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A Clear Score Sheet: The key provisions of recent AML Guidance


A raft of UAE anti-money laundering guidance has been published recently. Rima Mrad examines the key provisions and their impact on Licensed Financial Institutions and other organisations.

WHAT’S HAPPENED AND WHY?

Over the last three months, the UAE’s Central Bank has issued various updates and guidance to reinforce the anti-money laundering and terrorist financing regulatory and supervisory framework,” states Rima Mrad. “Guidance For Licensed Financial Institutions on the Implementation of Targeted Financial Sanctions, Guidance for Licensed Financial Institutions providing Services to the Real Estate and the precious Metals and Stones Sectors, and Guidance for Licensed Financial Institutions providing Services to Legal Persons and Arrangements have been issued. In addition, Guidance for Registered Hawala Providers (which is an informal way of transferring money without its physical movement) and Licensed Financial Institutions providing Services to Hawala Providers on this subject have also been issued,” Mrad adds. “The new Guidelines were issued specifically to address the increasing risk allocation of each of the areas they cover,” Mrad explains. “The aim is to enable financial institutions to have clear frameworks to follow when they deal with hawala providers, real estate and precious metals and stone businesses as well as legal persons and arrangements. It is also hoped they will provide a better understanding of the framework which should be implemented in relation to targeted financial sanctions.” “There is an aim too to aid the understanding and effective performance by the UAE Central Bank’s licensed financial institutions of their statutory obligations under the legal and regulatory framework which is in force in the UAE,” Mrad continues. “These guidelines have been issued to fulfil the requirements in Article 44(11) of Cabinet Decision No. 10/2019 that the Supervisory Authorities assume supervision and monitoring functions and provide financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) with guidelines and feedback which will help improve the effectiveness of the implementation of crime-combatting measures.” “They should be read alongside the Central Bank’s Procedures for Anti-Money Laundering and Combating the Financing of Terrorism and Illicit Organisations. They were issued through Central Bank Notice No. 74/2019 and the Executive Office of the Committee for Goods and Materials Subject to Import and Export Control‘s Guidance on Targeted Financial Sanctions for Financial Institutions and Designated Non-financial Business and Professions contained in Central Bank Notice No. 289/2021,” Mrad notes.

“With the exception of the guidance involving hawala which only applies to licensed financial institutions excluding insurance companies, agencies and brokers, the Guidelines apply to local and foreign banks who are licensed by the UAE Central Bank, exchange houses, finance companies, payment service providers, registered Hawala providers and other licensed financial institutions and insurance companies, agencies and brokers,” Mrad states.

GUIDANCE FOR LICENSED FINANCIAL INSTITUTIONS ON THE IMPLEMENTATION OF TARGETED FINANCIAL SANCTIONS

“The guidance for licensed financial institutions on the implementation of targeted financial sanctions outlines the responsibilities of financial institutions to develop, implement and regularly update an appropriate Sanctions Compliance Programme which will allow them to manage their exposure to the risks associated with internal financial sanctions programmes and restrictive measure implemented by other countries,” states Mrad. “The role of senior management is emphasised under this guidance as their commitment and engagement is essential to ensure the creation of an appropriate Sanctions Compliance Programme. These programmes include a Sanctions Risk Assessment which is an internal assessment for each financial institution which should be conducted on a regular basis to identify, understand, assess, monitor and manage the relevant financial institution’s risks in line with the nature and size of their business. Senior management will also have to develop a Sanctions Risk Appetite. This will outline the ability and intention of the Financial Institution dealing with entities, interest, assets or otherwise, who are subject to sanctions. Financial Institutions in the UAE typically have no appetite to establish or maintain a relationship or execute a transaction involving, an entity or an individual which is under sanctions in the UAE or under UN Security Council Decisions. However, financial institutions may adopt a different approach to Office of Foreign Assets Control or EU sanctions depending on their overall business operations and their relevant appetite to handle the associated risks. The Sanctions Risk Appetite will have to be developed in writing, approved by senior management and embedded in the relevant internal AML and Sanctions related policies, procedures and screening systems. It should be developed and documented in writing, and identify the various sanctions regimes applicable to the entity. It should also specify the approach they will adopt to deal with assets, interests and other forms of properties or entities which are controlled or owned 50% or more by a listed person under the UN Security Council on the UN Consolidated List, or listed by the UAE Cabinet on the Local Terrorist List, as the case may be.” “In addition, they should specify the approach to mitigate non-compliance with unilateral sanctions especially where these sanctions have extraterritorial implications or where the person under UN/UAE sanctions may or may not have a presence in the UAE. In these cases the Office of Foreign Assets Control has secondary sanctions it can apply.” “They also determine the approach to screening against sanctions lists especially of alias names and the identification of any exceptions to sanctions risk appetite or deviation from the related policies or procedures which should be approved by senior management. In addition, internal Controls will have to be implemented to ensure the integrity and effectiveness of their Sanctions Compliance Programme. This will include ensuring systems are configured to detect and manage specific sanctions gaps, detect weaknesses, and identify compliance gaps and their root causes. These issues should then be addressed with appropriate remedies.” “Policies and Procedures also have to be tailored to match the financial institution’s size and the nature of their business and should be properly documented and accessible,” states Mrad. “Businesses are expected to provide clear guidelines for their employees on how to handle suspicious transactions and activities, prevent misconduct, avoid tip offs and understand their relevant obligations in this respect. Training on these areas should also involve all relevant employees and the timing and content of this training should match the financial institution’s risks.”

“There should also be Independent Audit and Testing of Processes and Systems in order to ensure their effectiveness. In addition, it is not just necessary to act, records should also need to be kept for five years,” Mrad adds. “The guidance also provides a clear explanation on how financial institutions should handle screening, the sanctions lists they will need to follow and the ways to address potential and positive matches in these lists, including notifying the UAE Central Bank and the Executive Office.”

GUIDANCE FOR LICENSED FINANCIAL INSTITUTIONS PROVIDING SERVICES TO THE REAL ESTATE AND THE PRECIOUS METALS AND STONES SECTORS

“This guidance for licensed financial institutions providing services to the real estate, precious and stones sectors is based on the Financial Action Task Force (FATF)’s Mutual Evaluation Report of the UAE which was issued in April 2020 and referred to these sectors as highly important in terms of risks and materiality,” Mrad explains. “As a result, the guidance aims to explain the risks associated with these two sectors and provide classifications which can be used as a point of reference in understanding these risks. It also provides examples of how gold, real estate and precious stones can be used for money laundering and terrorist financing as well as how to avoid sanctions and common red flags,” Mrad adds. “A clear framework for implementing a proper risk-based approach to the preventive measures financial institutions must put in place to address the risks associated with these sectors is outlined, with tailored input and key considerations that are mostly adaptable to these sectors, especially in the context of enhanced due diligence and suspicious transactions reporting,” Mrad continues.

GUIDANCE FOR LICENSED FINANCIAL INSTITUTIONS PROVIDING SERVICES TO LEGAL PERSONS AND ARRANGEMENTS

“The Guidance for Licensed Financial Institutions providing services to legal persons recognises the specific risks associated with these structures, especially in terms to revealing and identifying their Ultimate Beneficial Owners (UBOs) and controllers,” Mrad states. “It also recognises that parties may use these structures to avoid revealing UBOs and controller’s true identity, the purpose of an account of a transaction or the source of wealth and funds.” “The guidance provides examples of how certain structures are used to circumvent disclosure and identification of UBOs and explains how this should be addressed when conducting customer due diligence and enhanced due diligence. It can be used as a base to develop a clear understanding of the use of legal persons and arrangements and dealing with these structures, and should also enable financial institutions and their management and employees to identify common red flags, the procedures for identifying the UBOs and ongoing monitoring.”

GUIDANCE FOR REGISTERED HAWALA PROVIDERS AND LICENSED FINANCIAL INSTITUTIONS PROVIDING SERVICES TO HAWALA PROVIDERS

“The FATF defines hawala providers and other similar service providers, e.g. money transmitters, particularly with ties to specific geographic regions or ethnic communities, who arrange for transfer and receipt of funds or equivalent value and settle through trade, cash, and net settlement over a long period of time,” Mrad explains. “While hawala providers often use banking channels to settle between them, what makes them distinct from other money transmitters is their use of other settlement methods, including trade, cash, and long-term net settlement.” “The guidance explains the risks associated with hawala providers clearly and how they can be used by criminals,” Mrad continues. “It also outlines in detail the regulatory and supervisory framework of hawala providers, their obligations in respect of sanctions and freezing assets and other anti money laundering and control of terrorist financing related compliance requirements. In addition, it deals with the way financial institutions should work with hawala providers and ways to mitigate the risks associated with the services they offer to hawala providers, including providing them with bank accounts. Although these new guidelines do not offer a new set of regulatory requirements for those working with this sector, they do expand on what existed and was required of financial institutions,” Mrad continues. “In addition, they also create a comprehensive framework which is binding on these entities and will require them to improve their overall compliance teams and resources. They will definitely add more compliance obligations as financial institutions have very clear reporting requirements at this stage which they will have to address in line with the respective requirements. The UAE Central Bank is using these new Guidelines as a way to provide tailored assessment and clarification notes on how financial institutions are expected to deal with specific sectors or areas which are viewed as high risk. They have included clear examples, red flags and classifications which could serve as a basis to further improve the understanding of financial institutions of their regulatory and compliance obligations.”

This article was originally published for BSA inLexis Middle East Law Alertand can also be downloaded here:A Clear Score Sheet.

Contact

Rima Mrad Partner, Corporate
rima.mrad@bsabh.com

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