The UAE must up its fight against money laundering

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Global enforcement actions and penalties for non-compliance with anti-money laundering (AML) regulations totalled $5.35 billion in 2021, with penalties of $3.4 billion across the EMEA region.

Within the UAE there has been a marked increase in the number of enforcement actions as it focuses on enhancing AML compliance as part of its commitment to removing itself from the grey list of the Financial Action Task Force (FATF).

Financial institutions and companies are under pressure to respond, especially in light of the extensive global sanctions imposed on Russia following the invasion of Ukraine and the subsequent movement of capital from Russia.

• UAE’s property rules target money laundering via virtual assets

Against this backdrop, there will undoubtedly be a push towards AML “effectiveness” due to the changing legislative environment and recent typology trends.

From a legislative standpoint, money laundering was first criminalised in Federal Law No 4 of 2002, and it was later replaced by Federal Law No 20 of 2018.

Alongside this, a national AML/counter-terrorism financing (CTF) strategy and action plan has been created to ensure the effective implementation, supervision, and continuous improvement of a national framework for the combating of money laundering and the financing of terrorism (FT).

In addition, in 2021 on the orders of Dubai ruler Sheikh Mohammed bin Rashin al Maktoum, a new specialised court was created with the aim of combating money laundering.

Collectively, these measures aim to create a robust financial crime compliance framework that is in line with FATF’s expectations and recommendations.

But the FATF’s decision in March to add the UAE to its grey list demonstrated that there was still more to be done.

It did note, however, that the UAE has committed to combating sanctions evasion, increasing resources to use financial intelligence to pursue money laundering, which in turn has led to an increase in investigations and prosecutions of such activities.

This commitment from the UAE is further demonstrated through the recent actions that it has taken in responding to international enforcement actions, such as answering extradition requests in respect of the Gupta brothers and Sanjay Shah.

Another area which is facing growing legislative and regulatory changes is cryptocurrencies.

While modest in comparison to fiat currencies, global money laundering via virtual assets reached approximately $33 billion between 2017 and 2021.

Learning how to effectively combat money laundering for virtual assets has therefore become increasingly important.

This is particularly the case for the UAE – or more specifically Dubai – as it continues to cement its status as the Wall Street of the global cryptonomy.

It is imperative that the UAE responds, doing everything it can to build a strong AML/CFT framework.

Focusing on fighting financial crime

As a big global financial and trading centre for foreign property ownership and with a sizeable cash-based economy, the UAE is disproportionately vulnerable to money laundering and terror financing.

While there are many different types of money laundering, five can be marked out as having received more attention from regulators recently:

• Trade-based money laundering
• Ransomware
• Human trafficking
• Illegal wildlife trade
• Crypto based money laundering

The first focus for companies when combatting money laundering is identifying the ultimate beneficial owner, which can be notoriously difficult when customers provide false or incomplete information.

The second is leveraging the correct technology to identify suspicious patterns or behaviour. This means effectively aggregating data across systems, divisions and geographic locations.

The third is verification systems for digital identification, while maintaining privacy and data protection.

The road ahead on AML risk management has become more challenging for companies in the UAE as regulations become more stringent and larger fines are expected where compliance programmes have been deficient.

When evaluating compliance efforts, entities should be proactive, develop a robust AML compliance programme and pay particular attention to the customer due diligence policies, the ultimate beneficial owner and transaction monitoring elements.

Bhavin Shah and Stephen Millington are partners at Forensic Risk Alliance