The United Arab Emirates is one of the leading economies in the world. Notably, the trade & finance in UAE requires a lot of attention from the international regulatory community. Reasonably, the free trade zones operating in UAE attract the business tycoons but also the Money Launderers and illicit traders. So, to mitigate the threat of Money Laundering and other Fincrime, Compliance with KYC AML is important in the UAE.
A guide to KYC/AML for FIs in UAE
Currently, almost all companies are required to comply with the KYC/AML regulations worldwide to some extent. Relevancy is the key as per the economy in which the Financial Institution or the company is operating. Therefore, to follow the AML-CFT law the classification of companies in UAE is done in three categories:
- Financial Institutions
- Non-Financial Businesses
- Non-Profit Organizations
It is important to note that all the three categories require full compliance to KYC/AML regulations applied to them. Also, the financial activities & operations must be reported to the authorities if any suspicion is noted.
Compliance with KYC/AML by FIs
The sharia law (islamic law) is the main law in KSA & UAE for being a dominant muslim community. Deposits & Funds Transferred through Islamic means need to comply with the latest KYC/AML regulations. Thus, Compliance with KYC/AML is fully applicable to banks, islamic banks & money exchangers. Following postulates are imperative for the FIs to note pertinent to the discussion of KYC/AML:
- Traders, investors & other financial operators are subjected to the KYC/AML regulations
- Issuing securities & other financial instruments must be regulated by the KYC/AML authorities
- Currency exchange, money transfer services and digital cash must also be compliant to the KYC/AML laws
- Portfolio management and fund management shall fully comply with KYC/AML policies.
Similarly, the non-financial businesses must conduct financial activities compliant to the KYC/AML laws in UAE. For this purpose following businesses are subjected to the KYC/AML laws and regulations:
- Real Estate firms
- Dealers of gold & other precious metals & precious stones (with transactions equal or more than AED 55,000)
- Lawyers and other legal professionals
- Corporate Service providers (call centers, training centers and BPOs)
- Other businesses that come under the regulatory decision of the Minister.
Furthermore, it is important to note that businesses managing the fund on-behalf of customers are subjected to these regulations.
Read Also: Cybercrime in Real Estate
Non-profit Organizations working in any nature of service or work who collect the client’s or beneficiaries data shall comply with KYC/AML. UAE has a number of NPOs that are regulated by the KYC/AML regulations. However, the NPOs have limited liability and obligations as compared to FIs and NFBs.
The Regulatory Bodies in UAE for KYC/AML
Compliance with KYC/AML needs to be regulated by a central body in every economy. As of 2020 the Central Bank of UAE designated a special department for handling all AML-CFT regulatory matters. This department is known as Anti-Money Laundering (AML) and Combating the Finance Terrorism (CFT) (AMLD) having three objectives:
- Monitors & examines the Financial Institutions
- Ensures full compliance and adherence to UAE’s legal and regulatory framework.
- Identification of threats. Vulnerabilities & potential risks.
Specifically, the AMLD coordinated with the UAE’s Committee for AML/CFT and the regulatory departments in the bank. Overall, it acts as a mediator between the CBUAE and other domestic stakeholders.
What to comply with in the UAE?
Since the tightening of AML/CFT laws, UAE has been an active member to support the law.
- In 2018, Federal Decree Law No. (20) is in effect against Money Laundering and Fin-Terrorism
- In 2019, Cabinet Decision No. (10) concerns the Implementation and Regulation of Law No. (20).
So far, these laws define the person who acts unlawfully in committing the following crimes:
- Moving or transporting illegal funds with the goal of hiding or disguising their illegal source.
- Hiding or disguising the truth about the source, location, method of distribution, movement, or rights associated with illegal funds or their ownership.
- Obtaining, holding, or using illegal funds.
- Helping someone who committed the original crime avoid punishment.
Therefore, for Compliance with KYC/AML, these regulations are necessary to be known by the subject business entities.
Customer Due Diligence in UAE
Generally, the FIs and NFBs would be required to take measures for the risk management through CDD. While understanding the customer’s business nature and the purpose of transactions, following cases might be the occur:
- Occasional transaction to facilitate the customer amounting equal to or more than AED 55,000. Whether the transaction is made in multiple or single transactions.
- Occasional transactions through wire transfer amounting equal to or more than AED 3500
- Suspicions of Fincrime and other crime
- Doubtful identification data with regard to customers.
Likewise, the FIs are obligatory to improve their CDD measures for customer identification. High-risk is involved in AML-CFT where individuals such as PEPs (Politically Exposed Persons) are on the top.
A brief on KYC/AML
All businesses in UAE must embrace the Compliance to KYC/AML in UAE. Hence, they need to have updated knowledge & guidance on the KYC/AML in UAE. KYC is the process for verifying and identifying the personal data that businesses collect from customers. Therefore, following data is collected in this course:
- Personal ID document
- Proof to Residential Address
- ID/travel document for the shareholders with 25% or more shares
- Operating Address Proof in the UAE. (bank statement of a utility bill no older than three months)
- Certification of Incorporation/ Trade License
- Memo & Articles of Association\
- BoDs resolution for opening up bank accounts.
Penalties for non-compliance to KYC/AML
In the UAE, certain specific penalties are imposed on the defaulters. Following is a brief of these penalties:
- Imprisonment & fines from AED 100,000 - AED 1000,000
- Violation of AML-CFT regulations may result in imprisonment and fine between AED 10,000 - AED 100,000
- Non-Finance Business in case of non-compliance shall face fine ranging from AED 5000 to AED 200,000
Read Also: Denmark’s Largest Bank found guilty: Fined for $2billion over Fraud charges
Updated UAE KYC/AML Information
Recently, UAE has updated the guidelines, regulations & procedures for Compliance with KYC/AML. In 2021, UAE regulated businesses asking them to adopt internal procedures against any suspicious transaction with banks and exchanges.
Moreover, the UAE now is planning to introduce new regulatory bodies for a firm imposition of AML-CFT compliance. The Executive Office of AML and CFT has recently been operational in Dubai’s AML Court.
Clearly, UAE will continue to improve and enhance its KYC/AML measures and has shown greater commitment. Also, to mitigate the threats of AML and Fin-Terrorism, it is active in contributing its part legally.
Resource: AML/KYC Guide to The UAE—New Laws and Regulations for 2023
Frequently Asked Questions
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KYC verification is the process of identification and verification of customers for the purposes of prevention of Money Laundering and other FinCrime.
Two enacted laws are currently serving the foundations for the UAE’s Anti-Money Laundering (AML) and Counter Terrorist Financing (CTF).
Law No 4/2022, the Anti-Money Laundering Law
Law No 1/2004 The Counter Terrorism Law
- Customer Acceptance Policy
- Customer Identification Procedure
- Monitoring the Transactions
- Risk Management