Definition of Money Laundering

Money laundering is a process where illegally obtained funds are made to appear legal by passing through the financial system. It involves:

• Placement Stage: Initial entry of illegally obtained money into the financial system.
• Layering Stage: Spreading funds through various transactions to obscure their origin.
• Integration Stage: Reintroducing the money into the legal economy.

Entities Covered

• Financial Institutions
• Designated Non-Financial Professionals and Businesses
• Virtual Assets (recently included)

Customer Due Diligence (CDD)

1. Know Your Customer (KYC)

• Collecting customer’s identity and address proof.
• Understanding the customer’s business.
• Documents: Name, nationality, address, place of birth.

2. Identifying Ultimate Beneficial Ownership (UBO)

• For legal persons: Natural person with 25% or more controlling ownership.
• For legal arrangements: Settlor, trustees, beneficiaries, or those exercising ultimate control.

3. Screening

• Check against UN Security Council consolidated list.
• Local terrorist lists and politically exposed persons (PEPs).
• Adverse media remarks.

4. Supervision and Monitoring

• Ensuring consistency between transactions and gathered customer information.
• Scrutinizing suspicious transactions for inconsistencies or threats.

5. Record Keeping

• Maintain records for at least five years.

Risk Management

• Identification of Risks
  • Customer Risk: Type of customer.
  • Transaction Risk: Nature of transactions.
  • Geographical Risk: Operating countries.
  • Delivery Channel Risk: Mode and introducers of customers.
  • Other Risk Factors: Reliability of data.

Politically Exposed Persons (PEPs)

Individuals with high-profile political roles or prominent public functions, including their direct family members and associates, are considered higher risk for money laundering and terrorist financing.

Reports

1. Partial Name Match Report (PNMR)

• Report potential matches with UNSC consolidated list or UAE local terrorist list within five business days.

2. Funds Freeze Report (FFR)

• Report freezing measures for confirmed matches within 24 hours.

3. Suspicious Transaction Report (STR) / Suspicious Activity Report (SAR)

• Report suspicious transactions related to money laundering or terrorism financing to the Financial Intelligence Unit (FIU).

4. High-Risk Country Transaction Report (HRC) / High-Risk Country Activity Report (HRCA)

• Report transactions or activities with high-risk countries (e.g., Iran, North Korea) to FIU three working days in advance.

Failure to Report

Failing to report money laundering or terrorism financing can lead to severe penalties, including imprisonment and fines ranging from AED 100,000 to AED 1,000,000.

Confidentiality

Sharing AML-related information to avoid tipping off is prohibited and can result in fines between AED 100,000 and AED 500,000, along with imprisonment for at least six months.

Three Lines of Defense

1. Employees: Follow guidelines and highlight red flags to the Compliance Department.
2. Compliance Department: Ensure internal controls, policies, and procedures are implemented.
3. Internal Audit Department: Assess control effectiveness and provide feedback and suggestions.

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