Top 5 Mistakes to Avoid while Building AML Compliance Framework

As the UAE has started bolstering its efforts for a more transparent economy, the businesses are required to enhance their compliance programmes. The government has started cracking down on entities that fail to abide by the Anti-Money Laundering and Combatting Financing of Terrorism (AML-CFT) laws. The Financial Institutions and Designated Non-Financial Businesses and Professions (DNFBPs) are forced to reign in a stringent AML compliance programme within their organisation.

The failure to ensure AML compliance in the UAE will result in hefty penalties of up to AED 1 million. Despite stringent measures, many companies still get fined by the UAE authorities. In many cases, the violation occurs due to deficiencies in their AML compliance programme rather than disregard for the laws. Despite the efforts of AML compliance officers, many organisations suffer due to compliance failures and weak internal controls.

To improve the efficiency of the AML compliance programmes, the UAE entities need to address the deficiencies of their current AML compliance framework. This article sheds light on the top five mistakes committed by entities while trying to build an AML compliance framework in the UAE. Read on.

1. Downplaying the Role of AML Compliance Officers 

Appointing an AML compliance officer in the UAE is a mandatory requirement. Entities that fail to appoint an AML compliance officer are liable for an administrative penalty of AED 50,000. In many organisations, AML compliance officers grapple with a lack of stature and adequate resources. Many times, AML officers have to fight for elevated authority and independence within the organization. In many organisations, AML officers are relegated to a lower level of importance and sometimes their voice gets ignored by the higher authorities.

2. Lack of Internal Communication 

Lack of internal communication can act as an impediment to the AML compliance programmes and even kill off the strongest of companies. When departments and leaders are open to communication, they can foresee problems and give prompt responses before small issues escalate into bigger calamities. With strong internal communication in place, all departments of the organisation would understand the value addition provided by the AML compliance. Moreover, when all parts of the organisation stay on alert about the latest compliance needs, the company stays protected from money launderers.

3. Relying on Bad Quality Data 

Relying on bad quality data can directly affect the AML compliance programme in the organisation thereby increasing the likelihood of money laundering through your company. We can define bad data as any information that may be flawed, misleading and lacking in structure. No organisation is immune to bad data and failing to address it at an early stage would lead to grave complications.

AML monitoring becomes effective only when the companies have detailed information on the initiating entity, the business processing the transaction and the parties that benefit from an exchange. If the system has quality data, the detection of fraudulent behaviour and high-risk customers becomes accurate. If the data entered into the system is inaccurate or irrelevant, it would result in a ’garbage in, garbage out’ system that would render the AML monitoring process ineffective. Low-quality data may lead to bad effects such as excessive false positives, the requirement of performing additional due diligence etc.

4. Using Outdated Transaction Monitoring System 

Financial institutions and other companies often use traditional transaction monitoring systems which makes it hard to detect money laundering red flags. The outdated rule-based systems function by screening customer activity against a set of rules. In such a system, the outliers will be flagged to be investigated by the compliance team. This will lead to an increased cost of compliance due to the large percentage of false positives. Also, the traditional transaction monitoring systems are unable to monitor new and specific typologies of money laundering.

5. Not Monitoring Evolving Regulatory Landscape 

As the UAE is inching towards a more transparent economy, businesses need to be up to date with the constantly evolving industry standards, national laws and regulations. Every year, laws related to AML may get tighter and the companies need to meet much more regulatory requirements. For instance, Economic Substance Regulations (ESR) and Ultimate Beneficiary Owner (UBO) requirements were introduced to strengthen the transparency procedures.

Similarly, the DNFBPs have been asked to register in the goAML system recently to enhance the AML compliance regime in the UAE. Very often companies fail to understand what they need to comply with. However, ignoring or being not attentive to the regulatory changes will lead to hefty fines and other consequences. One way to avoid such an error is to train the compliance team to be on high alert to track the changes and updates in the legislation and adapt to it. A better alternative is to hire the services of AML consultants in the UAE who would advise the companies on the regulatory changes.

Ensure AML Compliance with the Help of AML Consultants in the UAE 

It’s always better to solve a problem before it happens, but most companies do just the opposite. You should not wait till a regulatory check by authorities threatens your company’s reputation. Instead, take time to analyse and improve your AML compliance policies and procedures with the help of AML consultants in the UAE such as Jitendra Chartered Accountants (JCA).

JCA can help you avoid common mistakes described in this article, saving your company from lawsuits, penalties and operational delays that can easily happen. JCA provides services such as assessment of tools and controls design, review of current AML Policy review, AML/ KYC/ CFT Plan and framework, AML audit & reporting, due diligence Frameworks and process implementations and corporate training.

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