscure the ultimate beneficial owner and assets.
Phase 3. Integration
In this phase, criminals attempt to return, or integrate, their “laundered” Funds or the Proceeds of Crime back into the economy, or to use it to commit new criminal offences, through transactions or activities that appear to be legitimate.
- The sizes of transactions related to the financing of terrorism and illegal organisations can be (much) smaller than those involved in money laundering operations
- Some of the typologies and specific techniques used may differ, the overall principles and generic risks are the same.
DFNBPs should remain careful that their services are not being used either directly or indirectly to facilitate money laundering or the financing of terrorism or illegal organisations in any of the three stages described above.
ML/FT Typologies
used to assist with smuggling to another jurisdiction or to exploit low reporting requirements on currency exchange houses to minimize risk of detection – e.g., purchasing of traveller’s cheques to transport value to another jurisdiction
Structuring (smurfing)
A method involving numerous transactions (deposits, withdrawals, transfers), often various people, high volumes of small transactions and sometimes numerous accounts to avoid detection threshold reporting obligations.
Use of credit cards, cheques, promissory notes, etc
Used as instruments to access funds held in a financial institution, often in another jurisdiction
Avoiding the use of money or financial instruments in value transactions to avoid AML/CFT measures – e.g., a direct exchange of heroin for gold bullion.
Investment in capital markets
to obscure the source of proceeds of crime to purchase negotiable instruments, often exploiting relatively low reporting requirements.
Use of shell companies/corporations
a technique to obscure the identity of persons controlling funds and exploit relatively low reporting requirements.
to move funds away from interdiction by domestic authorities and obscure the identity of persons controlling illicit funds.
Life insurance products
can be for instance be used for money laundering when they have saving or investment features which may include the options for full or partial withdrawals or early surrenders.
Purchase of valuable assets (real estate, race horses, vehicles, etc.)
Sanctions against Persons Violating Reporting Obligations
The AML-CFT Law provides for the following sanctions against any DNFBPs, their managers or their employees, who fail to perform, whether purposely or through gross negligence, their statutory obligation to report a suspicion of money laundering or the financing of terrorism or of illegal organisations:
- Imprisonment and fine of no less than AED100,000 and no more than AED1,000,000
Mitigation of ML/FT Risks
The Elements of an AML/CFT Program:
Commonly referred to as the three lines of defence, the basic elements that must be addressed in an AML/ CFT program are
- A system of internal policies, procedures and controls, including an ongoing employee training program (first line of defence);
- A designated compliance function with a compliance officer or money laundering reporting officer (second line of defence);
- An independent audit function to test the overall effectiveness of the AML program (third line of defence).
Identification of Suspicious Transactions
A few examples of potentially suspicious transaction types that DNFBPs should take into consideration include:
- Transactions or series of transactions that appear to be unnecessarily complex, that make it difficult to identify the Beneficial Owner, or that do not appear to have an economic or commercial rationale.
- Numbers, sizes, or types of transactions that appear to be inconsistent with the customer’s expected activity and/or previous activity.
- Transactions that appear to be exceptionally large in relation to a customer’s declared income or turnover.
- Loan repayments that appear to be inconsistent with a customer’s declared income or turnover.
- Early repayment of a loan followed by an application for another loan.
- Third-party loan agreements, especially when there are amendments to or assignments of the loan agreement.
- Frequent or unexplained changes in ownership or management of Business Relationships.
- Illogical changes in business activities, especially where high-risk activities are involved.