Designated Non-Financial Business or Profession
In the context of the United Arab Emirates (UAE), the term "DNFBP" refers to Designated Non-Financial Business or Profession. DNFBPs are businesses or professions that are not traditional financial institutions but are still capable of being used for money laundering (ML) or terrorist financing (TF) due to the nature of their activities and the potential for large cash transactions or the movement of significant assets.
In the UAE and many other jurisdictions, DNFBPs are subject to anti-money laundering (AML) and counter-terrorist financing (CTF) regulations and are required to implement measures to detect and prevent illicit financial activities.
Does Your Company Fall Under the DNFBP?
The activities classified as DNFBP vary depending on the jurisdiction and the supervisory authority as follows:
|1) Real estate developers or agents which carry out transactions with a customer involving the buying or selling of real property;
2) Dealers in precious metals or precious stones;
3) Law firms, notary firms, or other independent legal businesses;
4) Accounting, audit, or insolvency firms;
5) Single Family Offices;
6) Company service providers, who are not otherwise a DNFBP. A company service provider is a person that, by way of business, provides any of the following services to a customer:
- Acting as a formation agent of legal persons
- Acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons;
- Providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement;
- Acting as (or arranging for another person to act as) a nominee shareholder for another person.
|1) Real estate agents
2) Dealer in precious metals or precious stones
3) Dealer in any saleable item of a price equal to or greater than USD 15,000
4) Lawyers, notaries, other independent legal professionals, and accountants. This refers to sole practitioners, partners or employed professionals within professional firms. It is not meant to refer to internal professionals that are employees of other types of businesses, nor to professionals working for government agencies, who may already be subject to AML/CFT measures
5) Trust and Company Service Providers. This refers to all persons or businesses that are not covered elsewhere under these Recommendations, and which as a business, provide any of the following services to third parties:
- acting as a formation agent of legal persons
- acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons
- providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement;
- acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another form of legal arrangement
- acting as (or arranging for another person to act as) a nominee shareholder for another person.
|Anyone who conducts one or several of the commercial or professional activities defined in Article 3 of the Cabinet Decision, being anyone who is engaged in the following trade or business activities:
1) Brokers and real estate agents when they conclude operations for the benefit of their Customers with respect to the purchase and sale of real estate
2) Dealers in precious metals and precious stones in carrying out any single cash transaction or several transactions that appear to be interrelated or equal to more than AED 55,000.
3) Lawyers, notaries, and other independent legal professionals and independent accountants, when preparing, conducting or executing financial transactions for their Customers in respect of the following activities:
- Purchase and sale of real estate.
- Management of funds owned by the Customer.
- Management of bank accounts, saving accounts or securities accounts.
- Organizing contributions for the establishment, operation or management of companies.
- Creating, operating or managing legal persons or Legal Arrangements.
- Selling and buying commercial entities.
4)Providers of corporate services and trusts upon performing or executing a transaction on the behalf of their Customers in respect of the following activities:
- Acting as an agent in the creation or establishment of legal persons.
- Working as or equipping another person to serve as director or secretary of a company, as a partner or in a similar position in a legal person.
- Providing a registered office, work address, residence, correspondence address or administrative address of a legal person or Legal Arrangement.
- Performing work or equipping another person to act as a trustee for a direct Trust or to perform a similar function in favor of another form of Legal Arrangement.
- Working or equipping another person to act as a nominal shareholder in favor of another person.
5) Other professions and activities which shall be determined by a decision of the Minister.
2) Real estate agents
3) Dealers in precious metals
4) Dealers in precious stones
5) Lawyers, notaries, other independent legal professionals, and accountants
6) Trust and Company Service Providers.
According to the guidelines, DNFBPs in the UAE are required to adopt a comprehensive AML/CFT framework to identify and manage financial crime risks. This includes conducting thorough CDD measures to identify and verify the identity of their customers and Ultimate Beneficial Owners (UBOs), reporting suspicious transactions, complying with the Targeted Financial Sanctions (TFS) regime, providing adequate training to all staff, and fostering a strong compliance culture within the company.
Furthermore, even if a company is not officially designated as a DNFBP, the principle of substance over form applies. This means that if a company engages in business activities that extend beyond the scope of its licensed activities and would classify it as a DNFBP, it must fulfill the same obligations. Failure to comply with these obligations may result in fines and penalties.
The UAE authorities adopt a comprehensive approach to ensure the integrity and transparency of the companies’ transactions and activities to mitigate the risks associated with illicit financial activities across various sectors and in particular the real estate sector that is considered a high-risk sector in terms of AML and CFT.
What are the applicable laws and regulations for DNFBPs in the UAE?
The UAE actively supports global initiatives led by the Financial Action Task Force (FATF) and other organizations in the fight against money laundering and the financing of terrorism. To address these concerns, the UAE has implemented Federal regulations on Anti-Money Laundering and established guidelines that must be followed by regulated entities.
The primary legislation governing AML in the UAE is Federal Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations. This law has undergone amendments in 2021 to strengthen its effectiveness. In addition, Cabinet Decision No. 10 of 2019 has been issued to provide the implementing regulations for this Decree-Law. As a result, all DNFBPs and particularly the real estate agents and brokers are now subject to the AML law in the UAE.
These regulations establish the CDD obligations applicable to the real estate industry and provide guidelines for identifying risk factors. Additionally, Supervisory Authorities such as the Financial Services Regulatory Authority (FSRA) and Dubai Financial Services Authority (DFSA) continuously issue AML/CFT Guidelines for Financial Institutions (FIs) and DNFBPs. Additionally, the UAE Ministry of Economy has also issued Guidelines for DNFBPs, as well as Supplemental Guidance tailored to specific sectors like the Real Estate Sector, Dealers in Precious Metals and Stones, and others.
It should be noted that all companies regardless of their activity or sector, are subject to the general provisions of the AML Law, specifically Article 2 and Article 25 of Federal Decree Law No. 20/2018, which outline their obligations and liabilities.
Consequently, parties that may be exposed to money laundering, terrorism financing, and proliferation have a legal obligation to demonstrate that they are not involved in any illegal activity. The most effective way to establish this is by demonstrating that they have taken all reasonable measures available to verify the source of funds and conducted necessary due diligence measures. Among all businesses in the UAE, the real estate sector faces higher risks due to the nature of their customers and products. Therefore, it is crucial to adopt necessary measures to prevent their involvement in money laundering activities and to effectively address and mitigate the associated risks.
The obligations imposed by law do provide a framework for the mitigation of involvement in money laundering however even if the companies are not construed to be a DNFBP, they will always be liable for prosecution if they are found to be involved in money laundering, terrorism financing, proliferation, or sanctions.
Mainland vs Freezone
The obligations and requirements imposed on DNFBPs differ depending on whether they are incorporated in the mainland, governed by Federal AML Law, or in a free zone such as Dubai International Financial Center (DIFC) and Abu Dhabi Global Market (ADGM). While DIFC and ADGM adhere to the federal law, they have also implemented their own AML-specific rules and guidance for entities operating within their respective free zones. There are several differences in AML requirements between companies in DIFC and ADGM compared to those operating in the mainland UAE.
One notable variation is the Supervisory Authority, which depends on the company's business activity and can be the Ministry of Economy, Central Bank of the UAE (CBUAE), DFSA, and others. Additionally, DIFC and ADGM entities are required to appoint a Compliance Officer or Money Laundering Reporting Officer, who serves as the point person for AML-related matters and should be a UAE resident, no such residency specific condition is mentioned under the UAE Federal AML Law. Furthermore, variations can be observed in the definition of a DNFBP, the data retention period, and the annual AML return.
Mandatory Subscription to EOCN's Notification System for DNFBPs in the UAE
To effectively combat terrorism financing and prevent the proliferation of weapons of mass destruction, it is mandatory for all companies, particularly DNFBPs, operating in the UAE to subscribe to the Executive Office for Control and Non-Proliferation (EOCN) notification system.
Cabinet Decision No. 74 of 2020 holds significant importance in terms of preventing and countering the financing of terrorism and ensuring compliance with the UN Security Council resolutions related to the non-proliferation of weapons of mass destruction. This decision mandates the inclusion of a Local Terrorist List and emphasizes the implementation of relevant resolutions.
Article 21 of Cabinet Decision No. 74 of 2020 outlines the specific obligations and actions that DNFBPs need to undertake to adhere to the UN and Sanctions list. This includes thorough screening processes, enhanced due diligence, and monitoring of individuals and entities that may be associated with terrorism financing or proliferation activities. By implementing these measures, DNFBPs contribute to the global efforts in combating terrorism and ensuring international security.
In case a confirmed match is identified, all funds should be freezed without delay (within 24hrs) and any other assets and submit a Fund Freeze Report (FFR) through goAML within five business days of implementing the freezing measures, along with all the necessary information and documents regarding the confirmed match and the freezing measures taken.
In case a potential match is identified, the DNFBP should suspend without delay any transaction, refrain from offering any funds, other assets or services, and submit a Partial Name Match Report (PNMR) through goAML, which will be received by the Executive Office and the relevant Supervisory Authority. The Company should ensure all the necessary information and documents regarding the name match are submitted and maintain suspension measures related to the potential match until further instructions are received from Executive Office via goAML on whether to cancel the suspension (‘false positive’) or implement freezing measures (‘confirmed match’).
Politically Exposed Persons (PEPs)
Politically Exposed Persons (PEPs) are individuals who hold or have held influential positions in the government, either in their own country or abroad. These positions may include Heads of States or Governments, senior politicians, high-ranking government officials, military or judicial personnel, senior executives of state-owned corporations, senior officials of political parties, and individuals who have managed international organizations or held prominent roles within them.
PEPs are considered high-risk individuals from an Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) perspective. This classification stems from their potential to exert influence over government policies, shape the outcomes of public funding or procurement decisions, and gain access to public funds.
According to Decree Law No. (20) of 2018, PEPs also encompass their immediate family members, such as spouses, children, parents, and spouses of children. Additionally, individuals associated with PEPs, including business partners and close associates, may also be subject to scrutiny.
The identification and monitoring of PEPs plays a crucial role in AML/CFT efforts, as it helps mitigate the risks associated with illicit financial activities, corruption, and money laundering. Financial institutions and other entities involved in transactions with PEPs are required to implement robust due diligence measures to ensure compliance with regulatory obligations and safeguard against potential financial crimes.
When dealing with PEPs, DNFBPs should:
- Take reasonable measures to establish the source of funds of customers and beneficial owners classified or identified as PEPs.
- Evaluate the legitimacy of the source of funds and the origin of wealth, including making reasonable investigations into the professional and financial background of PEPs.
- Obtain the senior management’s approval before establishing a new business relationship with a PEP, or before continuing an existing one and increase the ongoing monitoring of such relationship.
Report Suspicious Transactions to Financial Intelligence Unit (FIU)
DNFBPs are required to report any kind of suspicious transactions to the FIU whenever they have reason to suspect them. It is crucial to include all the relevant information for the suspected transaction and ensure that the information remains current and updated.
There are several reports that can be submitted to the FIU through GoAML portal, including:
- Suspicious Activity Report (SAR): It relates to different suspicious actions performed by the customer such as refusing to provide KYC documents or non-disclosure of UBO, etc.
- Suspicious Transaction Report (STR): They pertain to the transactions about which there are valid reasons to suspect that the money has been derived from criminal proceeds and is related to the funding of terrorist activities or financing of criminal organizations, whether committed or attempted.
- Fund Freeze Report (FFR): In case a confirmed match is identified.
- Partial Name Match Report (PNMR): In case a potential match is identified.
- Real Estate Activity Report (REAR): It should be submitted when the transactions of purchase and sale of Freehold Real Estate, and the payment is by way of any of the following (whether for a portion or the entire property): Physical cash equal or exceeding AED 55,000 (single payment or through several transactions)
- High-Risk Country Transaction Report (HRC): The HRC should be submitted when dealing with a potential or existing client or conducting transactions on behalf of the customer, related to high-risk countries subject to a Call for Action as indicated by the FATF.
- High-Risk Country Activity Report (HRCA): The HRCA should be submitted when dealing with a potential or existing client or conducting an activity on behalf of the customer, related to high-risk countries subject to a Call for Action as indicated by the FATF.
Maintaining strict confidentiality is a critical factor when submitting reports to the FIU. The DNFBP must ensure that the shared information remains confidential and inaccessible to unauthorized individuals, including the customers involved in the reported transactions.
Non-compliance with the AML regulations may result in administrative penalties imposed by the Ministry of Economy. Failing to report suspicious transactions is considered a criminal offense, and both companies and employees can face severe consequences such as heavy fines and imprisonment. In the event of non-reporting, a minimum penalty of AED 100,000 and a maximum penalty of AED 1,000,000 and/or imprisonment may be imposed.
Furthermore, it is essential for the DNFBP to maintain comprehensive records of all documents and information related to the transactions. These records serve as a crucial reference and aid in ensuring compliance with AML regulations.
The Importance of the UAE's Real Estate Sector in Combating Money Laundering and Terrorism Financing
The real estate sector in the UAE has experienced significant growth and development in recent decades. With its ability to attract foreign investors and residents, the real estate sector has emerged as a key player and plays a vital role in the UAE's economy. This sector encompasses a wide range of stakeholders, including real estate developers, brokers, agents, and property management firms.
In recent years, regulatory frameworks have been strengthened to combat money laundering (ML), terrorist financing (TF), proliferation financing (PF) and sanctions violations. Due to the high value of transactions involved, the real estate sector is particularly vulnerable to money laundering activities. Criminals may exploit this vulnerability by channeling illicit funds into real estate investments to legitimize their illicit funds.
Real estate agents, brokers and developers, as frontline gatekeepers, play a vital role in detecting and preventing such activities. Their role in detecting and preventing such activities is crucial. By implementing robust anti-money laundering and countering the financing of terrorism (AML/CFT) measures, such as conducting thorough customer due diligence (CDD), monitoring transactions, and reporting suspicious activities, these stakeholders can contribute to the overall security of the financial system and the real estate sector.
AML/CFT compliance requirements for the real estate sector in the UAE
The UAE’s real estate sector is considered one of the biggest in the Middle East. Dubai’s real estate market continues to achieve record numbers and value of real estate sales transactions, enhancing the emirate's global position as the preferred, most attractive and flexible real estate investment destination.
To implement a reasonable risk-based approach, real estate agents should identify criteria to assess potential ML/TF risks – customers, or categories of customers, and transactions – to allow real estate agents to determine and implement proportionate measures and controls to mitigate those risks.
The Real Estate Sector has been considered in the UAE’s National Risk Assessment as one of the sectors having the highest vulnerability to ML/TF inherent risks.
The UAE has implemented a robust regulatory framework that imposes obligations on DNFBPs and more particularly the real estate agents and brokers, that includes:
- Registration on the GoAML platform that is developed by the Financial Intelligence Unit (FIU) of the UAE. It serves as a central repository for financial intelligence and facilitates reporting of suspicious activities. All DNFBPs are obligated to register on this platform and utilize it for reporting suspicious activities and transactions as per the guidelines provided by the UAE authorities.
- Appointing a Compliance Officer to oversee and ensure adherence to AML and CFT obligations. The Compliance Officer plays a crucial role in maintaining the integrity of the DNFBP’s operations and safeguarding against illicit financial activities.
- Establishing and implementing comprehensive policies and procedures to combat ML and TF.
- KYC procedures should also be established to verify the identity of the customers and assess legitimacy of their transactions, including obtaining and verifying the customer identification documents, understanding the nature of the customer’s business and conduct ongoing monitoring of the customer’s transactions to detect suspicious activities.
- Records should be retained for a specified period and made available to regulatory authorities upon request.
- Providing regular AML/CFT training to their employees to ensure that they are well informed and trained to be able to detect any suspicious transaction, understand red flags, etc..
- A thorough risk assessment should be conducted to identify and evaluate the potential ML and TF risks associated with their business activities.
- Enhanced due diligence measures are required to be applied when dealing with high-risk clients. This involves gathering additional information about the client, the source of funds, and the purpose of the business relationship and seeking senior management approval for establishing or continuing the business relationship.
- Any suspicious transaction or activity should be promptly reported to the relevant authorities through the established reporting channels.
- Understand possible ML/FT risk exposure by adopting 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, risk mitigation measures should be adopted.
- Stay updated on the latest ML/FT trends and understand the various customer risks, channel risks, and geographic risks to the real estate industry. You must be able to identify each type and strategize for their elimination.
- Apply the necessary CDD measures based on the category and profiling of the ML/FT risk. If there is any change in the risk category, they must update the due diligence measures as well. These measures should be applied during or before the transaction happens or the business relationship starts. The CDD measures include screening customers and prospects against Sanctions Lists, mainly the lists provided by the United Nations Security Council (UNSC) as well as any local lists maintained by the UAE authorities and conduct background checks on the customers and prospects to identify any association with financial crimes.
- Take reasonable measures to identify the identity of the beneficial owner of their clients by collecting all relevant proofs for establishing their identity and the source of funding. Moreover, the UBO should be identified in any legal arrangement or structure, as a complex structure can assist in hiding the identity of the ultimate owner or source of funds.
- Always check and screen their customers and ultimate beneficial owners to detect any association with Political Exposed Persons (PEPs), specifically in the case of foreign buyers or sellers.
Red Flags - Suspicious transactions that raise a concern in the real estate sector
Below is a list of possible situations that may raise suspicion and require applying risk-based approach and reporting it to the relevant authority if necessary:
- Payment of the entire amount of the value of property in cash.
- Undervaluation or overvaluation of property or sequence of property sale transactions to get a higher value is a way of laundering money.
- Making frequent, unnecessary renovations and improvements in property are a sign of investment of illicit money.
- Customers (buyers or sellers of property) use unknown third parties with a clean criminal record to hide their identity as the owner of the property.
- Multiple purchases or sales of property.
- A foreign individual trying to buy property using virtual assets.
- Money launderers may buy a property in a third party’s name and show themselves as a tenant. Then they use illicit money to pay rent to the third party.
- The customer settling an outstanding amount of the property in cash with no clear justification for the early settlement or source of funds information.
This article was written by Rima Mrad and Lily Eid and focuses on Overview of the DNFBP AML Requirements in the UAE with a specific focus on real estate brokers.
BSA is a regional Law Firm in the Middle East with offices in the UAE, Oman and Saudi Arabia. As a full-service law firm our practice areas include litigation, arbitration and corporate services, including M&A, banking & finance, Intellectual Property, TMT, Fintech, employment and insurance.
Published on 5 December, 2023.
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