Anti-money laundering remains a hot topic in the global investigation and enforcement space – a case study of the UAE and what it means to financial institutions

• United Kingdom

• Financial services disputes and investigations
• Litigation and dispute management

14-04-2021

One clear consensus amongst our team of lawyers is that anti-money laundering (AML) will remain a hot topic in the global investigation and enforcement space. AML is an important issue in and of itself in that, if mis-handled, it may result in significant financial and reputational loss to a firm. Apart from that, the mutual evaluation process implemented by the Financial Action Task Force (FATF) has driven countries into a cycle of continue assessment and evaluation, and improvement and enhancements. This resulted in national regulators having to take pro-active steps to demonstrate compliance with the various FATF recommendations, including prompt investigation into suspected breaches and effective enforcement actions against non-compliance. This article uses the UAE as an example to illustrate how the compliance cycle is working in practice and how it is driving investigations and enforcement actions.

It is important to begin by reminding ourselves of the mandate of FATF. It is the global money laundering and terrorist financing watchdog. Being an inter-governmental body, it sets international standards that aim to prevent these illegal activities and the harm they cause to society. It works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. FATF has developed recommendations which ensure a co-ordinated global response to prevent organised crime, corruption and terrorism. More than 200 countries and jurisdictions have committed to implementing these recommendations. FATF monitors countries to ensure they implement the recommendations fully and effectively, and holds countries to account that do not comply.

Mutual Evaluation is a peer review process implemented by FATF which will be conducted for each member on an ongoing basis to assess levels of implementation of the FATF recommendations, providing an in-depth description and analysis of each country’s system for preventing criminal abuse of the financial system. A Mutual Evaluation Report is published after a review. Apart from giving a snapshot view of the country’s level of compliance with the FATF recommendations, the report will also identify areas where improvements or enhancements may be made. Apart from the report itself, there is a “follow-up process” whereby regular reporting will be required by countries on progress being made. A follow-up report is required three years after the Mutual Evaluation Report and a follow-up assessment will be conducted in the fifth year.

Prior to the mutual evaluation process, the UAE had already stepped up its efforts in improving its legal and regulatory framework in relation to AML. These included:

• the implementation of the Federal Law of 2018 on Anti-Money Laundering,
• similar developments within the UAE’s free zones with both the DIFC and the ADGM paying particular attention to the controls around DNFBPs (Designated Non-Financial Business and Professions),
• the expansion of the UAE Penal Code starting in 2016, which broadened the scope of the Anti-Bribery and Corruption laws and
• the introduction of an independent Financial Crime Prevention Unit at the Central Bank.

After the mutual evaluation, the report was published by FATF on 30 April 2020. Whilst the report praised the UAE for many of the positive steps already taken towards creating a robust regulatory framework, we continue to see the UAE taking ongoing action to implement FATF’s recommendations for the future. As mentioned above, the UAE will have to submit a follow-up report in 2023.

As a result, in January 2021, the Central Bank held its first Compliance Officer’s Forum to open a dialogue with Chief Compliance Officers under its supervision, communicating its expectations of the compliance function and risk management controls. During the forum, the Central Bank also introduced the supervisory agenda of its Anti-Money Laundering Department with a particular focus on complying with the actions recommended by FATF. There were also updates on the progress of the national initiative for digitalising the "Know-your-customer" process across the banking sector. This has been followed up with the launch of two programmes in the UAE to train and certify professionals on global compliance standards and procedures in respect of financial crime.

Further, meetings of the UAE’s Higher Committee Overseeing the National Strategy on AML and Countering the Financing of Terrorism throughout 2020 and into 2021 continue to highlight the UAE’s ongoing commitment to the implementation of FATF’s recommendations. In February 2021, the UAE has established its Executive Office of AML and Counter Terrorist Financing (CTF) which will oversee the implementation of the National AML/CTF Strategy and National Action Plan, the programme designed to strengthen the UAE’s anti-financial crime system and controls. The Executive Office’s responsibilities will include; improving national and international coordination and cooperation on AML/CTF issues at the policy and operational levels; tackling money laundering and terrorist financing threats by working with regional and international groups, such as FATF, G20 and the Gulf Cooperation Council Working Group on AML/CTF.

In terms of enforcement, the UAE announced that the Central Bank was imposing fines of over AED 45,000,000 against 11 banks for violating AML / CTF regulations. The banks were stated to have been given time to remedy the described shortcomings but failed to meet the requisite standards. Consequently, the fines were imposed under the AML Law and its executive regulation. In March this year, the Ministry of Economy reported and imposed financial penalties in respect of 26 violations by DNFBPs for failing to comply with their AML/CTF obligations. This follows fines imposed against 200 UAE law firms last year for similar failings which also led to the firms being suspended from practising for one month.

These are all clearly important steps taken by the UAE authorities to ensure that firms fully understand the expectations around AML/CTF compliance at ground level and to encourage them to not only implement their obligations ‘on paper’, but also to ensure that there is a robust compliance architecture and culture embedded within the firm. This includes, for example, adequate systems and controls to mitigate risk and training to all staff, including those on the front line to ensure escalation of financial crime red flags. The enforcement actions serve as an clear message of deterrence that non-complying firms will not just suffer financial consequence, but also potential damage to reputation.

The UAE authorities are no doubt continuing their efforts to ensure that the follow-up report due in 2023 incorporates as many of the FATF recommendations as possible. The UAE will also have its other eye on the fifth year follow-up assessment in 2025. At that point, they will no doubt have already turned their attention to the next round of mutual evaluations. This ongoing cycle of evaluations demonstrates that countries have no time to lose in achieving tangible results to demonstrate that they are effectively implementing as many of the FATF recommendations as possible and taking robust action to fight and combat money laundering and terrorist financing. Therefore, firms will in turn be put under pressure to continue to step up their efforts in ensuring that their systems and controls in this area are always fit for purpose. This includes prompt and efficient investigations into potential issues in order to identify, resolve and remediation a problem as quickly as possible.

Our experienced team of global lawyers, together with market-leading and award-winning technology, are ready to advise and support firms in all and any money laundering and terrorist financing related investigations whether internally or by national regulators, as well as any enforcement actions that may arise as a result.

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