A Guide to Target Financial Sanctions to Ensure AML-CFT Compliance in the UAE

All the natural and legal persons in the UAE are required to meet the Targeted Financial Sanctions (TFS) requirements as per Cabinet Resolution No. 74 of 2020. The entities under TFS obligation also include Financial institutions (FIs) as well as Designated Non-financial Businesses and Professions (DNFBPs). The term TFS implies the sanctions imposed on specific individuals or groups, or entities to combat the financing of terrorism.  The term TFS implies asset freezing and other financial prohibitions to prevent funds or other assets from being made available, directly or indirectly, for the benefit of listed individuals, groups and entities.

TFS includes asset freezing and other financial prohibitions to prevent funds or other assets from being made available directly or indirectly, for the benefit of individuals, entities, groups, or organisations who are sanctioned. As a result, all persons in the UAE are required to meet the TFS obligations as per the Cabinet Resolution No. 74 of 2020 and the Guideline issued by the Central Bank of UAE.

This article deals with the procedures to implement the UN and local TFS regimes by all persons (natural and legal) in the UAE. Financial Institutions and are required to apply policies, procedures and controls to implement TFS to those sanctioned and referred in the UN List and the UAE Terrorism List. Read ahead.

Types of Financial Sanctions

As per the Central Bank’s Guidance on TFS, mainly two types of sanctions constitute a financial sanction. They are,

1. Asset Freezing

Asset freezing includes freezing of funds and economic resources. Freezing means the prohibition to transfer, convert, dispose, or move any funds or other assets that are owned or controlled by listed individuals, groups, or entities. For financial institutions, freezing can include suspending access to bank accounts or blocking transactions. For DNFBPs, freezing may include stopping the facilitation of or blocking the transfer of ownership of immovable or movable assets.

2. Prohibition to offer funds & services

This form of sanction means prohibiting providing funds or rendering financial services to any sanctioned or any listed individual, group, or entity. For financial institutions, it may include the prohibition on offering banking or transactional services. For DNFBPs, the sanction can include the prohibition on rendering legal services to transfer asset ownership, buying or selling real estate, selling jewellery, precious metals, etc.

Obligations on UAE Persons to implement TFS regimes

1. Registration

All persons including the financial institutions and the DNFBPs must register with the Executive Office and receive automated email notifications. The registration will help the entities receive updates and information about sanctioned individuals or entities in the UAE terrorist list as well as the UN sanction list. More importantly, the businesses will also get information about the entities or individuals who are removed from the UAE as well as the UN lists.

2. Screening for Sanctioned Entities

The companies under obligation must carry out ongoing and daily screening to identify possible matches with names listed in the Sanctions Lists issued by the UN or the UAE Local Terrorist List. The screening should be carried out before conducting customer onboarding or transactions. The institution is required to perform the screening daily at its initiative. The sanction list gets updated continuously and is available on the Executive Office website and UN website.

The ongoing checks can be based on the following databases.

1. Existing customer databases
2. Names of parties to any transactions
3. Potential customers
4. Beneficial owners
5. Names of individuals or entities with direct or indirect relationships with them
6. Customers before conducting any transactions or entering a business relationship with any Person
7. Directors and/or agents acting on behalf of customers, including individuals with the power of attorney

3. Apply Targeted Financial Sanctions

If a match is identified during the screening, the companies should freeze all the funds that are owned or controlled, jointly or indirectly by the listed individual or entity. This should be done immediately and without notifying the listed individual or entity. Furthermore, No Person (natural and legal) in the UAE should provide funds to or render financial services or other services related to, whether in whole or in part, directly or indirectly, or for the benefit of any listed individual or group on the Local Terrorist List or the UN list.

4. Notify Authority

Financial institutions and DNFBPs are required to report to the relevant Supervisory Authority and Executive Office within two business days from carrying out any freezing measures. Any other individual or entity should notify within 2 business days from taking any freezing measure to the Executive Office. AML-CFT consultants in the UAE can help businesses with advice on making the notifications.

Additional Obligations for Financial Institutions and DNFBPs

In addition to the common obligations, financial institutions and DNFBPs are required to meet obligations such as:

1. Cooperate with the Executive Office and the relevant Supervisory Authority in verifying the accuracy of the submitted information
2. Implement the freezing cancellation or lifting decision, when appropriate, without delay, according to Related UNSCR or decisions of the Cabinet regarding issuance of Local Terrorist List.
3.  Set and implement Internal controls and procedures to ensure compliance with the obligations arising from Cabinet Resolution No. 74 of 2020. Set and implement policies & procedures that prohibit staff from, directly or indirectly, informing the customer or any third party that freezing action or any Other Measures are going to be implemented as per provisions of Cabinet Resolution No. 74 of 2020.

Reporting obligations of the financial institutions and DNFBPs

Financial institutions and DNFBPs are required to report the following to the relevant Supervisory Authority and the Executive Office:

• Identification of funds and/or actions that have been taken as per requirements of Relevant UNSCRs or decisions of the UAE Cabinet regarding the issuance of Local Terrorist List, including attempted transactions according to Cabinet Resolution No. 74 of 2020.
• Identification of any match with listed individual, group or entities, details of the match data, and actions taken as per the requirements of Relevant UNSCRs or decisions of the UAE Cabinet Resolution No. 74 of 2020

State if the organisation has detected any one of its previous customers or any occasional customer is listed on the Sanctions Lists.

• Report if there is any indication that one of its customers or former customers, or a person with whom it has a business relationship or facilitated a transaction is listed or has a direct or indirect relationship with the listed individual or entity.
• When there is an inability to dismiss such false positives through available or accessible information and after taking the freezing measure
• Information relating to the funds in respect of which Freezing has been cancelled, including their status, nature, value and the measures that were taken in respect thereof, and any other related information

Consequences of Non-compliance

In case of non-compliance, the supervisory authority may issue the following administrative sanctions:

1. A warning letter
2. Administrative penalties in the range of AED 50,000 to AED 5,000,000 for each violation
3. The violator may be banned from working in the sector related to the violation for a period determined by the supervisory authority
4. Restricting the powers of the Board members, supervisory or executive management members, managers or owners responsible for the violation including the appointment of a temporary inspector
5. Suspend Managers, board members and supervisory and executive management members who are proven to be responsible for the violation for a period to be determined by the Supervisory Authority or request their removal
6. Suspend or restrict the activity or the profession for a period to be determined by the supervisory authority.
7. License cancellation

Requesting an exemption or permission to access frozen funds

An individual or entity listed in the UAE Terrorist Lists, or their  representative, is allowed to request access to all or part of the frozen funds for any of the following purposes:

1. To cover necessary or basic expenses including humanitarian needs
2. To pay professional fees and costs relating to rendered legal services and other exceptional expenses within reasonable limits, or services relating to safekeeping or management of frozen Funds.
3. Extraordinary expenses to cover extraordinary expenses or costs other than those mentioned under the above

How can Jitendra Chartered Accountants Help?

Companies can’t afford non-compliance with TFS as the penalties are hefty and the consequences are serious. This demands assistance from AML consultants in Dubai such as Jitendra Chartered Accountants (JCA). JCA has a team of qualified professionals who are well-versed in AML-CFT laws and regulations. JCA can advise the organisations on how to comply with TFS requirements and help with sanction screening. Consult with JCA today to avoid penalties and reputation damage.