Anti-Money Laundering: What it is and why it matters?

MBG Corporate Services details the pitfalls and risks related to money laundering and terrorist funding that companies need to watch out for

Money laundering, a financial crime, is the disguising of unlawful funds and its origins to make it appear legitimate. Individuals use a variety of techniques to integrate such ‘dirty’ money into the economy. New technologies such as cryptocurrencies and online banking have made it easier for criminals to transfer and withdraw illegally obtained funds without detection.

Steps Taken by the UAE

The UAE has used many resources and technological capabilities to tackle money laundering and terrorist funding, including implementing a comprehensive regulatory framework and the operationalising various AML/CFT committees and special money laundering courts in Abu Dhabi and Dubai. Federal Law No. 20 of 2018 on Anti-Money Laundering, Combatting the Financing of Terrorism and Financing of Illegal Organisations (AML/CFT) Law was issued in October 2018. It addressed gaps in the UAE’s system identified by the Financial Action Task Force through greater regulatory control on financial institutions and obligations placed on Designated Non-Financial Businesses and Professions (DNFBPs).

The AML/CFT Law was further bolstered by Cabinet Resolution No. 10 of 2019 (Cabinet Decision) that provides regulatory authorities with investigative powers for the collection and sharing of financial information.

What are DNFBPs?

DNFPBs are defined within Article 3 of the Cabinet Decision and encompass a range of industries including: real estate brokers and agents, dealers in precious metals and stones, trust and company service providers, auditors, and lawyers. The defining similarity between the aforementioned industries is the provision of financial activities on behalf of their clients that may be used by criminally-motived individuals to conceal beneficial ownership and the true source of funds behind the transaction.

The money laundering risks vary depending on the methodology related to each DNFBP. One example is where a corporate service provider may unknowingly assist an individual or entity to establish a company that may be a conduit for the proceeds of a crime, or where a precious stones’ dealer sells diamonds to an individual using illicit funds, thereby concealing the nature of the funds and storing a large amount of money in a safe investment.

Compliance Requirements for Regulated Entities

Regulated entities are required to assess and understand their crime risks and implement AML/CFT controls to comply with the full extent of the legal requirements under the AML/CFT Law. The key obligations include complying with requirements on targeted financial sanctions and a particular emphasis has been given to the reporting of suspicious transactions, a key tool for the UAE supervisory authorities in gathering financial intelligence. In this line, DNFBPs are obliged to register on the GoAML Portal, a platform used to file suspicious transactions reports (STRs) for use by the UAE’s Financial Investigative Unit. In recent months, proof of such registration is mandatory for a DNFBP to open a bank account. To increase compliance and provide guidance to the regulated entities, the Central Bank, amongst other supervisory authorities, regularly publishes and distributes guidelines, circulars, and notifications. The publication of guidance has been supplemented by multiple field inspection visits conducted by the supervisory authorities that has led to the Ministry of Justice issuing fines of Dh 1 million for over a hundred violations by law firms in October 2021.

Way Forward

— Sakina Dickenwala is associate partner, legal services and Bathsheba Menon is senior legal consultant, legal services, MBG Corporate Services