Most of the preventive measures needed to prevent money laundering in the UAE are lacking according to the 2008 report presented by the IMF. The report indicated that, "the legal framework for the financial sector preventive measures within the domestic sector…provided a basic grounding’ but this framework predates the amendments of the FATF Recommendations made in 2003, which have currently imposed subsequent detailed requirements. In addition, the IMF report make it clear that, even though there are a variety of administrative measures put in place to strengthen AML regime by the UAECB, the country requires a more solid, robust approach to its legal and regulatory framework in addressing these issues.419
While the rules and regulations applied to financial institutions that are operating within the Dubai International Financial Centre (DIFC) tends to resemble the FATF regulations it is the implementation of them and the supervision and surveillance of these institutions that is in need of attention. This is a common theme in this research; most of the necessary rules, regulations and supervisory bodies are in place but it is the lack of enforcement that is a key issue. Based on the UAEs STR regime, the IMF assessment was, in particular to money laundering, that it lacks clarity and as such the quality of the STR is questionable. It is possible the minimum levels of conformity for the UAE, as agreed on by the IMF, are for the Designated Non-Financial
such funds are destined for terrorist acts (Section 3 and Schedule II, Part III), and enables the police to have more powers both to ensure that financial institutions monitor their accounts and obtain updated financial information. 419 William Witherell, 'International approaches to combating financial abuse and promoting stable financial markets' , vol 5 (MCB UP Ltd 2002) 257, pp. 257-262.
Business and Professions (DNFBP) sector.420 Despite the assertions made by the UAE authorities that most of the DNFBPs are subject to the AML laws, no separate laws have been specifically put in place to address such businesses. There are, however, a number of provisions for DNFBPs within the Dubai International Financial Centre as the financial free zone i.e., the 2010 US report identifies several sectors within the UAE, such as the diamond industry, the real estate sector as well as the Hawala system, that are considered to be susceptible to money laundering and terrorism.421
It is here that - the Hawala system – that is of international concern. The system was originally used to avoid robbery and this developed to cover India and parts of Asian. It is thought that it is frequently used by those working in Dubai from a poor country as a way to transfer funds based on kinship. Hawala offices are unofficial because these offices are not registered or licensed with the Central Bank. These Hawala offices are known as ‘hidden banks’ or ‘underground banking system’ where there is no record of the client, source of income, papers to document the amount of the transfer. In addition there is no doubt that there are some factors seductive that encourage the use of Hawala; there are, for example economic factors, social and cultural, including: (1) little or no cost transfer fees compared with other bank transfers, (2) speed in the transfer of funds is usually from one day to two days; (3) it is based on the element of trust between the Hawaladar and the existing conversion, such as kinship; (4) it is a convenient and simple way to shorten a lot of banking procedures complicated to some extent and the lack of documents and papers required; (5) in addition to the above, it is the preferred method of migrant labourers, especially when there are no banks in the cities inhabited by their parents/beneficiaries of the transfer.
420Richards, J. R., 1999. Transnational Criminal Organizations, Cybercrime, and Money Laundering: A Handbook for Law Enforcement Officers, Auditors, and Financial Investigators, CRC Press, Boca Raton, FL.
In order to meet the requirements of the UAECB, the financial sector – mostly banks - should take firm and reliable measures to safeguard their funds and those of their customers. However, without effective supervision, up-to-date training of personnel and implementing certified Anti- Money Laundering programmes it appears that little progress will be made. This then, is a problem that is one for all involved in AML strategies in Dubai Extensive suggestions are made in the final chapter on how to prevent money laundering in the UAE, but worth mentioning here is that if the financial sector fails to adhere to legislation the relevant authority in Dubai should refuse the company permission to trade in the UAE. A coherent, strategic approach is thus required, which needs to draw the Hawala system under it supervision.
This is reflected in the IMF and US DoS presenting a cautionary statement that “a national, organised, and strategic approach to measures of AML/CFT is urgently required.422 Supporting and encouraging several intercontinental and bilateral treaties, signed by the UAE in reference to AML is a step in the right direction but a more national approach is fundamental to success. As a result of the relative autonomy of individual emirates within the UAE, there are a lot of divergent approaches to AML enforcement even within Dubai itself and the different financial sectors and FTZ.
In summary, the 2008 IMF report provides the ideal source for the several shortcomings within the UAE/Dubai’s AML system, indicating that, although most of the authorities have sought to address some of the money laundering issues, reforms should be undertaken so as to bring the country in line with FATF requirements. A high level state committee has recently endorsed the implementation of a national plan of AML actions that will, it is hoped, eliminate deficiencies within the rules and regulations in the UAE attempts to prevent money laundering. It is, however, a plan in progress, and will not be completed before this research is finished.
Under the proposed plan, amendments are considered by working team of relevant bodies to enhance its implementation as well as to coordinate with the relevant executive authorities. It is a further creation, as the development of ‘bodies’ see above in this chapter, to tackle money laundering are nothing new. It appears to be more of an attempt to update legislative and bureaucratic systems, particularly in relation to STR, to identify and indict members of organised crime and terrorist cells/organisations as well as detecting money laundering trends such as abuse of telephones card sales and the money order transmitters established some year earlier.423
However, a comparative analysis of AML efforts in more than 20 jurisdictions indicates that the application of SARs is regularly hindered by both legislative and bureaucratic deficiencies. Furthermore, and not particular to the UAE, is the absence of a suitable Financial Intelligence Unit (FIU) to effectively oversee both the collection and investigation of SARs and the failure to share the collected information with international regulators and train the staff of FIUs properly In most cases, the FIUs lack the necessary computer systems that can enable effective information exchange, while a number of jurisdictions put time and other limits on FIU investigation of the increased numbers of SARs that are produced by the banks and other institutions.424
The problem of money laundering is further compounded in Dubai by having no condition for the establishment of trusts or related arrangements under UAE federal law, and as a result foreign trusts are not yet recognised within the country. However, uniquely trust law has been introduced within the DIFC, which results in the creation of express trusts. Therefore, such arrangements ought to be administered by trust service providers under the authorisation of the DFSA, which are subject to record-keeping requirements. This, however, appear to be an
423 Jeffrey Robinson, 'The sink: terror, crime and dirty money in the offshore world' (Constable & Company Limited 2003)
424 Richard Alexander. 'EU: The EC Money Laundering Directive' (1998) 2(1) Journal of Money Laundering Control 68 Alexander, Richard. 1998. EU: The EC Money Laundering Directive. Journal of Money Laundering Control. Institute of Advanced Legal Studies. Volume Two, Number One, Summer.
expectation rather than reality (see results chapter six) as Dubai has a ‘light touch’ approach to monitoring the financial sector.
There have and are a number of proposals made in Dubai regarding money laundering, as illustrated. However, one sector that has been neglected by all the laws, conventions and political pronouncements is the transportation of cash and expected legal declarations 425, and the smuggling of cash and/or gold to Dubai. A substantial amount of money laundering is trade based, and this needs to be tackled; this includes the Hawala system of cash transactions, which until recently were often downplayed as a potential conduit of money laundering. Although Dubai and the UAE have a legislative framework for money laundering, it needs to be significantly expanded upon to include all sectors beyond the obvious ‘regulated’ known financial sector. A policy on the forfeiture of assets and punishment for laundering should also be devised, with greater cooperation between the relevant law enforcement bodies and the government at both the federal and the emirate state level, with more intense prosecution. It would be advisable for the list of offenses to be expanded, with the possible criminalisation of acts which are not currently classed as criminal in the UAE. Furthermore, the AMLSCU is likely to require more funding and supervision, particularly to counter the use of the Hawala system.426 Whether this will be done, however, depends upon the will of those in a position of power to make it so.
While aware that it is difficult to prevent money laundering and provide customers with a service the two are not insurmountable. It is recommended that the following preventive measures, are needed to mitigate these risks:
1. A company must establish and maintain effective internal policies, procedures, and controls to prevent opportunities for money laundering. A money laundering compliance programme
425 United States Department of State Bureau for International Narcotics and Law Enforcement Affairs International Narcotics Control Strategy Report Volume II Money Laundering and Financial Crimes March 2013 p.205
<http://www.state.gov/documents/organization/204280.pdf> Accessed 17/02/2012 426 Ibid. p.206
should be defined by senior management and/or the board of directors which must consider local/emirate regulations prior to adopting a compliance programme.
2. A company must appoint a compliance officer. When a company appoints a compliance officer, it is imperative to verify that the qualifications of that person meet the local requirements. The compliance officer should be responsible for the day-to-day compliance of the business with the AML laws, and for ensuring the compliance programme is updated as needed. The compliance officer should be responsible for overseeing a company’s ongoing education and training programme. The compliance officer should also be responsible for maintaining records and reporting suspicious cases to the relevant authority.
3. It is important to obtain details of customers in order to verify their identities, including full name and address, passport or identity card (for individuals) and trade. Such information must be periodically and regularly updated. The more a company knows about its customers, the better can money laundering abuses be prevented.
4. A company must adopt policies and procedures for the identification and reporting of suspicious activity. A company must review UAE regulations for what it considered to be a suspicious transaction as well as the allowable time delays to report such activity.
5. A company must establish an ongoing employee-training programme for all employees. Effective training should present real-life money laundering examples, preferably cases that have occurred in the company, including how the pattern of activity was first detected and its ultimate impact on the company.
6. A company must conduct an independent audit of its AML compliance programme to ensure its adequacy. Such an audit should be conducted periodically based on the risks faced by the company and the requirements of the UAE regulations.427
427 Eleni Tsingou. 'Global Governance and Transnational Financial Crime Opportunitites and Tensions in the Global Anti-Money Laundering Regime' (2009)
The culture of compliance is considered the key in the effective prevention of money laundering and to raise awareness in the community. This is vital as the compliance and commitment in the attempts to reduce the incidence of money laundering in Dubai is one of the greatest policing challenges that it presently faces. However, it is the duty of the financial sector and to ensure that it is familiar with the laws and regulations in Dubai, and if unaware take the advice of legal specialists in case of difficulty in understanding money laundering legislation.