The Financial Action Task Force’s mutual evaluation process for the
UAE’s financial system is scheduled for this month. FATF staff are to assess the strength of the country’s anti-money laundering (AML) and combating the financing of terrorism (CFT) laws and their effectiveness in practice.
UAE financial institutions have a lot of reasons to be on their guard, including historical trading relations with Iran, which is under an economic embargo, as well as international media reports suggesting that the UAE has previously been used for money laundering through large cash transactions, including in the real estate sector.
Since money laundering is becoming too complex and multi-jurisdictional, UAE banks need to be extra-vigilant to avoid becoming caught up in such schemes, said Matthew Shanahan, a partner at Clyde & Co.
This year’s FATF’s result will be “critical for the image and reputation of the country’s financial services sector, as the outcome is likely to play a profound role in determining the way the UAE’s anti-money laundering regime is perceived globally,” said Katerina Pagoni, head of AML and sanctions at KPMG Lower Gulf.
The last examination was early 2007, and a number of issues arise, including low numbers of suspicious transaction reports (STRs) – a key aspect of an AML framework – a need for the Financial Investigations Unit (FIU) within the UAE Central Bank to increase its staff numbers, and the need for a more comprehensive legal framework. It also highlighted concerns about the monitoring of companies registered in free zones.
There has been a flurry of activity ahead of FATF’s arrival: last October a new AML law was announced, with a broad swathe of changes including more rigorous client due diligence requirements for banks and exchange houses, enhanced requirements around establishing ultimate beneficial ownership of companies, including UAE nationals within the category of politically exposed persons, and allowing undercover and sting operations.
Pagoni describes the law as “signaling a new era in compliance in the UAE, where [businesses] may expect a heightened level of regulatory scrutiny and enforcement, as well as zero tolerance for financial crime”.
Rachel Woolley, AML manager at Fenergo, said the UAE’s FATF examination process can be expected to be additional stringent.