The Key Stages of Money Laundering and Ways to Combat it
The UAE has a strong law and framework to combat the menace of money laundering and financing of terrorism (ML/FT). The UAE’s Anti-Money Laundering (AML) law and related regulations require businesses under obligation to develop a robust AML framework and policies. However, many businesses still struggle to grasp the basics of money laundering and this lack of knowledge reflects in their compliance efforts.
The prime objective of money laundering is to convert the proceeds of the crime into cash or property that looks legitimate and can be used without suspicion. Companies lacking a strong AML framework may be unknowingly helping criminals turn their illegal proceedings into legitimate assets or cash. There are three stages of money laundering and the corresponding AML laundering tactics to combat the crime. AML consultants in Dubai can help you build a strong framework to combat ML crime and comply with regulatory requirements.
Keep reading to learn how to recognise money laundering as it happens, as well as the anti-money laundering regulations in place to fight it:
Stage 1: Placement
The act of money laundering starts by moving the proceeds of the crime into a legitimate income source. The criminal proceedings may be moved into financial instruments or bank accounts. At this stage, a company’s AML procedures would focus on identifying the sources of funds through due diligence measures. ML criminals are vulnerable at this stage as they have to move a big bulk of illegitimate money and place it directly into the financial system. Given below are some of the common tactics used by criminals at the placement stage:
- Making false invoices
- Putting money into cash-based businesses
- Opening foreign bank accounts
- Incorporating offshore companies
- Moving small amounts of money at a time
Stage 2: Layering
Once they successfully place the money into the financial system, the criminals enter the second stage called Layering or Structuring. The second stage of money laundering involves the breaking down of large funds into a series of small transactions. Smaller amounts are often hard to trace and do not typically set off any alarms. Common tactics of Layering include the following:
- Trading in international markets
- Purchasing foreign money orders
- Trading in foreign currencies
- Purchasing and selling luxury assets
Stage 3: Integration
Integration is the final stage of money laundering in which the funds will be integrated into the criminal’s legitimate accounts. At this stage, the funds are reintroduced into the economy to appear to belong to legitimate sources. The reintroduction of money into the economy helps the criminals clean the dirty money, invest it and profit from it. This makes the integration stage more difficult to distinguish between legal and illegal.
Integration of the laundered money can be done through various methods. For example, criminals can use the funds to buy a luxury asset such as jewellery or property. They can sell the luxury asset and this may create a trail of legitimately sourced funds. The criminals can also use the below tactics to clean the dirty money:
- Placing fake employees on the payroll
- Paying out loans to directors of a shell company
- Paying dividends to shareholders of criminal-controlled companies
- Property dealing
- Foreign bank complicity
- False important/export invoices
What can be done to combat the menace of money laundering?
The UAE AML Law (Federal Decree-Law No (20) of 2018) and its implementing regulation (Cabinet Decision No (10) of 2019) provide a strong base for the country’s commitment to fighting the crime of ML/CT. Furthermore, AML specialists in Dubai can assist companies to create robust policies, measures and controls to prevent money laundering. You can do the following to prevent money laundering:
AML Compliance Program
Businesses under the AML-CFT obligation should create a robust AML compliance program in line with the UAE AML Law. Your AML compliance program should have detailed policies, procedures, and processes to identify suspicious transactions and combat money laundering activities. However, it should be periodically reviewed and updated to ensure the effectiveness of the program. AML advisers in Dubai can help companies develop the AML compliance program and review its effectiveness.
Designate a Money Laundering Officer
A designated Money Laundering Reporting Officer (MLRO) should be appointed to oversee the implementation of AML regulations throughout the organisation. The MLRO should have appropriate experience and authority inside the company. The MLRO’s duties should include communication with regulators and auditors, briefing top management, and making AML policy suggestions based on audits and reports.
Periodic Training for Employees
As per Article 21 of the Cabinet Decision No (10) of 2019, the employees of the company should be given proper AML training so that they can have a greater understanding of the ML/FT risks that their organisation is exposed to. Proper training will make the employees aware of the ML/FT methods and typologies along with the AML policies, procedures systems & controls put in place by the organisation. Employees who received the AML training in the UAE will be able to identify suspicious activities & unusual behaviour of customers and report them to the MLRO or the higher management. AML consultants in Dubai can help you with providing AML training to employees.
Customer Due Diligence
Customer due diligence (CDD) is a series of checks to verify the identity of the customers and evaluate their risk profiles. CDD is not also essential but is a regulatory requirement for companies to enter into a business relationship with customers. CDD involves analysing information from different sources, including the customer, sanctions lists as well as public and private data sources. We provide robust AML customer due diligence services in Dubai.
Hire the Leading AML Consultants in Dubai, UAE
Having a robust AML compliance program is your best defence against ML/CT crimes and you can develop it with the help of AML consultants in Dubai such as Jitendra Chartered Accountants (JCA). JCA has a dedicated department to provide robust AML consulting services in Dubai, UAE.
Our clients include both financial institutions and DNFBPs, and our experience will add value to your AML compliance program. Apart from helping with training, we can also assess the robustness of your current AML/CFT programmes and suggest improvements. If your organisation have been subject to any penalties by the Authority, we can help you rectify that situation by offering AML penalty appeal services in Dubai, UAE. Let’s work together to fight off the threat of money laundering for a better future.