A detailed analysis of the AML/CFT requirements for lawyers, notaries, and legal professionals in the UAE

AML/CFT Requirements for lawyers, notaries, and legal professionals in the UAE

Earlier, lawyers, notaries, and other legal professionals were not required to comply with AML requirements. FATF recognized the legal profession as one of the gatekeepers for money laundering. However, later, there were concerns about using gatekeepers as financial intermediaries by money launderers to launder illicit money. 

Lawyers, notaries, and other legal practitioners have high exposure to money laundering risks because of the nature of their jobs. Some of the reasons why the ML/FT risks are higher for legal professionals are:

  • Association with lawyers adds a touch of legitimacy to the transaction
  • Lawyers handle large amounts of money that are attractive to the money launderers
  • Financial criminals and money launderers abuse the client accounts of law firms
  • Law firms have a relaxed attitude towards identifying risks to their firm
  • Their activity of establishing trusts and companies has high chances of money laundering

Here, in this blog, we shall cover the various red flags of ML/FT that legal practitioners must be aware of. We shall also include the AML/CFT regulations and requirements that they must comply with.

Suspicious transactions in the legal profession that raise a concern for money laundering

Following are some of the suspicious transactions that raise a concern for money laundering or terrorism financing in the case of legal professionals:

  • The client conceals information about identity, beneficial owner, and source of funds in any transaction
  • The client communicates only through online means or uses an unknown or unrelated intermediary to communicate
  • The client provides false documents or no documents for the execution of transactions
  • The client has past criminal records in terrorism financing or money laundering, or any other financial crime 
  • The client is a PEP or belongs to a high-risk country or with an office in a country under the Sanctions list of various countries or international organizations
  • The funding of the transaction is unusual and not aligned with the client’s profile or general nature of transactions 
  • The transactions are carried out with no logical reason in terms of legal, commercial, taxation, or financial sense
  • The source of funds is either from an unrelated third party, or any of the high-risk countries, or a country with no logical connection with the client
  • The payments to and from are happening to multiple bank accounts or foreign bank accounts which are being used without any office or branch in that country
  • The transaction with the client is unusual in terms of inconsistency with the size, business type, value, activity of the client, frequency of dealing, or manner of execution
  • The client is unaware of the transaction’s size, nature, and purpose of engaging in it
  • There are frequent changes in the organizational structure of the client’s business to make it more complicated without any legitimate reason or regular changes in the management team
  • The client does not have the required proofs for previous transactions, operations of the company, or presence in different geographies
  • The client’s company has a presence in many countries, with which there is no logical association or no activities are being carried out from that location

To save the legal professionals from these suspicious transactions, the UAE government introduced AML/CFT regulations. Lawyers, notaries, and all types of legal practitioners must abide by these regulations to reduce money laundering risks. 

AML regulation for the legal profession in UAE

Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations is the primary law for AML in UAE. The Cabinet Decision No. 10 of 2019 concerning the Implementing Regulation of this Decree-Law applies this law to all types of legal professionals and practitioners. So, you must comply with its requirements and provisions to fight money laundering and terrorism financing.

The Cabinet Decision provides a list of Designated Non-Financial Businesses and Professions (DNFBPs) that includes lawyers, notaries, and other legal practitioners. These define the procedures that lawyers must implement to identify and assess ML/FT risks. These require lawyers to implement CDD measures and sufficient internal controls and procedures.

The AML/CFT requirements also require legal professionals to execute indicators to identify and report suspicious transactions. All these measures will ensure the mitigation of risks of any involvement in illicit money transactions. These indicators will allow legal practitioners to carry out their normal activities safely and securely. 

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AML/CFT compliance requirements for real estate brokers and agents in UAE

Lawyers, notaries, and legal professionals must comply with the following requirements under the AML regulations of UAE:

Understand possible ML/FT risk exposure

Legal professionals must adopt a risk-based approach to understand their ML/FT risks and implement relevant measures. These risks will be different and unique for each firm or individual. The chances depend on the type of services, geographies of operation, and client base of the legal practitioner.

Legal practitioners engage in some activities in their business that are more vulnerable to ML/FT risks. It would be best if you were wary of ML/FT risks while carrying out these activities. These activities include:

  • Purchase and sale of real estate
  • Managing bank, savings, or securities accounts
  • Forming and managing legal arrangements
  • Managing client money, securities, or other assets
Lawyers must be specifically aware of the ways illicit money can enter their ordinary course of business. The entry or placement of illegal funds may be from the client’s side, transaction type, or geography. This understanding will enable the legal practitioner to be careful before taking up any work.

Before commencing any business relationship, you must conduct a risk assessment of the client. For this, you may consider national reports or sectoral reports undertaken by supervisory authorities. You must also keep a regular check on the client and their transactions to keep yourself alert of any possible ML/FT risks. 

Legal professionals must check the location of the client, transaction, and source of funds. Check if the country is high-risk in terms of terrorism funding, criminal activities, subject to Sanctions, or a weak AML/CFT regime. In such cases, lawyers must do a thorough investigation before carrying out any transaction.

After identifying risks, conduct a risk assessment to prepare a client’s risk profile or transaction. Based on this assessment, you can develop and implement risk mitigation measures at both enterprise and client levels. Now, document these risk assessments.

Implement internal policies, procedures, and controls for risk management and mitigation

Now, focus on developing and implementing policies and procedures for the company’s operations. These policies, procedures, and internal controls must manage the risks that the business faces. The internal controls must be able to fight the money laundering risks that your operations face. These controls, policies, and procedures must be:

  • Applicable to all branches, subsidiaries, departments, and functions of the company
  • Reviewed and approved by the management 
  • Reasonable, effective for the identified risks, and consistent with the results of their risk assessments

Implement customer due to diligence measures

Lawyers and notaries must implement simplified or enhanced due diligence measures based on customers’ low or high risks, respectively. Also, they must do continuous monitoring of their clients because the risk profile may change. The client’s risk may also vary based on the type of transaction, which may require an update on the due diligence measures.
You must carry out customer due diligence before starting any business relationship with a client. In this, you need to verify the client’s identity and get the necessary proofs of the same. You must understand the nature of their business activities and the purpose of having that business relationship.
You must conduct a background screening of your clients to know their beneficial owner/s. This background screening will enable you to have information on any particular sanctions or criminal history. Understanding the purpose and nature of the transaction or relationship, or arrangement will give you more confidence in the client. 
Another essential consideration is monitoring the transactions and relationships with clients. This monitoring ensures consistency and alignment between the information you have about the client and the type of transactions. Any unusual nature of inconsistency will alert you at the right time to take relevant actions.
If the client is from a high-risk country or has an association with PEPs, you must carry out enhanced due diligence. This EDD includes verifying client information from many legitimate sources. You must investigate for understanding their source of wealth and control structure, including voting rights.
With all this information about the client, prepare a risk profile and allocate a risk rating. At timely intervals, review and update this information in proportion to their risk rating. Legal professionals must document and save this information for future reference and updating.

Report suspicious transactions to Financial Intelligence Unit (FIU)

Lawyers, notaries, and all legal professionals and practitioners must report any suspicious transaction to FIU. They must provide all relevant supporting information to the authority for further investigation. Adequate internal policies related to this best practice will help legal professionals to comply with it.
Some of the indicators for suspicious transactions include:
  • Unnecessary complex transactions whose purpose or beneficial owner is not known
  • Transactions that are inconsistent with the customer’s risk profiling
  • Large transactions (relatively large to a customer’s income or turnover)
  • Unexplained changes in the ownership of entities or unnecessary involvement of a third party
  • Transactions involving high-risk countries or third parties with no relationship with customers
  • Unclear or dubious sourcing of funds for a transaction
  • Refusal of customers to provide relevant information or proofs required for due diligence measures

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Devise and implement a sound governance structure

You must formulate a governance structure to ensure your business complies with AML/CFT requirements. For this, you must appoint a fit and capable compliance officer. He/she must be capable of handling ML/FT reporting, AML/CFT program management, and training and development of the team.

You must keep your employee up-to-date on AML/CFT laws, policies, and norms. You must design a training manual and impart it to relevant team members. You must also assess the effectiveness of these training programs to ensure the correct knowledge development.

A well-functioning governance structure is tested by an independent audit frequently. This auditing procedure will check the risk profile of products and services, customers, and target markets. If it is not possible for you to keep an internal audit team, then you can hire a third-party auditing team.

Conclusion

Legal professionals carry out certain activities that have higher vulnerability to ML/FT risks. They are at increased risk, whether they give tax advice, facilitate property transactions, represent clients in disputes and mediations, or act as intermediaries. Financial criminals take advantage of this vast range of services to engage in money laundering and terrorism financing.

So, they need to be careful about their entity’s risk exposure and employ the above requirements. UAE has categorized them in the DNFBPs list and expects regular compliance with the AML/CFT law provisions. Such compliance with the national AML/CFT requirements will enable them to keep themselves safe from money laundering risks.

To plan and implement any of these measures, you can also take the support of AML consultants in the UAE. A professional AML consultant will be better equipped to help legal professionals and practitioners with suitable, relevant measures against money laundering. The consultant will ensure that industry-specific steps are taken in the fight against money laundering and terrorism financing.

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Role of AML UAE

AML UAE is a leading AML compliance services provider in UAE. We help you with fulfilling all the requirements for AML and CFT in UAE. Our spectrum of AML compliance services is not restricted to national boundaries, but we also make sure that you comply with the global regulations of AML. 

We can help you with:

  • Creating firm-specific AML policies, procedures, internal controls, best practices, and guidelines for your smooth business operations
  • Setting up an expert AML compliance department for your firm that can handle all AML-related activities
  • Selecting the most effective and appropriate AML software for your business needs to ensure AML compliance
  • Helping you in filing and submitting annual AML/CFT risk assessment reports with the UAE government
  • Conducting training for your employees in handling KYC, screening, risk profiling, CDD, EDD, and filing of STRs

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Frequently Asked Questions (FAQs)

Here are a few frequently asked questions when it comes to the need and importance of sanction and PEP screening in the customer onboarding process.

It is a good practice to appoint an AML compliance team in your company that will take care of the compliance. The team will assess the risks, implement an AML/CFT compliance program, and execute CDD measures. If you do not wish to appoint an AML team internally, you can take the services of AML consultants who will help you manage all these activities. 

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About the Author

Pathik Shah

CISA, FCA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a multi-disciplinary professional with more than 22 years of experience in compliance, risk management, accounting, system audits, IT consultancy, and digital marketing. He has extensive knowledge of Anti-Money Laundering rules and regulations, and he helps companies comply with legal requirements. Pathik also helps companies generate value from their IT investments.