More needed to curb money laundering in UAE

Geography and demography pose specific challenges, according to an International Monetary Fund report.

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ABU DHABI // More needs to be done to standardise customs laws and enforcement across the Emirates to curb money laundering, the Federal Customs Authority (FCA) acknowledged yesterday.
The statements followed the publication last week of an International Monetary Fund (IMF) report that suggested the UAE expand the reach of its anti-money-laundering laws and give greater powers and independence to the enforcement agencies who investigate suspicious financial transactions. It also found that the rigour and quality of customs varied considerably from emirate to emirate.
Mohammed al Mehairi, the FCA director general and a member of the National Committee for Anti-Money Laundering, said policymakers in his agency were working to set nationwide standards for customs in line with IMF recommendations.
"What we're doing is trying to build the capacity within each customs administration to do their job as best as possible," said Mr Mehairi. "Because we're dealing with independent customs administrations we're working on minimum requirements for all of them to meet. It's not feasible for every emirate to be on the same level as Dubai, but we need to make some minimum requirements."
The Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism, evaluated the UAE against 40 recommendations to counter money laundering and nine recommendations to discourage financing for terrorists. While noting improvements since its first report on the issue in 2004, the IMF assessors advised UAE customs officials to apply the same rules regarding the import or export of large amounts of cash to negotiable instruments such as personal cheques, travellers cheques and valuable commodities.
Mr Mehairi said demography and geography posed unique challenges to the Emirates' fight against money laundering. Most visitors to the UAE come from less-developed countries with unsophisticated financial systems. As a result, the UAE is a largely cash-based society - which complicates efforts to restrict money laundering.
"We explained to [the IMF] and they understood. We are unique in that people are still dealing with cash in nearby countries," he said. "They still don't have a proper banking system in their countries, so they are dealing with cash all the time."
The IMF report also advised the UAE to expand its list of "predicate offences" - the serious crimes, such as drug-dealing and prostitution, that are the origins of laundered cash. According to an IMF source, certain offences, including racketeering, human trafficking and insider dealing, while dealt with as serious crimes in the UAE, do not automatically trigger money-laundering charges. Complying with the IMF's recommendations, according to the report, might require the UAE to change some of the laws governing financial transactions and to standardise enforcement across the emirates.
"Implementation of the new standards in the UAE is largely dependent on having a robust legal framework in place which contains the key elements in law, regulation or other enforceable means," the report said. "Unfortunately, the good intentions of the authorities to implement measures consistent with the latest recommendations are hampered by inadequate and antiquated laws."
While acknowledging the UAE's efforts to improve its anti-money-laundering regime, the IMF assessors cited lax regulations for financial institutions to verify the identities of their customers - a practice known as customer due diligence - as a weakness in existing laws.
In response to the IMF's criticism, the Central Bank tightened those restrictions last month, when it ordered small financial institutions, such as money exchanges, to register the details of customers who send money in excess of Dh2,000 (US$544), a marked decrease from the previous cap of Dh40,000. The rules have not changed for banks, however, whose customers are still allowed to wire money up to the higher threshold without revealing details of their identity. The IMF recommends identity checks for transactions that exceed $1,000.
Sultan al Suwaidi, the governor of the Central Bank, said in an interview last month that the UAE had already implemented most of the measures recommended by the IMF.
"This is because the awareness of banks is increased, the awareness in society is increased and appreciation for these efforts is increasing," he said.
Abdulrahim al Awadi, the head of the anti-money-laundering and suspicious-cases unit at the Central Bank, declined to comment on the assessment.
The report also complained that the UAE's various emirates and free zones lacked unifying legal regulations about money laundering. While reporting requirements and enforcement in the Dubai International Financial Centre, the UAE's financial free zone, were more consistent with the IMF's recommendations, the assessment criticised uneven regulation in the domestic market and suggested that UAE authorities "ensure that prosecution of the money-laundering offence is more fully implemented in the emirates beyond Dubai".
To date, according to the report, authorities have only prosecuted two money laundering cases outside Dubai.
The report also criticised a dearth of "meaningful statistics" on financial crimes and the lack of regulations on the domestic securities and insurance markets which remained vulnerable to money launderers.
But Nigel Morris-Cotterill, the head of the Anti Money Laundering Network, said the recommendations were an example of the "square peg, round hole" thinking.
"What we have to realise is that for different countries and different states there are different stages in developing counter money-laundering measures," he said. "To expect someone who has recently come to the party to have the full development of the latest principles is unrealistic."
Meanwhile, the report praised the Government's closer attention to hawala, the informal system for transferring money across borders. Since the September 11 attacks, the global hawala system has attracted scrutiny as a potential source of finance for terrorists. The UAE has added reporting requirements to what was once an almost entirely free remittances system. Since 2002, more than 260 hawaladars have registered their businesses, and more than 100 applications are pending.