Tag: Anti-money laundering (AML)

New Reporting Requirements for Specific Real Estate Transactions

In a joint statement made by the UAE Ministry of Economy and the UAE Ministry of Justice the implementation of the new Anti-Money Laundering reporting requirements, which are set out in Circular No. 5/2022 (the ‘Circular’) and which will apply to specific (cash and virtual currency related) real estate transactions that are conducted in the UAE, was announced over the summer. As outlined in the Circular, these additional reporting requirements are now in force from 1 July 2022.

 

This joint statement and the additional reporting requirements contained in the Circular are an important sign of the UAE’s concerted efforts to combat the investment of illicit funds in the real estate market and aim to make the policies and procedures in this area consistent with international standards.

 

Globally, individuals routinely attempt to launder illicit funds through the purchase of real estate assets. The implementation of these additional reporting requirements by the UAE government is intended to curb such activities in this country.

 

In this inBrief, we look at the additional reporting requirements that shall apply and the implications that they may have on the UAE’s real estate market.

 

Who is Required to Report?

The Circular applies to real estate brokers and real estate agents licensed in the UAE as the reporting parties in relation to the applicable transactions. However, in the joint statement made by the Ministry of Economy and the Ministry of Justice, it was noted that law firms must also comply with these new reporting requirements (real estate brokers, real estate agents and law firms together referred to herein as the “Reporting Parties”).

 

Reporting Requirements

Pursuant to the Circular, the Reporting Parties are required to comply with additional reporting requirements where a freehold property is being purchased using any of the methods of financing below:

 

  • where any single physical cash transaction, or several related transactions, equal or exceed AED 55,000 either as the entirety or a portion of the value of the property;
  • where the method of payment is a virtual asset for either a portion or the entire property value; or
  • where either part or the entire amount of the funds used to finance the purchase were converted from a virtual asset.

 

Where a buyer seeks to fund a freehold property using any of the above methods, the Reporting Parties must:

 

  • obtain and record copies of identity documents (Emirates ID or passport) from the party transferring the funds;
  • obtain and record receipts, invoices, contracts and Sale & Purchase Agreements relating to the transaction; and
  • submit a “Real Estate Transaction Report” via the Financial Intelligence Unit’s goAML platform.

 

Where the buyer is a corporate entity, the Reporting Parties must obtain and record:

 

  • the entity’s Trade License;
  • the entity’s Articles of Association;
  • register of Beneficial Owners of the entity;
  • Emirates ID or passport copy for all Beneficial Owners of the entity; and
  • Emirates ID or passport copy for all shareholders/partners of the entity.

 

Further, the Reporting Parties are required to retain all documents and information relating to such transactions as those highlighted above for a minimum period of five years.

 

Conclusion

The new reporting requirements have placed a responsibility on real estate brokers, real estate agents and law firms to assist in ensuring that the funds being used for real estate transactions are not part of an attempt by the investor to engage in money laundering or the financing of terrorism.

 

We anticipate that the implementation of the new reporting requirements will enhance the UAE’s ability to protect the country’s real estate market from the investment of illicit funds and provide greater confidence to authentic investors who are looking to invest in the country’s growing real estate market. This in turn, will result in the continued growth of the UAE’s real estate market.

 

***

 

For more detailed information, please do not hesitate to contact Shahram Safai at ssafai@afridi-angell.com.

SCA issues guidelines for financial institutions on anti-money laundering

The past year has been a busy one for AML compliance in the UAE.

 

In October 2018, Federal Decree-Law 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations (AML Law) came into force. It contained features recommended by the Financial Action Task Force (FATF), and brought UAE laws in line with international AML standards.

 

The AML Law was followed by the implementing regulations in January 2019, which have helped bring further clarity to the intended operation of the AML Law. The Implementing Regulations were issued on 28 January 2019 pursuant to Cabinet Resolution 10 of 2019 (AML Regulations).

 

In May 2019, the UAE Securities and Commodities Authority (the SCA) promulgated guidelines for financial institutions on Anti- Money Laundering and Combating the Financing of Terrorism and Illegal Organisations (the AML Guidelines).

 

The AML Guidelines, resulting from a joint effort among the supervisory authorities of the UAE, set out the minimum expectations of the supervisory authorities regarding the factors that should be taken into consideration by financial institutions when identifying, assessing, and mitigating the risks of money-laundering, financing of terrorism, and financing of illegal organisations.

 

Do the AML Guidelines form part of the law?

 

The AML Guidelines do not constitute regulations or legislation. They are intended to be read together with the AML Law and Regulations as well as all other relevant Cabinet Resolutions and regulatory rulings currently in force in the UAE and the free zones. The AML Guidelines are not a replacement or substitution for any existing legal requirements or statutory obligations. The SCA has made it clear that, in the event of an inconsistency between the AML Guidelines and any legal or regulatory framework in place in the UAE, it is the latter that will prevail.

 

Who do the guidelines apply to?

 

As a starting point (with exceptions noted throughout the guidelines), the AML Guidelines apply to all financial institutions, and their directors, managers and employees, established or operating in the UAE or the UAE’s free zones, that establish or maintain business relationships with customers or engage in any of the financial activities or transactions or trade or business activities outlined in the AML Regulations.

 

Specifically, they are applicable to all such natural and legal persons in the following categories:

 

• banks, finance institutions, exchange houses, money service businesses (including monetary value transfer services);

• insurance companies, agencies, and brokers;

• securities and commodities brokers, dealers, advisors, investment managers; and

• other financial institutions not mentioned above.

 

The AML Guidelines define a financial institution as any person who conducts one or more financial activities or operations for or on behalf of a customer. The term business relationship is defined as any ongoing commercial or financial relationship established between financial institutions or designated non-financial businesses and professions (DNFBPs) and their customers in relation to activities or services provided by them.

 

What is contained in the AML Guidelines?

 

The AML Guidelines are organised into five parts, which consist of the following:

 

1. Part 1 – Overview: This includes background information of the UAE’s AML legislative and strategy framework including key provisions of the law and regulations affecting financial institutions;

 

2. Part 2 – Identification and assessment of money laundering and financing of terrorism risks;

 

3. Part 3 – Mitigation of money laundering and financing of terrorism risks;

 

4. Part 4 – AML and anti-terrorism financing (ATF) compliance administration and reporting requirements, including guidance on governance, suspicious transaction reporting and record keeping; and

 

5. Part 5 – Appendices including a glossary of terms and links to relevant portals.

 

The AML Guidelines have been prepared such that, where sufficiently clear guidance is provided in the AML Law and AML Regulations, no additional guidance is provided in the AML Guidelines. However, where the AML Law or AML Regulations do not specifically cover a topic but such topic is addressed implicitly or by reference to international practices, the AML Guidelines seek to provide guidance to bring some clarity to their intended application in the UAE.

 

How do the AML Guidelines interact with guidance from other supervisory authorities?

 

The AML Guidelines address some inconsistencies that may arise from the legal and regulatory framework currently in place, from previous laws or regulations, or from differences in regulatory requirements between the various supervisory authorities in the UAE. The AML Guidelines recommend, however, that for any unaddressed inconsistences between supervisory authorities, financial institutions should contact their relevant supervisory authority.

 

It appears that with the introduction of the AML Guidelines, other supervisory authorities may begin publishing guidelines of their own relating to AML and ATF compliance.

 

For example, on 30 June 2019, the Dubai Multi Commodities Centre (the DMCC) published its AML and ATF guidelines for financial institutions and DNFBPs. The DMCC’s guidelines are presented as the DMCC’s own interpretation of the AML Law and thus are not mandatory rules or regulations for entities operating in the DMCC. Rather, the DMCC makes it clear that it is the responsibility of all entities to review the AML Law and AML Regulations and determine the impact on their own business.

 

On 7 July 2019, the UAE Minister of Justice promulgated a number of resolutions introducing AML and ATF initiatives. The initiatives include:

 

• establishing a section for AML and ATF;

• issuing AML and ATF procedures for lawyers, notaries and independent legal professionals;

• establishing a Committee for managing frozen, seized and confiscated funds;

• issuing procedures dealing with situations where persons listed on the local terrorism lists use frozen funds;

• issuing guidance on the grievance mechanism for persons disputing listing on the local terrorism lists; and

• issuing procedures and conditions for requesting international judicial cooperation on the sharing of the proceeds of crime.

 

Conclusion

 

While not legally binding, the advent of AML and ATF guidance from the various supervisory authorities of the UAE is a welcome step for businesses in the UAE. It will allow entities subject to the AML Law and AML Regulations to understand how supervisory authorities may construe their obligations and to take the recommended practical steps to ensure they are in compliance with their obligations pursuant to the AML Law. ■

 

New regulations offer welcome guidance to anti-money laundering law

UAE Federal Decree-Law 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations (AML Law) came into force at the end of October 2018. Containing features recommended by the Financial Action Task Force (FATF), the new AML Law has been shaped by international AML standards and provides several mechanisms to combat money-laundering and to ensure that businesses in the UAE are actively involved in managing compliance risks associated with money laundering activities.

 

While the new AML Law has introduced subtle but important changes, it is the implementing regulations to the new AML Law which have helped bring further clarity to the anticipated operation of the AML Law. The Implementing Regulations were issued on 28 January 2019 pursuant to Cabinet Resolution 10 of 2019 (AML Regulations).

 

The AML Regulations provide welcome guidance on the implementation of the AML Law and clarify the intended impact in certain key areas. In particular, guidance has been provided on the following matters:

 

• types of businesses subject to the AML Law;

• the scope of the exemption, accorded to lawyers and auditors, from the obligation to report suspicious transactions; and

• the functions and role of the Financial Intelligence Unit (FIU).

 

What businesses are subject to the AML Law?

 

Prior to the release of the AML Regulations, it was thought to be the case that all businesses engaged in economic, commercial or professional activities in the UAE were subject to the full set of AML obligations imposed by the AML Law. The AML Regulations make it clear, however, that only those entities which qualify as Financial Institutions or as Designated Non-Financial Businesses and Professions (DNFBPs) will be subject to the obligations of the AML Law.

 

A Financial Institution is a person or entity that conducts one or more financial activities or transactions for or on behalf of a Customer. Pursuant to the AML Regulations, the following are considered financial activities and transactions:

 

1. receiving deposits and other funds from the public, including deposits in accordance with Islamic Sharia;

2. providing private banking services;

3. providing credit facilities of all types;

4. providing credit facilities in accordance with Islamic Sharia;

5. providing cash brokerage services;

6. financial transactions in securities, finance and financial leasing;

7. providing currency exchange and money transfer services;

8. issuing and managing means of payment, guarantees or obligations;

9. providing stored value services, electronic payments for retail and digital cash;

10. providing virtual banking services;

11. trading, investing, operating or managing funds, option contracts, future contracts, exchange rate and interest rate transactions, other derivatives or negotiable financial instruments;

12. participating in issuing securities and providing financial services related to these issues;

13. managing funds and portfolios of all kinds;

14. saving funds;

15. preparing or marketing financial activities;

16. insurance transactions, in accordance with Federal Law 6 of 2007 Concerning the Establishment of the Insurance Authority and the Organisation of its Operations; and

17. any other activity or financial transaction determined by the Supervisory Authority.

 

A DNFBP is a person or entity engaged in the following trade or business activities:

 

1. brokers and real estate agents when they conclude operations for the benefit of their Customers with respect to the purchase and sale of real estate;

2. dealers in precious metals and precious stones when they carry out any single monetary transaction or several apparently related transactions with a value equal or exceeding AED 55,000;

3. lawyers, notaries, and other independent legal professionals and independent accountants, when preparing, conducting or executing financial transactions for their Customers in respect of the following activities:

 

a) purchase and sale of real estate;

b) management of funds owned by the Customer;

c) management of bank accounts, saving accounts or securities accounts;

d) organising contributions for the establishment, operation or management of companies;

e) creating, operating or managing legal persons or Legal Arrangements; and

f) selling and buying commercial entities.

 

4. providers of corporate services and trusts upon performing or executing a transaction on behalf of their Customers in respect of the following activities:

 

a) acting as an agent in the creation or establishment of legal persons;

b) working as or equipping another person to serve as director or secretary of a company, as a   partner or in a similar position in a legal person;

c) providing a registered office, work address, residence, correspondence address or administrative address of a legal person or Legal Arrangement;

d) performing work or equipping another person to act as a trustee for a direct Trust or to perform a similar function in favor of another form of Legal Arrangement; and

e) working or equipping another person to act as a nominal shareholder in favor of another person.

 

The AML Law also specifies that other professions and activities may be added to this list over time as determined by a resolution of the Minister.

 

Once an entity qualifies as either a Financial Institution or as a DNFBP, it will be required to undertake customer due diligence; identify, assess and understand AML risks that may arise for its business; mitigate such risks; and take measures for the enhanced management of any high risks that it identifies.

 

Exemption for lawyers and auditors from reporting suspicious transactions

 

As noted above, lawyers, notaries, and other independent legal professionals and independent accountants may qualify as DNFBP’s depending on the activities they are undertaking for their clients.

 

This has caused issues for such professionals who may be bound by client confidentiality requirements as well as non-disclosure agreements.

 

The AML Law introduced the concept of an exemption for lawyers, notaries, other legal professionals and independent legal auditors with regard to information that they receive subject to professional confidentiality. However, little detail regarding this exemption was provided in the AML law. As a result, professionals were left wondering as to the scope of the exemption and their ability to rely on it.

 

The AML Regulations have provided further clarity on the operation of this exemption.

 

As a general rule, the AML Regulations require that any Financial Institution or DNFBP who has reasonable grounds to suspect that a transaction, attempted transaction, or funds in whole or in part constitute the proceeds of a crime, are related to a crime, or are intended to be used in criminal activity, must provide a suspicious transaction report to the FIU and thereafter provide all additional information requested by the FIU.

 

The AML Regulations exempt lawyers, notaries public, other legal professionals and independent legal auditors from this requirement if the information regarding such transactions was obtained in the course of their assessment of their clients’ legal position, defending or representing the clients before judicial authorities or in arbitration or mediation proceedings, providing a legal opinion with regard to legal proceedings, or other circumstances where such clients benefit from professional privilege.

 

Furthermore, while a Financial Institution or a DNFBP is normally prohibited from disclosing to its client the fact that it has made a suspicious transaction report, the AML Regulations clarify that in cases where a lawyer, notary, other independent legal professional, or independent legal auditor attempts to discourage their client from committing a violation, this shall not be considered as such disclosure.

 

While lawyers, notary publics, other legal professionals and independent legal auditors are exempted from reporting suspicious transactions as aforesaid, they are still required to abide by all other obligations in the AML Regulations imposed on them as DNFBPs, including conducting customer due diligence and enhanced management of high risks.

 

The role of the FIU

 

The AML Law and AML Regulations have maintained the role of the FIU to receive and process information related to crime. They accord the FIU powers to investigate and to process suspicious transaction reports and to seek further information from Financial Institutions and DNFBPs. The AML Regulations grant the FIU the international role of exchanging information with and reporting to its counterparts in other countries.

 

Conclusion

 

The AML Regulations provide welcome clarity on the operation of the AML Law and in particular the changes introduced in the AML Law.

 

Such changes complement a series of other measures aimed at strengthening the integrity of the UAE’s financial system and bringing it into consistency with global standards.

 

The AML Law and AML Regulations should further be viewed as a sign that there is no tolerance for financial crime in the UAE. Businesses operating in the UAE who fall within the definition of a Financial Institution or DFNBP need to consider the application of the AML Law and AML Regulations to their business and ensure that they have internal processes in place to identify, manage and mitigate high risk customers and activities.■

Confidentiality under renewed focus

The UAE federal government has recently issued a raft of important legislation, addressing and in many ways updating areas of law that are key to businesses in the jurisdiction. Amongst this legislation is Federal Decree-Law 14 of 2018 concerning the central bank and the organisation of financial institutions and activities (the New Banking Law) and Federal Decree-Law 20 of 2018 concerning anti-money laundering and anti-terrorism financing (the New AML Law). Both the New Banking Law and the New AML Law repeal and replace the previous legislation on their respective subjects.

 

Importantly, the New Banking Law and the New AML Law have together enhanced the protection afforded to confidential information under UAE law, in particular where financial and legal service providers and their customers and clients are concerned.

 

Confidentiality under UAE law

 

While it has long been the case that confidential information was given protection, such protection was spread across various pieces of legislation. For example, it has been generally accepted that UAE law includes an obligation on the part of a bank or a financial institution to hold information concerning its customers as confidential. This was understood to form part of customary banking practice in the UAE and was confirmed through certain guidance issued by the Central Bank. Similarly, obligations of confidentiality were placed on other service providers through sector specific legislation on the matter (see for example, Dubai Law 11 of 2013 concerning obligations of insurance companies in the Emirate of Dubai and Federal Law 23 of 1991 concerning the licensing of advocates). A general obligation of confidentiality was also contained in the UAE Penal Code (being Federal Law 3 of 1987, as amended).

 

Each of the New Banking Law and the New AML Law improves on this position and places customer confidentiality on statutory footing.

 

Confidentiality under the New Banking Law

 

Article 120 of the New Banking Law provides that all data and information concerning accounts, deposits and safe deposit boxes  (along with transactions concerning these facilities) of a customer shall be considered confidential and must not be directly or indirectly disclosed to any third party, in each case without the prior written consent of the customer. The obligation to keep such data and information confidential is stated to continue for an indefinite period, notwithstanding the termination of the relationship between the account holder and the bank or financial institution. Importantly, Article 120(4) stipulates that the obligation of confidentiality extends to all “agencies” and “persons” and other entities that by virtue of their profession or employment have access to such information.

 

Though the clarity provided by the Banking Law with regards to customer confidentiality is welcome, it remains to be seen how this obligation will affect the exchange of credit information (for example, in the context of disclosure of financial information to a UAE credit rating agency). It also remains to be seen whether there will be clearly prescribed sanctions and/or penalties for breach of such obligations.

 

The Banking Law provides that the Central Bank will issue further rules on this matter and it is anticipated that these rules will provide the required granularity to the confidentiality obligations set forth in the New Banking Law.

 

Confidentiality under the New AML Law

 

Like the New Banking Law, the New AML Law contains guidance with respect to confidentiality. Importantly, Article 15 of the New AML Law contains an exception to the obligation of a bank or financial institution covered by the New Banking Law to hold customer information confidential. In summary, such a bank or financial institution must issue a notification in the prescribed form to the designated unit within the Central Bank, where it has reasonable grounds to suspect a transaction or funds concerns a crime. In such case, the bank or financial institution must inform the designated unit within the Central Bank of its suspicion “without delay” and must include an appropriate level of detail on the account or transaction concerned, and without regard to the confidentiality of such information. It remains to be seen how banks and financial institutions will balance their obligations of confidentiality (as now enshrined within the New Banking Law) against their obligations of disclosure under the New AML Law. The obligation to report suspicious transactions is also imposed on Designated Non-Financial Businesses and Professions, a category that will be detailed in the implementing regulations contemplated by the new AML Law. Importantly, it remains to be seen how banks will determine what constitutes “reasonable” grounds. Is mere suspicion adequate?

 

Interestingly, the New AML Law provides (albeit indirect) recognition to the fact that lawyers (including those licensed as “legal consultants” in addition to those licensed as “advocates”) owe a duty to their clients to treat information received from such clients as confidential. It was previously the case that the confidentiality obligations of a legal consultant had to be derived by analogy to Federal Law 23 of 1991 concerning the licensing of advocates and, in the Emirate of Dubai, from the provisions of the draft code of conduct issued by the Dubai Legal Affairs Department.

 

Article 15 of the New AML Law stipulates that lawyers, notaries and other legal professionals are exempt from the requirements of disclosure contained in article 15 of the New AML Law, provided such information is received “subject to professional confidentiality”. This exemption is also extended to independent legal auditors. While the introduction of such exemption is welcome, it remains to be seen how the courts and authorities will interpret the requirement for the relevant information to have been received “subject to professional confidentiality” and whether the implementing regulations contemplated by the New AML Law will place limits on this exemption.

 

Despite further guidance pending, these legislative developments highlight the importance of confidentiality for businesses that receive and deal with confidential information. It also helps to bring into focus the high level of importance placed by UAE policy makers on matters of confidentiality and privacy. Businesses in the UAE would be well advised to take note of these developments and to stay alert for further developments in this field. ■

 

New anti-money laundering law

The new anti-money laundering (AML) law of the UAE took effect at the end of October 2018. Containing features recommended by the Financial Action Task Force (FATF), the new law introduces subtle but important changes to the AML landscape in the UAE.

 

The new law was enacted as Federal Decree-Law 20 of 2018. The previous AML law was Federal Law 4 of 2002, as amended by Federal Law 9 of 2014, and the implementing regulations that were promulgated pursuant to Cabinet Resolution 38 of 2014. The new law indicates that new implementing regulations will likewise be promulgated, although they have yet to be issued.

 

Prior to the 2014 amendments, AML compliance was confined to specific of regulatory silos. In particular, obligations were imposed on banks, other financial institutions, insurance companies, accountants, best lawyers, and businesses active in the Dubai International Financial Center and the Abu Dhabi Global Market. The 2014 amendments expanded the AML compliance obligation to all businesses and professions. This is continued by the new statute, but with somewhat greater precision. Specifically, the new statute imposes AML compliance obligations on Financial Institutions and on Designated Non-Financial Businesses and Professions (DNFBPs), terms adapted from the FATF. The implementing regulations will specify which DNFBPs will be subject to AML compliance obligations under the new statute.

 

It was an often overlooked feature of the 2014 amendments that AML compliance throughout the economy was required. This is continued and enhanced by the new statute. Both Financial Institutions and DNFBPs are required to comply fully with the express prohibitions contained in AML statute, to report suspicious transactions to the Financial Information Unit of the Central Bank, to conduct due diligence with counterparties, to adopt internal guidelines to ensure that AML violations will not be committed inadvertently, to provide regular training to personnel, and to conduct regular and ongoing AML assessments of the business risks and sector risks that they face. Regulators throughout the UAE are instructed to ensure compliance with these requirements.

 

In a potentially significant change, the new statute obliges each Financial Institution and DNFBP to conduct a risk-based assessment of its business activities and to adopt compliance measures based upon such risk-based assessment. An appreciation of the risks should guide conduct of due diligence of proposed customers and ultimate beneficial owners so that AML efforts might be most efficiently deployed. The previous law did not mandate a risk-based approach to AML obligations, and indeed a non-calibrated “one size fits all” approach was widely used in the conduct of due diligence investigations on proposed customers and counterparties. Importantly, the new law leaves open the question of which factors a Financial Institution or a DFNBP would consider when undertaking the assessment. We expect that this will be clarified in due course by the anticipated implementing regulations.

 

The law enforcement toolkit is substantially enhanced by the new statute. The authorities are given enhanced ability to investigate and prosecute offenses and to gain access to records in connection with the same. The power of the Central Bank to order an account freeze based on a suspicious activity report is maintained, but such a freeze may now be extended by order of the public prosecutor or its delegate beyond the initial seven day period, whereas the previous law required a judicial order for such an extension. Sanctions for violations are substantially enhanced, including measures directed at individual managers and directors. In a measure inspired by practices followed in London and Washington, the authorities are given the power to impose continuing reporting and monitoring obligations on businesses following an initial indictment.

 

In addition, there are express obligations to cooperate with international investigations and enforcement measures. The new statute addresses matters such as the collection of documentation, interrogation of witnesses and extradition of suspects, as well as the honoring and enforcement of orders and judgments from foreign countries.

 

In terms of prohibited conduct, the new statute makes only minor changes in comparison with the 2014 amendments. The definition of a predicate offense is considerably expanded. A predicate offense is now defined as any act constituting a felony or misdemeanor under the applicable laws of the UAE, whether the act is committed inside or outside of the UAE, when such act is punishable both in the UAE and in the country where it was committed. In addition, it is now stated unambiguously that the handling of funds that are tainted by association with a terrorist organisation or an illegal organisation would be a money laundering offense.

 

The obligation to file suspicious transaction reports with the Financial Information Unit of the Central Bank is maintained. However, for the first time, a professional privilege exception is introduced applicable to lawyers, notaries and other legal professionals and independent legal auditors. The scope of this privilege, never before acknowledged expressly in the AML context, is to be elaborated in the implementing regulations.

 

The FATF is scheduled to commence a mutual evaluation with the UAE in mid-2019 on the current state of AML compliance in the UAE. The new statute is a proactive initiative to introduce best-practice AML regulations according with the FATF’s guidelines. ■