AML and CFT requirements for trusts and company service providers in the UAE

AML and CFT requirements for trusts and company service providers in the UAE

AML and CFT requirements for trusts and company service providers in the UAE

AML and CFT requirements for trusts and company service providers in the UAE

Corporate service providers and trusts engage in certain activities that are vulnerable to money laundering and terrorism financing. Generally, they carry out these activities on behalf of their customers. Performance of these activities requires access to financial services sector companies, and this is how the risk of ML and FT arises.
The activities include:
  • Acting as an agent in the creation or establishment of legal persons
  • Acting as a director or secretary of a company, or as a partner in a legal person or arranging for another person to act as the above
  • Providing a registered office, work address, residence, correspondence address, or administrative address for a legal person or legal arrangement
  • Performing work (or equipping another person to act) as a trustee for a direct trust or performing a similar function in favor of another form of legal arrangement
  • Acting or arranging for another person to act as a nominee shareholder in favor of another person

During the performance of these activities, trusts and corporate service providers (TCSPs) use corporate vehicles. This is when money launderers and financers of terrorism activities facilitate the misuse of money. If TCSPs do not conduct proper due diligence of their clients, their ML/FT risk increases.

The risks may also increase when TCSPs in UAE collaborate with TCSPs in other countries where AML/CFT regulations are absent or less stringent. So, TCSPs must be careful of such suspicious transactions and associations. We will cover such suspicious transactions and relevant AML requirements for TCSPs in this article.

Suspicious transactions that raise a concern of ML/FT in TCSPs

ML/FT risks occur for TCSPs at both enterprise and customer levels. These risks may occur in the business relationships they have with their clients. Risks may also arise in the form of nature and type of customer or type of arrangement involved.
Some of the possible red flag indicators are as follows:
  • Business relationships with complex and opaque legal entities and arrangements
  • Clients hide their beneficial ownership details from TCSPs using nominee agreements
  • Clients who want to setup a business in UAE hide their business identities from TCSPs by giving wrong addresses or fake identity documents
  • Clients may bribe TCSPs to conduct unauthorized or illegal transactions through their accounts
  • Clients use the services of TCSPs to form complex company structures that are used for layering money laundering of illicit funds or hiding their criminal transactions
  • Clients with a base in tax havens or countries with a high number of terrorist organizations, high levels of corruption, subject to Sanctions, or weak AML/CFT regime
  • Clients that do not make or take direct payments to you but via a third party whose identity is unknown or the payment method is unusual of the client
  • Clients that have either a high number of cash transactions, a significant debt amount, are PEPs or have association with PEPs, unusually high level of assets, have funds that are disproportionate to their status or have frequently changed their organizational structure
  • Accounting of transactions that are not true to their actual nature, such as over or under-invoicing, multiple invoicing, false entries of goods and services, multiple trading, etc.
These are the possible transaction, client, and country risks that make TCSPs in UAE vulnerable to ML and FT. You, as a trust or company service provider, must be aware of these risks. Also, you must abide by the regulations of AML/CFT that we list down below.

AML regulation for trusts and company service providers in UAE

Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations is the primary law for AML in UAE. The Cabinet Decision No. 10 of 2019 concerning the Implementing Regulation of this Decree-Law applies this AML law UAE to trusts and company service providers as well. This means that the TCSPs in UAE must comply with every provision of this law and its related guidelines.
They must fulfill the obligations stated in these regulations to ensure an effective AML/CFT program internally. These measures will ensure their protection from exploitation by money launderers or financial criminals. These guidelines help TCSPs identify business relationships, transactions, and clients that make them vulnerable to ML and FT risks.
These regulations provide the guidelines for identifying suspicious transactions and reporting them. They provide the measures for customer due diligence and internal policies and procedures to keep TCSPs safe from ML/FT risks. We also get to know the governance framework that TCSPs must implement for AML compliance.
AML and CFT requirements for trusts and company service providers in the UAE

AML/CFT compliance requirements for trusts and company service providers in UAE

Trusts and company service providers must comply with the following requirements under the AML regulations of UAE:

Understand possible ML/FT risk exposure

It is highly crucial to understand your business’ exposure to ML/FT risks. For this, you must:
  • Adopt a risk-based approach to identify the risks and take relevant AML/CFT measures to manage them. Identification of these risks is also dependent on the role TCSPs play in the business relationship. They may act either as a representative, advisory and consulting role, or service providers to entities.
  • You must be careful of the client risks that include their nature of business, level of complexity, country of origin, or the country of operations in case of a foreign client.
  • You must identify any possibility of channel risk of the client. Specifically, this risk refers to the channel by which the customer is introduced and the preferred mode of communication in the relationship.
  • You must be vigilant of any unusual nature of financial arrangements or payments with the client, specifically if they are different from the standard practice in the market. Also, investigate the type, complexity, size, geographical sources, and transparency of financial transactions.
  • Identification of these different types of risks associated with a client must be documented. You can use it to allocate a risk rating to the client and develop AML/CFT measures accordingly.

Implement customer due diligence measures

Once you identify the risks, the next step is to implement relevant customer due diligence measures. CDD is essential for TCSPs since their clients are the most significant ML and FT risks source. You need to be doubly sure of your clients’ identities and activities to save yourself from money laundering.
You must have the following CDD measures implemented in your firm:
  • You must implement a regular process of screening existing and prospective customers against Sanction lists. You must check their background information to identify any association with PEPs or financial crimes. You must dig information about your client’s customers and third-party intermediaries facilitating the relationship between you two.
  • You must pay full attention to deriving any information about the beneficial owner of the client. It is also essential to verify this information through established independent sources. Money launderers conceal beneficial ownership by using third-party intermediaries, proxies, or some kind of legal arrangement.
  • You must ask pertinent questions to all your clients to determine their beneficial ownership. Then, you should confirm this information for consistency and reasonableness through reliable, independent sources. If questions persist, you can scrutinize them further to know their identity.
  • You must check the compatibility of the client’s profile with the kind of activities or transactions they engage in.
  • You must be alert to clients’ usage of opaque or complex legal arrangements to hide their identity or business activities.
  • You must assess any kind of influence of the client on how you carry out your duties and transactions.
  • It is also essential to check the authenticity of documents submitted by the client. These documents may relate to acquisition, transfer, financing, or any other transaction involving financial instruments.

Put in place internal policies, controls, and procedures

The trusts and company service providers must implement necessary measures to manage and mitigate the ML/FT risks. One of the key measures is the implementation of strong and effective internal policies, controls, and procedures. You must assess these policies for effectiveness and update them accordingly as and when the need arises.
These policies must relate to customer due diligence and suspicious transaction reporting. It must also include requirements for governance and record-keeping. Overall, such procedures must ensure management and mitigation of risks.

Report suspicious transactions to Financial Intelligence Unit (FIU)

You must report any kind of suspicious transactions to the Financial Intelligence Unit as and when you suspect it. You must add all the relevant information for the alleged transaction and keep it updated. You must be extra vigilant to identify any suspicion in any transaction or customer.
Some of the indicators for suspicious transactions include:
  • Unnecessary complex transactions whose purpose or beneficial owner is not known
  • Transactions that are inconsistent with the customer’s risk profiling
  • Large transactions (relatively large to a customer’s income or turnover)
  • Unexplained changes in the ownership of entities or unnecessary involvement of a third party
  • Transactions involving high-risk countries or third parties with no relationship with customers
  • Unclear or dubious sourcing of funds for a transaction
  • Refusal of customers to provide relevant information or proofs required for due diligence measures

Ongoing monitoring

Continuous monitoring of business relationships and client’s activities is a crucial part of AML and CFT measures. TCSPs must make efforts not to become victims of money laundering and any other financial crimes by their clients. Specifically when their clients are from high-risk countries or have a history of financial crimes or PEPs.
  • For this, you must periodically check information about your clients in public or commercial registries. This will help you detect any changes, transfers, or additional information that may add to their identity. You will also be able to notice any inconsistencies or unusual patterns in their information or activities.
  • You must monitor the transactions with clients until their closure or for the entire account life cycle. You need to be alert to any change in frequency, size, or amount of transaction that is unusual to the client.
  • Another critical point of consideration is checking the source of your payments from the clients. You must ensure that these payments are not from third-party accounts, foreign accounts, or unknown sources. Also, the method of payment must be consistent with the client’s history of payments and profile.

Conclusion

Thus, the TCSPs must understand the importance of these AML/CFT measures to fight against money laundering and terrorism financing. When forming new business relationships, you must be extra careful to implement due diligence measures to identify and manage risks. All these measures will ensure compliance with UAE’s AML/CFT measures and similar global regulations.
These measures will enable you to save yourself and your business from any fraudulent transaction or business relationship. This, in turn, helps you to minimize your exposure to money laundering and terrorism financing risks. These measures also help you to be in congruence with international AML/CFT regulations and best practices.

About the Author

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Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

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AML requirements for lawyers, notaries, and legal professionals in the UAE

AML requirements for lawyers, notaries, and legal professionals in the UAE

AML requirements for lawyers, notaries, and legal professionals in the UAE

AML/CFT Requirements for lawyers, notaries, and legal professionals in the UAE

Earlier, lawyers, notaries, and other legal professionals were not required to comply with AML requirements. FATF recognized the legal profession as one of the gatekeepers for money laundering. However, later, there were concerns about using gatekeepers as financial intermediaries by money launderers to launder illicit money.
Lawyers, notaries, and other legal practitioners have high exposure to money laundering risks because of the nature of their jobs. Some of the reasons why the ML/FT risks are higher for legal professionals are:
  • Association with lawyers adds a touch of legitimacy to the transaction
  • Lawyers handle large amounts of money that are attractive to the money launderers
  • Financial criminals and money launderers abuse the client accounts of law firms
  • Law firms have a relaxed attitude towards identifying risks to their firm
  • Their activity of establishing trusts and companies has high chances of money laundering
Here, in this blog, we shall cover the various red flags of ML/FT that legal practitioners must be aware of. We shall also include the AML/CFT regulations and requirements that they must comply with.

Suspicious transactions in the legal profession that raise a concern for money laundering

Following are some of the suspicious transactions that raise a concern for money laundering or terrorism financing in the case of legal professionals:
  • The client conceals information about identity, beneficial owner, and source of funds in any transaction
  • The client communicates only through online means or uses an unknown or unrelated intermediary to communicate
  • The client provides false documents or no documents for the execution of transactions
  • The client has past criminal records in terrorism financing or money laundering, or any other financial crime
  • The client is a PEP or belongs to a high-risk country or with an office in a country under the Sanctions list of various countries or international organizations
  • The funding of the transaction is unusual and not aligned with the client’s profile or general nature of transactions
  • The transactions are carried out with no logical reason in terms of legal, commercial, taxation, or financial sense
  • The source of funds is either from an unrelated third party, or any of the high-risk countries, or a country with no logical connection with the client
  • The payments to and from are happening to multiple bank accounts or foreign bank accounts which are being used without any office or branch in that country
  • The transaction with the client is unusual in terms of inconsistency with the size, business type, value, activity of the client, frequency of dealing, or manner of execution
  • The client is unaware of the transaction’s size, nature, and purpose of engaging in it
  • There are frequent changes in the organizational structure of the client’s business to make it more complicated without any legitimate reason or regular changes in the management team
  • The client does not have the required proofs for previous transactions, operations of the company, or presence in different geographies
  • The client’s company has a presence in many countries, with which there is no logical association or no activities are being carried out from that location
To save the legal professionals from these suspicious transactions, the UAE government introduced AML/CFT regulations. Lawyers, notaries, and all types of legal practitioners must abide by these regulations to reduce money laundering risks.

AML regulation for the legal profession in UAE

Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations is the primary law for AML in UAE. The Cabinet Decision No. 10 of 2019 concerning the Implementing Regulation of this Decree-Law applies this law to all types of legal professionals and practitioners. So, you must comply with its requirements and provisions to fight money laundering and terrorism financing.
The Cabinet Decision provides a list of Designated Non-Financial Businesses and Professions (DNFBPs) that includes lawyers, notaries, and other legal practitioners. These define the procedures that lawyers must implement to identify and assess ML/FT risks. These require lawyers to implement CDD measures and sufficient internal controls and procedures.
The AML/CFT requirements also require legal professionals to execute indicators to identify and report suspicious transactions. All these measures will ensure the mitigation of risks of any involvement in illicit money transactions. These indicators will allow legal practitioners to carry out their normal activities safely and securely.
AML requirements for lawyers, notaries, and legal professionals in the UAE

AML Requirements for lawyers, notaries, and legal professionals in the UAE

Lawyers, notaries, and legal professionals must comply with the following requirements under the AML regulations of UAE:

Understand possible ML/FT risk exposure

Legal professionals must adopt a risk-based approach to understand their ML/FT risks and implement relevant measures. These risks will be different and unique for each firm or individual. The chances depend on the type of services, geographies of operation, and client base of the legal practitioner.
Legal practitioners engage in some activities in their business that are more vulnerable to ML/FT risks. It would be best if you were wary of ML/FT risks while carrying out these activities. These activities include:
  • Purchase and sale of real estate
  • Managing bank, savings, or securities accounts
  • Forming and managing legal arrangements
  • Managing client money, securities, or other assets
Lawyers must be specifically aware of the ways illicit money can enter their ordinary course of business. The entry or placement of illegal funds may be from the client’s side, transaction type, or geography. This understanding will enable the legal practitioner to be careful before taking up any work.
Before commencing any business relationship, you must conduct a risk assessment of the client. For this, you may consider national reports or sectoral reports undertaken by supervisory authorities. You must also keep a regular check on the client and their transactions to keep yourself alert of any possible ML/FT risks.
Legal professionals must check the location of the client, transaction, and source of funds. Check if the country is high-risk in terms of terrorism funding, criminal activities, subject to Sanctions, or a weak AML/CFT regime. In such cases, lawyers must do a thorough investigation before carrying out any transaction.
After identifying risks, conduct a risk assessment to prepare a client’s risk profile or transaction. Based on this assessment, you can develop and implement risk mitigation measures at both enterprise and client levels. Now, document these risk assessments.

Implement internal policies, procedures, and controls for risk management and mitigation

Now, focus on developing and implementing policies and procedures for the company’s operations. These policies, procedures, and internal controls must manage the risks that the business faces. The internal controls must be able to fight the money laundering risks that your operations face. These controls, policies, and procedures must be:
  • Applicable to all branches, subsidiaries, departments, and functions of the company
  • Reviewed and approved by the management
  • Reasonable, effective for the identified risks, and consistent with the results of their risk assessments

Customer due to diligence measures

Lawyers and notaries must implement simplified or enhanced due diligence measures based on customers’ low or high risks, respectively. Also, they must do continuous monitoring of their clients because the risk profile may change. The client’s risk may also vary based on the type of transaction, which may require an update on the due diligence measures.
You must carry out customer due diligence before starting any business relationship with a client. In this, you need to verify the client’s identity and get the necessary proofs of the same. You must understand the nature of their business activities and the purpose of having that business relationship.
You must conduct a background screening of your clients to know their beneficial owner/s. This background screening will enable you to have information on any particular sanctions or criminal history. Understanding the purpose and nature of the transaction or relationship, or arrangement will give you more confidence in the client.
Another essential consideration is monitoring the transactions and relationships with clients. This monitoring ensures consistency and alignment between the information you have about the client and the type of transactions. Any unusual nature of inconsistency will alert you at the right time to take relevant actions.
If the client is from a high-risk country or has an association with PEPs, you must carry out enhanced due diligence. This EDD includes verifying client information from many legitimate sources. You must investigate for understanding their source of wealth and control structure, including voting rights.
With all this information about the client, prepare a risk profile and allocate a risk rating. At timely intervals, review and update this information in proportion to their risk rating. Legal professionals must document and save this information for future reference and updating.

Report suspicious transactions to Financial Intelligence Unit (FIU)

Lawyers, notaries, and all legal professionals and practitioners must report any suspicious transaction to FIU. They must provide all relevant supporting information to the authority for further investigation. Adequate internal policies related to this best practice will help legal professionals to comply with it. Some of the indicators for suspicious transactions include:
  • Unnecessary complex transactions whose purpose or beneficial owner is not known
  • Transactions that are inconsistent with the customer’s risk profiling
  • Large transactions (relatively large to a customer’s income or turnover)
  • Unexplained changes in the ownership of entities or unnecessary involvement of a third party
  • Transactions involving high-risk countries or third parties with no relationship with customers
  • Unclear or dubious sourcing of funds for a transaction
  • Refusal of customers to provide relevant information or proofs required for due diligence measures

Devise and implement a sound governance structure

You must formulate a governance structure to ensure your business complies with AML/CFT requirements. For this, you must appoint a fit and capable compliance officer. He/she must be capable of handling ML/FT reporting, AML/CFT program management, and training and development of the team.
You must keep your employee up-to-date on AML/CFT laws, policies, and norms. You must design a training manual and impart it to relevant team members. You must also assess the effectiveness of these training programs to ensure the correct knowledge development.
A well-functioning governance structure is tested by an independent audit frequently. This auditing procedure will check the risk profile of products and services, customers, and target markets. If it is not possible for you to keep an internal audit team, then you can hire a third-party auditing team.

Conclusion

Legal professionals carry out certain activities that have higher vulnerability to ML/FT risks. They are at increased risk, whether they give tax advice, facilitate property transactions, represent clients in disputes and mediations, or act as intermediaries. Financial criminals take advantage of this vast range of services to engage in money laundering and terrorism financing.
So, they need to be careful about their entity’s risk exposure and employ the above requirements. UAE has categorized them in the DNFBPs list and expects regular compliance with the AML/CFT law provisions. Such compliance with the national AML/CFT requirements will enable them to keep themselves safe from money laundering risks.
To plan and implement any of these measures, you can also take the support of AML consultants in the UAE. A professional AML consultant will be better equipped to help legal professionals and practitioners with suitable, relevant measures against money laundering. The consultant will ensure that industry-specific steps are taken in the fight against money laundering and terrorism financing.

About the Author

Linkedin

Jyoti Maheshwari

CAMS, ACA

Jyoti has over 9+ years of hands-on experience in regulatory compliance, policymaking, risk management, technology consultancy, and implementation. She holds vast experience with Anti-Money Laundering rules and regulations and helps companies deploy adequate mitigation measures and comply with legal requirements. Jyoti has been instrumental in optimizing business processes, documenting business requirements, preparing FRD, BRD, and SRS, and implementing IT solutions.

Reach Out to Jyoti

A detailed guide of AML compliance requirements for auditors and accountants in the UAE

A detailed guide of AML compliance requirements for auditors and accountants in the UAE

A detailed guide of AML compliance requirements for auditors and accountants in the UAE

A detailed guide of AML compliance requirements for auditors and accountants in the UAE

The profession of auditors and accountants is not an easy thing. They have access to the financial records and activities of their clients. This accessibility to financial records increases their vulnerability to money laundering. The involvement of their clients in money laundering activities also increases their exposure.
So, they must be extra vigilant to the risks of money laundering and terrorism financing. In this article, we list down the red flags of money laundering that auditors and accountants must be aware of. We also mention the important AML requirements that they must fulfil to remain in compliance with UAE’s AML regulations.

Key aspects that make auditors and accountants vulnerable to money laundering and financial crime

Some of aspects of the profession of auditors and accountants make them vulnerable to financial crimes. They must be aware of these factors to save themselves from becoming a victim of money laundering and terrorism financing. These factors include:
  • Payments from clients are the proceeds from a money laundering or financial crime incident.
  • The financials of a client are unusual in terms of source, complexity level, type of business activity, geographical origins, etc.
  • The client hides the identity details of the ultimate beneficial owner (UBO), senior managers, signatories, legal representatives, etc. to launder the proceeds of criminal activities.
  • The client may use shell companies or complex legal structures to layer the laundered money from illicit sources and bring the money back into the legal financial system of the country.
  • The client conceals the sourcing of funds of the company and the auditor and/or accountant, being responsible for the financial management of this company, becomes a part of money laundering crime.
A detailed guide of AML compliance requirements for auditors and accountants in the UAE
  • An accountant or auditor may unknowingly be involved in laundering the proceeds of a fraud activity of a client through shell companies.
  • The client hides any kind of association with Politically Exposed Persons (PEPs) concerning some kind of controlling stake
  • The client tries to influence the accuracy or transparency of the auditor’s or accountant’s work through bribery or any other ways

AML regulation for auditors and accountants in UAE

Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations is the primary law for AML in UAE. The Cabinet Decision No. 10 of 2019 concerning the Implementing Regulation of this Decree-Law makes accountants and auditors subject to the AML law. This means that the AML law applies to all auditors and accountants in UAE.
The Cabinet Decision provides a list of Designated Non-Financial Businesses and Professions (DNFBPs). AML regulations apply to these DNFBPs that include auditors and accountants. Given the nature of their profession and the content of their duties, accountants and auditors must comply with AML requirements as stated in the regulations for DNFBPs.
Their exposure to money laundering and financial crime activities is high because of the nature of their profession. They are responsible for financial management, examination of financial records and accounts, and assessment of governance structure and control procedures. These activities are the reason why illicit organizations or individuals exploit or bribe auditors and accountants to launder money.
The Ministry of Economy of UAE provides a Supplemental Guidance for auditors and accountants. It mentions in detail the AML/CFT obligations for both of these professions. These obligations include risk identification, customer due diligence, identification and reporting of suspicious transactions, and internal control and governance frameworks.

AML/CFT compliance requirements for auditors and accountants in UAE

Auditors and accountants must comply with the following requirements under the AML regulations of UAE:

Understand possible ML/FT risk exposure

You must have a detailed understanding of how your accounting and auditing business can be exposed to ML and FT risks. This requires an assessment at both the enterprise level and customer level. For this:
  • You must adopt a risk-based approach to identify risks in your business transactions. These risks may be of different types based on business nature, type of service, the operational environment, and other factors. Accordingly, you must adopt risk mitigation measures.
  • You must be aware of the source of ML/FT risks and the phase in which the money laundering risk is high. You must know the client who is exposing you to such money laundering risks.
  • You must know the transactions of clients that are making you vulnerable to financial crimes – valuation of certain types of assets or liabilities, approval of changes in a company’s capital structure, approval of company restructuring option, use of reserve account, approval of write-off of uncollected debt, payments from clients that are proceeds of financial crimes, or any other.
  • You must consider different types of risks to your business due to money laundering. These risks include customer risk, geographic risk, transaction risk, channel risk, or any other. You must be able to identify each type and strategize for their elimination.
  • You must conduct a risk assessment to understand the impact of these risks on your business. You must also analyze it in depth, document it, and update it as and when the changes occur.
You must conduct a similar assessment of ML/FT risks on your client’s business. You must identify potential risks, adopt a risk-based approach, and document the methodologies adopted. Also, based on the client’s type and nature of business, you must appoint Compliance Officer and relevant team members to facilitate compliance with AML regulations.

Put in place internal policies, controls, and procedures

Auditors and accountants must implement necessary measures to manage and mitigate the ML/FT risks. One of the key measures is the implementation of strong and effective internal policies, controls, and procedures. You must assess these policies for effectiveness and update them accordingly as and when the need arises.
These policies must relate to customer due diligence and suspicious transaction reporting. It must also include requirements for governance and record-keeping. Overall, such procedures must ensure management and mitigation of risks.
Auditors and accountants must apply the same for their client’s businesses as well. They must check whether the client has implemented relevant internal policies and control measures related to AML/CFT. They must ensure that these policies and procedures are in alignment with the risk appetite of the client.

Implement customer due diligence measures

Auditors and accountants must apply the necessary customer due diligence (CDD) measures based on the category and profiling of the ML/FT risk. If there is any change in the risk category, they must be ready to update the due diligence measures as well. You must apply these measures during or before the transaction happens or the business relationship starts.
You need to apply similar CDD measures for your clients as well. These due diligence measures include the following:
  • You must screen all your existing and prospective clients against Sanctions Lists. You must check information about beneficial owners, management control, or any associations with financial criminals or PEPs.
  • You must conduct a risk-based identification and verification of the true beneficial owner of your clients. For this, you must test your clients’ CDD measures to check the authenticity of their business relationships and counterparties.
  • After obtaining all this information from the clients, you must check its consistency and authenticity through reliable independent sources. You can use sources such as bank references, public registries, tax identification numbers, and any other relevant registries for information on assets.
  • You must check for use of any fraudulent or forged documents in transactions with clients. While working as an auditor or accountant, you must check the legitimacy of the client’s corporate documents.

Report suspicious transactions to Financial Intelligence Unit (FIU)

Auditors and accountants must report any kind of suspicious transactions to the Financial Intelligence Unit as and when they suspect it. You must add all the relevant information for the suspected transaction and keep it updated. You must be extra vigilant to identify any suspicion in any transaction or customer.
Some of the indicators for suspicious transactions in their own business or client’s business include:
  • Unnecessary complex transactions whose purpose or beneficial owner is not known
  • Transactions that are inconsistent with the customer’s risk profiling
  • Large transactions (relatively large to a customer’s income or turnover) that are unusual for that client
  • Large deposits or withdrawals inconsistent with customer’s business nature
  • Unexplained changes in the ownership of entities or unnecessary involvement of a third party
  • Transactions involving high-risk countries or third parties with no relationship with customers
  • Unclear or dubious sourcing of funds for a transaction
  • Refusal of customers to provide relevant information or proofs required for due diligence measures

Ongoing monitoring of their and clients’ activities

Auditors and accountants must be vigilant of their clients’ activities and transactions. They must protect their business transactions and their clients’ from possible misuse by terrorists or criminals. So, you must check the client’s business and transactions often to be sure of no involvement of financial crime.
You must do continuous monitoring of the following activities of your client’s business:
  • You must check for any unexpected changes, amendments, or transfers that are unusual to your client’s routine transactions.
  • You must keep a check on any changes in ownership, capital contributions, dividend payments, powers of attorney, or any other transaction that changes the control of the client’s business.
  • You must monitor any unusual transaction, which does not align with the client’s expected business activity. This may include funds transfers or financial transactions, or any other transaction that does not give the correct source of financing.
  • An important consideration for auditors and accountants must be to check the source of the payments received from clients. You must ensure that the payments come from known sources and not from any unknown foreign accounts or third parties. The mode of payment must be such that it does not hide the origin of funds and must be the usual mode used by the client.

Conclusion

Auditors must understand the vulnerability of their professional activities to money laundering risks. With that understanding, they must implement the above measures to comply with UAE’s AML/CFT regulations. These measures ensure that they themselves and their clients are not exposed to money laundering or terrorism financing activities.
To plan and implement any of these measures, you can also take the support of AML consultants in the UAE. A professional, AML consultant will be better equipped to help accountants and auditors with the right, relevant measures against money laundering. The consultant will ensure that industry-specific steps are taken in the fight against money laundering and terrorism financing.

About the Author

Linkedin

Jyoti Maheshwari

CAMS, ACA

Jyoti has over 9+ years of hands-on experience in regulatory compliance, policymaking, risk management, technology consultancy, and implementation. She holds vast experience with Anti-Money Laundering rules and regulations and helps companies deploy adequate mitigation measures and comply with legal requirements. Jyoti has been instrumental in optimizing business processes, documenting business requirements, preparing FRD, BRD, and SRS, and implementing IT solutions.

Reach Out to Jyoti

AML Compliance Requirements for Jewellers in UAE​

AML Compliance Requirements for Jewellers in UAE​

AML Compliance Requirements for Jewellers in UAE​

AML Compliance Requirements for Jewellers in UAE​

The industry of gems and jewellery, and precious metals and stones is a key contributor to the UAE’s economy. But, it is also an attractive point for illicit activities and financial crime. So, jewellers must protect themselves from money laundering and terrorism financing activities.
In this article, we focus on the factors that make the jewellery industry vulnerable to money laundering activities. We will list the regulations that govern AML compliance in UAE. We will also enlist the AML requirements that jewellers have to fulfill to comply with AML regulations.

Factors contributing to the higher vulnerability of jewellery industry to financial crime

Some characteristics of the jewellery industry make it vulnerable to exploitation by criminals. Unless jewellers are aware of these factors, their efforts against money laundering will not be successful. Following are these factors:
There are three major business structures at Dubai Internet City. They are-
  • The jewellery industry’s products have high intrinsic value, which may increase over time.
  • It is easy to physically transport the jewellery pieces, gems, and precious metals from one place to another.
  • Money launderers can use jewellery in two ways in money laundering activities. Firstly, they can use it as the source to generate illegitimate money. They can also use it as the vehicle to launder the proceeds of criminal activities.
  • Money launderers can use jewellery directly as a form of currency. They can also use it indirectly by exchanging its value with other financial products.
  • It is difficult to track the movement of jewellery items and precious metals since it requires the capability and capacity of laboratory techniques
  • Cash-based markets exist for certain types of gems or precious metals. These are often decentralized and well-established. It is easy to trade or exchange precious stones through these cash-based markets by remaining anonymous.
  • There is a low level of involvement of the formal financial system in jewellery transactions.
AML Compliance Requirements for Jewellers in UAE​
  • The market for jewellery and precious metals and stones is global in nature. So, many cross-border and multi-jurisdictional situations arise in jewellery transactions. Criminals find it easier to take advantage of such situations to engage in financial crime.
  • There are several small and medium-sized companies in this industry. Generally, their awareness of ML/FT risks and due diligence requirements is low. This increases their exposure to money laundering and terrorism financing activities.
  • There is a common cultural practice of buying and selling precious metals and stones in some regions. This leads to difficulty in identifying which transaction is legitimate and which one is illicit.
  • Different regulatory regimes in different countries affect global transactions. Some countries have a strict regime while some have few to no restrictions. Also, some jurisdictions do not pay heed to supervision and monitoring of every transaction.
All the above factors make the jewellery industry an attractive means of money laundering activities. So, the UAE government introduced relevant regulations to combat such activities. These regulations run parallel to the global AML/CFT regulations.

AML regulation for jewellers in UAE

Decree-Law No. 20 of 2018on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations is the primary law for AML in UAE. The Cabinet Decision No. 10 of 2019 concerning the Implementing Regulation of this Decree-Law makes dealers in precious metals and stones (DPMS) subject to the AML law. This means that the AML law applies to jewellers and dealers in precious metals, gems, and stones.
The Cabinet Decision provides a list of Designated Non-Financial Businesses and Professions (DNFBPs). AML regulations apply to these DNFBPs that include dealers in precious stones and metals and jewellers. If they engage in transactions valuing not less than AED55,000.0, AML regulations apply to them. Herein, a transaction can include any single transaction or several interrelated transactions.
The Guidelines for Designated Non-Financial Businesses and Professions mentions the Customer Due Diligence (CDD) obligations for jewellers. But, they must also be aware of the ways to identify suspicious transactions followed by reporting. In the next section, we describe the compliance requirements for jewellers in UAE.

AML compliance requirements for jewellers in UAE

Jewellers must comply with the following requirements under the AML regulations of UAE:

AML Policy Documentation

Jewellers need to document their AML Policy and prepare an AML Policy Manual describing the procedures and controls embedded to counter the risk of money laundering.
The jewellers must implement necessary measures to manage and mitigate the ML/FT risks. One of the key measures is the implementation of strong and effective internal policies, controls, and procedures. You must assess these policies for effectiveness and update them accordingly as and when the need arises.
The AML Policy Manual should cover the following areas:
  • The identification and assessment of ML/FT risks
  • Customer due diligence (CDD, EDD, SDD), including its review and updating, and reliance on third parties in regard to it
  • Customer and transaction monitoring and the reporting of suspicious transactions
  • AML/CFT governance, including compliance staffing and training, senior management responsibilities, and the independent auditing of risk mitigation measures
  • Record-keeping requirements

Understand possible ML/FT Risk Exposure

You must have a detailed understanding of how your jewellery business can be exposed to ML and FT risks. For this:
  • You must adopt a risk-based approach to identify risks in your business transactions. These risks may be of different types based on business nature, type of service, the operational environment, and other factors. Accordingly, you must adopt risk mitigation measures.
  • You must be aware of the source of ML/FT risks and the phase in which the money laundering risk is high.
  • You must know the latest ML/FT trends and how money is getting laundered in the jewellery industry.
  • You must consider different types of risks to your business due to money laundering. These risks include customer risk, geographic risk, transaction risk, channel risk, or any other. You must be able to identify each type and strategize for their elimination.
  • You must conduct a risk assessment to understand the impact of these risks on your business. You must also analyze it in depth, document it, and update it as and when the changes occur.

Implement customer due diligence measures

Jewellers must apply the necessary customer due diligence (CDD) measures based on the category and profiling of the ML/FT risk. If there is any change in the risk category, jewellers must be ready to update the due diligence measures as well. You must apply these measures during or before the transaction happens or the business relationship starts.
These due diligence measures include the following:
  • You need to identify the customers, beneficial owners, beneficiaries, or controlling persons. You must collect the necessary documents and relevant information that prove your identity.
  • You must understand the nature of your business’s relationship with that customer or business associate. Also, you must identify the key purpose of having this relationship.
  • You must employ policies to monitor and supervise the business relationship. If you see any sudden change in the transaction or behavior of the customer, it is a red flag.
  • You must keep updating the customer risk profiles to avoid any errors or missing data.
  • In the case of customers from high-risk countries or politically exposed persons, you must execute enhanced due diligence measures.

Report suspicious transactions to Financial Intelligence Unit (FIU)

Jewellers must report any kind of suspicious transactions to the Financial Intelligence Unit as and when they suspect it. You must add all the relevant information for the suspected transaction and keep it updated. You must be extra vigilant to identify any suspicion in any transaction or customer.
Some of the indicators for suspicious transactions include:
  • Unnecessary complex transactions whose purpose or beneficial owner is not known
  • Transactions that are inconsistent with the customer’s risk profiling
  • Large transactions (relatively large to a customer’s income or turnover)
  • Large deposits or withdrawals inconsistent with customer’s business nature
  • Unexplained changes in the ownership of entities or unnecessary involvement of a third party
  • Transactions involving high-risk countries or third parties with no relationship with customers
  • Unclear or dubious sourcing of funds for a transaction
  • Refusal of customers to provide relevant information or proofs required for due diligence measures

Devise and implement a sound governance structure

You must formulate a governance structure to ensure your business complies with AML/CFT requirements. For this, you must appoint a fit and capable compliance officer. He/she must be capable of handling Ml/FT reporting, AML/CFT program management, and training and development of the team.
You must keep your employee up-to-date on AML/CFT laws, policies, and norms. You must design a training manual and impart it to relevant team members. You must also assess the effectiveness of these training programs to ensure the right knowledge development.
A well-functioning governance structure is tested by an independent audit frequently. This auditing procedure will check the risk profile of products and services, customers, and target markets. If it is not possible for you to keep an internal audit team, then you can hire a third-party auditing team.

Keep and maintain records

Jewellers are required to keep records of all their financial transactions. You must also keep all documents, data, and records of your ML/FT risk assessment and implemented measures. You must submit these records to the relevant authorities as and when requested.
You must maintain the records for the following:
  • Records of all domestic and international financial transactions for at least five years, including customer correspondence, customer payment proofs, agreements, and analytical data of customers’ financial transactions
  • Records of customer accounts, customer correspondence, personal identification proofs, KYC and CDD forms, customer risk assessment, and classification records
  • Corporate documents and information on beneficial owners, legal shareholders, and senior managers
  • Records of ongoing monitoring of business relationships such as transaction reviews, customer correspondence, CDD profiles and documents, and transaction handling decisions
  • Records of suspicious transaction reports, related correspondence, competent authority’s investigation files, and notes by FIU on the feedback for suspicious transaction reports

Conclusion

These are the various measures that jewellers must implement to comply with AML regulations. These measures will enable them to save themselves from any fraudulent transaction or business relationship. This, in turn, helps them to minimize their exposure to money laundering and terrorism financing risks.
To plan and implement any of these measures, they can also take the support of AML consultants in the UAE. A professional, AML consultant will be better equipped to help jewellers with the right, relevant measures against money laundering. The consultant will ensure that industry-specific steps are taken in the fight against money laundering and terrorism financing.

About the Author

Linkedin

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

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Enhanced Money Laundering Risks In The Real Estate Sector

Enhanced Money Laundering Risks In The Real Estate Sector

Enhanced Money Laundering Risks In The Real Estate Sector

The Role of Real Estate Agents in Money Laundering (ML)

Money laundering is a crime that has been in the business environment for a very long time now. However, the scope and intensity of the crime have grown dramatically in the last few years. Needless to say, it is expected to grow more disastrously in the coming years. In this article, let’s look at Money-Laundering Risks in the Real Estate Sector.

Dealing with Money Laundering Risks in real-estate business

Generally, the ML risk of a real estate agent is substantially mitigated with the help of the majority of real estate transactions, which involve both banks and non-bank mortgage companies.
However, whenever an unusual transaction happens or a situation where the client belongs to a high-risk profile, the chances of encountering a possible money laundering scheme elevate exponentially. Therefore, you must be prepared to take mitigative actions.
Being a real estate professional, you must possess the knowledge of how to undertake real estate transactions and the ability to identify, evaluate, and mitigate the risks involved with money laundering.
In addition, it requires agents and brokers to be aware of how real estate transactions might be used in illegal financing schemes, along with what steps should be taken in order to detect and deter such activities.

Types of risk in real-estate business

As a real estate agent or broker, If you are familiar with the signs of money laundering activities in the market of real estate, then it can help you in.
  • Identifying the potential money laundering activities
  • Take required preventive steps in order to mitigate the risks involved with money laundering
  • If required, communicate with the dedicated authorities to help deter and mitigate the potential use of real estate in money laundering schemes.
Financial experts and law enforcement have identified a few warning signs about money laundering related to real estate. Therefore, in order to minimize and mitigate that risk, several jurisdictions have issued a few guidelines.
Every broker or a real estate agent should be aware of the primary characteristics of a real estate transaction that may indicate illegal financial activities. Being a real estate broker or an agent, you are well versed in the fundamental processes of your industry.
Hence, it becomes effortless for you to identify any unusual or suspicious activities. Regulators, The International Community, and Law Enforcement have identified a few money laundering activities or risk factors. These risk factors or red flags can be categorized into three groups: transaction risk, geographic location, and the nature or profile of the customer.
Enhanced Money Laundering Risks In The Real Estate Sector

1. Geographic Risk

The geographic risk might come into the picture because the customers or the source of customer’s funds are geographically located in a jurisdiction that has a weak AML compliance regime, supports or gathers funds for the terrorist groups, or does belong to high-risk individuals under the influence of political powers, leaders, or parties.

2. Customer Risk

Sometimes the risks are associated with the customer’s point of view as well. These might include the following.
  • The difference between the property and the buyer’s buying capacity
  • Unusual involvement of third parties
  • Titling a residential plot in the name of the third party like a friend, business associate, lawyer, or a relative
  • High-ranking political foreign officials or the members of their family are parties to a real estate transaction

3. Transactional Risks

Here are a few transactional risks in the real estate sector.
  • Over or undervalued properties
  • Use of hefty and unexplained amount of money
  • Buying property with inconsistent or unexplained income or occupation
  • Immediate resale of the purchased property
  • Excessive speed of transactions without a valid explanation
  • Unusual sources of funding
  • Buying a property without having any interest in the core characteristics of a property
  • Any other activity that might account for suspicion

Actions Need To Be Taken In Order To Mitigate The Risk in Real-Estate Sector

There could be only a single risk factor or even multiple risk factors that can be present in the ecosystem. The role of a real estate agent is to be aware of such risk factors and practice sound judgment on the basis of their knowledge of the real estate industry. One should also be prepared to take necessary mitigative actions when the red flags are thoroughly identified. Here are a few actions that you should take in order to mitigate the AML risks in the real estate sector.

1. Know Your Customer (KYC) And Customer Due Diligence

Knowing your customer is one of the most critical elements of the various roles of a real estate agent or a broker. It can help you in identifying and combating any sort of money laundering activities.
Assessing the risks associated with Money Laundering is one of the most traditional ways for real estate agents or brokers in order to lay a foundation of trust in their respective clients.
In situations where the red flags are identified, the real estate agent should seek help from Customer Due Diligence (CDD) protocols. The process of CDD includes the following aspects.
  • Ask for additional information and documents supporting that information, like an Emirates ID, driver’s license, or a passport. It is essential for you to ask for the papers that clearly and legally establish the customer’s true identity.
  • If there is the involvement of a legal entity, ask for additional information that clearly states the ownership and its rights. It is commonly referred to as beneficial ownership information.
  • Ask for additional information that can help you understand the circumstances and the nature of the client’s business.
In addition to that, depending upon the company’s size, it would be ideal for the agent to notify and discuss the scenario of the high-risk clients with the senior-level management. This is important in order to identify the red flags and monitor the relationship between them if found any.

2. Report The Suspicious Activities

The real estate agent should report in case if he or she encounters any type of suspicious activity. For example, these suspicious activities in the real estate industry might include the following.
  • When the price is either over or under-quoted for a particular property as per the market valuations.
  • If the payments are made with the bank accounts from the high-risk associate geographies or politically exposed personnel (PEPs).
  • Unusual transactions or the history of accounts/ account holders.

About the Author

Linkedin

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

Reach Out to Pathik

The Role of Technology In Anti-Money Laundering Compliance

Role of Technology In Anti-Money Laundering Compliance

The Role of Technology In Anti-Money Laundering Compliance

The Role of Technology In Anti-Money Laundering Compliance

This article revolves around the role of technology in anti-money laundering compliance and KYC processes. So let us dive deep into it so that you can also start leveraging the power of technology to reduce the risk of any sort of fraudulent activities.
In today’s modern world, the state of technology is constantly changing and undoubtedly for good. You name any industry that can survive without modern technological suits, and we bet you would not be able to name anyone.
It is simply because all the industries are now focusing on minimizing the manual efforts and incorporating automation, artificial intelligence into their systems.
Financial industry or institutions are more prone to risks, and hence, giving space to manual steps calls for some unwanted circumstances that might result in irreversible qualitative as well as quantitative damages.
Role of Technology In Anti-Money Laundering Compliance

How Does Technology Ease AML And KYC Processes?

Anti-money laundering or AML includes regulations and laws that are aimed to prevent any sort of financial crimes or manipulation. Every country has a differentiated and clearly established set of AML regulations or rules.
While knowing your customer or KYC is just a part or action of the steps undertaken in order to prevent any sort of money laundering activities.
KYC includes various practices that recognize the customer or a business enterprise at the time of the first transaction or practically, even before that.
In addition, it requires agents and brokers to be aware of how real estate transactions might be used in illegal financing schemes, along with what steps should be taken in order to detect and deter such activities.
It is a procedure in which financial institutions (FIs) and Designated Non-Financial Businesses and Professions (DNFBPs) gather information related to their probable customers. This information includes name, name of the business, address, age, legal identity card, nationality, and stuff like that.
All business enterprises that are prone to money laundering activities should have anti-money laundering compliance strategies. If they do not have AML compliance strategies well defined, they might invite some penalties from the regulators.
However, complying with all such methods might not be easy at first because it incorporates a lot of tedious paperwork and asks for your undivided attention to understand the gist and make all your staff aware of the same in the most effective and efficient manner.

In addition to that, these strategies are updated at regular intervals, and this is the point where the need and importance of technological aid come into the picture. Technological evolution supported by artificial intelligence, machine learning, and big data can exponentially reduce the risk of money-laundering.

How Artificial Intelligence, Big Data, and Machine Learning Can Help You counter Money-Laundering Risks?

Artificial Intelligence, Big Data, and Machine Learning have made tackling financial crime both cheaper and faster. It also has allowed companies to adopt a much more efficient and more innovative approach.
Financial institutions (FIs) and Designated Non-Financial Businesses and Professions (DNFBPs) are now replacing the good old black, and white rules approach with something more focused on the technology front, holistic, and flexible program. These programs will be able to detect any sort of abnormalities in a highly efficient way.
Manual-oriented processes are typically slow. But with the help of automation and (AI) artificial intelligence, these processes have become much quicker and more efficient. Also, the scope of manual error or manipulation is reduced.
In addition to that, financial institutions usually have to deal with loads of data. Now, suppose you consider humans to filter, analyze, and conclude a solution from that voluminous data. In that case, it will take an eternity and still won’t guarantee a hundred percent accuracy and reliability.
If the same process is being carried out by fast, efficient, and accurate software, you will be able to save money and valuable time.
Artificial intelligence can identify patterns of transactions, anomalies & behavior rapidly, allowing the AML compliance professionals to invest their time better analyzing the results, collaborating the findings with other financial institutions, and investigating root causes. and valuable time.
The use of technology is not restricted merely to transaction monitoring. Big data has helped business enterprises move away from simply tracking financial crime at the transaction level but enabling connections to detect the pattern in the voluminous data.
This allows the business enterprise to trace the sources of illegal transactions and activities more effortlessly and effectively.

Solutions That Ensure Anti-money Laundering And Know Your Customer Compliance

AML Solutions that are supported by artificial intelligence enable you to easily comply with all the laws and regulations along with the scope of minimizing your financial risk.
Here are a few solutions that will allow you to comply with all AML and KYC processes and strategies.

1-Transaction Monitoring

Every transaction that your business encounters on a daily basis involves some sort or level of risk. Hence, transaction monitoring software is the essential requirement for financial institutions under anti-money laundering obligations.
Business enterprises can create their own set of rules without having any prior coding knowledge in order to detect suspicious and high-risk economic activities automatically.

2- Anti-Money Laundering Name Screening

AML name screening software can help you effectively meet all of the basic requirements of sanctions, PEP scanning services, risk-based approach, and can also meet local and global AML compliance policies and keep your business safe from any negatives or risks that may arise as the transactional course continues to grow.
This way, you can also avoid regulatory penalties. With the help of AML name screening, you can even perform Customer Due Diligence or CDD and Know Your Customer or KYC transactions in accordance with the stated obligations.

3- Anti-Money Laundering Transaction Screening

With the help of AML transactional screening software, banks or DNFBPs can check the details of the sender as well as receiver without delay. Enterprises can exponentially reduce the risk of financial crime by tracking the sender and receiver of the transactions with the help of this software.
In addition to that, companies can even create their individual search options along with advanced search parameters. The data collected by this software structures in a way that provides comprehensive results and without having to compromise on the accuracy.

4- Adverse Media Screening

An adverse media software helps the companies to track and monitor any negative news about any of the already existing clients or a potential client. Adverse media screening is one of the essential steps of anti-money laundering and knowing your customer processes.
It basically helps the companies to identify the potential risks and protect them from the same. Adverse media data include news related to terrorist financing, arms trafficking, corruption, money laundering, bribery, smuggling of drugs, violation of human rights, and tax evasion.

Financial institutions can comply with AML processes by performing advanced media screening in addition to PEP scans during the process of customer onboarding.

Final Words

By now, you must be pretty familiar with what is the role of technology in anti-money laundering compliance and how it can make a difference in terms of enhanced efficiency, accuracy, and productivity.
As a result, financial institutions (FIs) and Designated Non-Financial Businesses and Professions are able to protect themselves from reputational losses and regulatory penalties.

FAQs - Role of Technology In Anti-Money Laundering Compliance

AML technology is a program to help you detect suspicious transactions, store and analyse customer data, and assess customer risks. It facilitates transaction screening, checks suspicious customers against PEPs or Sanction lists, and monitors transactions based on artificial intelligence.  
Anti-money laundering technology can help assess customer data, determine relationships between them, identify patterns of transactions, and risk score customers.
Many systems with anti-money laundering capabilities are available in the market to monitor transactions and individuals, investigate and report to the entity.

About the Author

Linkedin

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

Reach Out to Pathik

Importance of AML/CFT measures

Importance of AML CFT measures

Importance of AML/CFT measures

Importance of AML/CFT measures

As the world economy is growing and the entire globe is coming together as an integrated society, two vices are trying to take a toll on this society – Money Laundering and Terrorism. Money laundering has been a setback to the global financial system, pumping the illegally generated money into the economy, making it appear to have come from a legitimate source. Such funds generated from criminal activities are used again for multiplying the effect of illegal activities, such as terrorism, and impacting the security and integrity of the countries. The need of the hour is to be resilient against such evils of the society to make it a better place to live, and thus, various countries are coming up with AML/CFT measures.

Importance of AML CFT measures

AML/CFT Measures undertaken by various countries

Singapore Ministry of Law has developed a division under the name of “Anti Money Laundering / Countering Financing of Terrorism,” with whom Cash Transaction Report for suspicious transactions is furnished.

Similarly, the Australian Government has issued the Anti-Money Laundering and Counter-Terrorism Financing Act in the year 2006, which requires businesses to have a proper program in place to protect the company from financial crimes by timely identification/mitigation of these kinds of risks.

The United Arab Emirates is also one such nation amongst the list, devoted to controlling the money laundering activities and financing of terrorism or other illegal activities from there. As a part of this strategy, the UAE government has introduced the regulation “Anti-money laundering and combating the financing of terrorism and illegal organization” and issued the guidelines to enforce the law better.

Designated Non-Financial Businesses and Professions (DNFBPs)

When it comes to protecting the financial sector from such criminal exploitation, certain businesses and professions could serve as first aid to curb these. With the same thought, under UAE guidelines, class of people/businesses have been defined as Designated Non-Financial Businesses and Professions (“DNFBPs”).

They have been obligated under the law to perform the Due Diligence of their customers and risk profiling. These DNFBPs have been made responsible for reporting the transactions to the authorities, where any suspicion involving money laundering or illegal activities such as financing terrorism, drug trafficking, etc., is doubted.

It is pertinent to know the group of businesses and professions that have been identified as DNFBPs. This list includes the following:

  • Auditors and accountants; 
  • Lawyers, notaries, and other legal professionals and practitioners; 
  • Company and trust service providers; 
  • Dealers in precious metals and stones; 
  • Real estate agents and brokers; 

If one deep dives into the lawmakers’ intent, one would understand that DNFBPs have been categorized looking at the risk involved in the business or the vulnerability of business towards the criminal activities or the one having access to the suspect’s accounts/ finance details.  

If we take the example of auditors, the federal laws regulating the audit profession anyway imposes specific obligations on auditors regarding the reporting of crimes detected during auditing the accounts of clients, as they have access to the books and internal controls.  

Let’s talk about precious metals and stones. The high intrinsic value of the product vis-a-viz the compact form of the same and the value appreciative nature of such items (gold, silver, diamonds, etc.) make it easy for the money launderers to exploit the sector and fund the criminal activities. 

Looking at the nature of business/professions obligated with tasks under anti-money laundering and combating of financing of terrorist activity, it is apparent that the purpose is to trace back such money launderers and check the illegal or criminal activities. For this, it is important to have in place a dependable source of information about the business relationships and transactions. This is pertinent as the money launderers and the persons involved in criminal activities try to hide their identity and camouflage the proposed transactions. 

Responsibilities of DNFBPs

In the context of the responsibilities shouldered on the DNFBPs, it would be treated as an offense if they do not report the suspected transactions (where they doubt the involvement of money laundering or any other criminal act) or tip-off about the transactions reported with the supervisory authorities.

For this, the regulations have suggested specific ways and means to assist the DNFBPs to comply with the guidelines and discharge their obligations of reporting the suspicious transaction in a fair method, such as:

  • Developing and implementing the internal controls and policies/procedures (commensurate to the size and complexity of the business) that seems to be adequate to identify the doubtful transactions and prevention of the money laundering related activities;  
  • Maintaining appropriate AML documentation such as “Know Your Customer” document, Customer Due Diligence practice, Risk profiling policy, etc. 
  • Communicating such policies to the staff and imparting training thereupon;  
  • Monitoring and adhering to the compliance requirements under the guidelines.  
Thus, the law revolves around adequate measures for identifying customers and risk assessment to evaluate the cause for concern and report the same to apt Governmental authorities for necessary proceedings against the felonious person.

About the Author

Linkedin

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

Reach Out to Pathik