AML in UAE: Red Flags for Nominee Shareholders & Directors
The UAE has implemented robust laws and regulations in regard to Anti-Money Laundering and Combatting of Financing of Terrorism (AML-CFT). However, criminals use sophisticated typologies to carry out the crime of money laundering and financing of terrorism (ML-FT). Concealing the identity of the beneficial owner through the use of directors and nominee shareholders is one such ML-FT typology that organisations need to be wary of. AML consultants in Dubai can help you build a strong AML-CFT framework against the ML-FT risks associated with directors and nominee shareholders.
This blog will shed more light on the ML-FT red flags associated with directors and nominee shareholders. Keep reading to know gather details:
What is Nominee Shareholder/Director?
Some companies may appoint a nominee shareholder or director to conceal the identity of the beneficial owner or the controlling interest. A nominee shareholder is the registered owner of shares held for the benefit of another person. A nominee director is a director appointed to the board of a company to represent the interests of his/her appointer on that board. Sometimes, a nominee may hold the position of director or shareholder in name only on behalf of someone else.
Such an arrangement can be done by a trust arrangement or civil contract between the nominee and the actual director or shareholder. Trust & corporate services providers, lawyers and accountants often provide nominee services where they allow companies to use their name as a nominee shareholder or nominee director. Consult with AML advisers in Dubai for guidance on the risks associated with such an arrangement.
Why is the Nominee Shareholder/Director Arrangement Used?
The most common use of a nominee arrangement is that the beneficial owner can keep his/her identity confidential. The use of a nominee shareholder or director will help the beneficial owner keep his name from being disclosed in the public registers. Nominee services are also used in jurisdictions that mandate companies to have a director residing domestically. Nominee services are frequently used in countries where the members of the public can search the registers for companies to identify their directors and shareholders.
When Does a Nominee Arrangement Become an AML-CFT Risk?
Professional nominee services can be a key AML-CFT risk. The use of formal nominee directors and shareholders in company records can affect law enforcement investigations by delaying the identification of the UBO, or by creating false links between companies that share nominees. Due to this reason, significant money laundering and terrorist financing vulnerabilities are associated with their use.
Apart from formal/ professional nominee arrangements, money launderers also use informal nominee arrangements in which friends, family members or associates claim to be the UBO of corporate entities. The informal and private nature of such arrangements is a major challenge because there will be no formal document, nor other proof to identify the connection between the UBO and the nominee. AML advisers in Dubai can provide more information in this regard.
Red Flags Associated with Nominee Shareholders and Directors
Organisations need to use Enhanced Due Diligence (EDD) when they detect the use of professional nominee services to conceal the Ultimate Beneficial Owner (UBO). AML consultants in Dubai can provide guidance on how to conduct the EDD. The red flags associated with nominee shareholders and directors include the following:
- The person declared as the UBO is also listed as the UBO for other businesses in the same jurisdiction and the UBO is a professional nominee service provider
- The purpose of the nominee arrangement is obscure
- The nominee arrangement appears to be suspicious
- Family or close associates serving as nominee shareholders or directors without any legitimate reason
- The UBO is a Politically Exposed Person (PEP) or an individual with an adverse media report
- The customer is reluctant or not able to explain business activities and corporate history
- The customer refuses to cooperate or provide information or documents that are necessary for company registration
- The name of the company does not align with the business activity it performs
How to Manage the Risk from Nominee Shareholders & Directors
The UAE legislation requires the nominees to declare their identity to the company and regulatory authorities. The self-identification of nominees is mandatory in the UAE to make the search for beneficial owners more transparent. The UAE imposes penalties on nominees who fail to appropriately disclose their status. If you suspect any violation of this legislation, carry out the following measures:
- Put all the companies with a nominee arrangement under the high-risk category
- Examine the rationale behind the use of the nominee arrangement and its nature
- Carry out EDD using a risk-based approach
- Review the nominee agreement
- Ensure that all UBOs are declared and verified
Consult with the Best AML Consultants in Dubai, UAE
Businesses are advised to apply relevant due diligence measures while dealing with nominee shareholders or directors and mitigating the associated ML/FT risks. AML consultants in Dubai such as Jitendra Chartered Accountants (JCA) can help you build a strong framework against the ML-FT risk posed by nominee shareholders and directors. JCA provide services such as implementing AML Policy and Procedures, assessment of tools and controls design, review of current AML Policy, planning of AML-CFT framework, AML audit and reporting, AML training for the staff, Assistance with goAML registration and AML penalty appeal services.