Money Laundering or Hawala in the UAE
Money laundering or Hawala in UAE is the common term used to refer to how offenders disguise the source of money. Possession of the proceeds of criminal actions is hidden by making such profits seem to derive from a good source. The procedures by which criminally derived property could be laundered are wide-ranging.
The character of the products and services provided by the financial services sector (specifically, handling, controlling, and having cash and property belonging to others) means that the industry is exposed to abuse by money launderers. Money laundering offenses have similar features worldwide. You’ll find two essential components of a money laundering offense:
- The mandatory action of money laundering itself, i.e., the supply of financial services; and
- It is a necessary level of knowledge or intuition (either subjective or objective) relating to the supply of the funds or a client’s actions.
The action of laundering or hawala is committed in circumstances in which you were engaged in an arrangement (i.e., by supplying a service or merchandise). That arrangement calls for the proceeds of crime.
The relevant laws governing and penalizing money laundering in the UAE are Federal Decree-Law No. 20/2018 and supplemented by Federal AML Regulations. In the UAE, as in most jurisdictions, this is deemed a serious crime and can result in penalties such as imprisonment and substantial fines upon conviction. This post aims to help you understand what money laundering is, standard methods used by criminals, answers to frequently asked questions about Hawala operations, and how they are regulated in the UAE.
Here are Frequently Asked Questions About Money Laundering in UAE:
What is the purpose of money laundering/Hawala?
The purpose of money laundering is to get cash easily, no sweat and no hard work required. Instead of earning money in a legal way, the individual can twist the story and avoid the establishment with easy-flowing cash and no tax payment.
Money Laundering under Article 2 of the Federal Law No. 20/2018 provides:
“1-Any person, having the knowledge that the funds are the proceeds of a felony or a misdemeanour, and who wilfully commits any of the following acts, shall be considered a perpetrator of the crime of Money Laundering:
a-Transferring or moving proceeds or conducting any transaction with the aim of concealing or disguising their Illegal source.
b-Concealing or disguising the true nature, source or location of the proceeds as well as the method involving their disposition, movement, ownership of or rights with respect to said proceeds.
c-Acquiring, possessing or using proceeds upon receipt.
d-Assisting the perpetrator of the predicate offense to escape punishment.
2-The crime of Money Laundering is considered as an independent crime. The punishment of the perpetrator for the predicate offence shall not prevent his punishment for the crime of Money Laundering.
3-Proving the illicit source of the proceeds should not constitute a prerequisite to sentencing the perpetrator of the predicate offence.”
In sum, money laundering involves the process of illegally gaining money in the guise of being legally earned.
Are offenses effective at predicting money laundering?
Usually, differences involving the definitions can be summarized as follows:
- Differences in the severity of the offense are regarded as adequate to predicate an offense of money laundering. For example, in certain authorities, it’s understood that money laundering is an offense that could be punishable by one or more years of incarceration. In other authorities, the mandatory punishment could be three to five years of imprisonment; or
- The solution is determined by the meaning of the offense included inside the money laundering laws of special authority.
- Other financial offenses and tax evasion are treated by all the world’s most efficiently controlled authorities as predicate money laundering offenses.
Exactly why is money laundering prohibited in UAE, Dubai, Abu Dhabi and Sharjah?
The aim of money laundering is to profit from crime. The justification for the development of the offense is that it’s wrong for people and organizations to help offenders reap the benefits of the profits of an unlawful act or to facilitate the commission of such offenses by giving them financial services.
The procedures are wide-ranging. An individual or business deals with a variety of transactions, most involving earnings that were not laundered.
Money laundering in UAE is considered a procedure which occurs in three distinct phases.
- The substantive phase of the procedure, when the property is ‘washed’ and its possession and source is disguised.
- Integration, the final stage, where the ‘laundered’ property is reintroduced to the legitimate market.
- The truth is that the so-called phases often overlap; sometimes (for example, in instances of financial crimes), there isn’t any need for the profits of the crime to be ‘set’.
In the simplest terms, money laundering requires the transport of cash obtained from unlawful action into “legitimate” routes to disguise its illegal sources. In accordance with national law, money laundering happens when someone tries to hide or disguise the source, the place, the nature, the possession or the management of the proceeds of the unlawful action.
The cause of money laundering may appear clear: to conceal the source of cash. Those engaged in unlawful actions immediately become knowledgeable about either using misdirection regarding money’s source or concealing their real income and wealth. Obviously, flagging this as the supply of income will probably result in an instant investigation of the individual’s actions, but there’s a means to lawfully maintain it if one has made money!
Money laundering in UAE can range from straightforward to sophisticated strategies.
Structuring: To structure would be to take smaller sums of cash and deposit those, then buy bearer instruments, including money orders.
Smuggling: Smuggling cash into another authority, generally foreign, and depositing it in an offshore bank that has greater secrecy or less stringent enforcement of money laundering.
Cash-intensive companies: A company usually involved in receiving cash uses its accounts to deposit criminally and validly derived cash, maintaining it all as valid gains. As such, the company does not have any variable costs, so it’s difficult to find sales-price disparities. Examples are parking casinos, strip clubs, tanning beds, or buildings.
Commerce-established laundering: Under- or overvaluing invoices to disguise the movement of cash.
Shell businesses and trusts: Shell businesses and trusts disguise the real owner of the cash. Corporate vehicles as well as trusts, with respect to authority, need not reveal their true owners.
Bank capture: Offenders or money launderers purchase a controlling interest in a financial institution, usually in a foreign authority with money laundering controls that are poor, and transfer money through the bank without examination.
Casinos: A person purchases processors and walks right into a casino with cash, plays for some time, then cashes in the chips, requiring payment. The money launderer subsequently deposits the check into a bank account, maintaining it as gaming winnings.
Real estate: Real estate may be purchased by someone using profits that are illegal; the person then sells the house. Profits from your sale look to outsiders like income that is valid. Instead, the cost of the property is falsified; the seller agrees to your contract that underrepresents the worth of the house, and receives criminal profits to make up for the difference.
What is the Punishment for Money Laundering in UAE?
Money laundering in UAE is a crime due to its international importance; it’s really a combination of international and national law. Penalties can fall into four broad categories:
- Employment; and
- Civil Liability
It is an extremely serious violation that a natural person can potentially face, among other things, a fine or imprisonment. In the event that you or somebody you know is accused of money laundering, you need to seek legal counsel immediately. By hiring a lawyer, you will be set in a perfect place to minimize the effect of any resulting criminal sanctions or to fight these charges.
Some of the monetary fines under the AML are as follows:
- Generally, each of the punishments is more rigorous than under the Former AML Law.
- Supervisory Penalty under Article 14 of Federal Decree-Law No. 20/2018, of 50,000 to 5 million AED and bans on business activities, governance restrictions, arrests and license cancellation.
- Criminal Penalties of 100,000 to 5 million AED and jail up to ten years.
- Failure to report a Suspect Transaction will be punishable by incarceration or a fine of between 300,000 AED and 50,000 AED.
- Tipping a man who is inquiring about a Suspect Transaction will be punishable by incarceration of up to a year or a fine of between 100,000 AED and 10,000 AED.
- Violation of the demands of Airport Resolutions will be punishable by a fine or incarceration.
- Unlike the Former AML Law, the New AML Law controls the Funding of Unlawful Organizations, the Funding of Terrorism or the confiscation of the profits of money laundering.
In addition, AML provides that the amount profited illicitly in money laundering is material to the impact on the penalty of the offense.
The New AML Law has more severe punishments with the goal of fighting Money Laundering in UAE.
In addition, the law addresses the Funding of Unlawful Organizations, which takes a step forward, as money laundering is usually linked to the Funding of Terrorism or Unlawful Organizations as well as the Financing of Terrorism under Federal Law No. 7/2014.
The initiative of the UAE legislator suggests that financial crimes shall not be tolerated by the UAE and stresses that the UAE does not wish to be considered a safe haven for perpetrators of money laundering.