The United Arab Emirates (UAE) has been making significant progress in fortifying its financial security and integrity by combating money laundering and terrorism financing. These efforts align with global initiatives and underscore the UAE’s commitment to being a secure and dependable place for international business and finance.
The Role of the UNSC and UAE in Implementing Targeted Financial Sanctions
The United Nations Security Council (UNSC) is a body that maintains or restores international peace and security. Thus, under Chapter VII of the United Nations Charter, the UN can preserve and protect world peace. One such power is imposing sanctioning measures under Article 41. These measures offer many enforcement options that do not involve using armed force.
The UNSC can issue binding resolutions on all United Nations (UN) member states. As a UN member, the United Arab Emirates (UAE) commits to implementing United Nations Security Council Resolutions (UNSCRs), particularly those related to UN sanctions regimes. An essential sanction is UAE’s commitment to Anti-money laundering (AML) and Combat Terrorism Financing (CFT) law.
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UAE's Commitment to Combat Money Laundering and Terrorism Financing
The United Arab Emirates (UAE) has consistently and effectively fought against illegal financial activities such as money laundering and the financing of terrorism. The nation’s powerful policies and strategies, including the UAE’s AML and CTF law, are designed to detect and deter financial crimes, ensuring that no individual or entity uses the UAE as a conduit or a destination for illicit funds. The UAE actively supports global efforts to combat these crimes and is committed to implementing the Financial Action Task Force (FATF) standards.
Understanding Money Laundering
Money laundering involves financial transactions that disguise the origins of illegally obtained funds. These funds are passed through the economic system to make them appear legitimate before being reinvested or used unlawfully.
Effects of Money Laundering and Terrorism Financing
- Economic Recession
- Increase in Crime and Corruption
- Threat to Economic Stability
- Weakening Financial Institutions
UAE’s AML/CFT law:
The Ministry of Economy (MoE) is the supervisory authority for Designated Non-Financial Businesses and Professions (DNFBPs) across the UAE and its commercial-free zones. MoE commits to developing a regulatory framework to combat money laundering and terrorism financing. To understand AML and how it affects you, read the blog – The critical need for AML services
FAQs on Targeted Financial Sanctions.
What is FATF?
The Financial Action Task Force (FATF) is an intergovernmental organisation based in Paris that combats money laundering (AML) and the financing of terrorism (CTF). FATF’s recommendations provide a comprehensive framework of measures for countries worldwide to implement according to their specific legal and financial systems. These standards aim to ensure global consistency in combating economic crimes, including the proliferation of weapons of mass destruction.
What is terrorism financing?
The financing of terrorism activities is Terror financing. Any financing that directly or indirectly, legally or illegally, supports terrorism is terror financing. Hence, it is necessary to understand and protect yourself as an individual or enterprise from being accidentally or unintentionally involved in such financial practices.
What is “targeted financial sanctions (UAE)”?
Targeted financial sanctions in the UAE are specific measures to prevent funds and other economic resources from supporting individuals or entities involved in terrorism. These measures combat money laundering that supports terrorist financing and the proliferation of weapons of mass destruction. These sanctions involve freezing assets, prohibiting transactions, and restricting access to financial services based on lists provided by the UN Security Council and UAE authorities.
What is a targeted sanction?
A targeted sanction is a specific measure aimed at individuals, entities, or sectors to restrict their access to financial resources and services without imposing broader economic restrictions on a country. The structure of these sanctions minimises the impact on the general population while effectively addressing specific threats or activities.
What are the four types of sanctions?
1. Comprehensive Sanctions: Broad measures restricting trade, financial transactions, and travel to or from a country.
2. Economic Sanctions: Specific restrictions on trade and financial transactions.
3. Arms Embargoes: Prohibitions on the sale or transfer of arms and related materials.
4. Travel Bans: Restrictions preventing individuals from entering or transiting through member states.
Is the UAE on the sanctions list?
The UAE is not on any international sanctions list. Instead, it actively implements international sanctions regimes and works to combat money laundering and terrorism financing in compliance with global standards. The UN and Global organisations also applaud the UAE for protecting international measures by applying UAE AML and CTF Laws.
Who must comply with TFS in the UAE?
All individuals and entities in the UAE, including financial institutions, designated non-financial businesses and professions (DNFBPs), and other regulated sectors, must comply with targeted economic sanctions. Those who must comply also include:
- Implementing measures such as asset freezing.
- Transaction monitoring.
- Report suspicious actions to the relevant authorities.
What is the Anti-Money Laundering Authority in the UAE?
UAE AML is a regulatory body responsible for enforcing laws and regulations related to combating money laundering and terrorism financing. The law includes the Financial Intelligence Unit (FIU), which is crucial in collecting, analysing, and disseminating financial intelligence to prevent and combat financial crimes.
What is anti-money laundering and combating the financing of terrorism?
Anti-money laundering (AML) and combating the financing of terrorism (CFT) are measures set by the UAE government to maintain its people’s financial peace and security. UAE AML / CTF laws are specific to financial transactions. These measures involve rules, regulations, and procedures to prevent, detect, and notify money laundering and terrorist financing transactions and activities. These measures include customer due diligence, transaction monitoring, reporting suspicious activities, and ensuring compliance with national and international regulations to protect the financial system from abuse.
What are the four differences between money laundering and terrorism financing?
| Aspects | Purpose | Funds Source | Financial Flows | Detection and Reporting | Procedure |
|---|---|---|---|---|---|
| Money Laundering | Conceals illegal fund origins | Involves only criminal activities' proceeds | Involves complex schemes to launder illicit funds. | Investigates Unusual financial patterns | AML Anti Money Laundering rules and regulations |
| Terrorism financing | Financially supports terrorist activities | Can involve both Legal and illegal sources | Directly and quickly transfers for terrorist acts | Identifies financial support for terrorists | Targeted Financial Sanctions |
What is UAE Cabinet Resolution No. 74 of 2020?
UAE Cabinet Resolution No. 74 of 2020 is a set of rules and guidelines to combat money laundering and terrorism financing. It implements United Nations Security Council Resolutions related to these issues and mandates specific actions for individuals and businesses in the UAE to help prevent financial crimes.
The UAE implements the UN Security Council Resolution on Targeted Financial Sanctions through UAE Cabinet Resolution No. 74 of 2020.
Who is UAE Cabinet Resolution No. 74 of 2020 For?
UAE Cabinet Resolution No. 74 of 2020 applies to a wide range of individuals and entities within the UAE. Specifically, it is for:
1. Natural Persons:
Natural persons are individuals residing or operating in the UAE who must comply with the rules for preventing money laundering and terrorism financing.
2. Legal Persons:
Legal persons refer to Businesses and other legal entities established in the UAE, including those in free zones.
3. Financial Institutions (FIs):
Banks, insurance companies, and other institutions involved in financial transactions must follow these regulations to screen and monitor their customers and transactions.
4. Designated Non-Financial Businesses and Professions (DNFBPs):
DNFBPs include real estate brokers, precious metals and stones dealers, lawyers, accountants, and corporate service providers who may be exposed to money laundering and terrorism financing risks. DNFBPs especially need to observe the UAE AML / CTF laws closely due to the sensitivity of the industry’s financial transaction.
5. Virtual Asset Service Providers (VASPs):
Businesses that deal with cryptocurrencies and other virtual assets must also comply with the regulations to prevent misuse of these assets for illegal activities.
6. All Persons and Entities:
Anyone in the UAE, including residents, expats, and businesses, must take necessary actions, such as subscribing to notifications, screening against sanctions lists, freezing assets when required, and reporting to the authorities.
The resolution ensures that all these groups work together to effectively prevent and combat money laundering.
What are the four key obligations of Cabinet Resolution No. 74 of 2020?
Among the many listed implementations, what concerns you the most are the 4 Key Obligations mentioned Under UAE Cabinet Resolution No. 74 of 2020. In simple terms, they are:
Step 1: Subscribe to Notifications
Register with the Executive Office Notification System to receive automated email updates on any changes to the Sanctions Lists (Local Terrorist List or UN Consolidated List).
This registration ensures you receive automated notifications regarding changes to the sanction lists, including new listings, relisting, updates or delistings issued by the UN Security Council, the Sanctions Committee, or the UAE’s Local Terrorist List.
Step 2: Regular Screening
You should conduct Regular and ongoing screening against the latest Local Terrorist and UN Consolidated List. The screening is effective for both UAE AML and CTF law procedures. This screening should occur:
- Immediately upon updates to the sanctions lists.
- Before onboarding new customers.
- During KYC reviews or when customer information changes.
- Before processing any transaction.
This daily screening process helps identify possible matches against sanction lists, ensures proactive compliance, and effectively combats money laundering.
Step 3 Apply Targeted Financial Sanctions
If and when a match is found through screening, As entities, you must immediately:
Freeze Funds: Without delay (within 24 hours) and without prior notice, freeze all funds of:
- Owned or controlled by individuals or entities designated by the UAE Cabinet or UNSC.
- Derived from funds related to designated individuals or entities.
- Controlled by individuals or entities acting on behalf of or directed by designated persons.
Prohibition of Funds: Do not provide funds or financial services to any individual or entity listed on the Local Terrorist or UN Consolidated List. Make exceptions with written authorisation from the Executive Office for Control & Non-Proliferation.
Step 4 Reporting Obligations
Financial Institutions (FIs), Designated Non-Financial Businesses and Professions (DNFBPs), and Virtual Asset Service Providers (VASPs) must report any freezing or suspension measures through the goAML platform within five days. Non-goAML users should report via email to the Executive Office.
Identifying Matches for TFS
To combat money laundering and comply with TFS, FIs, DNFBPs, and VASPs in the UAE, you must constantly screen your customers, potential customers, beneficial owners, and transactions to identify possible matches to the sanctions lists. The information used for identification includes:
For Natural Persons, this includes use as Name, aliases, date of birth, nationality, ID or passport information, and last known address.
Use Names, aliases, registration addresses, branch addresses, and other relevant information for Legal Entities.
When a partial name match is identified, verifying whether it is a false positive or a confirmed match is essential. This verification can be done through customer due diligence and cross-referencing with available information. If the match is confirmed, You must implement freezing measures immediately.
Penalties for Non-Compliance:
Failure to comply with these obligations can result in severe penalties, including imprisonment or fines ranging from AED 50,000 to AED 5,000,000. Adherence to these regulations is crucial to avoid such punitive measures.
Liability and Duration of Freezing Measures
Individuals or entities acting in good faith to freeze funds, deny services, or refuse financial transactions related to designated individuals or entities are protected from liability for their actions. Freezing measures and prohibitions have no time limit and remain in effect until the individual or entity is removed from the sanctions lists or until an official cancellation is issued.
Additional Measures and Compliance
Internal Controls and Procedures: Entities must implement internal controls and procedures to ensure compliance with TFS obligations. Such actions include policies that prevent staff from informing customers about impending freezing actions.
Cooperation: Full cooperation with the Supervisory Authority and the Executive Office is required to verify data accuracy and effectively implement sanctions.
Supervision: Supervisory authorities oversee compliance with these requirements and can enforce actions for noncompliance under UAE’s Federal Decree Law AML/CFT (20/2018).
Enhancing Financial Integrity
The comprehensive framework, such as UAE’s AML and CTF law, demonstrates a solid commitment to maintaining financial integrity and security. By ensuring rigorous compliance with international standards and proactive measures, the UAE aims to mitigate the risks of money laundering and terrorism financing significantly.
Conclusion
The UAE’s commitment to combat money laundering and terrorism financing is evident in its comprehensive regulatory framework and active participation in global efforts. By adhering to international standards and continuously enhancing its policies and procedures, the UAE aims to protect its financial integrity and maintain its position as a leading economic hub.
Targeted financial sanctions are crucial to the UAE’s efforts to combat terrorism financing and align with international security standards. By adhering to these obligations and implementing compliance measures, individuals and entities in the UAE contribute to global efforts to maintain financial integrity and security.
For further information or assistance regarding your obligations under Cabinet Resolution No. 74 of 2020 to combat money laundering, call us for a consultation at NNCA.
