Financial sectors are the most susceptible to money laundering and terrorism financing. Hence, the United Arab Emirates (“UAE”) has made efforts to enhance its legislative framework to better adhere to the international framework set by the Financial Action Task Force (“FATF”).
The UAE has worked tirelessly to remove itself from the “Grey List”, which the FATF categorises “as a country with a higher risk of money laundering”, and/or a “jurisdiction under increased monitoring”.
Its recent exit from the FATF’s Grey List represents a significant milestone for the country’s business and investment landscape. Being removed from the Grey List is a testament to the UAE’s commitment to enhancing its anti-money laundering and counter-terrorist financing frameworks. This development is expected to have several positive impacts:
- Increased Market Confidence: Exiting the Grey List signals to the international community that the UAE has strengthened its regulatory and enforcement mechanisms related to financial crimes. This can boost investor confidence in the country’s financial system and overall business environment.
- Attraction of Domestic and Foreign Investment: With improved compliance standards, the UAE becomes a more attractive destination for both domestic and foreign investors. Investors are more likely to feel secure knowing that the country’s financial sector operates within globally recognized anti-money laundering and counter-terrorist financing standards.
- Reduced Compliance Costs: Stricter compliance measures often come with increased costs for businesses. By aligning with FATF standards and exiting the Grey List, UAE businesses are likely to experience reduced compliance burdens. This can free up resources that can be redirected towards business growth and development initiatives.
- Enhanced Reputation: Being removed from the Grey List enhances the UAE’s reputation as a responsible and compliant jurisdiction in the global financial community. This can lead to further integration into the international financial system and potentially open up new avenues for collaboration and partnerships with other countries and financial institutions.
Overall, the UAE’s exit from the FATF’s Grey List is indeed a positive development that is expected to contribute to the country’s economic growth and attractiveness as an investment destination.
Navigating the UAE’s AML CTF framework
The penal legislation of AML/CTF in the UAE saw several developments over the last decade. In 1998, the Central Bank of UAE instituted one of its first unit against to monitor and investigate transactions deemed fraudulent or suspicious, the “Anti Money Laundering and Suspicious Cases Unit”. However, it was only n 2002 that the Federal Law No. 4 was issued in the UAE criminalising money laundering.
In 2018, the nation issued the Federal Decree No. 20 on AML/CTF to develop the nation’s legislative and legal structure of AML/CTF. The Cabinet Decision No. 10 of 2019 was then issued. It provides a legal framework for a unified approach to AML/CFT across all Emirates, including the Financial Free Zones (“FFZ”) and Commercial Free Zones (“CFZ”), and adheres to the FATF’s recommendations and methodology.
In accordance, the Central Bank of UAE was established in 2020. It is an independent financial intelligence unit. The Anti Money Laundering and Combating the Financing of Terrorism Supervision Department (“AMLD”) works alongside Licensed Financial institutions (“LFI”) and Designated Non-Financial Businesses and Professions (“DNFBP”). The organizations joined forces to ensure compliance to the AML/CTF regulations, upon request or spontaneously. Other regulatory bodies present in the UAE also act as supervisory bodies. It includes the Ministry of Justice for lawyers and legal consultants, as well as the Ministry of Economy. These in turn concern itself with DNFBPs. FFZs, while still following the Federal AML Laws, adhere to separate supervising authorities. The Dubai Financial Services Authority (DFSA) regulates the Dubai International Financial Centre (DIFC), while the Financial Services Regulatory Authority (FSRA) regulates the Abu Dhabi Global Market.
UAE’s quest is to better combat AML/CTF. The nation has also carried out inspections and examinations of LFIs and DNFBPs’ compliance. In the process, it shut down 50 companies in the second half of 2023 for their non-compliance and fining several others.
What are the potential risks faced?
Considering UAE’s strategic position between the East and the West, the scope of growth in the financial sector is exponential. However, the potential risks increase as well. In addition to Terrorist Funding, the the country is victim to money laundering risks. It includes drug trafficking, the abuse of legal persons, cash-based and trade-based transactions, as well as professional third parties’ money laundering. The most vulnerable sectors are banks, precious metal dealers as well as real estate.
The risks are not limited to the mainland. They are also present in the CFZs and FFZs. Given their initial laissez-faire attitude and a tax-free regime, these free zones are most susceptible to money laundering and terrorism funding risks. While they comply with Federal Laws, their requirements are less stringent during initial low-risk assessments.
How to ensure protection and compliance?
Here are some key points to be aware of:
- Register with the goAML app . FIU uses it to collect and process suspicious transactions that may involve money laundering, and terrorism financing.
- Appoint an AML/CTF compliance officer
- Keep and regularly update internal policies, procedures, and risk assessments
- Appoint an independent auditor
- Regularly maintain and update records
- Effective KYC protocols, risk profiling, screening and enhanced due diligence
- Report any risk that presents itself!
TenIntelligence Thoughts on AML CTF
The UAE’s strategic position and growing influence in the financial industry present an attractive destination for new business ventures. It is crucial to ensure regulations are followed and diligent processes for combating money laundering are in place.
If you are based in the UAE or are looking to start or relocate your business there, contact us at info@tenintel.com for further information.
Written by
Riwa Haidar