In the recent past, United Arab Emirates has taken various steps to curb money laundering and to make the financial sector of the country competitive and compliant with global standards. Around the globe, nations have spent significant time and efforts on combating money laundering and terrorist financing. As everyone knows the issue cannot be addressed in silos and a concerted effort is needed from all the nations to address the issue. Countries have formulated and implemented Prevention of money laundering laws and keep on introducing new regulations/obligations to the relevant Anti-Money Laundering (‘AML’) national legislation to align with international standards. The recent circulars of the Ministry of Economy on the application of AML/CTF Regulations with respect to Designated Non-financial Businesses and Professions(‘DNFBP’) is one such step forward to accomplish International Standards.
When we talk about international standards, it is pertinent to mention the Recommendations of the Financial Action Task Force (FATF). FATF has identified sectors, in addition to direct financial sectors, which significantly contribute movement of funds and identified them as Designated Non-Financial Business Professions which are also termed Gate Keepers. Guidelines on these sectors are also issued by FATF. The interpretations and guidelines clearly mention the applicability of the FATF Recommendations both with the financial institutions and DNFBPs.
The United Arab Emirates had expanded the scope of AML/CTF Regulations to DNFBP through Federal Decree-law No. (20) of 2018 On Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organisations. The activities categorized as DNFBP has been detailed under article 3 of the cabinet Resolution No. 10 of 2019 Concerning the Implementation of the AML Law in accordance with the FATF’s recommendations.
The scope of DNFBPs includes certain activities involving the sale and purchase of real estate, dealers in precious metals and precious stones, trust and company service providers, auditors, accounting service providers, and lawyers.
Supervisory Authorities
In accordance with the Federal Law and Implementing Regulations, the UAE Ministry of Economy which is vested with the duty of regulating and supervising the DNFBPsin certain sectors has prepared comprehensive plans for implementation and compliance and issued guidelines vide the circular dated 19th March 2020. The sectors for which the Ministry of Economy is designated as Regulator are:
Real Estate Brokers and Agents
Dealers in precious metals and stones
Independent Accountants
Company Service Providers
Pursuant to Article 3 Cabinet Decision No. (10) of 2019, Law firms also fall under the nomenclature of a DNFBP. The supervision of law firms is vested with the Ministry of Justice.
The circular issued by the Ministry of Economy further gives clear guidelines as to the activities of the Sectors covered under DNFBP and why they are prone to money laundering risks. As per the circular, some of the activities of DNFBPS include the sale and purchase of the real estate, dealers in precious metals and precious stones, trust and company service providers, auditors, accounting service providers. These categories of DNFBPs conduct specific financial activities on behalf of their clients that may be used to obscure the ultimate beneficiaries or source of funds behind transactions.
It is also mentioned that DNFBPs’ practices are exposed to several risk areas relating to money laundering and terrorist financing activities. Accordingly, The Federal decree by Law No (20) of 2018 concerning AML CFT and financing of illegal organizations and the implementing regulations are applicable to these sectors also.
The rationale behind these restrictions is that criminals use the service of DNFBPs in both the second and third stages of money laundering like layering and integration. For example, the sale and purchase of real estate can be an attractive way to conceal ‘dirty’ funds and can safely be placed in an investment. Where real estate is purchased through a real estate broker through a proxy actor or associate, the ultimate beneficial owner will remain obscure and this can add an additional layer in the transaction which makes it complicated and difficult to follow the trail.
Purchasing precious metals and stones is another method of investing illicit money to camouflage the origin and make it legal, Creating and establishing companies in offshore and other places with the help of DNFBPS without proper disclosure on the ultimate beneficial owner which will later become shell companies which will be used for moving proceeds of crime.
One clear area of risk, for example, is where DNFBPs may be involved in assisting individuals or corporate entities to establish companies that, unbeknownst to the DNFBPs, are intended to be used as a conduit for the proceeds of crime. Another area of risk would be assisting clients in transferring assets/funds, for example, in the purchase of real estate or other precious commodities using illicit funds. Accountants and lawyers conduct transactions on behalf of their clients which can be dealing with illicit funds. In short, DNFBPs can be utilized in many ways by the culprits for obscuring and transferring illicit funds and DNFBPS will become a party to the process unknowingly.
Obligations of DNFBPs under the Regulations
These provisions basically suggest a risk-based approach and below are some of the points to take note of while implementing the new guidelines. Circulars issued by the UAE Ministry of Economy broadly spell out certain obligations with respect to DNFBP as under.
To follow certain provisions of the Federal AML Law No (20) of 2018 and its implementing regulations.
Identify the crime risks within its scope of activity, document all findings, and continuously assess, and update the results of the assessment based on the various risk factors. It is also mandated to establish a risk identification and assessment analysis process which needs o be provided to the Supervisory Authority upon request with any supporting data,
Refrain from opening or conducting any financial or commercial transaction under an anonymous or fictitious name or by pseudonym or number, and maintaining a relationship or providing any services to it,
Take necessary due diligence measures and procedures and define the scope, taking into account the various risk factors and also the results of the National Risk Assessment on money laundering and terrorist financing, and retain the records. The Regulations specify the cases in which such procedures and measures should be applied, and the conditions for deferring the completion of customer or real beneficiary identity verification;
Develop internal policies, controls, and procedures approved by senior management which enable to manage the risks identified and mitigate them, and to review and update the policies and controls periodically on a continuous basis, and apply this to all subsidiaries and affiliates in which they hold a majority stake;
Apply the directives of the competent authorities for implementing the decisions issued by the UN Security Council under Chapter (7) of United Nations Convention for the Prohibition and Suppression of the Financing of Terrorism and (Proliferation of Weapons of Mass Destruction) and other related directives;(This particular guideline is from the sanction angle ).Circular 3 of 2020 issued by the Ministry of Economy gives further guidelines regarding sanction compliance.
Maintain all records, documents, and data for all transactions, whether local or international and make this information available to the competent authorities promptly, upon request, as stipulated in the Implementing Regulations;
Reporting of any suspicious transactions to the supervisory authorities, through the portals provided to the Financial Intelligence Unit of the government. This will help the government to gather information, detect illicit activity and take the necessary preventative action.
Registration under goAML system
Ministry of Economy issued Circular no: 5/2021 dated 03.03.2021 and sets out the requirement and time frame for Registration in ‘goAML’ . The initial deadline set for the registration was 31.03.2021 which is now further extended to 30.04.2021.
It also includes penal clauses for violation of the guidelines contained in the Decree-law as under:
“Pursuant to Article 14 of the Federal Decree-law No. (20) of 2018, MOE being, the Supervisory Authority for DNFBPs, may impose administrative penalties on DNFBPs for any violation to the Decree-Law and its Implementing Regulation. Administrative penalties may include, but is not limited to, a financial penalty of AED 50,000 and no more than AED 5,000,000 for each violation”
The various circulars issued by the Ministry of Economy starting from March 19, 2020, to the latest circular on 3rd March 2020 give out a clear indication and guidelines on the compliance angle to be followed by the DNFBPs as mentioned in the circular with respect to Anti-money laundering and Sanctions compliance.
Implications
In effect, DNFBPs that were previously not covered under the scope of regulated entities are now brought under the scope and will be supervised by two different ministries. DNFBPs will need to understand and get in grips with at least the basic elements of effective compliance as per the AML regulations or face punitive measures by the UAE authorities.
In particular, DNFBPs must be familiar with the risks associated with transferring funds without verifying the identity of the client and/or a legitimate source for those funds. Also, DNFBPs should be well prepared to respond to any suspicious transactions by reporting to the competent authorities and maintaining diligent records of all client-related activity. which certainly have negative impacts on the global financial system. Those risks vary according to the money laundering methodology related to such professions and take different forms depending on the profession itself.
The Way Forward
Ensure that each of the DNFBP falling under the regulation has successfully registered with the goAML portal of the FIU within the stipulated period - 30 /4/2021.
DNFBPs should perform a gap analysis to ascertain whether the existing policies and processes are in tune with the present guidelines.
Redefine policies and processes to ensure that it is compliant to the full extent of legal requirements under the regulations and appropriate defense and mitigation processes are available as per the risk envisaged.
Ensure the employees are provided with appropriate training and awareness to enable them to perform as per the standards and regulations and the response process.
The employees are aware of the risks posed in the respective sectors and able to handle the red flags appropriately and ensure reporting within the timeframes wherever needed.
The tone from the top as evident from the recent circulars issued by the Ministry of Economy is indicative of strong and vigilant supervision in protecting DNFBPS from becoming a part of the system which is conducive for transferring illicit funds. Enhancing the Compliance Framework and improving employee awareness are the key to attaining the goals.