AML in the UAE: Know about Enhanced & Simplified Customer Due Diligence

Conducting Customer Due Diligence ( CDD) is a mandatory requirement for every financial service provider company to comply with  Anti-Money Laundering and Counter Financing of Terrorism (AML-CFT) regulations. The AML-CFT Law and the AML-CFT Decision requires Financial Institutions (FI) and Designated Non-Financial Businesses and Professions (DNFBPs) to carry out the CDD process to analyse and mitigate the risk of Money Laundering and Financing of Terrorism. Normally, a typical investigation into a potentially suspicious transaction begins with the CDD.

Conducting CDD is mandatory for every FI and DNFBP (such as auditors, precious metal dealers, corporate service providers, real estate agents) during the onboarding stage while establishing a business relationship with a potential customer. Based on the risk profile, the compliance officers need to decide what type of CDD is best to apply to the potential customer. In certain cases, a CDD will lead to Enhanced Due Diligence (EDD) and sometimes a Simplified Due Diligence (SDD) will suffice. An AML compliance officer must be diligent enough to decide when to apply an EDD and what circumstances warrant an SDD. Read on to get a better grasp of CDD measures to ensure AML-CFT compliance in the UAE.

How Customer Due Diligence is Conducted? 

Generally, the CDD begins by collecting the data of the customer and verifying it. The companies should then verify the data and create a risk profile. The data collected should include the following information in case the customer is an individual:

• Name in Full
• Customer’s address
• Valid contact numbers
• Additional/ alternative contact numbers
• Legitimate, accessible, and working email address
• Place of birth
• Date of birth
• Nationality
• Gender
• Government-issued identification number
• Occupation
• Signature
• The geographical locations where the person deals

If the customer is a business entity, the following data should be collected: 

• Name of the business entity
• Type of the business entity
• Nature of business activity the entity is into
• Date and place of establishment
• Information related to the board of directors
• Certificate of incorporation
• Information related to shareholders or ultimate beneficial owners
• Annual report for the previous year
• The geographical locations where the business entity deals

Risk-Based Application of Customer Due Diligence Measures 

Through CDD, the FIs and DNFBPs collect the vital information of the customer’s profile and subject it to evaluation for potential money laundering or terrorist financing risks. After completing the CDD, the customer will be assigned a risk rating based on the risk he or she may pose to the company. The risk rating can be in the form of categories such as ‘high-risk, low-risk or a numerical value that indicates the degree of risk.

The risk rating helps the companies determine how and when to apply the appropriate checks, treatment, and controls that are commensurate to the level of risk. Also known as the risk-based approach, this methodology helps the companies decide whether they should apply EDD or go with SDD measures.

Different Types of Customer Due Diligence 

Here is a brief about the key types of customer due diligence:

Simplified due diligence

If the customer poses relatively lower risks of money laundering, the FIs and DNFBPs can opt for SDD measures. The FIs and DNFBPs are required to know the customer’s identity and basic details under the SDD process, and there is no need for carrying out detailed due diligence.

SDD generally involves a more lenient application of certain aspects of customer due to diligence measures, including, but not limited to, such elements as:

• Reduced verification requirements related to customer or Beneficial Owner identification
• Fewer and less detailed inquiries regarding the purpose of the Business Relationship, the nature of the customer’s business, the customer’s source of funds, and the purpose of individual transactions
• More limited supervision of the Business Relationship, including less frequent monitoring of transactions, and less frequent review/updating of customers due to diligence information

Enhanced due diligence 

EDD must be applied when the customer’s risk profile falls under the high-risk category who is more likely to involve in acts of money laundering and financing of terrorism. A high-risk customer can be a customer from a high-risk country or a legal person with a highly complex structure or performing complex activities or having unclear economic objectives. In another case, a high-risk customer can also be a Politically Exposed Person (PEP) which demands the application of EDD.

In all the cases that warrant EDD, the companies must ensure that they take appropriate measures to obtain adequate information about the customer corresponding to the level of the risks identified. Some of the factors they must consider for applying EDD are:

• Increased scrutiny and higher standards of verification and documentation from reliable and independent sources concerning customer identity;
• More detailed inquiry and evaluation of reasonableness concerning the purpose of the Business Relationship, the nature of the customer’s business, the customer’s source of funds, and the purpose of individual transactions
• Increased supervision of the Business Relationship, including the requirement for higher levels of management approval, more frequent monitoring of transactions, and more frequent review and updating of customers due to diligence information

Build Effective AML-CFT Strategies with Jitendra Chartered Accountants 

Customer Due Diligence, whether simplified or enhanced is a critical element of an effective AML CFT Program in the UAE. It helps identify red flags early and saves an organization from entering into a wrongful transaction and business relationship. However, most companies are still unaware of how to create an effective CDD strategy as part of their AML-CFT program. This is where AML consultants in Dubai such as Jitendra Chartered Accountants (JCA) comes into the picture.

JCA provides consulting services on customer onboarding and KYC process, and risk profiling of customers. JCA also provides AML training for companies on customer due diligence procedures and help them remain compliant with UAE AML laws and regulations. In case, any penalty is incurred JCA can save the companies by providing AML appeal services for penalties.