Money Laundering or Hawala in UAE, Laws & Punishments

How are Hawala and Money Laundering defined under UAE Laws?

According to the UAE’s legal and regulatory framework, Hawala and Money Laundering are defined as follows:

Hawala: The UAE Central Bank defines Hawala as an informal money transfer system that operates outside of conventional banking channels. It involves the transfer of funds from one location to another through service providers known as “hawaladars” without any physical movement of currency.

Money Laundering: Money Laundering is a criminal offense under UAE Federal Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism. It is defined as the process of concealing or disguising the true nature, source, location, disposition, movement, or ownership of funds or assets derived from illegal activities.

Common examples include: structuring/smurfing, shell companies, real estate transactions, trade-based laundering, casino operations, cryptocurrency transactions, bulk cash smuggling, and misusing Hawala networks.

The UAE takes a strong stance against these activities, and the legal consequences for individuals or entities involved in Hawala or Money Laundering can be severe. It is crucial to comply with the UAE’s anti-money laundering regulations and conduct financial transactions through legitimate and authorized channels.

When is Hawala Legal or Illegal in the UAE?

Hawala, the informal money transfer system, is not inherently illegal in the UAE. However, it is an unregulated and informal channel, which can potentially be exploited for illicit activities, including money laundering and financing of terrorism. The legality of Hawala transactions in the UAE depends on the source of funds and the intended purpose.

If Hawala is used to transfer funds derived from legal sources and for legitimate purposes, it may be considered legal. However, if it is utilized to transfer funds obtained through illegal means or for unlawful activities, such as money laundering, terrorism financing, or tax evasion, it becomes illegal under UAE laws. Authorities closely monitor Hawala networks to ensure compliance with anti-money laundering and counter-terrorism financing regulations.

It’s important to note that while Hawala itself is not illegal, the UAE has strict regulations in place to combat the misuse of informal money transfer systems for illicit purposes. Individuals and businesses are advised to exercise caution and conduct financial transactions through licensed and regulated channels to avoid potential legal consequences.

Types of Money Laundering cases in the UAE

The UAE has witnessed various types of money laundering cases involving individuals and entities engaged in illicit activities. Here are some common types of money laundering cases observed in the UAE:

1. Real Estate-Related Money Laundering: This involves the purchase and sale of properties using funds derived from illegal sources, such as drug trafficking, fraud, or corruption.
2. Trade-Based Money Laundering: This type of laundering involves the misrepresentation of the price, quantity, or quality of goods in import/export transactions to move illicit funds across borders.
3. Bulk Cash Smuggling: This involves the physical transportation of large amounts of cash across borders, often concealed in vehicles, luggage, or other means, to evade reporting requirements and disguise the source of funds.
4. Shell Company-based Money Laundering: In this type of case, individuals or organizations establish fake or shell companies to disguise the true ownership and source of funds, and provide a legitimate-appearing cover for illicit transactions.
5. Misuse of Informal Value Transfer Systems (IVTS) like Hawala: Certain cases involve the exploitation of informal money transfer systems like Hawala to move illicit funds globally, taking advantage of the lack of a traditional financial trail.
6. Cryptocurrency-based Money Laundering: With the increasing use of cryptocurrencies, some cases involve the use of digital assets to conceal the movement and origin of illegal funds, exploiting the anonymity and decentralized nature of these transactions.
7. Laundering through Casinos and Gaming Establishments: In some instances, casinos and gaming establishments have been used to exchange large amounts of cash for chips or other monetary instruments, effectively disguising the source of the funds.

It’s worth noting that money laundering schemes can be complex and evolve over time, often involving a combination of different methods and channels. Effective anti-money laundering measures, robust regulatory frameworks, and international cooperation are crucial in combating these criminal activities in the UAE.

What is the Anti Money Laundering Law in UAE?

The Anti-Money Laundering Law in the UAE is governed by Federal Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism. This comprehensive law defines and criminalizes money laundering activities, outlines strict measures to combat terrorism financing, and establishes a robust regulatory framework.

The key aspects of the Anti-Money Laundering Law in the UAE include:

1. Definition of Money Laundering: Clearly defines money laundering as concealing or disguising funds derived from illegal activities.
2. Reporting Obligations: Requires financial institutions and businesses to implement AML/CFT measures, including customer due diligence, transaction monitoring, and reporting suspicious activities.
3. Penalties and Sanctions: Imposes severe penalties, including fines and imprisonment, for non-compliance.
4. Competent Authorities: Mandates the establishment of authorities like the Financial Intelligence Unit (FIU) to oversee AML/CFT efforts.
5. International Cooperation: Facilitates cooperation and information sharing with other countries in the fight against money laundering and terrorism financing.

What are the Maximum Penalties for Money Laundering Convictions in the UAE?

The UAE’s Anti-Money Laundering Law imposes severe penalties for individuals and entities convicted of money laundering offenses. The maximum penalties for money laundering convictions in the UAE are as follows:

1. Imprisonment:
   • For individuals: Up to 10 years in prison.
   • For managers or representatives of legal entities: Up to 15 years in prison.
2. Fines:
   • For individuals: A fine not exceeding AED 5 million (approximately $1.36 million).
   • For legal entities: A fine not exceeding AED 50 million (approximately $13.6 million).

In addition to these penalties, the convicted individuals or entities may also face:

• Confiscation of funds, properties, or instrumentalities related to the money laundering offense.
• Dissolution or temporary or permanent closure of the legal entity involved in the offense.
• Publication of the court’s judgment in two local daily newspapers at the expense of the convicted party.

It’s important to note that these penalties represent the maximum punishments prescribed by the law. The actual sentence may vary depending on the specific circumstances of the case, the severity of the offense, and other mitigating or aggravating factors.

The UAE takes a strict stance against money laundering activities, and these severe penalties reflect the country’s commitment to deterring and combating financial crimes within its jurisdiction.

Are there any Special Provisions for Money Laundering linked to Organized Crime or Terrorism Financing?

Yes, the UAE’s Anti-Money Laundering Law includes special provisions for money laundering offenses linked to organized crime or terrorism financing:

1. Harsher Penalties for Organized Crime: If a money laundering offense is committed within the framework of an organized criminal group, the maximum imprisonment penalty shall be increased by a specified proportion.
2. Criminalizing Terrorism Financing: The law criminalizes the financing of terrorism and terrorist organizations. Any person who willfully collects, transfers, or provides funds or property with the intention of using them for terrorist activities can face lengthy imprisonment and substantial fines.
3. International Cooperation: The law facilitates international cooperation and information sharing with other countries and jurisdictions in combating money laundering, organized crime, and terrorism financing. This includes provisions for extradition and mutual legal assistance.
4. Targeted Financial Sanctions: The UAE has implemented targeted financial sanctions against individuals and entities designated by the United Nations Security Council or other relevant international organizations as being involved in terrorism financing or associated with terrorist organizations.

These special provisions underscore the UAE’s commitment to combating the financing of terrorism and organized crime, which pose significant threats to national and global security. The severe penalties and enhanced international cooperation measures aim to disrupt and dismantle these illegal activities and their financial networks.

Key AML Compliance Requirements for Businesses in UAE

The UAE’s Anti-Money Laundering Law imposes several compliance requirements on businesses operating within the country. Here are the key AML compliance requirements for businesses in the UAE:

1. Registration: Mandatory registration with goAML portal for FIs and DNFBPs.
2. AML Compliance Officer: Appoint a dedicated officer to oversee AML program.
3. AML Program: Establish comprehensive policies and procedures for KYC, transaction monitoring, risk management, and reporting.
4. Risk-Based Approach: Tailor AML program to business size, nature, and inherent risks.
5. Customer Due Diligence (CDD): Conduct thorough KYC checks, including identity verification and beneficial ownership identification.
6. Enhanced Due Diligence (EDD): Apply additional measures for higher-risk customers like PEPs.
7. Transaction Monitoring: Monitor transactions for suspicious activities.
8. Suspicious Activity Reporting: Report suspicious transactions to Financial Intelligence Unit (FIU).
9. Record-Keeping: Maintain customer and transaction records for at least 5 years.
10. Employee Training: Provide regular AML/CFT training to employees.
11. Independent Audit: Conduct regular audits of AML/CFT program.
12. Cooperation with Authorities: Cooperate with authorities and provide required information.

Failure to comply with these requirements can result in severe penalties, including fines, imprisonment, and potential revocation of licenses or business closure. Businesses operating in the UAE must prioritize AML compliance to mitigate risks and maintain the integrity of the financial system.

What are Red Flags in AML?

Red flags refer to unusual indicators that signal potentially illegal activity requiring further investigation. Common AML red flags relate to:

Suspicious Customer Behavior

• Secrecy about identity or unwillingness to provide information
• Reluctance to provide details about nature and purpose of business
• Frequent and unexplained changes in identifying information
• Suspicious attempts to avoid reporting requirements

High-Risk Transactions

• Significant cash payments without clear origin of funds
• Transactions with entities in high-risk jurisdictions
• Complex deal structures masking beneficial ownership
• Abnormal size or frequency for customer profile

Unusual Circumstances

• Transactions lacking reasonable explanation/economic rationale
• Inconsistencies with customer’s usual activities
• Unfamiliarity with details of transactions made on one’s behalf

Red Flags in UAE’s Context

The UAE faces specific money laundering risks from high cash circulation, gold trading, Real estate transactions etc. Some key red flags include:

Cash Transactions

• Deposits, exchanges or withdrawals over AED 55,000
• Multiple transactions below the threshold to avoid reporting
• Purchases of cash instruments like travelers checks without travel plans
• Suspected involvement in counterfeiting in UAE

Trade Finance

• Customers displaying minimal concern about payments, commissions, trade documents, etc.
• False reporting of commodity details and shipment routes
• Significant discrepancies in import/export quantities or values

Real Estate

• All-cash sales, especially via wire transfers from foreign banks
• Transactions with legal entities whose ownership can’t be verified
• Purchase prices inconsistent with valuation reports
• Concurrent purchases and sales between related entities

Gold/Jewelry

• Frequent cash purchases of high-value items for assumed resale
• Reluctance to provide proof of origin of funds
• Purchases/sales without profit margins despite dealer status

Company Formation

• Individual from high-risk country looking to quickly establish local company
• Confusion or reluctance to discuss details of planned activities
• Requests to help conceal ownership structures

Actions in Response to Red Flags

Businesses should take reasonable measures upon detecting potential AML red flags:

Enhanced Due Diligence (EDD)

Gather further information about the customer, source of funds, nature of activities etc. Additional proof of ID may be mandated despite initial acceptance.

Review by Compliance Officer

The company’s AML compliance officer should assess the situation’s reasonableness and determine suitable actions.

Suspicious Transaction Reports (STRs)

If activity seems suspicious despite EDD, file an STR to the FIU within 30 days. STRs are required regardless of transaction value if money laundering is knowingly or reasonably suspected. Penalties apply for non-reporting.

Risk-Based Actions

Measures like enhanced monitoring, restricting activity, or exiting relationships may be considered depending on specific cases. However, tipping off subjects regarding filing of STRs is legally prohibited.

Importance of Ongoing Monitoring

With evolving money laundering and terrorist financing techniques, ongoing transaction monitoring and vigilance are crucial.

Steps like:

• Reviewing new services/products for vulnerabilities
• Updating customer risk classifications
• Periodic evaluation of suspicious activity monitoring systems
• Analyzing transactions against customer profiles
• Comparing activities to peer or industry baselines
• Automated monitoring of sanctions lists and PEPs

Enable proactive identification of red flags before issues multiply.

Conclusion

Understanding indicators of potential illicit activity is vital for AML compliance in the UAE. Red flags related to unusual customer behavior, suspicious transacting patterns, transaction sizes inconsistent with income levels, and other signs listed here should warrant further investigation.

While specific cases determine the appropriate actions, dismissing concerns out of hand can have serious consequences. Besides financial and reputational repercussions, the UAE’s stern AML regulations impose civil and criminal liability for non-compliance.

Hence it is essential for businesses to implement adequate controls and ensure staff are trained to recognize and respond appropriately to Red Flag Indicators in AML.