Money Laundering in Dubai

Guide To Money Laundering in Dubai, And The Importance Of Dubai Financial Services Authority (DFSA)

One of the most important financial hubs in the United Arab Emirates and the Middle East, Dubai hosts a range of international business interests in its special economic zone: the Dubai International Financial Centre (DIFC). Established in 2004, the DIFC is home to hundreds of banking and financial institutions and has, since its inception, grown to become one of the top ten financial centers in the world. That profile also makes Dubai an attractive target for financial criminals seeking to exploit the city-state’s concentration of wealth. Unfortunately, this makes money laundering in Dubai and terrorist financing activities prevalant. 

To address the financial threats that it faces, the DIFC implements its own regulatory regime and is effectively a separate jurisdiction from the wider UAE. That regime is overseen by the Dubai Financial Services Authority (DFSA), the oversight body responsible for addressing money laundering and other financial crimes in the special economic zone. Accordingly, financial institutions operating in Dubai must be aware of the anti money laundering and counter financing of terrorism risks they face and how to comply with the relevant DFSA regulations.

What is the DFSA?

Established in 2004 under powers granted by Article 121 of the UAE Constitution, the Dubai Financial Services Authority is the DIFC’s financial regulatory agency. The DFSA has a mandate to protect the DIFC, and by extension Dubai’s economy, by detecting and preventing financial crimes and enforcing anti-money laundering and counter-financing of terrorism regulations. The DFSA’s mandate covers all financial services within the DIFC, including banking and credit services, Islamic finance, insurance, asset management, securities and investment funds.

Regulations Relating to Money Laundering in Dubai

Anti money laundering in Dubai is primarily based on UAE federal legislation, developed to meet the international AML/CFT standards set out in the recommendations of the Financial Action Task Force (FATF). Important acts of federal legislation governing AML in Dubai include: 

• Federal Law No. 4 of 2002, Concerning Combating Money Laundering and Terrorism Financing Crimes
• Federal Law No. 1 of 2004, Decree on Combating Terrorism Offences
• Federal Law No. 20 of 2018, On Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organizations

In addition to federal UAE-wide laws, the separate and complementary DIFC Regulatory Law 2004 imposes specific AML/CFT regulations on the special economic zone, under the jurisdiction of the DFSA. Article 7(1) of the Regulatory Law 2004 requires firms within the DIFC to comply with the obligations imposed under UAE federal law.

In order to operate in the DIFC, banks, financial institutions and other obligated entities must receive authorization from the DFSA and obtain a license.

DIFC and Dubai Money Laundering Compliance

In accordance with FATF recommendations, the DFSA requires firms in the DIFC to take a risk-based approach to money laundering in Dubai. In practice, that means they must develop an AML/CFT program that is proportionate to the money laundering risks that they face and includes the following measures and processes:

• Customer due diligence: Firms should put appropriate CDD measures in place to verify the identities of their customers and ensure they are being truthful about the nature of their business. Customers who present a higher money laundering risk should be subject to enhanced due diligence measures (EDD). 
• Transaction monitoring: Firms should monitor customer transactions and accounts for activity that could indicate money laundering, such as transactions exceeding a certain threshold, suspicious transaction patterns or transactions involving high-risk countries.
• Screening: Firms should screen their customers for adverse media and politically exposed person status as well as against relevant international sanctions lists.
• Compliance officer: Internal AML programs should be overseen by a compliance officer, also known as a money laundering reporting officer (MLRO), who has sufficient authority and expertise to carry out their role effectively. 

When firms within the DIFC detect suspicious activity, such as money laundering in Dubai, they should submit a suspicious activity report (SAR) to the UAE Central Bank and to the DFSA via a Supervised Firm Contact Form. 

AML rulebook: The DFSA issues an AML Rulebook to firms with specific modules concerning the application of AML/CFT regulations within the DIFC. The rulebook contains guidance on how to interpret AML/CFT legislation and how to implement the risk-based approach. All banking and financial institutions within the DIFC should be familiar with the details of the DFSA AML rulebook.

DFSA enforcement

When firms within the DIFC fail to comply with AML/CFT regulations, the DFSA has the power to conduct investigations into the offenses. The DFSA may seek a variety of evidence as part of that investigation, including obtaining accounts and records and interviewing employees under oath. 

Where firms are found to have fallen short of expected compliance standards, the DFSA has the power to impose punishments, including fines, license suspensions or revocations or administrative restructuring. Money laundering Dubai offenses may result in fines from between 10,000 to 1 million dirhams or prison sentences of up to 10 years.