What Are the Top Implementation Criteria for TFS in UAE?

Financial institutions (FIs), Designated Non-Finance Businesses and professions (DNFBPs), and Virtual Assets Service Providers (VASPs) are obliged to comply with the Targeted Financial Sanctions (TFS) regulations in the UAE. The Cabinet Resolution No (74) of 2020 forms the framework for TFS, including the Local and UN sanctions list and the procedure to implement TFS in the UAE. TFS are essentially the restriction imposed on Designated Persons that mandate the businesses or organizations not to make any funds or assets available to the Designated Person.

However, the process of TFS implementation in the UAE follows mainly three criteria: Ownership, Control and Acting on behalf of a Designated Person. AML consultants in Dubai can guide you further on properly implementing the TFS procedures in your organization. In this blog, we will give you a brief guide on the three implementation criteria for TFS in the UAE. Read on to understand further:

TFS Criteria 1: Ownership or Majority Interest

While implementing TFS in the UAE, organizations need to assess whether a legal entity is a majority owned by a designated person or whether the entity is the possession of more than 50% of the proprietary rights of the legal entity or has a controlling interest in it. If this criterion is met, it means the legal entity or arrangement is owned by another individual or entity and is subject to freezing measures.

A typical example of Majority Ownership can be a company named ‘Company A’ in which the Designated Person has 51% ownership, Person 2 enjoys 25% ownership and Person 3 holds 24% ownership. In this case, you need to perform the following TFS actions:

  1. The funds or other assets of the non-designated Company A need to be immediately frozen
  2. You should not freeze funds or other assets of Person 2 and 3 as they are not designated and there is no legal evidence to suggest that they are acting on behalf of the Designated Person

TFS Criteria 2: Control

Organizations under TFS obligations such as FIs, VASPs and DNFBPs should apply freezing measures even in cases in which a designated person holds a minority interest. However, there should be evidence to suggest that the designated person exercises control over the legal entity (despite owning a minority interest). A Minority Interest ownership structure can be defined as a company in which the Designated Person holds 35% ownership, Person 1 holds 35% ownership and Person 3 enjoys 35% ownership rights. AML advisers in Dubai can advise you further in this regard.

The following criteria can be used to determine if the designated person exerts control:

  1. The designated person has the right to appoint or remove a majority of the members of the administrative or management body
  2. The designated person controls the majority voting rights in the company in line with an agreement with shareholders
  3. The designated person has a power of attorney (PoA) or authorized signatory arrangement over a legal entity
  4. The designated person has the right to exercise a dominant influence over a legal person as per an article in the Memorandum or Articles of Association

TFS Criteria 3: Acting on behalf of a Designated Person

FIs, DNFBPs, and VASPs need to implement TFS on individuals or organizations that act on behalf of designated persons. However, the relationship to act on behalf or at the direction of designated persons must be evidenced by legal documentation, such as a power of attorney or authorized signatory. For example, a Designated Person controls Company A through a PoA issued in favour of a Non-Designated Person. In this case, the funds and assets of Company A must be frozen immediately without delay. Consult with AML consultants in Dubai to effectively apply freezing measures.

Seek TFS Advice from the Best AML Consultants in Dubai, UAE

FIs, DNFBPs and VASPs need to develop a proper TFS strategy in line with the implementation criteria listed in this blog. You can get guidance from the best AML consultants in Dubai such as Jitendra Chartered Accountants (JCA) to ensure proper TFS compliance. JCA provides bespoke AML compliance services in Dubai to enable companies to fully comply with targeted financial sanctions and AML-CFT requirements. Avail of JCA’s bespoke AML-CFT and targeted financial sanctions services to keep abreast of all the latest developments in the global sanction screening guidelines and keep your business in line with them.