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Annex 2. Synopsis of the Guidance

Effective from 7/6/2021
introduction PurposeThe purpose of this guidance is to assist Licensed Financial Institutions (LFIs) understand and mitigate the risks when providing services to legal persons and arrangements, and to guide them in fulfilling their AML/CFT obligations.
ApplicabilityThis guidance applies to all natural and legal persons, which are licensed and/or supervised by CBUAE, in the following categories:
  • national banks, branches of foreign banks, exchange houses, finance companies, payment service providers, registered hawala providers and other LFIs; and
  • insurance companies, agencies, and brokers.
Understanding and Assessing the Risks of Legal Persons and ArrangementsML/TF Risks of Legal Persons and ArrangementsLegal persons and arrangements are attractive to illicit actors because they can assist criminals and their associates to:
  • Hide the identify of the individuals directing a transaction or controlling an account;
  • Obscure the true nature and purpose of an account or transaction; and
  • Conceal the source of funds involved in a transaction or account.
Features and Controls that Mitigate RisksCertain rules governing the formation and operation of legal persons and arrangements can, if enforced, reduce the risk that they will be abused by illicit actors:
  • Formation processes that deter creation of shell companies;
  • Collection of beneficial ownership information for all legal persons and arrangements;
  • Requiring legal persons and arrangements to keep certain records and make regular reports;
  • Supervision and monitoring by appropriate government authorities.
Legal persons and

arrangements in the UAE

Identification of Beneficial OwnersAll legal persons and arrangements in the UAE (except those traded on a stock exchange, or owned by a company traded on a stock exchange) are required to identify all individuals who own or control at least 25% of the legal person or arrangements. Legal persons and arrangements must hold this information, and legal persons must also report it to their registrar. They must maintain and update this information when their beneficial owners change.
Legal Arrangements Under UAE LawUAE law allows for the creation of two types of legal arrangements: trusts and awqaf. Trustees and waqf supervisors must comply with certain requirements related to identifying the individuals party to the legal arrangement.
Economic Substance RequirementsAll companies operating in certain sectors must prove on an annual basis that they actually conduct substantive activities in the UAE by submitting certain required information to their registrar. Although this information is not directly available to LFIs, they should be aware of these requirements and can request the information from legal person customers.
Mitigating Risk: Requirements for LFls Risk-Based ApproachLFIs must take a risk-based approach in their AML programs and to individual customers. This means that they should assess all customers, including legal person/legal arrangement customers, to determine their degree of risk.

In assessing the risk of a legal person or arrangement customer, LFIs should consider at least the following factors:

  • The legal form of the customer;
  • The controls governing the formation of that type of customer;
  • The controls in place to ensure that the customer identifies and reports its beneficial owners;
  • Whether the customer is subject to recordkeeping and reporting requirements;
  • Whether the customer is appropriately supervised for its compliance with these requirements.
Customer Due DiligenceFor all customers, LFIs must perform Customer Due Diligence with the following components:
Customer Identification: For all legal person and legal arrangement customers, LFIs must collect the following information
  • The name [this may not apply for legal arrangements], Legal Form and Memorandum of Association;
  • Headquarters’ office address or the principal place of business; in addition, if the legal person or arrangement is a foreign entity, the name and address of its legal representative in the State;
  • Articles of Association or any similar documents, approved by the relevant authority within the State;
  • Names of relevant persons holding senior management positions in the legal person or legal arrangement.
Identification of Beneficial Owners: For all legal person and legal arrangement customers, LFIs must identify the following individuals:
  • For legal persons, all individuals who, individually or jointly, have a controlling ownership interest in the legal person of 25% or more. If no individual can be identified, the LFI must identify the individual(s) holding the senior management position(s) within the legal person customer.
  • For legal arrangements, the individuals acting as the settlor and the trustee (or anyone holding equivalent positions for non-trust legal arrangements), the beneficiaries or class of beneficiaries, and any other individuals in control of the legal arrangement.
Understand the Purpose of the Account and the Nature of the Customer's Business: LFIs must understand the business in which their customer engages as well as the reason for creating the account. The answers to these questions can have a significant impact on the risk the customer poses for the financial institution and therefore should be reflected in the customer risk rating.
Perform Ongoing Monitoring: For all customers, LFIs must ensure that the customer information on file is up to date and accurate, and that the customer's activities are in line with the expectations set at onboarding. If not, the customer risk rating may need to be changed.
Suspicious Transaction ReportingFor customers of all types, LFIs must report any behavior that they reasonably suspect may be linked to money laundering, the financing of terrorism, or a criminal offence. Please consult the CBUAE's Guidance on Suspicious Transaction Reporting for further information.
Implementation of TFSA legal person or arrangement that is not itself designated on a sanctions list may be owned by someone who is designated. LFIs should screen the beneficial owners of all legal person and legal arrangement customers against sanctions lists, and should freeze any accounts or transactions related to a legal person or legal arrangement that is more than 50% owned or controlled by a designated person.