United Arab Emirates
2021 has seen the UAE implement a raft of measures to enhance its AML and CTF capabilities, including making key amendments to AML legislation, the issuance of new joint agency guidance on AML and CTF compliance, and the establishment of a new federal AML/CTF agency and a money laundering specialist court in Dubai. These actions have implications for both the UAE’s onshore jurisdiction and its key offshore jurisdictions including the Dubai International Financial Centre (the DIFC) and the Abu Dhabi Global Market (the ADGM). These developments place a key focus on expanding the scope of the UAE’s AML/CTF regime and increasing the monitoring of high-risk sectors for financial crime (including emerging areas of the financial services industry such as virtual assets).
There have also been developments which have aimed to enhance the UAE’s anti-bribery and corruption compliance credentials, make whistleblowing protections clearer and make corruption and compliance reporting easier.
The pace of regulatory change and development (in particular in the area of combatting financial crime) is likely to continue, and so it remains of crucial importance for businesses to have robust systems and controls in place to understand, adapt to and ensure ongoing compliance with the quickly changing and increasingly complex regulatory environment in the UAE.
- Significant law reforms
- Investigations – key developments/trends
- Cross-border coordinated enforcement activity
- Sector focus
- Predictions for 2022
The Financial Action Task Force’s (FATF) April 2020 Mutual Evaluation Report (MER) on the UAE identified a number of areas where the UAE’s framework for combatting financial crime required significant improvement. In 2021 the UAE consequently took actions to embed and enhance the practical effectiveness of the UAE’s AML/CTF regime.
Expanded AML Laws
Amendments made by the Amendments to Federal Decree 20 of 2018 (the AML Law) significantly expand the scope and application of the AML Law. They:
- broaden the definition of “funds” (which can be deemed as proceeds of crime) to include economic resources of any type including natural resources (such as oil and gas), bank credits, cheques, payment orders, shares, bonds, securities, bills and letters of credit and virtual assets of any kind; and
- introduce definitions of “virtual assets” and “virtual assets service providers” (VASPs), and bring certain virtual assets and VASPs within the scope of the AML Law. VASPs must now comply with AML/CTF compliance measures, such as customer due diligence and suspicious activity reporting.
The amendments make it easier for enforcement authorities to combat money laundering and terrorist financing activity in respect of a broader range of criminal property.
New AML and CTF guidelines for businesses
New joint AML/CTF guidelines were issued by the UAE Central Bank, the Dubai Financial Services Authority (the DFSA) and the ADGM’s Financial Services Regulatory Authority (the FSRA) (the Guidelines) in June 2021.
The Guidelines more clearly explain AML/CTF regulatory obligations and expectations for Financial Institutions and Designated Non-Financial Businesses and Professions (DNFBPs) (such as real estate professionals, precious metal dealers and legal services providers) which fall within the scope of the UAE’s AML/CTF regime. The Guidelines state what authorities consider to be good and bad practice in respect of key aspects of AML/CTF compliance such as governance and culture, policies and procedures, customer due diligence and suspicious activity reporting.
The UAE Central Bank issued the “Anti-Money Laundering and Combatting the Financing of Illegal Organisations Guidelines for Financial Institutions” (the CB Guidelines). The CB Guidelines provide detailed guidance on the measures that financial institutions are required to implement in order to comply with legal and regulatory requirements. The CB Guidelines highlight that a risk-based approach is central to the effective implementation of applicable AML/CTF legislation and that a key requirement for taking an effective risk-based approach is that a financial institution properly understands the money laundering and terrorist financing risks to which it is exposed.
New AML/CTF guidance for licensed exchange houses (the LEH Guidelines) was issued in November. The LEH sector is considered a priority due to its exposure to cash and cross-border transactions. The LEH Guidelines require licensed exchange houses to conduct a regular risk assessment that covers all commensurate risks to their exchange business.
New regulatory frameworks for virtual assets
In 2019, the ADGM was the first jurisdiction in the world to introduce a bespoke framework to regulate virtual assets. In 2021, the UAE took further steps, which have implications for its AML/CTF regime.
- In September 2021, the UAE National Committee for Combatting Money Laundering and Financing of Terrorism and Illegal Organisations (NAMLCFTC) announced the adoption of a regulatory framework for virtual assets in the UAE. The UAE Central Bank and the Securities and Commodities Authority will oversee its implementation. The framework is a first step in providing comprehensive regulation of virtual assets and will improve safeguards in the financial system to protect investors from money laundering and terrorist financing risks.
- In October 2021, the DFSA launched a new regulatory framework for investment tokens issued or traded within the DIFC. This framework will bring VASPs who provide investment tokens within the scope of the DFSA licensing regime and make them subject to the AML/CTF requirements which apply to DFSA-authorised firms. Our expectation is that, in 2022, the DFSA will expand its regulatory perimeter to include a wider range of virtual assets.
New specialist money laundering court in Dubai
It is perhaps no surprise, given all these developments, that the Dubai Courts have announced a new specialist court for money laundering and tax evasion crimes. It will be staffed with judges with specialist money laundering experience.
New anti-bribery and corruption rules
2021 has seen further developments aimed at enhancing the UAE’s anti-bribery and corruption compliance credentials.
The Abu Dhabi Accountability Authority (ADAA) is the independent Abu Dhabi government authority responsible for promoting the principles of accountability, transparency and integrity across the Abu Dhabi government. The ADAA has power of oversight over all Abu Dhabi government departments and agencies and corporate entities which are wholly or partially owned by the Abu Dhabi state.
In March 2021, the ADAA issued new Anti-Corruption Regulations which create powers for the ADAA to investigate bribery and corruption, introduce new reporting procedures and provide whistleblower protections for employees of government agencies and entities subject to the ADAA’s oversight.
Whistleblowing regime developments
The UAE has taken further steps to develop and embed protections for whistleblowers in both its onshore and offshore jurisdictions and to make whistleblower reporting easier, following the introduction of a federal whistleblowing protection law in 2020.
UAE Central Bank whistleblowing portal
In June 2021 the UAE Central Bank set up a whistleblowing portal on its public website to allow Central Bank employees and third parties to report any corruption, fraud, undisclosed conflicts of interest, ethical violations or non-compliance with applicable laws and regulations by Central Bank employees, contractors or representatives. As the UAE’s whistleblowing regime becomes more sophisticated, we expect businesses will come under increased pressure to put in place practical measures to ensure misconduct can be effectively, safely and anonymously reported.
Proposed new whistleblowing rules for certain entities
On 7 July 2021, the DFSA issued a consultation paper seeking public comment on proposals to introduce whistleblowing measures for DFSA-authorised firms, DNFBPs and other regulated entities operating within the DIFC. The proposed whistleblowing measures introduce various requirements and protections which build on existing requirements and aim to move towards a more consistent approach to reporting and recording misconduct.
The consultation closed on 7 September 2021. Consequential amendments to the DIFC Regulatory Law and the DFSA’s Rulebook and Sourcebook are expected in 2022.
The UAE Cabinet approved the establishment of the UAE Executive Office of Anti-Money Laundering and Countering the Financing of Terrorism (the EO) in February 2021. The EO reports directly to the Higher Committee overseeing the UAE’s national AML/CTF strategy and is chaired by the UAE’s Minister of Foreign Affairs and International Cooperation. The EO’s responsibilities include actively increasing information sharing between law enforcement agencies, supervisors, and the private sector. We can expect to see this resulting in increased enforcement.
In November 2021, the UAE announced its first ever comprehensive federal data protection law. This means that UAE businesses will need to significantly adapt how they interact with personal data. The new law will have significant implications for how businesses conduct investigations and report information to government authorities. For more detail, see this article on the new UAE data protection law.
Cross-border cooperation has increased significantly.
Perhaps the most widely reported development in this area was the signing of a peace treaty between the UAE and the State of Israel on 15 September 2020, as part of the Abraham Accords. The peace treaty provides for the normalisation of relations between the two countries and specifically contemplates the execution of further bilateral agreements aimed at increasing cooperation on a raft of issues such as legal matters and information sharing. We expect to see further cooperation in 2022 as the peace treaty takes full effect.
The UAE and the UK Governments entered into a new partnership to tackle illicit finance. The partnership will bolster law enforcement by enhancing intelligence sharing and joint operations between the UK and UAE against serious and organised crime networks.
The DFSA is continuing to work closely with its counterparts across the globe. In addition to the 108 bilateral and six multilateral memoranda of understanding the DFSA has signed with other regulators, there are ongoing discussions with Brunei, India, Israel and Italy to put similar arrangements in place. During the past year, the DFSA received 81 regulatory requests for information and assistance from other regulators, while the DFSA made 109 requests to fellow regulators for information.
The EO will also play a key role in promoting the coordination of cross-border enforcement activity and information sharing. The EO’s responsibilities include improving national and international coordination and cooperation on AML/CTF issues at the policy and operational levels. The EO will also tackle money laundering and terrorist financing threats by working with regional and international groups, such as the FATF.
There has been a flurry of activity in 2021 to expand the UAE’s AML/CTF regulatory regime to cover certain types of virtual assets and virtual asset services providers (VASPs) to bring the UAE closer in line with the FATF’s 2018 and 2019 recommendations regarding virtual assets regulation and to promote the UAE as an attractive market for virtual asset trading (see above).
Compliance monitoring and enforcement activity will increase as the UAE’s AML/CTF regime matures
Monitoring practical AML/CTF compliance by businesses will become a higher priority for UAE enforcement authorities as the AML/CTF regime expands and matures. We expect to see higher levels of financial crime‑related enforcement activity in 2022 and more significant penalties where non-compliance is identified.
Businesses (and their in-house legal teams) should focus on being able to demonstrate effective compliance with both strict AML/CTF legal requirements and the more detailed AML/CTF practical guidance issued by the UAE authorities this year (see above on the Guidelines, the CB Guidelines and the LEH Guidelines).
We expect to see further steps taken in 2022 to broaden both the onshore and offshore AML/CTF regulatory regimes to capture a wider range of virtual assets and the businesses that provide them. Accordingly, VASPs should keep a close eye on regulatory developments in respect of virtual assets to ensure that they do not inadvertently fall afoul of regulatory requirements which do not currently apply to them but which may apply to them from 2022.
We also expect to see the UAE take steps to further enhance and embed whistleblower protections. As expectations around, and monitoring of, whistleblowing cases and procedures increase, businesses will need to ensure that they have adequate procedures in place to enable their employees and other stakeholders to effectively, safely and anonymously report misconduct.
This article is part of the Allen & Overy Cross-border White collar Crime and Investigations Review. Please visit the review homepage for our overviews and insights in other jurisdictions.
Yacine Francis frequently represents banks and other financial institutions, often adeptly advising on corporate investigations within the financial services sector. Peers comment: 'He is technically excellent, client-friendly and very well thought of.'
Chambers Global 2021 – UAE (Dispute Resolution)
Particularly respected for its presence in the DIFC Courts, notably in financial services and white-collar crime cases.
Chambers Global 2021 – UAE (Dispute Resolution)
In addition to its experience handling financial services and securities disputes, the team is further noted for its strong track record in construction matters and corporate investigations.
Chambers Global 2020, Corporate Investigations, Global-wide
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