AML Compliance in UAE: An Overview of Risks Posed by PEPs

Carrying out screening for Politically Exposed Persons (PEPs) is mandatory for you to ensure compliance with Anti-Money Laundering and Combatting Financing of Terrorism (AML-CFT) laws in the UAE.  The Cabinet Decision No (10) of 2019 on AML-CFT mandates that Financial Institutions and Designated Non-Finance Businesses and Professions (DNFBPs) must carry out screening for both domestic and foreign PEPs during customer onboarding. AML consultants in Dubai can advise you on developing an AML-CFT framework to screen PEPs.

PEPs are considered high-risk customers as they have more opportunities than ordinary clients to gain assets through illegal means such as bribes and money laundering. PEPs come with a higher risk of using their titles for money laundering and terrorism financing and hence businesses under AML-CFT obligations need to understand the risk posed by them and develop a robust screening strategy. Read ahead to know the risks posed by PEPs:

Who are Politically Exposed Persons?

PEPs are individuals who are or have been entrusted with prominent public functions in the State (UAE) or any other foreign country. PEPs 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 who are or have previously been, entrusted with the management of an international organisation or any prominent function within such an organisation.

The definition of a PEP also includes the following:

• Direct family members (Of the PEP, who are spouses, children, spouses of children, and parents)
• Associates that are known to be close to the PEP such as individuals having joint ownership rights in a legal person or arrangement or any other close business relationship with the PEP
• Individuals having individual ownership rights in a legal person or arrangement established in favour of the PEP

The Level of Risk Posed by Politically Exposed Persons

FIs and DNFBPS (real estate brokers & agents, independent auditors, precious metals and precious stones dealers, trust & corporate service providers) need to understand the risk posed by the PEPs before developing an AML-CFT screening strategy. FIs and DNFBPs must remember that not all PEPs pose the same level of risk. Consult with AML consultants in Dubai to know the level of risk posed by each type of PEPs. The Financial Action Task Force (FATF) has categorised into different categories based on the level of risk posed by them. They are given below:

PEPs of High-level Risk

This category of PEPs includes Heads and government members, Parliament members, Head officials of judiciaries, banks, law enforcement, military and religious organizations and prominent political party members.

PEPs of Medium-level Risk

This category of PEPs includes governmental board and top-ranking officials of state-owned organizations and businesses such as head officials of judiciaries, banks, military, law enforcement, senior members of state agencies, high-ranked civil servants and religious organizations, commissioners, consuls and ambassadors.

PEPs of Low-level Risk

This category of PEPs includes supranational or international business officials, senior functionaries, mayors and local, state district, and urban assemblies’ members. AML advisors in Dubai can advise you further on PEPs.

PEP Red Flags Related to Identity Shielding

As per the FATF, PEPs may try to shield their identity in the following ways:

• Using legal entities and legal arrangements to conceal the beneficial owner
• Using corporate vehicles without a valid reason
• Using intermediaries where it doesn’t match with normal business practices
• Assigning family members or close associates as the legal owner of a business

PEP Red Flags Related to Suspicious Behaviour

PEPs may show suspicious behaviour in the following ways:

• Makes an inquiry about your AML policy or PEP policy
• Being uncomfortable about sharing information about the source of wealth or fund
• Information provided by a PEP doesn’t match with publicly available data
• Unable to or unwilling to provide a reason for doing business in the country of the FI or DNFBP
• Shares inaccurate or incomplete information
• Availing services of an FI and DNFBP that normally doesn’t cater to foreign clients
• PEPs repeatedly move funds to and from countries that have no apparent ties with them
• PEP is or has been denied entry to the country
• PEP’s country prohibits or restricts its/certain citizens to hold accounts or own certain property in a foreign country

Red Flags Related to PEP’s Position

The following are some of the PEP red flags related to the position a PEP holds in a company:

• Having substantial authority over or access to state assets and funds, policies and operations
• Formal or informal authority to control AML-CFT mechanisms
• Access to, control or influence over, government or corporate accounts
• Having control, authority or ownership in an FI or DNFBP

PEP Red Flags Related to Industry

PEPs pose a risk if they have any connection with industries that are considered high-risk such as the following:

• Banking and Finance
• Defence & arms trading
• Mining & Extraction
• Construction
• Public goods provision

PEP Red Flags Related to Transaction

The following are the red flags related to specific business relationships or transactions:

• Use of multiple bank accounts without no commercial explanation or reason
• Use of an account that shows substantial cash flow or wire transfers
• Account showing ongoing activity after being dormant for a long time
• The constant movement of funds between accounts or financial institutions without a business rationale
• Private banking
• Anonymous transactions

Comply with AML Laws with AML Consultants in Dubai, UAE

FIs and DNFBPs need to develop a robust strategy for PEPs and AML consultants in Dubai such as Jitendra Chartered Accountants (JCA) can help them in this process. JCA has a dedicated department to provide robust AML services in Dubai, UAE. We can advise FIs, DNFBPs and other related businesses on how to comply with AML-CFT requirements and help with PEP screening. Consult with JCA today to ensure seamless AML compliance in the UAE.