Money laundering is a pressing global challenge with extensive economic, social, and political implications. Money laundering involves disguising the origins of illegally acquired funds, enabling criminals to profit from their activities while simultaneously eroding the integrity of legitimate economic systems.
AML or Anti Money Laundering Laws UAE are a set of regulations and procedures that prevent the concealment of illegally obtained funds as legitimate income. These laws serve as a critical tool in the fight against various forms of financial crime, including drug trafficking, tax evasion, human trafficking, and terrorist financing.
AML laws’ primary objective is to protect the integrity and stability of the financial system by ensuring that it is not exploited for illegal purposes. Through a robust framework of compliance measures, AML laws in the UAE help financial institutions and government agencies identify, monitor, and report suspicious activities that may indicate money laundering or other financial crimes.
Money laundering is a financial crime. It refers to any financial or banking transaction intended to cover up or disguise the source of illegally obtained funds, avoid detection through the financial and banking systems, and re-buff and reinvest them.
Common money laundering methods include cash-intensive businesses, shell companies, fake invoicing, gambling, and real estate laundering.
Anti-Money Laundering Law UAE
According to UAE legislation, possession or concealment of criminal proceeds has been considered a crime since 1987. In 2002, the UAE issued the first special penal legislation criminalizing money laundering by the provisions of international agreements and recommendations (Federal Law No. (4) of 2002). This legislation was amended in 2014, and its executive regulation was issued to comply with the amendments in the recommendations of the Financial Action Task Force (FATF).
In 2018, Federal Decree Law No. (20) of 2018 was issued on anti-money laundering, combating the financing of terrorism and financing of illegal organizations, which repealed Federal Law No. (4) of 2002.
Key Legislation and Regulatory Bodies Involved
The primary legislation governing AML in the UAE is Federal Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations (“AML Law”). This law was later amended by Federal Decree Law No. 26 of 2021. In addition, Cabinet Decision No.10 of 2019 has been issued to provide the implementing regulations for this Decree-Law.
Objectives and Scope of the UAE AML Law
The AML Law was issued to develop the legislative and legal structure of the UAE to ensure compliance with international standards on anti-money laundering and countering the financing of terrorism (CFT). The law aims to:
– Combat money-laundering practices
– Establish a legal framework to support the authorities concerned with anti-money laundering and crimes related to money-laundering
– Counter the financing of terrorist operations and suspicious organizations.
Key Provisions of UAE AML Law
The AML Law applies to financial institutions, banks, insurance companies, Designated Non-Financial Businesses and Professions (DNFBPs), and Virtual Asset Services Providers (VASPs).
The Law defines a perpetrator of a money-laundering offence as any person who is aware that the money was derived from a crime and intentionally commits one of the following acts:
1- transferring or transporting proceeds of crime with intent to conceal or disguise its illicit origin;
2- concealing or disguising the true nature, origin, location, way of disposition, movement, or rights related to any proceeds or the ownership thereof;
3- acquiring, possessing, or using such proceeds;
4- assisting the perpetrator of the predicate offence to escape punishment;
Obligations for Financial Institutions, Designated Non-Financial Businesses and Professions (DNFBPs)
DNFBPs are businesses or professions that are not traditional financial institutions but can still be used for money laundering or terrorist financing due to the nature of their activities and the potential for large cash transactions or the movement of significant assets.
In the UAE, DNFBPs are subject to anti-money laundering and counter-terrorist financing regulations and must implement measures to detect and prevent illicit financial activities. These DNFBPs include:
– Dealers in precious Metals and Stones
– Real Estate Agents and Brokers
– Trust and Corporate Service Providers
– Auditors & independent Accountants
– Lawyers, Notaries & Other Legal Professionals
According to the guidelines, DNFBPs in the UAE are required to adopt a comprehensive AML/CFT framework to identify and manage financial crime risks. This includes:
– registration with the GoAML system,
– the appointment of a compliance officer,
– conducting thorough Customer Due Diligence (CDD) measures to identify and verify the identity of their customers and Ultimate Beneficial Owners (UBOs),
– reporting suspicious transactions,
– providing adequate training to all staff,
– fostering a strong compliance culture within the company.
It should be noted that the obligations and requirements imposed on DNFBPs differ depending on whether they are incorporated in the mainland, governed by the Federal AML Law, or in a free zone such as Dubai International Financial Center (DIFC) and Abu Dhabi Global Market (ADGM).
While DIFC and ADGM adhere to the Federal Law, they have also implemented their own AML-specific rules and guidance for entities operating within their respective free zones. There are several differences in AML requirements between companies in DIFC and ADGM compared to those operating in the mainland UAE.
Customer Due Diligence (CDD) Requirements
Organizations should undertake CDD measures to verify the identity of the Customer and the Beneficial Owner before or during the establishment of the business relationship, opening an account, or before executing a transaction for a Customer with whom there is no business relationship.
This can be done by using documents, data, or any other identification information from a reliable and independent source, such as the identification card or travel document, nationality, address, place of birth, name and address of employer, etc.
KYC procedures should also be established to verify customers’ identities and assess the legitimacy of their transactions. These procedures include obtaining and verifying customer identification documents, understanding the nature of the customer’s business, and conducting ongoing monitoring of the customer’s transactions to detect suspicious activities.
Record-Keeping and Reporting Obligations
Organizations are required to retain several types of records, such as operational and statistical records, documents and information about customers like copies of personal identification documents, account information, and files, correspondence (including email and fax correspondence), call reports, or meeting minutes (including where applicable recordings, transcripts or logs of telephone or videophone calls), risk assessment and classification records.
Suspicious Transaction Reporting (STR) Procedures
A suspicious transaction refers to any transaction, attempted transaction, or funds that an organisation has reasonable grounds to suspect as constituting proceeds of crime, related to money laundering, the financing of terrorism, or the financing of illegal organisations, or intended to be used in an activity related to such crimes.
Organisations are required to report any suspicious transactions to the Financial Intelligence Unit (“FIU”) whenever they have reason to suspect them. This includes suspicious actions performed by the customer, such as refusing to provide KYC documents or non-disclosure of UBO. It is crucial to include all the relevant information for the suspected transaction and ensure that the information remains current and updated.
Regulatory Bodies and Their Roles
Central Bank of the UAE
The Central Bank of the UAE established a dedicated Department in August 2020 to handle all AML and CFT matters. The Department serves three key objectives: examining Licensed Financial Institutions (LFIs), ensuring adherence to the UAE’s AML/CFT legal and regulatory framework, and identifying relevant threats, vulnerabilities, and emerging risks concerning the UAE’s financial sector.
Financial Intelligence Unit (FIU)
The UAE Financial Intelligence Unit is the exclusive national center for receiving Suspicious Transaction Reports from all the reporting entities in the country. It analyses these reports that may involve money laundering, financing of terrorism and related criminal activities, and shares information regarding them.
The FIU consists of eight sections, in addition to the Chief of Financial Intelligence Unit Office, and each section has its own roles and responsibilities, such as:
– Strategy Section, which develops yearly operational plans;
– Domestic Cooperation section, which serves as the focal point for engagement between the FIU and all competent authorities in the UAE, including law enforcement authorities;
– State security and supervisory authorities for the exchange of information and intelligence;
– Outreach section responsible for engaging with the reporting entities and recommending best practices to enhance AML/CTF compliance, etc.
Compliance Requirements for Businesses
Risk assessment and management
Businesses must identify, assess, and understand their crime risks according to their business nature and size and by considering relevant risk factors such as customers, countries or geographic areas, products, services, transactions and delivery channels.
Developing and Implementing AML Policies and Procedures
This involves developing internal policies, controls, and procedures that are commensurate with the nature and size of their business and are approved by senior management to enable them to manage the risks that have been identified.
Training and Awareness Programs for Employees
Businesses should ensure that their employees:
– have a clear understanding of the AML/CFT risks that the business is exposed to;
– know when there may be cases of suspicious transactions, what questions they have to ask the customer, and which information they must not under any circumstances disclose to the customer;
– can exercise sound judgement when adhering to the organisation’s AML/CFT risk mitigation measures and when identifying suspicious transactions.
Internal Controls and Audit Functions
Businesses should audit transactions throughout the business relationship to ensure that they are consistent with the information they have about a customer, their type of activity, and the risks they pose, including the source of funds.
Penalties and Enforcement
THE AML Law stipulates a range of administrative penalties that regulatory authorities may impose on organizations that violate AML/CFT regulations. These penalties may include warnings, administrative fines ranging from AED 50,000 to AED 5,000,000 per violation, prohibition on working in the sector related to the violation, restrictions on the powers of responsible individuals, suspension of managers/board members, license cancellation, etc.
International Cooperation and UAE's Role
To combat financial crime, the UAE endorses and implements various international and regional initiatives such as:
– Forty Recommendations issued in 2012 by the Financial Action Task Force: International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation;
– The Basel Statement of Principles issued by the Basel Committee to prevent the use of the banking system for criminal purposes;
– European Community directive to prevent the utilisation of the banking system for money laundering activities; and
– The Council of Europe Convention on Money Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime.
Collaboration with organizations like FATF (Financial Action Task Force) and MENAFATF (Middle East & North Africa Financial Action Task Force)
FATF is an independent inter-governmental body that develops and promotes policies to protect the global financial system and leads international action to tackle money laundering, terrorist financing, and proliferation financing.
MENAFATF is a regional body that recognises the threats posed by money laundering and terrorist financing operations to countries in the Middle East and North Africa Region. The UAE is an active member of MENAFATF, and by virtue of its membership in the Gulf Cooperation Council, it also attends meetings of the Financial Action Task Force.
Conclusion
The UAE has implemented a solid regulatory framework to combat money laundering, terrorism financing, and financing illegal organisations through cooperation and coordination among national entities, such as law enforcement agencies and regulatory authorities.
UAE also closely cooperates with international partners and global institutions to safeguard the integrity of the financial system in the UAE and globally.
Expert Legal Guidance in Anti Money Laundering Law with SK Legal
The complexities of anti-money laundering (AML) regulations in the UAE require technical expertise and extensive knowledge of federal laws and regulations.
At SK Legal, we offer exceptional legal consultancy services to help you effectively manage AML compliance and related legal affairs in the UAE. Our services include:
- Comprehensive Legal Consultancy: Whether you need assistance in the AML laws, ensuring adherence to regulatory requirements, or managing associated risks, our expert team provides tailored legal advice to meet your needs.
- Efficient Document Handling: From drafting and reviewing AML compliance documents to managing essential legal paperwork, our consultants ensure all documentation is accurate, transparent, and fully compliant with UAE laws, mitigating potential disputes and protecting your interests.
- Specialized Legal Services: We provide specialised services in corporate compliance, AML audits, financial transactions, and more. Our consultants’ expertise in these specific legal domains ensures efficient handling and favourable outcomes.
For personalised assistance and expert legal advice on AML law, contact us at info@sklegalfirm.com
Frequently Asked Questions (FAQs) About Anti Money Laundering Law UAE
The AML Law was issued to develop the legislative and legal structure of the UAE to ensure compliance with international standards on anti-money laundering and countering the financing of terrorism (“CFT”). The law aims to:
- combat money-laundering practices
- establish a legal framework that supports the authorities concerned with anti-money laundering and crimes related to money-laundering
- counter the financing of terrorist operations and suspicious organisations.
Financial Institutions are required to adopt a comprehensive AML/CFT framework to identify and manage financial crime risks.
This includes conducting thorough CDD measures to identify and verify the identity of their customers and Ultimate Beneficial Owners (UBOs), reporting suspicious transactions, complying with the Targeted Financial Sanctions (TFS) regime, providing adequate training to all staff, and fostering a strong compliance culture within the company.
The primary legislation governing AML in the UAE is Federal Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organisations. This law was later amended by Federal Decree Law No. 26 of 2021.
In addition, Cabinet Decision No. 10 of 2019 has been issued to provide the implementing regulations for this Decree-Law.
UAE was recently removed from the FATF grey list (i.e., jurisdiction under increased monitoring), which is a positive development.
The AML Law applies to financial institutions, banks, insurance companies, Designated Non-Financial Businesses and Professions (DNFBPs), and Virtual Asset Services Providers (VASPs).
Disclaimer
This publication does not provide any legal advice and it is for information purposes only. You should not rely upon the material or information in this publication as a basis for making any business, legal or other decisions. Therefore, any reliance on such material is strictly at your own risk.
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Sameer A. Khan
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