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Annex 2. Red Flag Indicators in the Context of the UAE

يسري تنفيذه من تاريخ 3/8/2022

The FIU published the following typologies and indicators in their Biannual Financial Crime Trends and Typologies Report (January - June 2020). These typologies and indicators, as well as any future ones the FIU may determine, should be incorporated into an LFI’s AML/CFT program with a view to update policies, procedures, detection scenarios, and red flag indicators for identifying potentially suspicious activity.

B.1 General indicators

According to the FIU, the following indicators are present in many of the typologies used in money laundering and the financing of terrorism and illegal organisations.

 Transactions involving locations with poor AML/CFT regimes or high exposure to corruption.
 Significant and/or frequent transactions in contrast to known or expected business activity.
 Significant and/or frequent transactions in contrast to known employment status.
 Ambiguous or inconsistent explanations as to the source and/or purpose of funds.
 Where relevant, nervous or uncooperative behavior exhibited by the LFI’s employees and/or customers.
 

B.2 Wire transfers to and from bank accounts

 How it works: Transferring proceeds of crime from one person to another via money remittance services.
 Possible indicators
  oSignificant and/or frequent cash payments for transfers.
  oTransfers to or from locations that have poor AML/CFT regimes or high exposure to corruption.
  oTransfers to high-risk countries or known tax havens.
  oTransfers to numerous offshore jurisdictions with no business rationale.
  oSame home address provided by multiple remitters.
  oReluctant to provide the LFI with identification details.
 

B.3 Purchase of valuable commodities

 How it works: Laundering proceeds of crime by purchasing valuable commodities, for example, precious metals or gems.
 Possible indicators
  oSignificant and/or frequent cash purchases of valuable commodities.
  oRegularly buying and selling of valuable commodities that is not supported with a business purpose and/or does not make economic sense.
 

B.4 Purchase of valuable assets

 How it works: Laundering proceeds of crime by purchasing valuable assets, for example, property or vehicles.
 Possible indicators
  oPurchase/sale of real estate above/below market value irrespective of economic disadvantage.
  oCash purchases of valuable assets with cash and/or cash deposits for valuable assets.
  oLow value property purchased with improvements paid for in cash before reselling.
  oRapid repayment of loans/mortgages with cash or funds from an unlikely source.
 

B.5 Offshore companies

 How it works: The process of registering companies in the UAE, especially in the free zones, with foreign directors and/or shareholders in order to open bank accounts to facilitate money laundering and/or the financing of terrorism and illegal organisations by unverified beneficiaries.
 Possible indicators
  oLarge numbers of companies registered with the same office address.
  oAddress on file is for a ‘Virtual office’.
  oAccounts/facilities are opened/operated by company formation agents.
  oLack of information regarding overseas directors/beneficiaries.
  oComplex ownership structures.
  oCompanies where there is no apparent business purpose.
 Additional indicators:
  oThe same natural person is the director for a large number of single director companies.
  oThe same person (natural or corporate) is the shareholder of a large number of single-shareholder companies.
  oUse of a small number of local 'agents' who undertake transactions with the companies’ register.
 

B.6 Nominees, trustees, family members or third parties

 How it works: Utilizing other people to carry out transactions in order to conceal the true identity of the individual ultimately controlling the proceeds of crime.
 Possible indicators
  oCustomers using family members or third parties, including the use of children’s accounts.
  oTransactions where third parties seem to be retaining a portion of funds, which would indicate the use of mules.
  oAccounts operated by someone other than the account holder.
  oMany transactions conducted at various LFIs and/or branches, in one day.
  oSignificant and/or frequent transactions made over a short period of time.
 

B.7 Trade-based money laundering

 How it works: Manipulating invoices, often in connection with international trade, by overstating the value of a shipment providing criminal entities with a paper justification to either launder proceeds of crime and/or send funds overseas to finance terrorism.
 Possible indicators
  oInvoice value greater than value of goods.
  oDiscrepancies in domestic and foreign import/export data.
  oSuspicious cargo movements.
  oSuspicious domestic import data.
  oDiscrepancies in information regarding the origin, description, and value of the goods.
  oDiscrepancies with tax declarations on export declarations.
  oSudden increase in online auction sales by particular vendors (online auction sites).
  oFrequent purchases between same buyers and vendors (online auction sites).
 

B.8 Cancellation of credits or overpayments

 How it works: Laundering proceeds of crime by overpaying then requesting refund cheques for the balance.
 Possible indicators
  oFrequent cheque deposits issued by car dealers, dealers in jewelry, etc.
  oSignificant and/or frequent payments to utility companies, for example, prepaid cards for fuel, telecom e-wallets etc.
  oFrequent cheque deposits issued by utility companies (i.e., electricity providers).
  oSignificant and/or frequent payments for purchases from online auction sites.
  oFrequent personal cheque deposits issued by third parties.
 

B.9 Electronic transfers to and from bank accounts

 How it works: Transferring proceeds of crime from one bank account to another via LFIs.
 Possible indicators
  oTransfers to or from locations that have poor AML/CFT regimes or high exposure to corruption.
  oTransfers involving accounts located in high-risk countries or known tax havens.
  oTransfers to offshore jurisdictions with no business rationale.
  oMultiple transfers sent to the same person overseas by different people.
  oDeparture from the UAE shortly after transferring funds.
  oTransfers of funds between various accounts that show no economic purpose (i.e., multiple transfers incurring bank fees where one single transfer would have been sufficient).
 

B.10 Co-Mingling

 How it works: Combining proceeds of crime with legitimate business takings.
 Possible indicators
  oSignificant and/or frequent cash deposits when business has electronic funds transfer at point-of-sale facilities.
  oLarge number of accounts held by a customer with the same LFI.
  oAccounts operated by someone other than the account holder.
  oMerging businesses to create layers.
  oComplex ownership structures.
  oRegular use of third-party accounts.
 

B.11 Gatekeepers/professional services

 How it works: Utilizing ‘Professionals’ to establish seemingly legitimate business activities, for example, Lawyers, Accountants, Brokers, Company Formation Agents.
 Possible indicators
  oAccounts and/or facilities opened and/or operated by company formation agents.
  oGatekeepers that appear to have full control.
  oKnown or suspected corrupt professionals offering services to criminal entities.
  oAccounts operated by someone other than the account holder.
 

B.12 Cash deposits

 How it works: Placement of cash into the financial system.
 Possible indicators
  oLarge cash deposits followed immediately by withdrawals or electronic transfers.
 

B.13 Structuring

 How it works: Separating large transactions into small transactions to avoid scrutiny and detection from LFIs.
 Possible indicators
  oMany transactions conducted at various LFIs and/or branches, in one day.
  oSmall/frequent cash deposits, withdrawals, electronic transfers made over a short time period.
  oMultiple low value domestic or international transfer.
 

B.14 Smurfing

 How it works: Utilizing third parties or groups of people to carry out structuring.
 Possible indicators
  oThird parties conducting numerous transactions on behalf of other individuals.
  oMany transactions conducted at various LFIs and/or branches, in one day.
  oAccounts operated by someone other than the account holder.
 

B.15 Credit Cards/Cheques/Promissory Notes

 How it works: Instruments used to access funds held in an LFI, often in another jurisdiction.
 Possible indicators
  oFrequent cheque deposits in contrast to known or expected business activity.
  oMultiple cash advances on credit card facilities.
  oCredit cards with large credit balances.
 

B.16 Transactions inconsistent with intended purpose of the account

 How it works: Transactions that are out of the ordinary for the individual or conducted without a clear rationale.
 Possible indicators
  oTransactions to or from unrelated parties.
  oTransaction amounts that are inconsistent with the account’s expected volumes or frequencies.
  oTransactions that are out of the ordinary for the customer’s profession or business activity.
 

B.17 Cash couriers

 How it works: Concealing the movement of currency from one jurisdiction to another using people, luggage, mail, or any other mode of shipment, without declaration.
 Possible indicators
  oTransactions involving locations with poor AML/CFT regimes or high exposure to corruption.
  oCustomers originating from locations with poor AML/CFT regimes/high exposure to corruption.
  oSignificant and/or frequent cash deposits made over a short period of time.
  oSignificant and/or frequent currency exchanges made over a short period of time.
 

B.18 Other payment technologies

 How it works: Utilizing emerging or new payment technologies such as virtual currencies/crypto- currencies, peer-to-peer (P2P) lending etc. to facilitate money laundering and/or the financing of terrorism and illegal organisations.
 Possible indicators
  oExcessive use of stored value cards.
  oSignificant and/or frequent transactions using mobile telephone services.
  oUnjustified transactions to and from Cryptocurrency platforms and digital assets exchanges.
 

B.19 Underground banking/alternative remittance services

 How it works: Transferring proceeds of crime from one person to another via informal banking mechanisms such as unregistered Hawaladars.
 Possible indicators
  oMostly prevalent under the auspices of a general trading company license.
  oSignificant and/or frequent cash payments for transfers in which the cash deposits could be from many different individuals using the cash deposit machines.
  oCash volumes and transfers in excess of average income of migrant account holders.
  oTransfers to or from locations that have poor AML/CFT regimes or high exposure to corruption.
  oLarge transfers from accounts to potential cash pooling accounts.
  oSignificant and/or frequent transfers recorded informally using unconventional bookkeeping.
  oSignificant and/or frequent transfers requested by unknown or intermittent customers.
  oNumerous deposits to one account followed by numerous payments made to various people.
  oVague invoices and documentation which may deliberately be made to appear complex.
 

B.20 Cash exchanges

 How it works: Exchanging low denomination notes for high denomination notes (also known as refining) as a means to launder proceeds of crime, as well as reduce large volumes of cash obtained from serious crime.
 Possible indicators
  oSignificant and/or frequent cash exchanges from small to large denominations.
 

B.21 Currency conversion

 How it works: Converting one currency into another as a means to launder proceeds of crime, as well as reduce large volumes of cash obtained from serious crime.
 Possible indicators
  oSignificant and/or frequent local or foreign currency exchanges.
  oOpening of foreign currency accounts with no apparent business or economic purpose.