Written by Holly Whitehead on Monday October 7, 2019
It is often said that the only constant in life is change, and that certainly rings true for the current regulatory climate. The global nature of financial crime means that all regulators, and firms operating in the regulated sector, must be quick to respond to threats. But being reactive isn’t enough – in order to protect the firm from risk, keeping an eye on the future is required.
A key driver of regulatory change is the Financial Action Task Force (FATF). The fourth round of Mutual Evaluations from FATF focuses not only on technical compliance – whether laws and regulations are in place in accordance with the 40 Recommendations, but also the effectiveness; whether or not the regulations are bringing about the required results.
These evaluations by FATF have proved challenging for all countries; no country has yet to achieve a ‘perfect score’. It’s also important to remember that it’s not only the governments that come under scrutiny in FATF’s evaluations, as part of their review into the effectiveness FATF review how firms across the regulated sectors are implementing the countries’ laws and regulations. In mutual evaluations reports published on other jurisdictions we have consistently seen sectors falling short of FATF’s expectations.
Changes within the UAE
The United Arab Emirates (UAE) is not immune to regulatory change. On 30 October 2018 the UAE issued the ‘Federal Decree-law No. 20 of 2018 on anti-money laundering and combating the financing of terrorism and financing of illegal organisations’, also known as ‘the new AML law’.
This new law was developed prior to, and in anticipation of, the FATF July 2019 Mutual Evaluation visit to the UAE, in line with FATF’s provisions and recommendations. It has brought about a number of changes that show a readiness to address criticisms documented in the UAE’s previous evaluations, and those of other regional countries.
HH Sheikh Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai and Minister of Finance, emphasised the point, stating that the UAE’s leadership is ‘keen to develop the legislative and legal structure of the nation to ensure compliance with international standards on anti-money laundering and countering the financing of terrorism.’
There have been a number of key updates under this new AML law, some of which will be explored here.
Let’s start with an update that is a first in UAE legislation: the definition of a perpetrator of a money laundering offence. It is very much what you’d expect, being similar to other jurisdictions’ definitions. What was most interesting was that there was no mention of suspicion, unlike in the UK Proceeds of Crime Act 2002, where you can commit an offence if you enter into an arrangement that you know or suspect facilitates money laundering.
Also included in this new AML law is the establishment of an independent financial intelligence unit (FIU) at the Central Bank. Its main functions are:
In June 2019, this new FIU announced the launch of a new AML reporting platform (called ‘goAML’) which will assist law enforcement in gathering, analysing and investigating STRs. This system was developed by the United Nations Office on Drugs and Crime (UNODC) to tackle money laundering and terrorist financing, locally and internationally, and has been specially customised to the UAE’s needs and their AML/CFT framework.
Not only will goAML aid in the reporting and investigation of STRs and enhance the quality of the reports, it will also improve the FIU’s ability to detect trends in suspicious transactions by connecting various intelligence databases, meaning they will be better able to identify complex potential threats or criminal activity.
By creating this new system, the UAE Central Bank is demonstrating its commitment to prioritising compliance above everything else.
A key shortcoming identified by FATF across a large number of the jurisdictions they have reviewed is the role of designated non-financial businesses and professions (DNFBPs). The UAE’s new AML law has seen the inclusion of DNFBPS; requiring businesses such as lawyers, real estate agents and tax advisors to be now subject to AML/CFT regulations and implement adequate systems and controls in place to assess and manage their risk and exposure to financial crimes.
Two core objectives of this new AML law, having a potentially major impact on firms operating within the region, include the strengthening of punitive measures through increased fines and greater investigative powers and channels to collect and use financial intelligence.
Following the introduction of this new AML law, an individual’s punishment can now vary from a fine of 5,000 dirhams right up to a lifetime jail sentence. Corporate liability for money laundering offences has also been extended to fines of up to 50 million dirhams and for terrorist financing offences, the company risks compulsory liquidation.
The concept of ‘controlled delivery’ has also been introduced as part of the objective of greater investigative powers to collect and use financial intelligence. This means that authorities will be allowed to permit money laundering to proceed in order to ‘follow the money’ and identify other actors within the criminal network.
Being able to use intelligence in this way is a great pro-active step forward for law enforcement and the UAE. Law enforcement are also now allowed to conduct undercover operations to catch suspected money launderers by actually participating in a money laundering operation.
Other pieces of legislation were also introduced in the UAE a few months after this new AML law. For example, there is now a new Central Bank Law (Federal Law No. 14 of 2018) and a new Foreign Direct Investment Law (Federal Law No. 19 of 2018). There are also sector-specific regulations that have been published for the banking sector to cover risk management and internal controls and compliance. This move has really helped to reinforce the new AML law.
The latest AML law is evidence of the increased focus on tackling money laundering and terrorist financing in the UAE, and all of these advances in legislation can only be positive for the country. They will facilitate increased protection for its financial market, and will serve to provide assurance to the rest of the world that their financial interests and investments are safe within the UAE. The introduction of this law has brought with it several changes that show a willingness to address the shortcomings that appeared following FATF’s previous visit and Mutual Evaluation Report back in 2008.
It will be very interesting to read the new Mutual Evaluation Report on the UAE following FATF’s on-site visit in July, whilst improvements will no doubt have been made from the previous report, as with other countries that FATF have reviewed, further actions will be required to ensure that the UAE’s laws and regulations are robust, but also being implemented by the required sectors.
Given the pace of change and global development, coupled with the UAE’s desire to develop its legislative and legal framework to ensure compliance with international standards, this won’t be the last of the regulation that we will see from the UAE. This of course means that, as a compliance professional, it is incredibly important to keep yourself up-to-date.
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