Put simply, money laundering involves concealing the identity of illegally obtained money so that it appears to have come from a legal source. The UAE Central Bank has defined money laundering as “any transaction aimed at concealing or changing the identity of illegally obtained money, so that it appears to have originated from legitimate sources, where in fact it has not”. Typically, there are three acknowledged phases to money laundering: placement, layering and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the “dirty money” appears “clean.”
This guide outlines the existing UAE anti-money laundering regime, as well as highlighting some preventative measures corporations can take in the UAE to protect themselves.
UAE Laws on Anti-Money Laundering
The main laws governing anti-money laundering and counter terrorism financing in the UAE are: (1) Federal Law No. 4 of 2002 regarding criminalization of money laundering; and (2) Federal Law No 1 of 2004 on combating terrorism offences. Since the issuance of these anti-money laundering laws, several UAE ministries and other governmental agencies have been active in issuing circulars to combat money laundering and terrorism, with the Ministry of Justice alone having issued several circulars. Additionally, the UAE Central Bank has issued a number of directives over the years to combat money laundering. The UAE Central Bank has also established a Financial Intelligence Unit, known as the Anti-Money Laundering and Suspicious Cases Unit.
There are also provisions in the UAE Penal Code relating to the concealment of things deriving from crimes. Under Article 407 of the UAE Penal Code, any individual who knowingly conceals or takes possession of things deriving from a crime shall be liable to the punishment prescribed for the underlying crime.
It is also important to note that the Dubai International Financial Centre (DIFC) operates under a separate legal regime from the UAE as a whole, although the provisions of the criminal law are applicable within the DIFC. The DIFC’s supervisory regime for anti-money laundering applies to all financial and ancillary services provided through the DIFC and is consistent with international standards set by the Financial Action Task Force.
Anti-Money Laundering Measures
Combating money laundering is a key issue for businesses. However, tackling the complex patchwork of regulatory and legal requirements, while continuing to serve customers, can be challenging for companies. Companies can face significant reputational damage and potentially large fines if adequate controls do not exist. The following key preventive measures are recommended to mitigate such risks:
- First, a company must establish and maintain effective internal policies, procedures, and controls to prevent opportunities for money laundering. The money laundering compliance program should be defined by the higher management or the board of directors. Companies must consider local regulations prior to adopting a compliance program.
- Second, a company must appoint a compliance officer. When a company appoints a compliance officer, it is imperative to verify that the qualifications of that person meet the local requirements. The compliance officer should be responsible for the business’s day-to-day compliance with the anti-money laundering laws, and for ensuring the compliance program is updated, as needed. The compliance officer should be responsible for overseeing a company’s ongoing education and training program. The compliance officer should also be responsible for maintaining records and reporting suspicious cases to the relevant authority.
- Third, it is important to obtain details of customers in order to verify their identities, including full name and address, passport or identity card (for individuals) and trade license (for companies). Such information must be periodically and regularly updated. The more a company knows about its customers, the better can money laundering abuses be prevented.
- Fourth, a company must adopt policies and procedures for the identification and reporting of suspicious activity. A company must review UAE regulations for what it considered to be a suspicious transaction as well as the allowable time delays to report such activity.
- Fifth, a company must establish an ongoing employee-training program for all employees. Effective training should present real-life money laundering examples, preferably cases that have occurred in the company, including how the pattern of activity was first detected and its ultimate impact on the company.
- Sixth, a company must conduct an independent audit of its anti-money laundering compliance program to assure its adequacy. Such an audit should be conducted periodically based on the risks faced by the company and the requirements of the UAE regulations.
Embedding a compliance culture into the overall company’s culture is key to an effective anti-money laundering program. Raising awareness, to the point where everyone in the company feels compelled to deter and detect money laundering, is vital. Compliance with money laundering obligations is one of the greatest challenges for companies today. Understanding what is legally required of your company, employees and customers by law is essential to a successful program. Any company needing advice on the complexities of money laundering legislation before building an anti-money laundering program should consult an anti-money laundering specialist, even if it means seeking external help. Diaz Reus is committed to assisting its clients to meet their anti-money laundering obligations and to provide a robust defense against money launderers.