UAE anti-money laundering/counter-terrorist financing compliance and enforcement: recent and future developments

Given the UAE’s central role in the global trade of oil, gold and diamonds, it faces significant anti-money laundering (AML) and counter-terrorist financing (CTF) risks. Particularly, the patchwork of emirates and free zones across the UAE present specific challenges from an AML-CTF monitoring perspective. In response, the UAE has been tightening its AML and CTF frameworks in recent years, as we explored in our January 2021 blog post. This commitment demonstrates the UAE’s drive to be a premier centre for global business, and accordingly, local and foreign companies alike should take serious note of their obligations under the AML-CFT regimes.

Now, in this blog post, we detail the most recent developments in the UAE, and look at developments we are likely to see in future.

Recent compliance and enforcement measures

The UAE has introduced several compliance and enforcement measures so far this year. For example:

• in February, a new Executive Office to Combat Money Laundering and Terrorist Financing (‘the Executive Office’) was established;
• in March, target businesses were asked to register with the Financial Intelligence Unit, and align with AML and CTF laws;
• in April, the Ministry of Economy began inspection campaigns and introduced other steps to help curb financial crime. The campaign targeted designated non-financial businesses and professionals (DNFBPs) such as brokerages, real estate companies, auditors, corporate service providers, and dealers of precious metals and gemstones;
• in June, over 500,000 firms in the UAE were required to disclose their ultimate owners (or face penalties), in a bid to avoid the UAE’s inclusion on the Financial Action Task Force’s (FATF) watchlist.

The emphasis on regulation and compliance has been matched with enforcement measures. For example, in January, the UAE Central Bank imposed financial sanctions totalling around AED46m (PDF) on 11 UAE banks for ‘failures to achieve appropriate levels of compliance regarding AML and sanctions compliance frameworks’.

The Dubai Financial Services Authority (DFSA) continues to focus on enforcement after fining a firm approximately $600,000 for AML breaches last year.

Future compliance and enforcement measures

To strengthen AML and CTF compliance and enforcement in future, the Executive Office will focus on:

• co-ordination, strategy and capacity building across the seven Emirates and 31 free zones;
• technical expertise and guidance for designated non-financial businesses;
• strategic, streamlined procedures around suspicious transaction reporting and investigation;
• co-ordination, strategy and capacity building for more than 130 licensed money exchange houses in the UAE;
• compliance and disclosure reporting by targeted businesses;
• internal awareness and capacity building around public prosecution and courts;
• written official guidance on reporting obligations;
• co-ordination with international and regional regulators and banks; and
• visibility and awareness of enforcement mechanisms and penalties.

Future regulatory developments

We expect the DFSA, which oversees regulated entities in the Dubai International Finance Centre (DIFC), and the Executive Office to issue more regulations and guidance around the co-ordination, strategy and capacity building issues highlighted in the previous section.

The DFSA’s Business Plan for 2021-2022 (PDF), for instance, specifically mentions AML-CTF as one of its areas of focus going forward, including in relation to compliance with the federal legal regime.

We also expect:

• increased regulation across the seven Emirates to strengthen co-ordination and technical procedures; and
• new regulations and guidance around outcomes from risk-assessment reports. For example, at its April 2021 meeting, the National Committee for Combating Money Laundering and Financing of Terrorism and Illegal Organisations (NAMLCFTC) adopted guidelines on AML-CFT issues, which aim to increase knowledge of the rules and enhance compliance by licensed entities. The NAMLCFTC also approved six risk-assessment reports on AML-CFT-related issues, which aim to align the legislative and operational frameworks, and assess and address risks.

Potential compliance measures in the free zones

While federal laws on AML-CFT apply to the entire UAE, including in all free zones and Emirates, the FATF’s report noted some challenges in the free zones. There are two financial free zones – the DIFC and the Abu Dhabi Global Market (ADGM) – and 29 commercial free zones.

The challenges mainly relate to monitoring and supervision, particularly in the commercial free zones. Clear guidelines and technical procedures for each (category of) free zone on the enforcement of the federal rules, as well as improved due diligence standards in the free zones, should help address these issues.

In addition, instead of a single point of access, if local bodies were established to issue standards and guidance, that would also help with the supervision and monitoring of free-zone activities.

Businesses and corporate governance

Many corporates are improving how they monitor, assess and tackle AML and CFT risks. However, standards vary and there is concern that most DNFBPs do not understand their obligations under the relevant federal laws, given that the enhanced laws are very recent.

To reduce their compliance risk, corporates should consider:

• conducting risk assessments and review compliance frameworks in light of their AML-CTF risks;
• keeping AML-CFT issues at the top of the boardroom agenda;
• engaging compliance officers and strengthening internal audit functions;
• educating finance and commercial teams about risk management; and
• implementing speak-up programmes and procedures for managing reports.

Conclusion

Great strides have been made in the UAE, especially in the last decade, to combat financial crime. With these efforts being recognised, confidence in the UAE as an international financial and business centre is growing.

However, companies need to keep pace with changes to ensure that global cultures and expectations are reflected in local practices, and to mitigate risks to their business operations and reputations.