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UAE to clamp down on unlicensed crypto operators

  • Directive sets out penalties
  • Complies with FATF guidance
  • Banks in firing line for inaction

Unlicensed cryptocurrency operators in the UAE may face civil and criminal penalties, according to the anti-money laundering division of the UAE Central Bank.

Companies, owners and senior managers could also face financial sanctions.

The UAE National Anti-Money Laundering and Combating Financing of Terrorism and Financing of Illegal Organizations Committee issued the directive this week.

The move is in line with the Financial Action Task Force (FATF)’s guidance for a risk-based approach to virtual assets and virtual asset service providers (VASPs).

Licensed financial entities in the UAE, including banks and intermediaries, may also be penalised for “willful blindness” by implementing inadequate controls when it comes to money laundering and combating the financing of terrorism.

The central bank guidance directs UAE reporting entities to consult the FATF Report on “Red Flag Indicators of Money Laundering and Terrorist Financing” for virtual assets.

It specifically requires them to remain vigilant of any fraudulent methods used by unlicensed VASPs and ensure due diligence is conducted to identify instances of forged documents and sanctions evasion.

The UAE is expected to be taken off the FATF’s grey list, a category that means financial institutions must conduct more research on individuals and companies based in the country.

Nadim Bardawil, partner at law firm BSA, said traditional banks do not have a “good or deep enough” understanding of the asset class.

“It’s high time that financial institutions increase their exposure and understanding of the virtual assets space,” he told AGBI.

“Banks have approached virtual assets with a high-risk label, while what they should be encouraged to do is to measure and identify the risk.”

Kokila Alagh, founder of Karm Legal Consultants, added that “time is running out” for unlicensed crypto companies operating in the UAE. 

The Central Bank’s guidance was followed by a November 17 final deadline for VASPs in Dubai to apply for a licence from the emirate’s Virtual Asset Regulatory Authority (VARA), with potential enforcement actions for non-compliance.

Alagh said both federal anti-money laundering laws as well as VARA’s regulations, applicable in Dubai, provide for financial penalties as high as AED50 million ($13.6 million) or more. 

Under federal laws, operating as a VASP without proper authorisation may also result in a minimum prison term of six months, she said.

“These developments indicate the strong intent of authorities to crack down on unlicensed operators,” she added.

VARA last month halted the sale of crypto token Islamic Coin for not having proper licensing.

The UAE has been forthcoming in welcoming cryptocurrencies into the mainstream, promoting itself as a crypto hub.

The Abu Dhabi Global Market set up the world’s first regulatory framework for crypto in 2018.

The Dubai International Financial Centre has also proposed a law to regulate digital assets.

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