The Central Bank of the United Arab Emirates (“CBUAE”) has issued new guidelines (the “Guidelines”) for financial institutions in the United Arab Emirates providing services to cash-intensive businesses.
The specific characteristics of cash – anonymity, interchangeability and transportability – make it an attractive medium for illicit actors seeking to conceal the proceeds of crime or the financing of terrorism. Unlike other monetary instruments, such as wire transfers or credit cards, cash contains no trace of its source or owner, it can be easily concealed in large amounts, it is widely accepted in the worldwide and it can be spent instantly, after which it is difficult to trace. For this reason, the Guide, which aims to help financial institutions in the UAE understand and effectively mitigate the money laundering and terrorist financing risks associated with cash-intensive businesses, is another important step for UAE in its commitment to fight money launderers and terrorist financiers. .
We have reported on many previous steps the UAE has taken to improve the efficiency and robustness of its banking and financial system, including but not limited to passing new laws (see here) , issuing guidance on reporting suspicious activity/transactions (see here), and establishing a specialized court to hear money laundering cases (see here).
Cash-intensive businesses are businesses that experience large cash flows (and/or cash alternatives, such as negotiable instruments, prepaid cards, etc.). They can cover a variety of sectors and industries, including construction, gaming, hospitality, retail, many types of commerce (for example, auction houses and the trade in jewellery, precious metals and vehicles), transport, travel, wholesale, etc. Most cash-intensive businesses are perfectly legitimate. However, features of cash-intensive businesses, particularly cash deposits, cash couriers and cross-border cash movements, can be vulnerable to abuse by financial criminals and other malicious actors seeking to legitimize products. of criminal activity by simulating authentic origins. This requires special attention from UAE financial institutions providing cash-intensive business services.
The Guidance makes clear that the first step for financial institutions in fulfilling their anti-money laundering and counter-terrorist financing (“AML/CFT”) obligations with respect to cash-intensive customers is correctly identify and understand the risks and vulnerabilities associated with each of these customers. . This means that before onboarding a cash-intensive business, a financial institution should review the company’s products, operations, distribution channels, and geographies, as well as the intended use of the account or account. another service that would be provided by the financial institution. , including expected trade counterparties and volume. These investigative leads allow the financial institution to effectively assess the risks associated with a given customer and identify those requiring enhanced due diligence (“EDD”). Of course, when a financial institution cannot ensure that it understands a customer and their activity, they should not accept the customer and should consider filing a Suspicious Activity Report (“SAR”) with the ‘UAE Financial Intelligence Unit (“FIU”). ”).
Customer Due Diligence (“CDD”) and, where applicable, EDD are key preventative measures that help financial institutions manage the risks of their customers, especially high-risk customers. For most cash-intensive customers, financial institutions will need to regularly update the CDD/EDD documentation they hold on file to ensure that they continue to understand all of the risk factors discussed above. -above. This may involve making site visits to inspect cash management programs and monitoring open source intelligence for any adverse media. Again, if a financial institution determines that it no longer understands a customer’s business, then it should stop providing banking services to the customer and consider filing an SAR.
In addition, financial institutions must perform ongoing due diligence on customer transactions. This means monitoring payments, receipts and other account usage, to identify potentially suspicious behavior, which should be reported to the FIU. Financial institutions should leverage all of the information they collect and hold about their customers when seeking to identify patterns of activity that seem unusual and/or potentially suspicious. As with all customer types, financial institutions that deploy automated transaction monitoring systems to monitor cash-intensive customers should ensure that their rules have appropriate thresholds and parameters designed to detect common types of transactions. illicit activities.
The directive came into force on September 28, 2021 and gave financial institutions in the UAE one month to comply. Although it takes into account the standards and guidance issued by the Financial Action Task Force (“FATF”), industry best practices and red flags, the CBUAE does not consider the guidance to be exhaustive and certainly does not set no limits to additional UAE financial measures. institutions can or should take to meet their legal AML/CFT obligations.
UAE financial institutions that have not yet implemented comprehensive, risk-based AML/CFT programs, including rolling out training programs to ensure all staff are familiar with the obligations incumbent on financial institutions, equipped to apply appropriate risk-based controls and particularly aware of the risk factors and red flags associated with cash-intensive customers, are well advised to take immediate action, including seeking advice if necessary.
© Copyright 2022 Squire Patton Boggs (USA) LLPNational Law Review, Volume XII, Number 17