Anti-money laundering, a guide to UAE rules.
The act of money- laundering was criminalised in 2002 pursuant to Federal Law No. 4 Regarding Criminalisation of Money Laundering (the AML Law) and applies to any individual or entity operating within the territory of the UAE, including the DIFC.
Banks and financial institutions are also subject to UAE Central Bank Regulation Concerning Procedures for Anti-Money Laundering 24/2000 dated 14/11/2000 (Circular 24). The Central Bank has the power to impose sanctions and to revoke an institution's licence, should a financial institution fail to comply with the requirements.
Firms licensed by the Dubai Financial Services Authority (DFSA) are subject to the DFSA's anti-money laundering and counter terrorist financing regime and are required to report any suspicious transactions and activities to the federal Financial Intelligence Unit of the UAE with a notification to the DFSA.
In 2012, the DFSA introduced the Designated Non-Financial Business and Professional Module (theDNF Module), which applies specifically to designated non-financial businesses and professionals carrying out business in or from the DIFC.
Companies must put in place appropriate systems and controls to detect and report money laundering, and to instill an overall compliance culture within the company to mitigate the risk of becoming conduits for money laundering.
WASHING WHITER THAN WHITE?
Money laundering is, in simple terms, a process of concealing the source of illegally obtained money so that it appears that the money originated from a legitimate source. There are generally three phases to money laundering: first, the illegitimate funds are somehow sneaked into the legitimate financial system; second, the money is transferred a number of times through numerous accounts to create confusion; and lastly, there are further transactions made so as to integrate the money into the financial system, thereby making 'dirty money' clean.
In recent years, the UAE has made increasing efforts to address money- laundering issues, for instance, by introducing legislation and procedures to identify and address money-laundering activities, and empowering authorities to supervise and, where appropriate, impose sanctions for money-laundering activities. There has also been a move towards multilateral coordination and cooperation on suspicious financial flows between the UAE and various countries.
UAE AML RULES
The AML law applies to any individual or entity operating within the territory of the UAE, including theDIFC. Any individual contravening the AML Law may be subject to a fine of at least AED 30,000 or may face up to seven years in prison. In the case of an entity, the punishment is a fine of at least AED 300,000. Also, the proceeds of any money-laundering activity are confiscated.
In addition to criminal liability, banks and financial institutions are subject to UAE Central Bank rules on money-laundering. The Central Bank requires that such institutions inform the Central Bank of any transactions carried out by customers, which they suspect may be related to illegal dealings, and may consequently be related to money laundering and/or terrorism financing.
Banks and financial institutions are also required to verify the real identity of their clients at all times, to maintain documents relating to the identities of customers for at least five years and to take note of any transaction the size of which is not compatible with the income of its owner, and which does not seem to have any reasonable economic cause or clear legal objective. Such requirements also include monitoring all letters of credit which are opened.
The Central Bank has the power to impose sanctions, including the power to revoke an institution's licence, should a financial institution fail to comply with the requirements under Circular 24.
Since the introduction of Circular 24, the Central Bank has continued to issue circulars governing money- laundering, including those relating to remittances and importing cash.
The Securities and Commodities Authority (SCA) has also issued regulations on money laundering, which are applicable to SCA-regulated entities, mostly recently in 2010.
Lastly, there are specific money laundering regulations for insurers and entities regulated by the Insurance Authority, namely the Insurance Authority Regulation No. 1 of 2009.
While we are not aware of any impending laws or regulations by the federal government or relevant regulators (such as the UAE Central Bank) on money laundering, it is expected that there will be continued coordination between UAE and other countries in connection with money laundering, which may eventually lead to further UAE regulations in the future.
WHAT YOU NEED TO DO
There are certain preventive measures that companies may adopt in order to comply with the applicable money laundering rules and regulations, which may include, among others, the company:
uestablishing and maintaining internal policies, procedures and controls, as set out in a company compliance manual, to detect and prevent money laundering from occurring. These policies, procedures and controls should take into account the AML as well as any regulations set out by the relevant regulator of the company;
uCaappointing a compliance officer, who would be responsible for the business's day to day compliance with the applicable anti-money laundering rules and regulations. The compliance officer would be responsible for maintaining records and reporting suspicious case to the government's Anti-Money Laundering Suspicious Cases Unit (AMLSCU) as well as training and updating staff on compliance issues;
uestablishing a 'know-your- customer' procedure, whereby the identities of clients may be properly verified;
Caadopting policies and procedures for identifying and reporting suspicious activity; and
Caestablishing an on-going training program for the company's staff. Essentially, companies must put in
place appropriate systems and controls to detect and report money laundering, and to instill an overall compliance culture within the company to mitigate the risk of becoming conduits for money laundering.
DIFC AML RULES
The DFSA Rulebook Authorised Market Institutions (AMI) and DFSA Rulebook Anti-Money Laundering Module (AML Module) each require DFSA-regulated entities to have adequate policies, procedures, systems and controls in place to prevent the activity of money laundering and terrorist financing. These entities must appoint an anti- money laundering officer who has been assessed by the DFSA as fit and proper, and who is responsible for the entities' compliance with anti-money laundering requirements.
The DFSA requires prompt reporting of any suspicious transactions and activities to the federal Financial Intelligence Unit of the UAE with a notification to the DFSA.
Where there is a breach of the AMI, the AML Module and any other DFSA rules and regulations in relation to money-laundering, that entity will be subject to investigations by the DFSA and any sanctions it is authorised to impose, as the DFSA deems appropriate.
DIFC rules on anti-money laundering are considered consistent with international standards set by the Financial Action Task Force.
The UAE AML Law, as other UAE criminal laws, applies in the DIFC and as such, any breach under that legislation would result in the criminal liabilities as discussed above in the UAE section regarding the AML Law. However, AML regulations of UAE Central Bank, the UAE Ministry of Economy and the federal securities regulator Emirates Securities and Commodities Authority do not apply in the DIFC.
In 2012, the DFSA introduced the Designated Non-Financial Business and Professional Module (the DNF Module), which applies specifically to designated non-financial businesses and professional carrying out business in or from the DIFC. Previously, these non-designated entities were regulated by the DIFC Authority with respect to money laundering; therefore the new DNF Module is significant in that it expands the jurisdiction of the DFSA with respect to money laundering beyond entities which are currently regulated by the DFSA (i.e. financial service providers) to include real estate developers, dealers in precious metals, deals in high-value goods, law firms, notaries, accounting firms and auditors, among others. In other words, the DFSA now assumes all responsibility for, and becomes the single anti-money laundering regulator, of all entities operating in the DIFC.
The DNF Module reflects the regulations already in place in the AMI and AML Modules, including the obligation to adopt adequate policies, procedures, systems and controls to prevent money laundering; appointing a money-laundering reporting officer; adopting appropriate measures to identify and verify customers; maintaining records for at least six years; and providing appropriate training to employees in detection and reporting of suspicious activities.
By shifting all responsibility to the DFSA with the introduction of the DNF Module, there is now greater consistency in the regulation of and supervision over all DIFC entities with respect to money-laundering.
There is not a great deal of guidance in the DFSA Rulebooks, outside of requirements for record-keeping and the appointment a money-laundering officer, as to what might amount to 'adequate policies, procedures, systems and controls', however, one would expect at minimum, the DFSA would expect DIFC entities to maintain the preventive measures as we have highlighted in the recommendations section above for UAE companies. In general, it is advisable for DIFC entities to liaise with the DFSA to ensure that their compliance policies and procedures meet the standards expected by the regulator.
Whether conducting activity in the UAE or the DIFC, businesses must be cognisant of the potential impact of money laundering rules and regulations on their operations, and establish and maintain appropriate internal mechanisms to ensure that they are in compliance with those rules and regulations. There is a shift towards greater regulation with respect to money-laundering issues. We would expect this shift to continue, as the Government and regulators attempt to close out any loopholes that might exist in order to prevent UAE and DIFC companies from becoming conduits for money laundering. uBME
Companies must put in place appropriate systems and controls to detect and report money laundering
Shahrzad Molavi is an associate in the Financial Services & Regulatory team at Hadef & Partners, advising on business and financial services regulation in the UAE and the DIFC as well as on instruments across the credit spectrum.
2012 CPI Financial. All rights reserved.
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