UAE regulators step up fight against money laundering

The UAE's three main financial regulators yesterday warned banks and firms to report suspected money-laundering transactions and said they are pooling information and training resources to combat an increase in such activity, officials said.

"Co-operation between the three regulators – the UAE Central Bank, the UAE Securities and Commodities Authority (SCA), and the Dubai Financial Services Authority (DFSA) – is going to be key. Investigative powers will remain with the Central Bank and the police, while the UAE Public Prosecutor's Office will take offenders to court," said DFSA Chief Executive Paul M Koster.

Saeed Abdullah Al Hamiz, Senior Executive Director in the UAE Central Bank's Banking Supervision and Examination Department, said the level of co-operation between the regulators, police and federal ministries is "very high". The quality of regulation in the UAE is "as good as any other country – whether it is the US, the UK or Germany", he added.

The number of suspected money-laundering transactions being reported by UAE-based banks and financial firms is expected to increase by about 10 per cent this year compared to 2008 as awareness of laundering methods is raised, said Hamiz.

As many as 6,198 "suspicious transaction reports", or STRs, pertaining to money laundering have been filed in the UAE in the first five months of this year and the number may increase to 15,000 for the full year, he said.

In 2008, 13,101 STRs were filed, bringing the total to 80,592 from 2002 to date. In the US, in comparison, banks and financial firms reported a million dubious transactions last year. Of the total STRs filed in the UAE to date, 285 have been referred to the UAE Public Prosecutor's Office, of which 20 have reached the courts, said Hamiz.

"In order to take it to court, you need to investigate, seek documentary evidence from the companies involved and then build a foolproof case," he said.

Hamiz refused to give the monetary size of the cases that have reached the prosecution stage, but Koster agreed that each suspected money-laundering transaction would involve "a minimum of seven digits or eight".

"We see an increase in reporting," Koster said. "And we see that as a positive sign – the willingness to come forward and report transactions that may be considered dubious."

Money laundering is a "very active international market", said Koster. "It is a very difficult phenomenon [to prove and prosecute]. Increasing trade and the number of expats in the region add to the complexity of the problem."

In a letter issued to all DFSA-authorised firms and ancillary service providers, Koster warned: "As many firms around the globe, of all types, are now in need of funding, the DFSA is concerned that a firm might be tempted to obtain funding from inappropriate sources [persons or jurisdictions].

"This letter should serve as a reminder of the DFSA's anti-money laundering [AML] rules, legislation governing AML and counter terrorist financing for the UAE as a whole, relevant UN Security Council sanctions, and the AML and combating financing of terrorism [CFT] recommendations of the Financial Action Task Force [FATF]."

The National Anti-Money Laundering Committee of the UAE last month emphasized these cautions as well as current trends in money laundering activity.

The UAE laws that apply are the Federal Law No 4 of 2002, or the Criminalisation of Money Laundering Law; and the Federal Law No 1 of 2004 on Combating Terrorism Offenses.

The regulator warned companies that they may sometimes be innocently drawn into such activity. "Let's take an example," said Bryan Stirewalt, Director of Supervision at the DFSA. "Someone sends a wire transfer of Dh1 million to a law firm. Then they call up and say 'sorry, that was an accident, could you please return the money'. But they ask for the cash to transferred to another account in another country.

"That is one very effective way to launder money from one country to another to a third. It ends up as legitimate cash received from a law firm and can then be deposited in a bank account."

The regulatory agencies said they want to use training at all levels in an organisation to highlight the complexities of the AML drive. They urged financial institutions to report all suspect behaviour.

"It does not have to be a completed transaction to be reported. It is the attempt to do such a transaction that we would like to hear about," Stirewalt said.

Of the number of dubious transactions reported so far, only 46 have been flagged by DFSA-authorised firms, including 18 so far this year, he said.

"However, the statistics in one jurisdiction may not give you a clear picture of the full international situation," said Stirewalt. "The crime may be outside a jurisdiction and the evidence that one jurisdiction provides can be used in a prosecution in another."

Koster added: "It is critical when such transactions are reported that details such as names, dates, amounts, etc are provided. We will co-operate with any request that comes in from agencies such as the FATF."

Asked if the UAE is considering any amendments to its AML laws, Hamiz said: "The International Monetary Fund performed an assessment of our AML initiatives in 2003, based on which we issued the law of 2004. More recently, the FATF has done a similar evaluation of the UAE's AML regulations, laws and procedures.

"They have given us some recommendations that we are considering. But amendments and enhancements are needed whether there is an external assessment or not. The higher number of suspicious transaction reports is a healthy thing – it indicates that awareness is increasing."

Koster added: "Training is a key element in our approach – of our own staff as well the staff at financial institutions. Constant vigilance is needed. It is a permanent process to see that all transactions are in compliance."

Global co-operation

The UAE became the first Arab nation to become part of the Egmont Group, an informal international gathering of financial intelligence units (FIUs). The group was formed in 1995, and took its name from the palace in Brussels where the meeting took place.

Some 101 countries have created FIUs, which are national centres to collect information on suspicious or unusual financial activity from the financial industry and other entities or professions required to report transactions suspicious of being money laundering or terrorism financing.

The UAE Central Bank's Anti-Money Laundering Suspicious Cases Unit (AMLSCU) received membership of the Egmont Group in 2002.

The DFSA signed a memorandum of understanding with the AMLSCU earlier this year regarding co-operation and exchange of regulatory information.

The AMLSCU is a special unit that investigates fraud and suspicious transactions in the UAE.

It has access to all relevant authorities in the UAE as well as those abroad, under the aegis of the National Anti-Money Laundering Committee. 



DFSA procedures for registered firms

The DFSA has reviewed systems and controls for conducting customer due diligence (also known as Know Your Customer, or KYC) by its authorised firms. "KYC procedures are a critical element in protecting the reputation and integrity of the Dubai International Financial Centre against money laundering and terrorist financing activities, and should constitute an essential part of risk management processes for any firm in the DIFC," the regulator said.

These are measures that the DFSA has asked firms to follow. Excerpts from a communiqué from the regulator:

- Customer Identification Policy: We consider firms can improve the documentary evidence obtained in relation to the origin of funds and source of wealth. We consider that a letter obtained from the customer self-certifying their origin of funds and source of wealth is not adequate documentary evidence to support the origin and source of funds. For example, a firm should obtain for an individual, a certified copy of a salary certificate or bank statement.

For those firms which had pre-existing clients prior to authorisation with the DFSA, we consider firms are not relieved of their KYC obligations and must establish that proper KYC has been done according to DFSA's requirements, including ongoing due diligence.

- Customer Acceptance Policy: Generally, firms have effective AML measures through adopting a risk-based approach to classifying particular customers, based upon the type of customer, their origins, and the type of transactions or services provided. Effective money laundering risk assessments conducted by firms on customers include implementing the following processes:

a. Tailored customer profiling with risk assessing customers in terms of high, medium and low risk; and

b. Risk assessments must consider issues such as whether customers are residents from higher risk jurisdictions (countries which are not FATF members); transactions or services were provided to clients not face to face; the customer is a politically exposed person (PEP); and complex transactions or legal structures with various third parties and beneficial owners.

Firms can use electronic databases to screen for compliance with UN Security Council resolutions and sanctions and to identify PEPs.

- Ongoing Due Diligence: Generally, firms adopted a risk-based approach to conducting ongoing due diligence. Most Firms are conducting ongoing due diligence on all clients on an annual basis.

 

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