In application of the provisions of the present Decision, the following terms and expressions shall have the meanings assigned to them unless the context requires otherwise:

State: United Arab Emirates

Minister: Minister of Finance

Central Bank: Central Bank of United Arab Emirates

Governor: Governor of the Central Bank

Committee: National Committee for Anti- Money Laundering and Combating the Financing of Terrorism and Illegal Organisations.

FIU: Financial Intelligence Unit

Supervisory Authority: Federal and local authorities, which are entrusted by legislation to supervise Financial Institutions, Designated Non-Financial Businesses and Professions and Non-Profit Organisations or the competent authority in charge of approving the pursuit of an activity or a profession in case a supervisory authority is not assigned by legislations.

Law Enforcement Authorities: Federal and local authorities which are entrusted under applicable legislation to combat, search, investigate and collect evidences on the crimes including ML/FT and financing illegal organisations crimes.

Competent Authorities: The competent government authorities entrusted with the implementation of any provision of the Decretal-Law in the State.

Predicate Offence: Any act constituting an felony or misdemeanour under the applicable laws of the State whether this act is committed inside or outside the State when such act is punishable in both countries.

Money Laundering: Any of the acts mentioned in Clause (1) of Article (2) of the Decretal-Law.

Financing of Terrorism: Any of the acts mentioned in Articles (29) and (30) of Federal Law no. (7) of 2014 on combating terrorism offences.

Illegal Organisations: Organisations whose establishment is criminalised or which pursue a criminalised activity.

Financing of Illegal Organisations: Any physical or legal action aiming at providing funding to an illegal organisation, or any of its activities or members.

Crime: Money laundering crime and related Predicate Offences, or Financing of Terrorism or Illegal Organisations.

Funds: Assets in whatever form, whether tangible, intangible, movable or immovable including national currency, foreign currencies, documents or notes evidencing the ownership of those assets or associated rights in any form including electronic or digital forms or any interests, profits or income originating or earned from these assets.

Proceeds: Funds generated directly or indirectly from the commitment of any felony or misdemeanour including profits, privileges, and economic interests, or any similar funds converted wholly or partly into other funds.

Means: Any means used or intended to be used for the commission of an offence or felony.

Suspicious Transactions: Transactions related to funds for which there are reasonable grounds to suspect that they are earned from any felony or misdemeanour related to the financing of terrorism or of illegal organisations, whether committed or attempted.

Freezing or Seizure: Temporary restriction over the moving, conversion, transfer, replacement or disposition of funds in any form, by an order issued by a Competent Authority.

Confiscation: Permanent expropriation of private funds or proceeds or instrumentalities by an injunction issued by a competent court.

Financial Institutions: Anyone who conducts one or several of the financial activities or operations of /or on behalf of a Customer.

Intermediary Financial Institution: The Financial Institution that receives and sends wire transfer between the Ordering Financial Institution and the Beneficiary Financial institution or another Intermediary Financial Institution.

Beneficiary Financial Institution: The Financial Institution that receives a wire transfer from an Ordering Financial Institution directly or indirectly via an Intermediary Financial Institution and makes funds available to the beneficiary.

Financial Transactions or Activities: Any activity or transaction defined in Article (2) of the present Decision.

Designated Nonfinancial Businesses and Professions (DNFBPs): Anyone who conducts one or several of the commercial or professional activities defined in Article (3) of the present Decision.

Non-Profit Organisations (NPOs): Any organised group, of a continuing nature set for a temporary or permanent time period, comprising natural or legal persons or not for profit legal arrangements for the purpose of collecting, receiving or disbursing funds for charitable, religious, cultural, educational, social, communal or any other charitable activities.

Legal Arrangement: A relationship established by means of a contract between two or more parties which does not result in the creation of a legal personality such as trusts or other similar arrangements.

Trust : A legal relationship in which a settlor places funds under the control of a trustee for the interest of a beneficiary or for a specified purpose. These assets constitute funds that are independent of the trustee's own estate, and the rights to the trust assets remain in the name of the settlor or in the name of another person on behalf of the settlor.

Settlor: A natural or legal person who transfers the control of his funds to a Trustee under a document.

Trustee: A natural or legal person who has the rights and powers conferred to him by the Settlor or the Trust, under which he administers, uses, and acts with the funds of the Settlor in accordance with the conditions imposed on him by either the Settlor or the Trust.

Customer: Anyone who performs or attempts to perform any of the acts defined in Articles (2) and (3) of the present Decision with any Financial Institution or Designated Non-Financial Business or Profession.

Transaction: All disposal or use of Funds or proceeds including for example: deposit, withdrawal, conversion, sale, purchase, lending, swap, mortgage, and donation.

Beneficial Owner: The natural person who owns or exercises effective ultimate control, directly or indirectly, over a Customer or the natural person on whose behalf a Transaction is being conducted or, the natural person who exercises effective ultimate control over a legal person or Legal Arrangement.

Business Relationship: Any ongoing commercial or financial relationship established between financial institutions, designated non-financial businesses and professions, and their Customers in relation to activities or services provided by them.

Correspondent Banking Relationship: Relationship between a correspondent financial institution and a respondent one through a current account or any other type of account(s) or through a service related to such an account and includes a corresponding relationship established for the purpose of securities transactions or transfer of funds.

Intermediary Account: Corresponding account used directly by a third party to conduct a transaction on its own behalf.

Financial Group: A group of financial institutions that consists of holding companies or other legal persons exercising the control over the rest of the group and coordinating functions for the application of supervision on the group, branch, and subsidiary level, in accordance with the international core principles for financial supervision, and AML/CFT policies and procedures.

Core Principles for Financial Supervision: Basel Committee on Banking Supervision (BCBS) Principles 1-3, 5-9, 11-15, 26, and 29; International Association of Insurance Supervisors (IAIS) Principles 1, 3-11, 18, 21-23, and 25; and International Organisation of Securities Commission (IOSCO) Principles 24, 28, 29 and 31; and Responsibilities A, B, C and D.

Wire Transfer: Financial transaction conducted by a financial institution or through an intermediary institution on behalf of a transferor whose funds are received by a beneficiary in another financial institution, whether or not the transferor and the beneficiary are the same person.

Shell Bank: Bank that has no physical presence in the country in which it is incorporated and licensed, and is unaffiliated with a regulated financial group that is subject to effective consolidated supervision.

Registrar: The entity in charge of supervising the register of commercial names for all types of establishments registered in the State.

Customer Due Diligence (CDD): Process of identifying or verifying the information of a Customer or Beneficial Owner, whether a natural or legal person or a legal arrangement, and the nature of its activity and the purpose of the business relationship and the ownership structure and control over it for the purposes of the Decretal-Law and this Decision.

Controlled Delivery: The process by which a competent authority allows the entering or transferring of illegal or suspicious funds or crime revenues to and from the UAE for the purpose of investigating a crime or identifying the identity of its perpetrators.

Undercover Operation: The process of search and investigation conducted by one of the judicial impoundment officers by impersonating or playing a disguised or false role in order to obtain evidence or information related to the Crime.

High Risk Customer: A Customer who represents a risk either in person, activity, business relationship, nature of geographical area, such as a Customer from a high-risk country or non-resident in a country in which he does not hold an identity card, or a costumer having a complex structure, performing complex operations or having unclear economic objective, or who conducts cash-intensive operations, or operations with an unknown third party, or operations without directly confronting any other high risk operations identified by financial institutions, or designated non-financial businesses and professions, or the Supervisory Authority.

Politically Exposed Persons (PEPs): Natural persons who are or have been entrusted with prominent public functions in the State or any other foreign country such as Heads of States or Governments, senior politicians, senior government officials, judicial or military officials, senior executive managers of state-owned corporations, and senior officials of political parties and persons who are, or have previously been, entrusted with the management of an international organisation or any prominent function within such an organisation; and the definition also includes the following:

1. Direct family members (Of the PEP, who are spouses, children, spouses of children, parents).
    
2. Associates known to be close to the PEP, which include:
    
   1. Individuals having joint ownership rights in a legal person or arrangement or any other close business relationship with the PEP.
       
   2. Individuals having individual ownership rights in a legal person or arrangement established in favour of the PEP.

Decretal- Law: Federal Decretal-Law No. (20) of 2018 on Anti- Money Laundering and Combating the Financing of Terrorism and Illegal Organisations.

Any provision that contradicts or violates the provisions of the present Decision shall be considered void.

The present Decision shall come into force as of the date of its issuance and shall be published in the Official Gazette.

The purpose of these Anti-Money Laundering and Combating the Financing of Terrorism and the Financing of Illegal Organisations Guidelines for Financial Institutions (FIs) (Guidelines) is to provide guidance and assistance to supervised institutions that are FIs, in order to assist their better understanding and effective performance of their statutory obligations under the legal and regulatory framework in force in the United Arab Emirates (UAE or State).

These Guidelines have been prepared as a joint effort between the Supervisory Authorities of the UAE, and set out the minimum expectations of the Supervisory Authorities regarding the factors that should be taken into consideration by each of the supervised financial institutions which fall under their respective jurisdictions, when identifying, assessing and mitigating the risks of money laundering (ML), the financing of terrorism (FT), and the financing of illegal organisations.

Nothing in these Guidelines is intended to limit or otherwise circumscribe additional or supplementary guidance, circulars, notifications, memoranda, communications, or other forms of guidance or feedback, whether direct or indirect, which may be published on occasion by any of the Supervisory Authorities in respect of the supervised institutions which fall under their respective jurisdictions, or in respect of any specific supervised institution.

Finally, it should be noted that, guidance on the subject of the United Nations Targeted Financial Sanctions (TFS) regime, and the related Cabinet Decision No. (74) of 2020 Regarding Terrorism Lists Regulation and Implementation of UN Security Council Resolutions On the Suppression and Combating of Terrorism, Terrorists Financing & Proliferation of Weapons of Mass Destruction, and Related Resolutions is outside of the scope of these Guidelines.

Unless otherwise noted, these Guidelines apply to all Financial Institutions, and the members of their boards of directors, management and employees, established and/or operating in the territory of the UAE and their respective Financial and Commercial Free Zones, whether they establish or maintain a Business Relationship with a Customer, or engage in any of the financial activities and/or transactions or the trade and/or business activities outlined in Articles (2) and (3) of 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 Organisations.

Specifically, they are applicable to all such natural and legal persons in the following categories:

Article 44.11 of 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 Organisations charges Supervisory Authorities with “providing Financial Institutions…with guidelines and feedback to enhance the effectiveness of implementation of the Crime-combatting measures.”

As such, these Guidelines do not constitute additional legislation or regulation, and are not intended to set legal, regulatory, or judicial precedent. They are intended rather to be read in conjunction with the relevant laws, cabinet decisions, regulations and regulatory rulings which are currently in force in the UAE and their respective Free Zones, and supervised institutions are reminded that the Guidelines do not replace or supersede any legal or regulatory requirements or statutory obligations. In the event of a discrepancy between these Guidelines and the legal or regulatory frameworks currently in force, the latter will prevail. Specifically, nothing in these Guidelines should be interpreted as providing any explicit or implicit guarantee or assurance that the Supervisory or other Competent Authorities would defer, waive, or refrain from exercising their enforcement, judicial, or punitive powers in the event of a breach of the prevailing laws, regulations, or regulatory rulings.

These Guidelines, and any lists and/or examples provided in them, are not exhaustive and do not set limitations on the measures to be taken by supervised institutions in order to meet their statutory obligations under the legal and regulatory framework currently in force. As such, these Guidelines should not be construed as legal advice or legal interpretation. Supervised institutions should perform their own assessments of the manner in which they should meet their statutory obligations, and they should seek legal or other professional advice if they are unsure of the application of the legal or regulatory frameworks to their particular circumstances.

These Guidelines are organized into five (5) parts, roughly corresponding to the following major themes:

Part I—Overview (including background information on the UAE’s AML/CFT legislative and strategy framework, and highlights of key provisions of the law and regulations affecting Financial Institutions);

Part II—Identification and Assessment of ML/FT Risks;

Part III—Mitigation of ML/FT Risks;

Part IV—AML/CFT Compliance Administration and Reporting (including guidance on governance, suspicious transaction reporting, and record-keeping);

Part V—Appendices.

The various sections and sub-sections of each part are organized according to subject matter. In general, each section or subsection includes references to the articles of the AML-CFT Law and/or the AML-CFT Decision to which it pertains. While it has been kept to a minimum, users may find that there are instances of repetition of some content throughout various sections of the Guidelines. This has been done in order to ensure that each section or sub-section pertaining to a specific subject matter is comprehensive, and to minimize the need for cross-referencing between sections.

In some cases, the requirements or provisions of specific sections of the relevant legal and regulatory frameworks are deemed sufficiently clear with regard to the statutory obligations of supervised institutions such that no additional guidance on those sections is provided for in these Guidelines. In other cases, guidance is provided with regard to subjects which are not covered explicitly in the AML-CFT Law or the AML-CFT Decision, but which are nevertheless addressed either implicitly or by reference to international best practices.

In certain instances in which there are meaningful differences between the relevant legal and regulatory framework currently in force and previous laws or regulations, or in which there are differences in specific regulatory requirements between various Supervisory Authorities, the Guidelines may or may not highlight these differences. In the event of such differences or discrepancies, supervised institutions seeking further clarification on matters related to those sections are invited to contact their relevant Supervisory Authority through the established channels.

It is the Supervisory Authorities’ intention to update or amend these Guidelines from time to time, as and when it is deemed appropriate. Supervised institutions are reminded that these Guidelines are not the only source of guidance on the assessment and management of ML/FT risk, and that other bodies, including international organisations such as FATF,

MENAFATF and other FATF-style regional bodies (FSRBs), the Egmont Group, and others also publish information that may be helpful to them in carrying out their statutory obligations. It is the sole responsibility of supervised institutions to keep apprised and updated at all times regarding the ML/FT risks to which they are exposed, and to maintain appropriate risk identification, assessment, and mitigation programmes, and to ensure their responsible officers, managers and employees are adequately informed and trained on the relevant policies, processes, and procedures.

Text from the AML-CFT and the AML-CFT Decision are quoted, or otherwise summarized or paraphrased, from time to time throughout these Guidelines. For the sake of convenience, unless specifically noted to the contrary, all references in the text to the term “financing of terrorism” also encompass the financing of illegal organisations. In general, capitalized terms in the text of these Guidelines have the meanings provided in the Glossary of Terms (see Appendix 11.1). However, in the event of any inconsistency or discrepancy between the text or definitions provided for in the Law and/or the Cabinet Decision and such quotations, summaries or paraphrases, or such defined terms, the former shall prevail.

The legal and regulatory structure of the UAE is comprised of a matrix of federal civil, commercial and criminal laws and regulations, together with the various regulatory and Supervisory Authorities responsible for their implementation and enforcement, and various local civil and commercial legislative and regulatory frameworks in the Financial and Commercial Free Zones. As criminal legislation is under federal jurisdiction throughout the State, including the Financial and Commercial Free Zones, the crimes of money laundering, the financing of terrorism, and the financing of illegal organisations are covered under federal criminal statutes and the federal penal code. Likewise, federal legislation and implementing regulations on the combating of these crimes are in force throughout the UAE, including the Financial and Commercial Free Zones. Their implementation and enforcement are the responsibility of the relevant regulatory and Supervisory Authorities in either the federal or local jurisdictions.

The principal AML/CFT legislation within the State is Federal Decree-Law No. (20) of 2018 On Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations (the “AML-CFT Law” or “the Law”) and implementing regulation, 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 Organisations (the “AML-CFT Decision” or “the Cabinet Decision”).

The UAE issued Cabinet UBO Resolution No. 58 of 2020 on the Regulation of the Procedures of the Real Beneficiary (UBO Resolution) which came into effect on 28 August 2020 and replaced Cabinet Resolution No. 34 of 2020 issued earlier this year.

The UBO Resolution introduces the requirement for a beneficial ownership register in the UAE mainland and unifies the minimum disclosure requirements for corporate entities incorporated in the UAE mainland and in the non-financial free zones. Financial free zones (Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) and companies owned by the Federal Government and their subsidiaries are not covered by the UBO Resolution.

The AML/CFT legislative and regulatory framework of the UAE is part of a larger international AML/CFT legislative and regulatory framework made up of a system of intergovernmental legislative bodies and international and regional regulatory organisations. On the basis of international treaties and conventions in relation to combating money laundering, the financing of terrorism and the prevention and suppression of the proliferation of weapons of mass destruction, intergovernmental legislative bodies create laws at the international level, which participating member countries then transpose into their national counterparts. In parallel, international and regional regulatory organisations develop policies and recommend, assess and monitor the implementation by participating member countries of international regulatory standards in respect of AML/CFT.

Among the major intergovernmental legislative bodies, and international and regional regulatory organisations, with which the government and the Competent Authorities of the State actively collaborate within the sphere of the international AML/CFT framework are:

Money laundering and the financing of terrorism are crimes that threaten the security, stability and integrity of the global economic and financial system, and of society as a whole. The estimated volume of the proceeds of crime, including the financing of terrorism, that are laundered each year is between 2-5% of global GDP. Yet, by some estimates, the volume of criminal proceeds that are actually seized is in the range of only 2% of the total, while roughly only half of that amount eventually ends up being confiscated by competent judicial authorities. Combating money laundering and the financing of terrorist activities is therefore an urgent priority in the global fight against organised crime.

The UAE is deeply committed to combating money laundering and the financing of terrorism and illegal organisations. To this end, the Competent Authorities have established the appropriate legislative, regulatory and institutional frameworks for the prevention, detection and deterrence of financial crimes, including ML/FT. They also continue to work towards reinforcing the capabilities of the resources committed to these efforts, and towards improving their effectiveness by implementing the internationally accepted AML/CFT standards recommended and promoted by FATF, MENAFATF and the other FSRBs, as well as by the United Nations, the World Bank and the International Monetary Fund (IMF).

As part of these efforts, the Competent Authorities of the UAE have taken a number of substantive actions, including among others:

The National Strategy on Anti-Money Laundering and Countering the Financing of Terrorism of the United Arab Emirates is based on four pillars, each of which is associated with its own strategic priorities. These strategic priorities in turn inform and shape the key initiatives of the country’s National Action Plan on AML/CFT.

The pillars of the National Strategy, together with their strategic priorities are summarised in the table below:

The National Committee for Combating Money Laundering and the Financing of Terrorism and Illegal Organisations has identified a number of key drivers of success in achieving the goals of the National AML/CFT Strategy. These include, among other things, ensuring:

The present Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organisations Guidelines for Financial Institutions are thus intended to advance the efforts of the Committee, the Supervisory Authorities, and the other Competent Authorities of the State in this direction.

The AML-CFT Law and the AML-CFT Decision set out the minimum statutory obligations of supervised institutions as follows:

Specific guidance on these and other provisions of the AML-CFT Law and the AML-CFT Decision is provided in the following sections.

(AML-CFT Law Article 15; AML-CFT Decision Articles 17.2, 21.2, 31.3, 39)

Financial Institutions are obliged to report to the UAE’s Financial Intelligence Unit (FIU) when they have reasonable grounds to suspect a transaction or funds representing all or some proceeds, or suspicion of their relationship to a Crime (see Section 7, Suspicious Transaction Reporting). In reporting their suspicions, they must maintain confidentiality with regard to both the information being reported and to the act of reporting itself, and make reasonable efforts to ensure the information and data reported are protected from access by any unauthorised person.

It should be noted that the confidentiality requirement does not pertain to communication within the FI or its affiliated group members (foreign branches, subsidiaries, or parent company) for the purpose of sharing information relevant to the identification, prevention or reporting of a Crime. However, under no circumstances are FIs, or their managers or employees, permitted to inform a Customer or the representative of a Business Relationship, either directly or indirectly, that a report has been made, under penalty of sanctions (see Section 3.9, Sanctions against Persons Violating Obligations). This is the so-called “tipping off” requirement. This also extends to any related information that might be provided to the FIU or information that is being requested by the FIU.

FIs are not permitted to object to the statutory reporting of suspicions on the grounds of Customer confidentiality or data privacy, under penalty of sanctions. Moreover, data protection laws include provisions that allow the FI to report to the authorities. (see Section 3.9, Sanctions against Persons Violating Obligations).

(AML-CFT Law Article 27; AML-CFT Decision Article 17.3)

The AML-CFT Law and the AML-CFT Decision provide Financial Institutions, as well as their board members, employees and authorised representatives, with protection from any administrative, civil or criminal liability resulting from their good-faith performance of their statutory obligation to report suspicious activity to the FIU. This protection is also applicable if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.

(AML-CFT Law Article 16.1(c); AML-CFT Decision Articles 13.1, 14, 35.4, 38)

Financial Institutions are prohibited from the following activities:

(AML-CFT Law Articles 2.1-3, 4, 29.3, AML-CFT Decision Article 1)

The AML-CFT Law defines money laundering as engaging in any of the following acts wilfully, having knowledge that the funds are the proceeds of a felony or a misdemeanour (i.e., a predicate offence):

Both the AML-CFT Law and the AML-CFT Decision define “funds” in a very broad sense as “assets in whatever form, whether tangible, intangible, movable or immovable including national currency, foreign currencies, documents or notes evidencing the ownership of those assets or associated rights in any forms including electronic or digital forms or any interests, profits or income originating or earned from these assets.” They likewise define “proceeds” as “funds generated directly or indirectly from the commitment of any crime or felony including profits, privileges, and economic interests, or any similar funds converted wholly or partly into other funds.”

Therefore, in order to be considered money laundering, it is not necessary for any of the above-stipulated acts to involve only money or monetary instruments per se, but any number of tangible or intangible assets such as, but not limited to:

The size or monetary value of the financial or commercial transaction, the timeframe during which it took place, and the nature of the funds or proceeds (whether in liquid funds or some other tangible or intangible asset) are irrelevant to the suspicion and reporting of a suspicious transaction.

The AML-CFT Law designates money laundering as a criminal offence. Its prosecution is independent of that of any predicate offence to which it is related or from which the proceeds are derived. The suspicion of money laundering is not dependent on proving that a predicate offence has actually occurred or on proving the illicit source of the proceeds involved, but can be inferred from certain information, including indicators or behavioural patterns.

According to the 2018 National Risk Assessment, professional third-party money laundering has been identified as one of the top ML/FT threats in the UAE.

The AML-CFT Law defines a predicate offence as “any act constituting an offence or misdemeanour under the applicable laws of the State whether this act is committed inside or outside the State when such act is punishable in both countries.” A predicate offence is therefore any crime, whether felony or misdemeanour, which is punishable in the UAE, regardless of whether it is committed within the State or in any other country in which it is also a criminal offence.

FATF has designated 21 (twenty-one) categories of predicate offences. Each of these categories of predicate offences has been criminalised in the legislative framework of the State. FIs are reminded that this is not an exhaustive list of predicate offences, but simply a convenient categorisation, since in the UAE according to the AML-CFT Law, even crimes that do not appear on this list, whether felonies or misdemeanours, can be predicate offences to money laundering.

Based on expert analysis of these categories conducted on behalf of the UAE’s Competent Authorities for the 2018 National Risk Assessment, the top (highest) threats to the State in relation to money laundering have been identified as: fraud, counterfeiting and piracy of products, illicit trafficking in narcotic drugs and psychotropic substances, and professional third-party money laundering.

Similarly, other (medium-high) threats of particular concern to the UAE in relation to money laundering have been identified as the categories of: insider trading and market manipulation, robbery and theft, illicit trafficking in stolen and other goods, forgery, smuggling (including in relation to customs and excise duties and taxes), tax crimes (related to direct taxes and indirect taxes), and terrorism (including terrorist financing).

While FIs should pay special attention to the most serious threats identified in the NRA and any topical risk assessment when performing their own ML/FT business risk assessments, they are reminded that their risk assessment operations should consider all categories of risk for applicability to their own particular circumstances.

(AML-CFT Law Articles 3.1, 4, 29.3, AML-CFT Decision Article 1)

The AML-CFT Law designates the financing of terrorism as a criminal offence, which is not subject to the statute of limitations. It defines the financing of terrorism as:

There are numerous risk factors that FIs should consider important when assessing their exposure to the risk of terrorist financing (see Section 4.1.1, Risk Factors), including geographic-, sector-, channel-, product-, service- and customer-specific risks.

In a 2019 report by MENAFATF, an assessment of the global threat posed by the financing of terrorism stated:

¹ Social Media and Terrorism Financing: A joint project by Asia/Pacific Group on Money Laundering & Middle East and North Africa Financial Action Task Force, APG/MENAFATF, January 2019, p.4.

(AML-CFT Law Articles 3.2, 4, 29.3, AML-CFT Decision Article 1)

Like the financing of terrorism, the AML-CFT Law designates the financing of illegal organisations as a criminal offence that is not subject to the statute of limitations. The Law defines the financing of illegal organisations as:

To identify, understand and accurately assess the ML/FT risks to which FIs are exposed at both the enterprise and business relationship levels, FIs should be aware of the three phases of money laundering. By determining for which ML/FT phase a certain product can be misused or the FI itself can be misused, will help the FI understand its specific inherent ML/FT risks. The paragraphs below describe the crime of money laundering as consisting of three distinct (though sometimes overlapping) phases:

Placement. In this phase, criminals attempt to introduce Funds or the Proceeds of Crime into the financial system using a variety of techniques or typologies (see Section 3.10, ML/FT Typologies).

Layering. Once the Funds or Proceeds are introduced, or placed, into the financial system, they can proceed to the next phase of the process; often, this is accomplished by placing the funds into circulation through formal financial institutions, and other legitimate businesses, both domestic and international.” In this layering phase, criminals attempt to disguise the illicit nature of the Funds or Proceeds of Crime by engaging in transactions, or layers of transactions, which aim to conceal their origin.

Examples of layering transactions include:

Integration. In this phase, criminals attempt to return, or integrate, their “laundered” Funds or the Proceeds of Crime back into the economy, or to use it to commit new criminal offences, through transactions or activities that appear to be legitimate.

A key objective for criminals engaged in money laundering—and therefore a key generic risk underlying the specific risks faced by FIs—is the exploitation of situations and factors (including products, services, structures, transactions, and geographic locations) which favour anonymity and complexity, thereby facilitating a break in the “paper trail” and concealment of the illicit source of the Funds.

Although the sizes of transactions related to the financing of terrorism and illegal organisations can be (much) smaller than those involved in money laundering operations, and some of the typologies and specific techniques used may differ, the overall principles and generic risks are the same. The terrorists and criminals involved in these acts attempt to exploit situations and factors favouring anonymity and complexity, in order to obscure and conceal the illicit source of the Funds, or the illicit destination or purpose for which they are intended, or both. FIs should remain careful that their services are not being used either directly or indirectly to facilitate Money Laundering or the Financing of Terrorism or Illegal Organisations in any of the three stages described above.

The methods used by criminals for money laundering, the financing of terrorism, and the financing of illegal organisations are continually evolving and becoming more sophisticated. It is therefore critical in combating these crimes for FIs to ensure that their personnel are kept up-to-date on the latest ML/FT trends and typologies.

There are numerous useful sources of research and information related to ML/FT typologies, including by the Supervisory Authorities, the FATF, MENAFATF and other FSRBs, the Egmont Group, and others. FIs should incorporate the regular review of ML/FT trends and typologies into their compliance training programmes (see Section 8.2, Staff Screening and Training), as well as into their risk identification and assessment procedures.

Examples of some of the key ML/FT typologies with which FIs should be familiar include (but are not limited to):

The UAE FIU releases reports on Trends and Typologies of Money Laundering which is an analysis based on the information extracted from the suspicious transaction reports (STRs) filed by reporting entities. This is a very useful resource for FIs for understanding the prevalent typologies of ML and FT crimes as well as getting information on the latest trends on these crimes in the country. This report is released on the FIU’s GoAML System for STR reporting and therefore, is accessible to registered users of this system.

Links to some other official sources, which may be useful in keeping up-to-date with regard to ML/FT typologies, may be found in Appendix 11.2.

(AML-CFT Law Articles 15, 24, 25)

The AML-CFT Law provides for the following sanctions against any Financial Institutions, their managers or their employees, who fail to perform, whether purposely or through gross negligence, their statutory obligation to report a suspicion of money laundering or the financing of terrorism or of illegal organisations:

According to Article 15 of the AML-CFT Law, the requirement to report is in the case of suspicion or reasonable grounds to suspect a Crime. It should also be noted that the transactions or funds that are the subject of the suspicion may represent only part of the proceeds of the criminal offence, regardless of their value.

Likewise, the AML-CFT Law provides for sanctions against anyone who warns or notifies a person of a suspicious transaction report or reveals that a transaction is under review or investigation by the Competent Authorities, as follows:

A risk-based approach (RBA) is central to the effective implementation of the AML/CFT legislation. It means that FIs identify, assess, and understand the ML/TF risks to which they are exposed, and implement the most appropriate mitigation measures. An RBA requires financial institutions to have systems and controls that are commensurate with the specific risks of money laundering and terrorist financing facing them. Assessing this risk is, therefore, one of the most important steps in creating a good AML/CFT compliance program and will enable FIs to focus their resources where the risks are higher. In this regard, FIs can take into account their business nature, size and complexity.

(AML-CFT Law Article 16.1; AML-CFT Decision Article 4.1-3)

Implicit in both the AML-CFT Law and the AML-CFT Decision is the well-established concept of a risk-based approach (RBA) to the identification and assessment of ML/FT risks. Specifically, the AML-CFT Law states that FIs should “identify crime risks within (their) scope of work” and should update their risk assessments on the basis of the various risk factors set out in the AML-CFT Decision. Likewise, the AML-CFT Decision states that FIs’ identification, assessment and understanding of the risks should be carried out “in concert with their business nature and size,” and that various risk factors should be considered in determining the level of mitigation required. The AML-CFT Decision further provides that enhanced due diligence should be performed in cases where high risks are identified, while simplified due diligence may be performed in certain cases where low risk is identified, unless there is a suspicion of ML/FT.

An RBA to AML/CFT means that FIs should identify, assess and understand the ML/TF risks to which they are exposed and take AML/CFT measures commensurate to those risks in order to mitigate them effectively. This will require an understanding of the ML/TF risk faced by UAE (national risks), risks by the sector and the FI as well as specific products and services, customer base, the capacity in which customers are operating, jurisdictions in which they operate , the delivery channel and the effectiveness of risk controls put in place.

The use of an RBA thus allows FIs to allocate their resources more efficiently and effectively, within the scope of the national AML/CFT legislative and regulatory framework, by adopting and applying preventative measures that are targeted at and commensurate with the nature of risks they face.

While there are limits to any risk-management approach, and no RBA can be considered as completely failsafe; there may be occasions where an FI has taken all reasonable measures to identify and mitigate ML/TF risks, but it is still used for ML/TF in isolated instances. FIs should nevertheless understand that a risk-based approach is not a justification for ignoring certain ML/FT risks, nor does it exempt them from taking reasonable and proportionate mitigation measures, even for risks that are assessed as low. Their statutory obligations require them to identify, assess and understand the level of (inherent) risks presented by their (types of) customers, products and services, transactions, geographic areas and delivery channels, and to be in a position to apply sufficient AML/CFT mitigation measures on a risk-appropriate basis at all times.

In order to do so, they should identify and assess their exposure to ML/FT risks on the basis of a variety of risk factors (see Section 4.1, Risk Factors), some of which are related to the nature, size, complexity and operational environment of their businesses, and others of which are customer- or relationship-specific. Furthermore, they should take reasonable and proportionate risk mitigation measures based on the severity of the risks identified.

Conducting an ML/TF business risk assessments can assist FIs to understand their risk exposure and the areas they should give priority in combating ML/FT. The extent of business-wide risks to which an FI is exposed may require different levels of AML/CFT resources and mitigation strategies.

The following picture is a schematic overview of the RBA process from an ML/TF business risk assessments to developing policies, procedures and measures to CDD and the reporting of suspicious transactions.

(AML-CFT Law Article 16.1(a) and AML-CFT Decision Article 4.1)

A well-documented assessment of the identified inherent risk factors (see Section 4.1, Risk Factors) is fundamental to the adoption and effective application of reasonable and proportionate ML/FT risk-mitigation measures. Thus, the result of such an ML/TF business risk assessment allows for a systematic categorisation and prioritization of inherent and residual ML/FT risks, which in turn allows FIs to determine the types and appropriate levels of AML/CFT resources needed for mitigation purposes.

An effective ML/TF business risk assessment is not necessarily a complex one. The principle of a risk-based approach means that FIs’ risk assessments should be commensurate with the nature and size of their businesses. FIs with smaller or less complex business models may have simpler risk assessments than those of institutions with larger or more complex business models, which may require more sophisticated risk assessments.

The AML-CFT Law implicitly recognises the need for an RBA to customer due diligence measures, by obliging FIs to “take the necessary due diligence measures and procedures and define their scope, taking into account the various risk factors and the results of the national risk assessment….” This principle is further emphasised by the AML-CFT Decision, which explicitly provides for the application of enhanced due diligence (EDD) measures to manage identified high risks (see Section 6.4, Enhanced Due Diligence (EDD) Measures), and of simplified due diligence (SDD) to manage identified low risks in the absence of a suspicion of ML/FT (see Section 6.5, Simplified Due Diligence (SDD) Measures).

FIs are reminded, that each customer’s ML/FT risk profile is dynamic and subject to change depending on numerous factors, including (but not limited to) the discovery of new information or a change in behaviour, and the appropriate level of due diligence should be applied in keeping with the specific situation and risk indicators identified. In that regard, FIs should always be prepared to increase the type and level of due diligence exercised on a customer of any ML/FT risk category whenever the circumstances require, including situations in which there are any doubts as to the accuracy or appropriateness of the customer’s originally designated ML/FT risk category. This means that the CDD measures are not to be taken as a static formula but that depending on the risk of a customer the intensity and depth of the CDD measures should vary.

(AML-CFT Decision Article 5.1)

Under normal circumstances, FIs are obliged to undertake CDD measures (including verifying the identity of customers, Beneficial Owners, beneficiaries, and controlling persons) either prior to or during the establishment of a Business Relationship or the opening of an account, or prior to the execution of a transaction for a customer with whom there is no Business Relationship. Guidance in regard to these requirements and certain exceptional circumstances provided for in the AML-CFT Decision is provided in the sub-sections below.

The application of risk-based CDD measures is comprised of several components, in keeping with the customer’s ML/FT risk classification and the specific risk indicators that are identified. Generally, these components include, but are not limited to, the following categories:

In cases involving higher levels of risk, FIs are generally required to exercise enhanced levels of customer due diligence, such as identifying and/or verifying the customer’s source of funds and taking other appropriate risk-mitigation measures (see Section 6.4, Enhanced Due Diligence (EDD) Measures).

As part of their overall AML/CFT framework, FIs should take a risk-based approach in developing the internal CDD policies, procedures and controls. Factors to take into account, include:

Such policies, procedures and methodologies should be reasonable and proportionate to the risks involved, and, in formulating them, supervised institutions should consider the results of both the NRA and any Topical Risk Assessment. Commensurate with the nature and size of the FIs’ businesses, the policies, procedures and methodologies should also be documented, approved by senior management, and communicated at the appropriate levels of the organisation.

Additional guidance related to these and other key aspects of risk-based CDD measures is provided in the following sub-sections.

(AML-CFT Decision Articles 4.2(b), 7.2, 15, 22, 25)

In keeping with a risk-based approach to CDD, FIs are obliged to enhance their CDD measures with regard to customers identified as high-risk, including the specific categories of customers as provided for in the relevant articles of the AML-CFT Decision, such as politically exposed persons (PEPs) (see Section 6.4.1, Requirements for Politically Exposed Persons), customers associated with high-risk countries (see Section 6.4.3, Requirements for High-Risk Countries), and correspondent relationships (see Section 6.4.4, Requirements for Correspondent Relationships).

Generally speaking, EDD involves a more rigorous application of CDD measures, including elements such as:

EDD means that FIs should intensify their measures, specifically by obtaining further evidence and supporting documentation. FIs should obtain additional information and evidence from high-risk customers such as:

In addition, FIs should also apply specific EDD measures in case there are doubts about the accuracy or appropriateness of a customer’s ML/FT risk classification in order to determine the appropriate risk classification. EDD should also be applied when there are red-flag indicators of potentially unusual or suspicious transactions or activities. In all cases in which EDD is applied, FIs should ensure that they take reasonable measures to obtain adequate, substantiated, information about the customer, commensurate with the level of the risks identified.

As part of their overall AML/CFT framework, FIs should develop risk-based internal policies, procedures and controls in connection with the application of EDD measures. Examples of the some of the factors they should consider when developing the risk-based policies include:

Such policies, procedures and methodologies should be reasonable and proportionate to the risks involved, and, in formulating them, FIs should consider the results of the NRA, any Topical Risk Assessment and their own ML/FT business risk assessments. Commensurate with the nature and size of the FIs’ businesses, the policies, procedures and methodologies should also be documented, approved by senior management, and communicated at the appropriate levels of the organisation.

Additional guidance regarding the application of EDD measures to statutory high-risk Business Relationship categories is provided in the following sub-sections.

(AML-CFT Decision Articles 4.3, 5, 10)

In keeping with a risk-based approach to CDD, under certain circumstances and in the absence of a ML/FT suspicion, FIs are only permitted to exercise simplified customer due diligence measures (SDD) with regard to customers identified as low-risk through an adequate analysis of risks.

SDD generally involves a more lenient application of certain aspects of CDD measures, including elements as:

Specifically, the AML-CFT Decision permits the application of SDD in the following circumstances:

Without prejudice to the above, in the case of foreign stock exchanges, FIs should take steps to adequately assess and document the relevant disclosure and transparency requirements related to Beneficial Ownership, and to ensure that they are at least equivalent to those of the UAE.

In addition, FIs should be aware that, regardless of the exemption mentioned above, FIs are required with respect to listed companies to verify that any person purporting to act on behalf of the customer is so authorised, and verify the identity of that person.

As part of their overall AML/CFT framework, FIs should use a risk-based approach to determine the internal policies, procedures and controls they implement in connection with the application of SDD procedures. Examples of some of the factors they should consider when developing their risk-based policies include:

Such policies, procedures and methodologies should be reasonable and proportionate to the risks involved, and, in formulating them, FIs should consider the results of both the NRA and any Topical Risk Assessment and their own ML/FT business risk assessments. Commensurate with the nature and size of the FIs’ businesses, the policies, procedures and methodologies should also be documented, approved by senior management, and communicated at the appropriate levels of the organisation.

(AML-CFT Decision Articles 19)

Under certain conditions, the AML-CFT Decision permits FIs to rely on third parties to undertake the required CDD measures, including those measures specifically laid out in regard to identified high-risk countries (see Section 6.4.3, Requirements for High-Risk Countries), with the responsibility for the validity of the measures resting directly with the FIs. Among the conditions set forth in the AML-CFT Decision concerning the reliance on third parties, it is stipulated that FIs shall:

In order to fulfil this obligation, FIs that rely on third parties to undertake CDD measures on their behalf should implement adequate measures, in keeping with the nature and size of their businesses, to ensure the third party’s adherence to the requirements of the AML-CFT Law and the AML-CFT Decision in relation to CDD measures. Examples of such measures include:

In addition to the above, when relying on foreign third parties for the undertaking of CDD measures, FIs should take steps to ensure that the AML/CFT regulatory and supervisory framework under which the third party operates is at least equivalent to that of the State. This means that FIs should ensure that the third party is regulated and supervised for AML/CFT purposes, and adheres to the equivalent CDD and record-keeping measures.

Whichever methods are utilized to ensure the adherence of third parties to the statutory CDD and record-keeping requirements, FIs should document and periodically review them for effectiveness.

Reliance on a third party refers to an FI’s reliance on a third party of the entire or part of the CDD process as well as reliance on a third party when to introducing business. FIs should therefore take adequate steps to satisfy themselves that copies of identification data and other relevant documentation relating to the CDD requirements will be made available from the third party upon request without delay. This includes the identification and verification of the identity of customers and Beneficial Owners, beneficiaries or controlling persons of legal entities or arrangements, as well as the investigation and assembly of other relevant customer documents, information and data, as per the statutory CDD and record-keeping requirements. Nevertheless, FIs remain ultimately responsible for the outcome of the CDD process. Furthermore, FIs should themselves assess the risks of the customer, including the customer’s risk profile. FIs should thus document their rationale for the assignment of relevant customer risk classifications, as well as their analysis of the CDD information obtained from the third parties. Moreover, FIs remain themselves responsible for conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship.

For the purpose of this guidance, it is important to note that FIs are expected to use documents, data or information from reliable and independent sources in carrying out their CDD obligations, which include, among other things, verifying the identity of customers and Beneficial Owners, beneficiaries or controlling persons of legal entities or arrangements.

Reliable and independent sources may include, but are not necessarily limited to, official bodies such as Competent Authorities, governmental departments or agencies, governmental or state-sponsored business registries, public utilities or similar official enterprises; as well as non-official organisations, such as publicly accessible free or subscription information aggregation services, credit reporting agencies, and others.

FIs are reminded that simply obtaining CDD documents and supporting information from reliable and independent sources during the course of performing their own CDD procedures is not necessarily considered as reliance on a third party. On occasion that FIs during the course of carrying out their own CDD procedures, receive certain documents, information or data from a third-party, FIs should obtain evidence of the third party’s regulatory and supervisory status and good standing, and they should also consider obtaining the third party’s certification that any CDD documents provided by them (such as identification documents, proof of address, or documents corroborating a customer’s source of funds) are true copies of the originals.

(AML-CFT Law Articles 9-10; AML-CFT Decision Articles 13, 16, 17.1, 21.2 and 5, 40-43, 46.1-4, 49.2-3)

The FIU of the UAE is established within the premises of the Central Bank, however, the FIU operates independently by legal and regulatory mandate as the central national agency with sole responsibility for performing the following functions:

Under the aegis of the National Committee for Combating Money Laundering and the Financing of Terrorism and Illegal Organisations, and for the effective performance of its functions, the FIU maintains operational protocols with numerous national and international Competent Authorities.

The FIU has launched the GoAML system for the purposes of facilitating the filing of STRs by all FIs. FIs shall register themselves on the GoAML system by following the procedure manual and maintain their registration in an active status. The Compliance Officer of the company can register as the user of the system. GoAML provides a secure link of each FI to the FIU through their respective supervisory authorities. The system hosts processes for facilitating filing of STRs. It also has an .xml schema for filing batches of STRs. The guidance documents for filing of STRs are posted on the dashboard of this system. All new licensed FIs shall register themselves immediately after obtaining their financial services license so as to confirm their readiness for filing of STRs from the beginning.

The STRs are received by the FIU and processed for any required further information or documents or for further action by Law Enforcement or Supervisory Authorities. The FIU maintains a record of these STRs, performs a trend analysis to understand the prevailing trends in transactions and sectors or Institutions where possibility of ML or FT exists and this trend analysis is shared with all the registered users of GoAML through the system by means of a periodic trends and typologies report.

(AML-CFT Law Articles 9-10; AML-CFT Decision Articles 42, 43.1-3, 49.3)

A core function of the FIU is to conduct operational analysis on STRs and information received from FIs, DNFBPs, as well as from Competent Authorities, and to support the investigations of Law Enforcement Authorities. It does so by identifying specific targets (such as persons, funds, or criminal networks) and by following the trail of specific transactions in order to determine the linkages between those targets and the possible proceeds of crime, money laundering, predicate offences and terrorist financing.

Upon the receipt of STRs or information from reporting institutions or other sources, the FIU assesses the information, prioritises the risk, and performs its own analyses using a variety of information sources and analytical techniques.

In certain cases, the FIU may request additional information from the reporting entity, Competent Authorities, or even from other FIs which also have a business relationship with the subject of its analysis or investigation, through the Integrated Enquiries Management System (IEMS). Upon concluding its analysis or investigation, the FIU may disseminate information about the case to Law Enforcement Authorities or foreign FIUs, and may, at its own discretion, also provide feedback to the reporting entity in the form of instructions regarding required actions to be taken, or recommendations and guidance.

In addition to the above, the FIU also performs strategic analysis, using data aggregated from the STRs and other information it receives, including from national and international Competent Authorities and FIUs of other countries, to identify trends and patterns relating to ML/FT. As a result of this analysis, the FIU may from time to time disseminate enhanced due diligence and fraud alerts to FIs as a preventive measure, and may also disseminate information to FIs about prevalent or new and emerging ML/FT typologies, or other specific risks which FIs should take into consideration.

(AML-CFT Law Article 16; AML-CFT Decision Article 17.1)

Within the meaning of the AML-CFT Law and its implementing AML-CFT Decision, a suspicious transaction refers to any transaction, attempted transaction, or funds which an FI has reasonable grounds to suspect as constituting—in whole or in part, and regardless of the amount or the timing—any of the following:

It should be noted that the only requirement for a transaction to be considered as suspicious is “reasonable grounds” in relation to the conditions referenced above. Thus, the suspicious nature of a transaction can be inferred from certain information, including indicators, behavioural patterns, or CDD information, and it is not dependent on obtaining evidence that a predicate offence has actually occurred or on proving the illicit source of the proceeds involved. FIs do not need to have knowledge of the underlying criminal activity nor any founded suspicion that the proceeds originate from a criminal activity; reasonable grounds are sufficient.

FIs should also note that transactions need not be completed, in progress or pending completion in order to be considered as suspicious. Attempted transactions, transactions that are not executed and past transactions, regardless of their timing or completion status, which are found upon review to cause reasonable grounds for suspicion, must be reported in accordance with the relevant requirements.

(AML-CFT Decision 16)

FIs are obliged to put in place indicators that can be used to identify suspicious transactions, and to update those indicators on an ongoing basis in accordance with the instructions of the Supervisory Authorities or the FIU, as well as in keeping with relevant developments concerning ML/FT typologies. FIs should also consider the results of the NRA, any Topical Risk Assessment and their own ML/FT business risk assessments in this regard.

As part of their overall AML/CFT framework, and commensurate with the nature and size of their businesses, FIs should determine the internal policies, procedures and controls they apply in connection with the identification, implementation, and updating of indicators, as well as with the identification and evaluation of potentially suspicious transactions. Some factors that should be considered include, but are not limited to:

FIs should ensure that they have an adequate process and dedicated, experienced staff for the investigation of and dealing with alerts. The investigation of alerts and the conclusion of the investigation should be documented, including the decision to close the alert or to promptly report the transaction as suspicious.

Prompt reporting to the FIU is one of the key elements of the AML/CFT process. This means that FIs must report to the FIU the transaction immediately once the suspicious nature of the transaction becomes clear. This will be the case when from an objective point of view, taking the available information into account, there is a reason to believe that a transaction is suspicious. This means that FIs expeditiously investigate alerts and possible indications of ML/FT and immediately report the transaction upon determining that the transaction should be reported to the FIU. FIs therefore need to able to show that from the moment of the alert immediate and continuous action has been taken.

In this respect, FIs must have a procedure in place that defines the reporting process, and what steps to take in such cases. When investigating alerts it is important to examine the customer’s earlier and related transactions, and to reconsider the customer’s risk profile.

When identifying suspicious transactions, FIs, and their management and employees, should be aware of the facts that, in relation to ML/FT crimes, there is no minimum threshold or monetary value for reporting, and that no amount or transaction size should be considered too small for suspicion. This is of particular significance where the crimes of the financing of terrorism and of illegal organisations is concerned, since typologies related to them may often involve very small amounts of money.

Furthermore, with the exception of obligatory indicators for which reporting is required by the relevant Supervisory Authorities or the FIU, FIs should note that the presence of an indicator means that a transaction needs to be immediately investigated in order to determine whether the transaction needs to be reported. When determining whether a transaction is suspicious or whether there is reasonable ground for a suspicion, FIs should give consideration to the nature of the specific circumstances, including the products or services involved, and the details of the customer in the context of its risk profile. In some cases, patterns of activity or behaviour that might be considered as suspicious in relation to a specific customer or a particular product type, might not be suspicious in regard to another. For this reason, clear internal policies and procedures with regard to alert escalation and investigation, and internal suspicious transaction reporting are critical to an effective ML/FT risk-mitigation programme. This includes an adequate training program that will allow staff to detect possible unusual or suspicious transactions.

While it is impossible to list all the indicators of suspicion in these Guidelines, some useful links to sources of AML/CFT suspicious transaction indicators are provided in Appendix 11.2, Useful Links. A few examples of potentially suspicious transaction types that FIs should take into consideration include:

(AML-CFT Law Articles 9.1, 15, 24; AML-CFT Decision Articles 13.2, 17.1, 20.2)

FIs are obliged to report transactions to the FIU without delay when there are suspicions, or reasonable grounds to suspect, that the proceeds are related to a crime, or to the attempt or intention to use funds or proceeds for the purpose of committing, concealing or benefitting from a crime. There is no minimum reporting threshold; all suspicious transactions, including attempted transactions, should be reported regardless of the amount of the transaction. There is also no statute of limitations with regard to when the possible crimes or the suspicious transaction took place.

Under federal law and regulations, whether the FI operates in the mainland UAE or in a Financial or Commercial Free Zone, the designated Competent Authority for the reporting of suspicious transactions is the FIU.

Failure to – immediately - report a suspicious transaction, whether intentionally or by gross negligence, is a federal crime. Any person, including FIs or their managers and employees, who fails to perform their statutory obligation to report a suspicion of money laundering, or the financing of terrorism or of illegal organisations, is liable to a fine of no less than AED100,000 and no more than AED1,000,000 and/or imprisonment.

There are no exemptions from the statutory reporting requirement provided for FIs under the AML-CFT Law or AML-CFT Cabinet Decision.

(AML-CFT Law Article 9; AML-CFT Decision Articles 17.1(a), 21.2)

As the designated Competent Authority for receiving and analysing STRs from all FIs, it is within the purview of the FIU to determine the procedures for the reporting of suspicious transactions. As stated in the AML-CFT Decision, FIs shall report STRs “via the electronic system of the FIU or by any other means approved by the FIU”, which is the FIU’s GoAML system.

Without prejudice to the above, it should be noted that the AML-CFT Decision provides for the reporting of STRs to be effected by the designated compliance officer of the FI. Specifically, the Cabinet Decision states that the duty of a compliance officer is to:

“Review, scrutinise and study records, receive data concerning Suspicious Transactions, and take decisions to either notify the FIU or maintain the Transaction with the reasons for maintaining while maintaining complete confidentiality.”

In this regard, as part of their overall risk-based AML/CFT framework and commensurate with the nature and size of their businesses, FIs should establish appropriate policies, procedures and controls pertaining to the internal reporting by their managers and employees of potentially suspicious transactions, including the provision of the necessary records and data, to the designated AML/CFT compliance officer for further analysis and reporting decisions, as well as to the reporting of STRs by the compliance officer to the FIU. The relevant policies, procedures and controls should take into consideration such factors as:

Such policies, procedures and controls should be documented, approved by senior management, and communicated to the appropriate levels of the organisation, in keeping with the nature and size of the FI’s business.

(AML-CFT Law 9; AML-CFT Decision 17.1(a), 21.2)

FIs are obliged to report STRs to the FIU without delay. Since it is the responsibility of the designated AML/CFT compliance officer to “review, scrutinise and study records, receive data concerning suspicious transactions, and take decisions to either notify the FIU or maintain the transaction,” (see Section 8.1, Compliance Officer) it follows that the STRs should be immediately reported once the suspicious nature of the transaction becomes clear. This means that the internal reporting of suspicious transactions to the compliance officer should be done directly once the suspicion or reasonable grounds for suspicion are established, and immediately the designated AML/CFT compliance officer has confirmed that the transaction (whether pending, in progress, or past) is suspicious, it should be reported.

Without prejudice to the above, FIs should note that, with the exception of any obligatory indicators for which immediate reporting to the FIU is required by the relevant Competent Authorities, some potentially suspicious transactions or indicators of suspicion may require a degree of internal investigation before a suspicion or reasonable grounds for suspicion are established and an internal STR is reported to the designated AML/CFT compliance officer. The FI should however be able to demonstrate that this investigation is started immediately and has been ongoing continuously until the transaction is reported to the FIU. In this regard, and commensurate with the nature and size of their businesses, FIs should establish clear policies, procedures and staff training programmes pertaining to the identification, investigation and internal reporting of suspicious transactions (including attempted transactions), and the degree and extent of investigations that are appropriate prior to the internal reporting of a suspicious transaction (also see Section 7.2, Identification of Suspicious Transactions). These policies and procedures should be documented, approved by senior management, and communicated to the appropriate levels of the organisation.

(AML-CFT Law Article 25; AML-CFT Decision Articles 17.2, 21.2, 31.3, 39)

When reporting suspicious transactions to the FIU, FIs are obliged to maintain confidentiality with regard to both the information being reported and to the act of reporting itself, and to make reasonable efforts to ensure the information and data reported are protected from access by any unauthorized person.

As part of their risk-based AML/CFT framework, and in keeping with the nature and size of their businesses, FIs, and their foreign branches or group affiliates where applicable, should establish adequate policies, procedures and controls to ensure the confidentiality and protection of information and data related to STRs. These policies, procedures and controls should be documented, approved by senior management, and communicated to the appropriate levels of the organisation.

FIs must ensure that all relevant information relating to STRs is kept confidential, with due regard to the conditions and exceptions provided for in the law, and the guiding principles for this must be established in policies and procedures. FIs need to ensure that policy and procedures are reflected in for example, appropriate access rights with regard to core systems used for case management and notifications, secure information flows and guidance/training to all staff members involved. This guidance and training is primarily important for the first-line staff who have contact with customers. It is essential that these staff know when there may be cases of suspicious transactions, what questions they have to ask the customer and which information they must not under any circumstances disclose to the customer.

It should be noted that the confidentiality requirement does not pertain to communication within the FI or its affiliated group members (foreign branches, subsidiaries, or parent company) for the purpose of sharing information relevant to the identification, prevention or reporting of suspicious transactions and/or crimes related to ML/FT.

It is a federal crime for FIs or their managers, employees or representatives, to inform a customer or any other person, whether directly or indirectly, that a report has been made or will be made, or of the information or data contained in the report, or that an investigation is under way concerning the transaction. Any person violating this prohibition is liable to a penalty of no less than AED100,000 and no more than AED500,000 and imprisonment for a term of not less than six months.

(AML-CFT Law Article 27; AML-CFT Decision Article 17.3)

FIs, as well as their board members, employees and authorised representatives, are protected by the relevant articles of the AML-CFT Law and AML-CFT Decision from any administrative, civil or criminal liability resulting from their good-faith performance of their statutory obligation to report suspicious activity to the FIU. This is also the case even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred. However, it should be noted that such protections do not extend to the unlawful disclosure to the customer or any other person, whether directly or indirectly, that they have reported or intend to report a suspicious transaction, or of the information or data the report contains, or that an investigation is being conducted in relation to the transaction.

Once a Suspicious Transaction or other suspicious information related to a Customer or Business Relationship has been reported to the FIU, there are two immediate consequences:

Further guidance on both of these topics is provided below.

FIU Instructions

After receiving an STR from an FI, the FIU may or may not revert to the reporting institution with specific instructions, requests for additional information, feedback or further guidance related to the STR or to the business relationship in general. In such cases, these communications will generally be directed to the designated AML/CFT compliance officer of the FI.

Confidentiality of FIU’s Instructions

The responsibility for coordinating the FI’s prompt compliance with the FIU’s instructions or requests lies with the designated AML/CFT compliance officer. It should be noted that, depending on the nature of the case, the FIU may require the compliance officer to maintain certain information related to its instructions or requests privileged and/or confidential within the FI’s organisation. In other words, in some cases, the compliance officer could be restricted from divulging information about a transaction or business relationship to anyone other than certain members of senior management or the board of directors of the FI. Regardless of the circumstances surrounding the FIU’s instructions or requests, including whether or not the compliance officer is permitted to provide explanations to the staff of the FI, the FI is obliged at all times to follow the compliance officer’s instructions in regard to any follow-up actions required in relation to an STR.

Timing of FIU’s Instructions

Whether or not the FIU issues instructions or requests for additional information to a reporting institution, or how quickly this may occur after the STR is initially reported, both depend on numerous factors. These may include the prioritisation of the incoming STR among all of the STRs received by the FIU, the results of the ensuing analysis, or the possible need for information to be exchanged with other Competent Authorities or international FIUs, as well as the timing and the results of such exchanges.

When an STR involves an anticipated, pending, or already in-progress transaction, FIs should use their best efforts to delay the execution or completion of the transaction, in order to allow for a reasonable amount of time in which to receive feedback, instructions, or additional information requests from the FIU. In taking such measures, FIs should take the necessary steps to avoid “tipping off” or arousing the customer’s suspicion that the transaction is being investigated or reported. Examples of some of the measures FIs may consider taking, either singly or in combination, in order to delay the execution or completion of transactions include but are not limited to:

During the time interval during which an anticipated, pending, or in-progress STR that has already been reported to the FIU is being delayed by the FI, any additional suspicions that may arise should also be immediately reported to the FIU as a follow-up to the original STR. Examples of such additional suspicions may include, but are not limited to:

If a reasonable amount of time has not yet elapsed before the receipt of feedback, instructions, or requests for additional information from the FIU in regard to an STR, and it becomes impossible for the FI to delay the execution or completion of the reported transaction any longer without arousing the customer’s suspicion that the transaction is being investigated or reported, then the FI should request specific instructions or permission from the FIU in regard to executing or rejecting the transaction.

No Instructions, Feedback or Additional Information Requests from the FIU

Due to the factors previously mentioned, FIs may not receive instructions, additional information requests, or other feedback from the FIU in regard to STRs that have been filed; or the receipt of such communications may be delayed beyond what they consider to be a reasonable time period. In such instances, FIs should determine the appropriate handling of the STR and of the business relationship in general, taking into consideration all of the risk factors involved.

In particular, FIs are reminded that, unless they are specifically instructed by the FIU to do so, they are under no obligation to carry out transactions they suspect, or have reasonable grounds to suspect, of being related to a Crime. Furthermore, unless they are specifically instructed by the FIU to maintain the business relationship (for example, so that the Competent Authorities may monitor the customer’s activity), FIs should take appropriate steps in order to decide whether or not to maintain the business relationship. These steps may include, but are not limited to:

FIs should be aware that filing an STR does not automatically mean that the relationship with the customer needs to be terminated. However, when deciding to terminate a business relationship for which an STR has been filed and no feedback has been received from the FIU after a reasonable time period, FIs should formally advise the FIU of their intention to do so unless there is an official objection.

Reasonable Time Period for Receiving Feedback from the FIU

FIs should note that there are no pre-established processing times, and no statute of limitations, in regard to the time interval during which the FIU may provide feedback, including instructions or requests for additional information in response to an STR. Furthermore, the time period that may be considered reasonable in relation to such feedback depends on numerous factors, including but not limited to the:

The time period considered to be reasonable could thus vary widely from one case to another.

As a general guideline, the reasonable time periods for feedback from the FIU concerning transaction types that are less complex, more routine, and have faster average processing times (such as account-to-account or wire transfers, the exchange of currencies, or over-the-counter purchases of precious metals or stones, for example) would normally be expected to be shorter than those for more complex, less routine transaction types (such as, for example, purchases of real estate or other complex assets, trade finance transactions, or various forms of loan or credit agreements). FIs that require further assistance in determining reasonable time periods should consult with the FIU or the relevant Supervisory Authorities.

High-Risk Classification of Reported Business Relationships

When a transaction or other information about a business relationship is reported to the FIU as suspicious, it means that, by definition, the customer or business relationship to which it pertains should be classified as high risk (in case the business relationship has not yet been classified as such). In situations in which no feedback or instructions have been received from the FIU, FIs that determine to maintain the business relationship should, commensurate with the nature and size of their businesses:

In such cases, beyond the EDD measures described in previous sections (see Sections 6.4, Enhanced Due Diligence (EDD) Measures and 6.3.5, Ongoing Monitoring of the Business Relationship), FIs should also implement additional control measures such as, but not limited to:

FIs should also document the specific EDD, ongoing monitoring, and additional control measures to be taken. In this regard, FIs should obtain senior management approval for the plan, including its specific conditions, duration and any requirements for its removal, as well as the roles and responsibilities for its implementation, monitoring and reporting, commensurate with the nature and degree of the ML/FT risks associated with the business relationship.

(AML-CFT Decision Articles 20.3, 21 and 44.12)

(AML-CFT Decision Articles 20.4-5, 21.4)

In order for their ML/FT risk assessment and AML/CFT mitigation measures to be effective, FIs should ensure that their employees have a clear understanding of the ML/FT risks that the FI is exposed to and can exercise sound judgment, both when adhering to the FI’s AML/CFT risk mitigation measures and when identifying suspicious transactions. Furthermore, due to the ever-evolving nature of ML/FT risks, FIs should ensure that their employees are kept up to date on an ongoing basis in relation to emerging ML/FT typologies and new internal and external risks. . Depending on the nature, size and level of complexity of an FI, an FI should also screen staff to ensure high standards when hiring employees.

Thus, to ensure a high level of competence and AML/CFT programme effectiveness, FIs should formulate and implement appropriate policies, procedures and controls with regard to staff screening and training. An effective training program should not only explain the relevant AML/CFT laws and regulations, but also cover the institutions’ policies and procedures used to mitigate ML/FT risks, scope of target employees such as but not limited:

These measures should be applied across organisations and financial groups, including their foreign branches and majority-owned subsidiaries. Examples of some of the factors that should be considered when determining appropriate staff screening and training measures include, but are not limited to:

(AML-CFT Decision Articles 20, 31, 32)

When an FI is part of a group, the FI is obliged to implement appropriate group-wide AML/CFT programmes, and to apply them in relation to all branches and majority-owned subsidiaries of the financial group. The specific requirements that must be met by FIs with respect to their foreign branches and majority-owned subsidiaries are set out in the relevant provisions of the AML-CFT Decision, and reflect those to which FIs are subject within the State.

In meeting these obligations with regard to their branches and majority-owned subsidiaries in foreign countries, FIs, and in particular FIs that are members of financial groups, should ensure that the measures they apply are consistent with the requirements of the AML-CFT Law and AML-CFT Decision. In this regard, FIs should establish appropriate policies and procedures for the exchange and sharing of data and information, including those required for the purposes of CDD and ML/FT risk management, between the foreign branches and subsidiaries and the head office, for the purpose of combating the crimes of money laundering and the financing of terrorism and of illegal organisations, and for reporting suspicious transactions.

In situations where these measures are not possible due to legislative or regulatory restrictions in the foreign countries in which their branches and majority-owned subsidiaries operate, FIs (including those which are members of Financial Groups) should implement the necessary additional measures, commensurate with the nature and size of their businesses, that will enable them to manage and mitigate appropriately the ML/FT risks that relate to their foreign operations. Examples of some of the measures that should be considered include but are not limited to:

In particular, in cases in which the minimum AML/CFT requirements of host countries in which FIs maintain foreign operations are less strict than those of the State, FIs should take the necessary measures to ensure that their foreign branches and/or majority-owned subsidiaries in those countries implement requirements consistent with those of the State, to the extent permitted by the laws and regulations of the host countries. If such host countries do not permit the proper implementation of the AML/CFT requirements consistent with those of the State, FIs should apply appropriate additional measures to manage and mitigate the ML/FT risks (including but not limited to those described above). They should also inform the relevant Supervisory Authorities of the circumstances and comply with any additional supervisory actions, controls, or requirements of the Competent Authorities of the State (up to and including, if requested, terminating their operations in the host countries).

(AML-CFT Decision Article 20.6)

A robust and independent audit function is a key component to a well-functioning governance structure and an effective AML/CFT framework. FIs are obliged to have in place an independent audit function to test the effectiveness and adequacy of their internal polices, controls and procedures relating to combating the crimes of money laundering and the financing of terrorism and of illegal organisations. In this regard, FIs should ensure that their independent audit function is appropriately staffed and organized, and that it has the requisite competencies and experience to carry out its responsibilities effectively, commensurate with the ML/FT risks to which the FIs are exposed, and with the nature and size of their businesses.

It should be noted that, while most FIs are expected to have the capacity to meet these requirements internally, depending on the nature and size of their businesses, some FIs (particularly smaller ones) may not necessarily have the resources to maintain a fully functioning and effective internal audit unit. In such cases, those FIs should ensure that they take adequate measures to obtain the necessary capabilities from qualified external sources. They should also ensure that they have in place adequate internal capabilities to provide sufficient coordination with and oversight of any external resources they may utilise, and that such external resources are adequately regulated and supervised by relevant Competent Authorities.

FIs should ensure that the periodic inspection and testing of all aspects of their AML/CFT compliance programmes, including ML/FT business risk assessment and AML/CFT mitigation measures, and CDD policies, procedures and controls, is incorporated into their regular audit plans. They should also ensure that all their branches and the subsidiaries in which they hold a majority interest, whether domestic or foreign, are part of an independent audit testing programme that covers the effectiveness and adequacy of their internal AML/CFT polices, controls and procedures.

Some of the factors FIs should consider in determining the appropriate frequency and extent of audit testing of their AML/CFT programmes by their independent audit functions include but are not limited to:

The scope of such audits should include but not be limited to:

(AML-CFT Decision Articles 4.2(a), 4.2(b)(5), 8.1(a), 15.1(b) and 15.2, 17.3, 21.3, 25.1(d))

A cornerstone of any sound governance structure, including those related to AML/CFT compliance, is senior management involvement and accountability. The members of an FI’s senior management (together with the members of the board of directors in those organisations that have one) are ultimately responsible for the quality, strength and effectiveness of the FI’s AML/CFT framework, as well as for the robustness of its compliance culture. In this regard, an FI’s senior management should set the ML/FT risk appetite and a proper “tone at the top,” by demonstrating their commitment to ensuring an effective AML/CFT compliance programme is in place, and by clearly articulating their expectations with regard to the responsibilities and accountability of all staff members in relation to it.

Under the AML/CFT legal and regulatory framework of the UAE, the senior management of all FIs are responsible for performing certain functions related to the assessment, management and mitigation of the ML/FT risks to which their organisations are exposed. These responsibilities can be grouped broadly into categories which include:

Some FIs may operate as small or mid-sized businesses, without large staff organisations or sophisticated IT infrastructures. In such cases, individual managers and employees may often be called upon to undertake multiple roles and responsibilities in the course of day-today business activities, and it may be difficult at times to maintain a clear separation of duties or functions. While an FI’s small size does not in any way exempt it from fulfilling its obligations under the AML-CFT Law and AML-CFT Decision, and without prejudice to guidance provided in the previous sections, the following additional considerations are of particular importance to small and mid-sized FIs.

(AML-CFT Law Articles 16.1(a),(f); AML-CFT Decision Articles 7.2, 24, 36, 37.3)

FIs are obliged to maintain detailed records, documents, data and statistics for all transactions, all records obtained through CDD measures, account files and business correspondence, and results of any analysis undertaken, as well as a variety of record types and documents associated with their ML/FT risk assessment and mitigation measures, as specified in the relevant provisions of the AML-CFT Decision (see Section 9.2, Required Record Types). FIs are required to maintain the records in an organized fashion so as to permit data analysis and the tracking of financial transactions, and to make the records available to the Competent Authorities immediately upon request. They should be sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal activity. All CDD information and transaction records should be available swiftly to Competent Authorities upon appropriate authority.

The statutory retention period for all records is at least five (5) years, depending on the circumstances, from the date of the most recent of any of the following events:

Without prejudice to the above, FIs should note that it is the prerogative of the Competent Authorities to require the retention of the records of any FI, whether data, statistics, or records pertaining to a specific customer or transaction or to general categories of customers or transactions which they deemed to be of interest, for a longer period of time at their own discretion.

In order to fulfil their record-keeping obligations, and commensurate with the nature and size of their businesses, FIs should determine the appropriate policies, procedures and controls related to the adequate retention, organisation, and maintenance of records. The policies, procedures and controls should be documented, approved by senior management, and communicated to appropriate levels of the organisation. Examples of the factors which FIs should give consideration to when formulating the relevant policies, procedures and controls, include but are not limited to:

(AML-CFT Law Articles 16.1(a),(b),(f); AML-CFT Decision Articles 7.2, 24)

The AML-CFT Law and AML-CFT Decision oblige FIs to retain several types of records, which can be classified broadly into the following categories:

Additional guidance related to these record types is provided in the following sub-sections.

Failure to report a suspicious transaction (STR, SAR, or other report types) without delay, whether intentionally or by gross negligence, is a federal crime in the UAE. The AML-CFT Law provides for the following sanctions against any person, including an LFI, or their managers and employees, who fail to perform, whether purposely or through gross negligence, their statutory obligation to report a suspicion of money laundering and related predicate offences or the financing of terrorism or of illegal organisations:

According to Article 15 of the AML-CFT Law, the requirement to report is in the case of suspicion or reasonable grounds to suspect a crime.

LFIs as well as their board members, employees, and authorized representatives, are protected by Article 15 of the AML-CFT Law and Article 17.3 of the AML-CFT Decision from any administrative, civil, or criminal liability resulting from their good-faith performance of their statutory obligation to report suspicious activity to the FIU. This is also the case even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred. This covers cases when an employee files an STR, SAR, or other report types that its employer did not want to file.

However, it should be noted that such protections do not extend to the unlawful disclosure to the customer or any other person, whether directly or indirectly, that they have reported or intend to report a suspicious transaction, or of the information or data the report contains, or that an investigation is being conducted in relation to the transaction.

Within the AML-CFT Law and its AML-CFT Decision, a suspicious transaction refers to any transaction, attempted transaction, or funds for which an LFI has reasonable grounds to suspect as constituting—in whole or in part, and regardless of the amount or the timing - any of the following:

The AML-CFT Law and its AML-CFT Decision define a predicate offence as “any act constituting an offense or misdemeanour under the applicable laws of the State whether this act is committed inside or outside the State when such act is punishable in both countries.”

It should be noted that the only requirement for a transaction to be considered as suspicious is “reasonable grounds” in relation to the conditions referenced above. Thus, the suspicious nature of a transaction can be inferred from certain information, including indicators; financial/transactional and behavioral patterns; Customer Due Diligence (“CDD”) information; or adverse media information, and it is not dependent on obtaining evidence that a predicate offense has actually occurred or on proving the illicit source of the proceeds involved. LFIs do not need to have knowledge of the underlying criminal activity nor any founded suspicion that the proceeds originate from a criminal activity; reasonable grounds to suspect any such criminal activity are sufficient.

LFIs should also note that suspicious transactions need not be completed, in progress, or pending completion. Attempted transactions, transactions that are not executed and past transactions, regardless of their timing or completion status, which are found upon review to cause reasonable grounds for suspicion, must be reported in accordance with the relevant requirements.

According to Article 21 of the AML-CFT Decision, LFIs are required to appoint a Compliance Officer with the appropriate competencies and experience to perform the necessary tasks to:

According to CBUAE’s Guidelines, the Compliance Officer is the LFI’s money laundering reporting officer (“MLRO”) charged with reviewing, scrutinizing, and reporting STRs and other reports pertaining to suspicious activity. In this capacity, the Compliance Officer or MLRO is ultimately responsible for the detection of transactions related to money laundering and financing of terrorism and illegal organisations; for reporting suspicions to the FIU; implementing the appropriate actions following an STR, SAR, or other report filing (e.g., ensuring the STR or SAR subject is input into the relevant list for close monitoring or internal watchlists/blacklists; changing the customer risk rating; etc.); and for cooperating with the relevant authorities on AML/CFT matters. The Compliance Officer or MLRO is ultimately responsible to ensure that an appropriate programme exists in the LFI and that the LFI effectively deploys a risk-based approach to detect and report suspicious activity.

The Compliance Officer or MLRO should also act as the primary point of contact with law enforcement agencies for their requests and investigations. The Compliance Officer or MLRO is responsible for liaising with regulators and external bodies on financial crime issues in order to share knowledge, report cases, develop best practices, and where possible, to improve coordination within the financial sector.

For LFIs operating in an international context, FATF Recommendation 18 recommends that financial groups are required to implement group-wide AML/CFT programs applicable to foreign branches and majority-owned subsidiaries. Recent major enforcement actions taken by supervisors in key jurisdictions have highlighted the need to ensure that systems and controls are aligned across a financial group and that foreign branches and majority-owned subsidiaries align AML/CFT measures with a financial group’s home country requirements. As a result, LFIs have implemented global AML/CFT policies that outline a group risk appetite and are managed in each jurisdiction to align to local regulatory or legislative requirements. To support alignment of controls, LFIs operating across jurisdictions may seek to leverage the same control solutions for key processes, such as customer screening or transaction monitoring, though there may be different rules for different jurisdictions. For example, if the LFI operates in an economy which is known to be more cash-based than another, the cash trigger rules in transaction monitoring may vary appropriately. Centralized controls with operational centers of excellence also provide a means of ensuring alignment across the group around systems and controls.

An LFI may seek to utilize a manual transaction monitoring system, which typically targets specific categories of transactions (e.g., those involving large amounts of cash, those to or from certain geographies) and includes a manual review of various reports generated by the LFI’s systems in order to identify unusual activity. The type and frequency of reviews and resulting reports used should be commensurate with the LFI’s AML/CFT risk profile—including the nature, size, and complexity of its operations—and properly cover customers, counterparties, businesses, products, services, delivery channels, and geographic markets. System-generated reports typically use a certain currency threshold to detect unusual activity. An LFI’s responsible senior employee should periodically evaluate the appropriateness of filtering criteria and thresholds used in the monitoring process and periodically appraise Senior Management and where required, notify the Board of Directors (as part of periodic updates), on the appropriateness of design of manual monitoring reports. LFIs should be alert to the fact that complex and evolving financial crime risks can undermine the effectiveness of manual monitoring systems, and therefore, manual monitoring systems should also be independently reviewed for reasonable filtering criteria.

Automated transaction monitoring systems can cover multiple types of transactions and use different rules to identify potentially suspicious activity. In addition, many systems can adapt over time based on historical activity, trends, or internal peer comparison. After parameters and filters have been developed, they should be reviewed before implementation to identify any gaps in coverage to address potential financial crime schemes that may not have been addressed. LFIs should also seek to have appropriate case management systems so that such funds or transactions are scrutinized in a timely manner and a determination is made as to whether the funds or transaction are suspicious.

Once established, the LFI should review and test system capabilities and thresholds on a periodic basis, commensurate to its risk profile. This review should focus on specific parameters or filters in order to ensure that intended information is accurately captured, and that the parameter or filter is appropriate for the LFI’s particular risk profile, including the applicability of the detection scenarios, underlying rules, threshold values, and assumptions used. An LFI should also aim to review its transaction monitoring program at least annually to account for changes in the LFI’s internal procedures; local laws and regulations; and best practices.

Relatedly, the authorization to establish or alter expected activity profiles should be clearly defined through policies and procedures. An LFI’s internal controls should ensure limited access to the monitoring systems, and changes should require the approval of the Compliance Officer, MLRO, or senior management. The LFI should implement a robust end-to-end, pre- and post-implementation testing procedure of its transaction monitoring program with documentation detailing current detection scenarios and the underlying assumptions, parameters, and thresholds applied.

Employees appointed by the LFI should also be responsible for the design, planning, implementation, operation, testing, validation, and on-going analysis of the transaction monitoring program, which may extend to assessing the timely review and decision-making of generated alerts and potential STR or SAR filings. Such employees should be responsible for independently validating an LFI’s transaction monitoring system's programming methodology and effectiveness to ensure that the LFI’s automated transaction monitoring system is effectively detecting potentially suspicious activity. These appointed employees should also ensure that customer segments, customer types, and transactions/transaction codes are mapped into the transaction monitoring system, and that the transaction monitoring system is integrated with the LFI’s core banking and other relevant system. Independent validation should also take place of an LFI’s policies with an aim to assess if employees are adhering to these policies. This is especially important to validate the proper use of automated tools and to ensure that the application of information technology instruments or algorithms—often leveraged by LFIs to reduce the number of false positives in their transaction monitoring programs—is not inadvertently suppressing instances of reportable suspicious activity. Where appropriate, the LFI, in lieu of maintaining full time employees to perform aforementioned functions, may hire qualified specialist consultants or external vendors to provide such review services.

LFIs have begun to invest in forming and developing their own intelligence units or capabilities. By establishing such units or capabilities, these units seek to maximize the use of data and information available both internally—within the LFI—and externally—across jurisdictions and businesses—in order to tackle money laundering, the financing of terrorism and illegal organisations, and fraud schemes, as well as to consolidate analytical capacity and remove any jurisdictional and business silos. This has led some LFIs to shift from a pure transaction-level monitoring approach towards adopting a “customer-level” or “network” monitoring approach. Under this approach, previous investigations can be applied to inform and refine risk models, which can then be used to customize monitoring for different business lines and customer types. These enhancements are focused on looking beyond single transactions or single customers to identify the wider network in which a customer operates—looking at the customer as an entity—enabling LFIs to manage networks of accounts and report on these networks, that in turn, increases opportunities to disrupt that network. This model moves reporting away from reports of single suspicious transactions towards suspicious entities and networks with a view on how the funds flow between them.

Defensive filing is the practice of filing STRs or SARs on transactions or activity(ies) that LFIs do not deem truly suspicious in order to reduce the risk of regulatory penalties for non-filing of STRs or SARs.⁵ Although there may be some aspect of the transaction or activity creating potential suspicion, defensive filings do not report on activity that the LFI truly considers suspicious. As such, defensive filings are generally discouraged given that such filings diminish the value of STRs and SARs, including by leading to an increase in non-valuable filings. An STR, SAR, and other report types should be of the best possible quality, including in that it should have a clearly written narrative with sufficient detail that comprehensively articulates the factors involving the reported suspicious transaction or activity. As a result, the CBUAE considers defensive STR or SARs as indicative of an inefficient transaction monitoring system and an LFI’s weak system of internal controls. An LFI may be asked to correct such deficiencies as part of broader supervisory measures provided by applicable law, including administrative sanctions, temporary limitation to business activities, etc. If, for any reason, an LFI needs additional data to assess whether unusual activity is truly suspicious, the LFI should review other mechanisms—such as expanding the time period for reviewing alerted transactions (e.g., from 30 days to 90 days) or reviewing threshold-based reports—to make the determination that an STR or SAR is required.

⁴ The UAE FIU has noted instances where SAR or STRs are reported due to the LFI not receiving supporting documents that would justify the transaction or activity. However, upon the FIU raising a request to the same LFI in the form of an AIF, supporting documents were subsequently provided for the same subjects and report. This documentation in some instances removed the suspicion of the transaction and in others, helped explain the transaction or action. Submitting reports to the FIU without first conducting a thorough investigation and looking at all available evidence creates a situation where non-suspicious transactions may be reported to the FIU. LFIs are reminded that internal investigations into the suspicious transaction or activity should be conducted to the fullest extent possible prior to raising an STR or SAR and that related documentation, when available or easily retrievable, should be included with the STR or SAR. 
⁵ Egmont Group, Enterprise-wide STR Sharing: Issues and Approaches, Pg. 17