Key AML-CFT Terms Every Business Must Know

Banking has changed ever since UAE was put on the grey list in Oct 2012 by the EU/OECD. It affected everyone, from blue colour workers to HNIs and big corporates. To clean its image, the UAE took immediate action to implement a stringent Anti-Money Laundering and Combatting Financing of Terrorism (AML-CFT) Program. Banking has become difficult for companies dealing with high-risk products and dealing with high-risk countries. The country is on top when it comes to enforcing the AML-CFT program with strict penalties and other punishments. Offences related to non-compliance with AML-CFT laws in the UAE will attract penalties up to AED 1 million. Companies can hire the best AML consultants in the UAE to avoid penalties.

However, a lot of companies still make headlines for defying the AML-CFT laws, which is not a positive trend. Incurring hefty penalties for AML non-compliance doesn’t augur well for any company. Lack of awareness of AML requirements and jargon is one of the reasons for AML-CFT non-compliance. This article is an earnest attempt to introduce the key AML-CFT terms for those who lack awareness. Read ahead.

Money Laundering

FATF defines money laundering as the act of processing criminal proceeds to conceal or disguise their illegal origin. Money Laundering enables criminals to enjoy the profits they made without endangering the source of the criminal proceeds. The source of such profits can include illegal arms sales, smuggling, drug trafficking and prostitution rings. Such illegal acts can generate huge amounts of proceeds and criminals legitimise such proceeds through money laundering.

Now let’s look at what is Money Laundering in the UAE context. As per article 2 of Federal Decree-law No. (20) of 2018, the following acts are considered as Money Laundering:

1. Transferring or converting proceeds or conducting any transaction with the aim of concealing or disguising their Illegal source
2. Concealing or disguising the true nature, source or location of the proceeds, or the method involving the disposition, movement or ownership of the Proceeds or rights related thereto
3. Acquiring, possessing or using proceeds upon receipt
4. Assisting the perpetrator of the predicate offence to escape punishment

Financing of Terrorism

The UAE’s Federal Law No. (7) of 2014 identifies the following acts as crimes related to Financing of Terrorism:

1. The act of offering, preparing, obtaining or facilitating the funds for using (in part or whole) in the commission of a terrorist offence
2. Offering funds to a terrorist organisation or obtaining funds for such terrorist organisation or person while being aware of their purpose
3. Acquires, takes, manages, invests, possess, transmits, transfers, deposits, keeps, uses or disposes of funds or carries out any commercial or financial bank transaction of funds collected as a result of a terrorist offence

AML-CFT Program

Anti-Money Laundering and Combatting Financing of Terrorism (AML-CFT) Program is a system designed to assist organisations to fight the menace of money laundering and terrorist financing. In the UAE, the Central Bank of UAE (CBUAE) is the authority that oversees the implementation of the AML-CFT program for financial institutions such as banks. Meanwhile, the Ministry of Economy regulates the Designated Non-Financial Businesses and Professions (DNFBP). The AML-CFT program should include the following:

1. Written internal policies, procedures and controls;
2. A designated AML compliance officer;
3. On-going employee training; and
4. Independent review to test the program

Designated Non-Financial Businesses and Professions

Apart from financial institutions, DNFBPs are also required to comply with the AML-CFT program. As per Article 3 of the Cabinet Resolution No. 10 of 2019, anyone who is engaged in the following activities is termed as a DNFBP:

1. Brokers and Real Estate agents who deal with the purchase and sale of real estate for the benefit of their customers
2. Precious metals and precious stones dealers who carry out single or multiple transactions that equal AED 55,000
3. Independent auditors
4. Corporate and Trust Service Providers who execute transactions on behalf of their customers

GoAML System

Financial institutions and DNFBPs are required to register in the goAML system, which is a fully integrated software developed by the United Nations Office on Drugs and Crime (UNODC). The information and reports recorded in the goAML platform can form the basis for investigations into money laundering, terrorist financing and other serious offences. The goAML helps in data collection, management, analytical, document management, workflow and statistical needs that might help fight money laundering.

AML Compliance Officer or Money laundering Reporting Officer

Financial Institutions and DNFBPs are required to appoint an anti-money laundering compliance officer within their organisation. An AML compliance officer is an individual who manages the AML programs and processes of companies under the obligation. The compliance officer manages an organisation’s internal and external controls to make sure it’s complying with AML-CFT regulations. Failing to appoint an AML compliance officer is a punishable offence in the UAE.

Beneficial Owner

A beneficial owner is defined as,

a. The natural person who ultimately owns or exercise effective control over a customer

or,

b. the natural person on whose behalf a transaction is being carried out

or,

c. The natural person who exercises effective ultimate control over a legal person

Customer Due Diligence 

Customer Due Diligence  (CDD) is a set of internal controls that help the financial institutions and DNFBPs to establish the identity of a customer or a beneficial owner. By identifying or verifying the information about a customer, be it a natural person or a legal person, the institutions can understand the nature of the customer’s activity, ownership structure etc. CDD will also enable the financial institutions and DNFBPs to understand the degree of money laundering risk such a customer can expose them to.

High-Risk Customer

Transactions with a high-risk customer increase the risk of money laundering and the institutions under AML-CFT obligation must enhance their CDD to identify such customers. A high-risk customer can be from a high-risk country or a non-resident in a country in which he does not hold an identity card. Apart from the geographical factors, a high-risk customer can have a complex structure, performing complex operations or having an unclear economic objective etc.

Politically Exposed Persons

Politically exposed persons (PEP) are natural persons entrusted with high-level public responsibilities in the UAE or any other foreign country. PEPs can include Heads of States or Governments, senior politicians, senior government officials, judicial or military officials, senior executive managers of state-owned corporations, and senior officials of political parties and persons etc.

Suspicious Transactions

Transactions related to funds for which there are reasonable grounds to suspect that they are earned from any felony or misdemeanour related to the financing of terrorism or of illegal organisations, whether committed or attempted.

Enhanced Due Diligence

Enhanced Due Diligence (EDD) refers to an advanced form of due diligence that is intended for further risk investigation. EDD is usually undertaken when high-risk customers and large volumes of transactions are involved.

Economic Sanctions

The imposition of trade or financial restrictions and penalties by one or more countries against another country, entity, or individual to change behaviour. Economic sanctions can include actions such as tariffs, trade restrictions, and financial limitations.

Financial Intelligence Unit 

Financial Intelligence Unit (FIU) is a central national agency that is responsible for receiving, analyzing, and transmitting disclosures on suspicious transactions to appropriate authorities.

Ensure AML-CFT Compliance with the Best AML Advisers in UAE

At a time when a lack of knowledge about AML compliance in the UAE lands companies in trouble, the key AML terms described here may come in handy for both financial institutions and DNFBPs. With adequate AML awareness financial institutions and DNFBPs can be more diligent in complying with the UAE’s AML. The complexities of the AML regime should not prevent businesses from having a foolproof AML due diligence process within the organization. This is where the best AML consultants in Dubai, such as Jitendra Chartered Accountants (JCA) come in handy for the companies. JCA provides AML services in Dubai, UAE such as:

Compliance Policy and procedures

Assessment of tools and controls design

Current AML Policy review

AML/ KYC/ CFT Plan and framework

AML audit and reporting

AML Appeal services for penalties