Money Laundering works in three following stages:

i) Placement: The initial stage of the money laundering process involves introducing illegally obtained funds or assets into the financial system. This placement of funds makes them more easily accessible for use. Money launderers utilize various techniques such as depositing cash into bank accounts, purchasing insurance products, or acquiring assets with cash to place the illicit funds.

ii) Layering: In order to conceal the illegal origin of the placed funds and make them more usable, the launderers engage in a process known as “layering”. This stage involves moving, dispersing and disguising the funds using various methods such as using multiple banks and accounts, involving intermediaries like professionals, and carrying out transactions through corporations and trusts. This helps to obscure the origin of the funds.

iii) Integration: The final stage of the money laundering process is called “integration”. At this stage, the launderers reintroduce the “cleaned” funds into the financial system, making them available for investment in legitimate or illegitimate businesses. This makes the originally “dirty” money appear legitimate.

By keeping a close eye on the details and characteristics of companies, checking for any legal or financial restrictions, screening individuals associated with the project or partnered with the company for any potential political exposure or negative news, and thoroughly investigating their backgrounds by searching legal databases, one can effectively mitigate risks and ensure the safety and security of the business.

Anti-Money Laundering (AML) refers to a set of procedures, laws, and regulations designed to stop the practice of generating income through illegal actions

The Central Bank of UAE has entrusted the responsibility of enforcing and managing the UAE’s anti-money laundering laws and regulations, as well as the AML/CFT Guidelines 2021, to the Anti-Money Laundering and Combating the Financing of Terrorism Supervision Department (AMLD).

Terrorism is an illegal act that involves the use of threats or violence to force a government or international organization to comply with certain demands, or to cause fear among the public or a particular group of people for the purpose of promoting a political, religious or ideological agenda. Terrorist Financing (TF) refers to the process of obtaining funds through lawful means, such as donations, or illegal activities, such as drug trafficking or fraudulent schemes. These funds are then typically used to support the objectives or ideology of a terrorist group.

The following are major sources of illegal funds:

1. 1. Participation in organized criminal groups and racketeering.
   2. Terrorism, including the financing of terrorist activities.
   3. Trafficking of humans and migrant smuggling.
   4. Sexual exploitation, including the exploitation of children.
   5. Illicit trafficking of narcotic drugs and psychotropic substances.
   6. Illicit arms trafficking.
   7. Illicit trafficking of stolen and other goods.
   8. Corruption and bribery.
   9. Fraud.
   10. Counterfeiting of currency.
   11. Counterfeiting and piracy of products.
   12. Environmental crime.
   13. Murder and grievous bodily injury.
   14. Kidnapping, illegal restraint, and hostage-taking.
   15. Robbery and theft.
   16. Smuggling, including evasion of customs and excise duties and taxes.
   17. Tax crimes related to direct and indirect taxes.
   18. Extortion.
   19. Forgery.
   20. Piracy.
   21. Insider trading and market manipulation.

The process of Combating the Financing of Terrorism (CFT) includes various measures such as investigating, analyzing, deterring, and preventing the sources of funding that are intended to support activities aimed at achieving political, religious, or ideological objectives through violence or the threat of violence against civilians.

Money laundering is the process of concealing funds obtained from illegal activities in a way that prevents their detection, allowing the money to be used without revealing its illicit origin. On the other hand, terrorist financing refers to the use of funds obtained through legitimate means to finance illegal activities associated with terrorism.

The implementation of AML/CFT measures is significant for several reasons, including:
● Safeguarding the integrity of the financial system;
● Preventing criminals from benefiting from their illegal activities;
● Preventing criminals from amassing significant economic resources, which could threaten the stability of financial institutions and the economy at large.

Every person employed by banks and financial institutions bears the responsibility of carrying out AML/CFT activities.

To comply with the AML-CFT Law in the UAE, all companies, both domestic and international, must fall under one of three main categories, namely financial institutions, designated non-financial businesses, and professions.

A Designated Non-Financial Business or Profession, also known as DNFBP, refers to a non-financial entity that operates within the market. These businesses are often subject to suspicion of money laundering and potential terrorist financing due to the nature of their transactions.

The following types of businesses fall under this category:

1. Brokers and real estate agents, as well as real estate firms that engage in buying or selling real property, such as brokers, agents, and developers.
2. Dealers of precious metals and stones who participate in the production, buying, selling, or brokering of these commodities. It encompasses precious stone cutters and polishers, precious metal refiners, jewelry manufacturers, and retail sellers of precious metals and stones, such as gold, silver, platinum, and diamonds. Jewelry stores are an example of such businesses.
3. Independent legal professionals and accountants, such as chartered accountants, accountants, and tax specialists, who offer auditing, accounting, or tax consultancy services to third parties, fall under this category.
4. Providers of corporate services and trusts who offer business services and consulting to third parties.

In August 2020, the CBUAE created a specialized department responsible for managing all issues related to Anti-Money Laundering and Combatting the Financing of Terrorism (AML/CFT), which were previously overseen by the Banking Supervision Department.

A program aimed at preventing money laundering and terrorist financing involves a series of measures that a firm must implement to ensure it is not used for such activities. These measures should include:

1. Establishing internal policies, procedures, and controls that are designed to achieve compliance with relevant laws and regulations.
2. Appointing a compliance officer who will be responsible for overseeing the program’s day-to-day operations.
3. Providing ongoing training to employees to ensure they understand their roles and responsibilities in preventing money laundering and terrorist financing.
4. Conducting independent audits to assess the effectiveness of the program and identify areas for improvement.
5. Developing appropriate risk-based procedures for conducting customer due diligence, which should include understanding the nature and purpose of the customer’s business and conducting ongoing monitoring to detect and report suspicious transactions.

Additionally, the program should maintain and update customer information, including identifying and verifying beneficial owners, on a risk basis.

Entities are required to implement suitable Customer Due Diligence measures and fulfill reporting requirements as per regulations for transactions that involve a monetary value of AED 55,000 or more (either single or related).

KYC, short for Know Your Customer, is a procedure that involves identifying and verifying customers who want to establish or have already established a business relationship or have requested occasional transactions. This process assists banks in assessing and managing risks, creating an effective and efficient control system based on risk, identifying potential business opportunities, and determining further business potential. In certain business contexts, KYC and CDD can be regarded as a single unit.

KYC will be carried out for the following but is not limited to:

1. KYC procedures are mandatory for opening a new account, whether it is for deposits or borrowings.
2. KYC must be carried out again when opening a subsequent account if the necessary documents were not submitted during the initial account opening process.
3. If the bank does not have the required documents for all locker facility holders, KYC must be conducted before opening a locker facility.
4. The bank may request additional information from existing customers if it deems it necessary based on their account activity.
5. Whenever there are changes to signatories, mandate holders, beneficial owners, etc., KYC procedures must be repeated.

Customer Due Diligence (CDD) refers to the process of collecting information about a customer and subsequently verifying the details obtained. This process includes identifying the customer and verifying their identity, and can be augmented with additional checks to fulfill AML regulatory obligations related to identity verification.

Under the AML/CFT Law, Financial Institutions and DNFBPs are required to appoint a Compliance Officer either internally or through outsourcing, with sufficient expertise and knowledge to develop and implement appropriate policies and procedures. The Compliance Officer should also conduct periodic assessments and reports to ensure that the entity is complying with the AML/CFT Law.

Sanction lists are used to identify and prohibit business transactions with individuals, entities, and countries associated with terrorism activities, human rights violations, narcotics trading, and similar offenses. The AML/CFT Law mandates that all entities registered in GoAML must subscribe to both the Local list and the UN Security Council’s List.

The UAE has several laws governing AML/CFT activities, including the AML-CFT Law or the Law, which is

1. i) Federal Decree-Law No. (20) of 2018 On Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organizations.
2. ii) Another important law is the AML-CFT Decision or the Cabinet Decision, which is Cabinet Decision No. (10) of 2019 Concerning the Implementing Regulation of Decree-Law No. (20) of 2018 On Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations.

The MLRO Report is a biannual report prepared and submitted by the Money Laundering Officer or Compliance Officer to senior management and relevant supervisory authorities. This report identifies any gaps that exist between the current AML/CFT compliance framework in the organization and the ideal framework. Its purpose is to highlight areas that require improvement and ensure that the organization stays on track with its AML/CFT obligations.

The purpose of the MLRO report is to evaluate the efficiency of companies in adhering to AML (Anti-Money Laundering) rules and regulations. According to Cabinet Decision No 10 of 2019, the MLRO report should be submitted twice a year to senior management. Additionally, a copy of the report should be sent to the concerned supervisory authority.

AML compliance is essential for companies to establish customer trust and ensure the legitimacy of all onboarded parties, whether end-users or intermediaries. By complying with AML regulations, companies can avoid potential risks associated with money laundering and terrorist financing. Additionally, AML compliance enables companies to identify high-risk entities proactively, mitigating potential problems for the business.

Money laundering can have severe consequences for businesses, including hefty fines, jail time, and reputational damage, making it a serious offense. In some instances, it may even lead to the dissolution of a business. Therefore, for most companies, engaging in such activity is not worth the risk associated with it.

Elevate Auditing provides comprehensive AML/CFT compliance services that ensure your business is fully compliant with relevant laws and regulations. Services Include:-

• Prepare and document AML/CFT Policies, Procedures, and Controls.
• Compliance Assistance including notifying relevant updates and guiding to adhere to the same.
• Registration on GoAML Portal.
• AML/CFT Awareness and Training programs.
• Know your Customer checks.
• Gap Assessment and providing the periodic review.
• Provide periodical MLRO Report.