Money laundering is a major problem for financial institutions around the world. Despite efforts at deterrence, cases of money laundering continue to climb, causing great risk to banks and their customers. Although it is much less of an issue in the United Arab Emirates (UAE) than in many other countries, the Central Bank of the UAE (CBUAE) has implemented laws to prevent such activities and terrorist financing, such as the Federal Law on Combating Terrorism Offenses and the Federal Law Regarding Criminalization of Money Laundering.
In response to the rising amount of money laundering cases in the Middle East, UAE banks have begun to reevaluate their AML policies and procedures to ensure that they are compliant with the laws and regulations of the CBUAE. According to Article 17 of CBUAE Circular No. 24/2000, the bank’s Compliance Officer is responsible for providing training to all staff members who are responsible for handling cash or overseeing accounts. But while regulatory documents and laws may insist that the training is necessary or designate responsibility to a bank’s compliance official, it often does not contain instructions for what the training should cover or how to implement it.
To meet the requirements of the CBUAE, UAE banks can take constant and consistent measures to guard their funds and the funds of their customers against terrorist financing by implementing training. UAE banks can best protect themselves and their customers from the potential risk of money laundering by becoming familiar with CBUAE legislature, recognizing the signs of money laundering in the UAE and implementing a certified AML training program.
The UAE and the CBUAE have issued and implemented laws in order to control the threat posed by money laundering and terrorist financing. The following laws each address a different area of AML and protect the UAE from the risk of money laundering and terrorist financing.
• The Federal Law Concerning Promulgating Penal Code – summarizes a penalty for any perpetrator who is not aware the property that they have obtained originated from unlawful or criminal means.
• Federal Law Regarding Criminalization of Money Laundering – gives further definition to the crime of money laundering and provides the means to freeze criminal assets, such as bank accounts, that are related to money laundering.
• Federal Law on Combating Terrorism Offenses – defines elements and actions of terrorism offenses and penalties for violations. The Law also allows all proceeds that have resulted in a criminal offense to be confiscated.
Over the past decade, governments and central banks throughout the world have increased the pressure on banks and other financial institutions to place tighter control on their financial systems. Because of the UAE’s position as a major financial hub in the Middle East, this causes extreme vulnerability of UAE financial institutions to money laundering crimes. In 2009 alone, the UAE experienced a staggering 1,729 cases of money laundering.
As the industry evolves, UAE banks should implement an AML training system to greatly reduce the amount of risk and to help employees understand how such training prevents risk. It is important, therefore, for banks in the UAE to use a variety of risk management practices and tools.
As money laundering continues to become prominent in the UAE, informal banking that is functioning without training still remains unregulated. Rather than taking an advanced strategic approach to training, banks have focused on tools, such as risk mitigation and risk elimination. These tools prove to be evasive and not nearly as effective as a certified, customized training program from an accredited training provider.
The Bank Secrecy Act (BSA)
Any UAE banks working with the United States in any capacity must also be trained on the US Bank Secrecy Act (BSA) to supplement any other AML training. The BSA was enacted to help detect and prevent money laundering. The purpose of the BSA is to identify and detect financial crimes. As part of the BSA, all financial institutions are required to fulfill certain requirements such as reporting large currency transactions which exceed $10,000, reporting suspicious activity and implementing a BSA compliance program.
Basel II provides recommendations on banking laws and regulations, created to establish an international standard that can be used when creating regulations. Basel II generates the ability to measure and monitor risk and is a key tool for the safety of UAE banks. It is also vital in ensuring the competitiveness of UAE banks as Basel II becomes fully implemented and practiced at financial institutions across the world. As we enter a transitional period within the banking industry, there is a crucial need for more skilled professionals in risk management in the UAE.
It is the responsibility of all banks operating in the UAE to ensure that every employee is properly trained in Anti Money Laundering. The CBUAE is required to guide banks in their methods of training to fight money laundering, however it is the responsibility of the bank to implement and monitor the training. AML training must be mandated by bank management in order to manage risk as cases of money laundering continue to rise and pose a threat to banks across the UAE.