Earlier in March, global money laundering watchdog Financial Action Task Force (FATF) placed the UAE in its list of ‘jurisdictions under increased monitoring’ or the so-called grey list.
There are views that the country has inherent vulnerabilities to illicit finance due to its financial importance in the Middle East region.
Following its grey listing, the country has introduced stricter regulations and has been very keen to enforce them. The country is surely in the right direction with its latest reforms to address money laundering.
Meanwhile, financial institutions that guard the financial system should proactively develop effective anti-money laundering (AML) compliance programmes, leveraging the strengths of modern technology.
The UAE has long been criticised for its absence of financial transparency. It is relatively easy to get a residential visa if a person invests in a business or property there.
Ever since the Western nations imposed sanctions on Russia, following its attack on Ukraine, there seems to be increased interest towards the UAE from Russians, according to a report by DW. There are concerns that the country will turn into an “even greater hub for Russian oligarchs” who look to escape Western sanctions and protect their wealth.
Jodi Vittori, a professor at Georgetown University in Washington and expert on corruption, who was quoted by DW, alleged that the flow of ill-gotten Russian gains has actually been washing through Dubai since the late 1990s.
He added that the UAE authorities don't collect the relevant information when foreign nationals make investments in the country, making it “a one-stop shop for illicit finance”.
The report also highlighted issues such as the lack of transparency in business ownership, the presence of 39 different company registries across the UAE’s seven emirates and the establishment of more than 40 "free zones", where foreigners can locate or relocate companies.
What Reforms Are Required?
The FATF lists out the following action items for the UAE to strengthen the effectiveness of its AML regime.
- Demonstrating through case studies and statistics a sustained increase in outbound requests to help facilitate investigation of terrorist financing (TF), money laundering (ML), and high-risk predicate offences
- Identifying and maintaining a shared understanding of the ML/TF risks between the different Designated Non-Financial Business and Profession (DNFBP) sectors and institutions (eg. real estate developers, dealers in precious metals and stones, law firms)
- Showing an increase in the number and quality of Suspicious Transaction Reports (STRs) filed by financial institutions and DNFBPs
- Achieving a more granular understanding of the risk of abuse of legal persons and, where applicable, legal arrangements, for ML/TF
- Providing additional resources to its financial intelligence unit (FIU) to strengthen its analysis function and enhance the use of financial intelligence to pursue high-risk ML threats, such as proceeds of foreign predicate offences, trade-based ML, and third-party laundering
- Demonstrating a sustained increase in effective investigations and prosecutions of different types of ML cases consistent with the country’s risk profile
- Proactively identifying and combating sanctions evasion, including by using detailed guidance in sustained awareness-raising with the private sector and demonstrating a better understanding of sanctions evasion among the private sector
Regulatory Changes So Far
The FATF noted that the UAE has addressed more than half of the key recommended actions from its Mutual Evaluation Report (MER), a report based on peer reviews to provide an in-depth description and analysis of each country’s system for preventing criminal abuse of the financial system.
According to the watchdog, the country finalised a TF Risk Assessment, created an AML coordination committee and established a system to implement targeted financial sanctions without delay. Furthermore, it improved its ability to confiscate criminal proceeds and engage in international cooperation.
Recently, the country has updated its regulations to impose hefty fines and increased jail terms for money laundering offenders.
On March 9, the Dubai government announced a first-of-its-kind law to regulate virtual assets in line with an exponential increase in their demand. In a related development, Dubai Police’s cybercrime unit said it started monitoring cryptocurrencies to ensure that digital currencies are not being used for money laundering or other crimes.
How Can Financial Institutions Navigate this Tough Situation?
While new regulations can create a larger framework in the fight against financial crime, the onus is on financial institutions to put the regulations into action. They normally do this via regulatory compliance programmes, which include both human and technology resources.
Financial institutions in the Middle East are facing increasing pressure from local and global regulators to revamp their AML compliance programmes. Given the region’s rapidly evolving financial system and sophisticated criminal networks, it would be a complex task for them.
When it comes to AML compliance, financial institutions are often troubled by outdated compliance systems, scarcity of skilled compliance staff and inefficient allocation of staff. A shortfall in any of these areas might lead to enforcement actions including hefty fines.
With modern technologies such as artificial intelligence and machine learning at the forefront, compliance departments can address many of these issues effectively. With proper implementation, these technologies can bring in a paradigm shift in the way financial institutions approach financial crimes and compliance risk at large.
This is an area where machine learning-powered platforms like Tookitaki can add value. Our end-to-end AML/CFT analytics solution, the Anti-Money Laundering Suite (AMLS), can create next-generation compliance programmes, encompassing key processes such as transaction monitoring, AML screening and customer due diligence on a single platform.
The suite comprises our Transaction Monitoring, Dynamic Risk Review, Smart Screening and Case Management solutions under one roof for all your AML needs. AMLS achieves new levels of accuracy and speed by providing the industry’s only shared typology platform, allowing our clients to break through silos and benefit from the industry’s collective AML insights. Our coordinated, collaborative and innovative approach enables everyone to join forces in the fight against financial crime.
Digital banks and FinTechs across the globe are building agile and scalable compliance programmes using AMLS, making us a partner of choice. We are leading AML initiatives at some of the key digital banks in Asia, the U.S. and Europe.
Want to know how you can build a comprehensive AML compliance program? Speak to one of our experts today.
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