What are the Important terms in the AML-CFT Compliance Program?

UAE is leaving no stone unturned to prevent money laundering by implementing the AML policy rules and regulations. The introduction of the AML- CFT program (Anti-Money Laundering and Combatting Financing of Terrorism) which includes strict penalties and deterrence in the form of imprisonment as well, is a decisive step towards fighting money laundering. Non-compliance with the AML laws attracts heavy fines and jeopardizes the company’s reputation. It is best to hire a reliable AML consultancy firm to avoid the risk of non-compliance and always keep the business AML compliant.


But some companies fail to comply with the AML rules and regulations and in turn have to face the consequences of non-compliance. They sabotage their reputation and damage the goodwill in the market and face financial losses in the form of heavy penalties. One of the reasons for this attitude is a lack of awareness of the AML laws as companies might be willing to stay compliant, but lack of knowledge can prove to be a deterrent in AML compliance. Let us discuss the critical AML/ CFT terms with which every business should be acquainted.

Important terms in the AML-CFT Compliance Program

Money Laundering

According to the FATF- Financial Action Task Force, money laundering is defined as processing the illegally obtained money from criminal activities and hiding the origin/ source of the illicit cash. This money is run through the legal system- banks and financial institutions and made to appear as lawful money. The money is used to fund various criminal activities such as illegal trade of goods, drugs, human trafficking, prostitution, extortion, kidnapping, and funding of terrorism with illicit arms sales. These activities generate a considerable amount of money, and criminals are always looking for new ways to legitimize it.
The UAE law applicable for money laundering is the Federal Decree-law No. (20) of 2018. Article 2 of this UAE law states that the following acts fall under the ambit of money laundering. It involves transferring the proceeds, converting them, or indulging in any transaction to hide their illegal source as well as hiding the nature, origin, or location of the profits and the methods which involve the movement or ownership of the proceeds. The Article further states that money laundering is an act that consists of acquiring or using the proceeds on receiving and helping the person committing the predicate offense to avoid punishment.

Financing of Terrorism

Financing of Terrorism includes the act of offering, preparing, sourcing, or providing the funds for use (in part or whole) in the commission of a terrorist offense. It also includes offering money to a terrorist organization or person while being aware of the purpose of the terrorist financing. Moreover, when the funds are obtained, managed, invested, deposited, kept, used, or disposed of for conducting any commercial or financial bank transaction, the money is received from a terrorist offense.

AML-CFT Program

AML- CFT refers to the Anti-Money Laundering and Combatting Financing of Terrorism (AML-CFT) Program, which is a structured system that helps organizations to prevent the financial crime of money laundering. Banks, financial institutions, and other regulated organizations must follow the AML rules and regulations and stay AML compliant. The Central Bank of UAE (CBUAE) manages the implementation of the AML-CFT program. There are different components in the AML-CFT program that should include:

  • Written policies, procedures, and measures
  • Designated AML Compliance Officer (MLRO)
  • Continuous employee training
  • Independent audit of the AML/ CFT program

Designated Non-Financial Businesses and Professions

Article 3 of the Cabinet Resolution No. 10 of 2019, a DNFBP, refers to brokers in real estate, precious metals dealers, and precious stones dealers who carry out single or multiple transactions worth AED 55,000. The term also includes independent auditors and Corporate and Trust Service Providers who carry out the transactions on behalf of their customers. DNFBPs also have to implement the AML-CFT program which is similar to that of banks and financial institutions.

MLRO

MLRO is the Money Laundering Reporting Officer. The AML Compliance Officer is a natural person who manages the AML programs of the companies required by law to follow the AML rules and regulations. The person is entrusted with ensuring that the organization complies with the AML/ CFT regulations.

GoAML System

The GoAML system is an integrated software developed by the UNODC – United Nations Office on Drugs and Crime (UNODC). All the financial institutions and DNFBPs have to register in the goAML system and submit their reports. Data is collected, managed, analyzed, and insights are drawn from the document management system that helps prevent money laundering and end massive funding of criminal and terrorist activities.

Ultimate Beneficial Owner

An Ultimate Beneficial Owner- UBO is a natural person who eventually or ultimately owns or benefits when a transaction is initiated. It also includes the natural person on behalf of whom a transaction is being carried out and the one who exercises effective ultimate control over a legal person.

Customer Due Diligence

Customer Due Diligence (CDD) is a step that helps the banks, DNFBPs, and other financial institutions establish and verify the customer identification of a beneficial owner. With CDD, the institutions can learn about the customers, verify their claims of who they say they are, and understand the nature of economic activities, ownership structure, and control exercised by the natural person or legal entity. They can know whether it is a high-risk customer and the risk involved in money laundering.

High-Risk Customer

A High-risk customer is one with which the risk of money laundering increases. As per the AML rules and regulations, banks or financial institutions have to identify high-risk customers and take the best actions to deal with the instances of money laundering. The assessment and evaluation of the high-risk customer are handled with EDD- Enhanced Due Diligence.

Politically Exposed Persons

PEP is defined as natural persons who have been assigned high-level public responsibilities. PEP includes Heads of States or Governments, senior people- politicians, government officials, judicial or military officials. The terms also refer to senior executive managers of state-owned corporations. PEP represents a higher risk of involvement in corruption and similar activities owing to their primary public function and their influence due to their position.

Suspicious Transactions

They pertain to the transactions about which there are valid reasons to suspect that the money has been derived from criminal proceeds and is related to the funding of terrorist activities or financing of criminal organizations, whether committed or attempted.

Enhanced Due Diligence

As the name suggests, EDD-it is an enhanced or advanced form of the due diligence process carried out for further risk assessment. EDD is carried out when the involvement of high-risk customers is present, and a probe is required in large volumes of transactions.

Economic Sanctions

Economic sanction is the imposition of trade restrictions, financial limitations, and penalties by a country or countries on other countries, entities, or individuals. It is an instrument of foreign policy used to coerce the government, entity, or individual to follow international trade and guidelines. There are several types of sanctions such as Tariffs, Embargoes, Non-tariff barriers, and asset freezers.

Financial Intelligence Unit

Financial Intelligence Unit (FIU) is a central national agency that receives information on suspicious transactions, analyses the data obtained, and shares the disclosures with the concerned authorities. The FIU receives the information on the goAML portal.

AML Consultancy Services

Lack of awareness can cause a huge problem for banks, financial institutions, DNFBs, and other regulated bodies which have to follow the AML rules. One of the best ways to stay AML compliant is to outsource AML compliance services and get access to the updated knowledge and resources of AML compliance. With the assistance of a reliable AML compliance service provider, businesses can put all their worries to rest, and they can focus on augmenting business growth.

The AML consultancy provider will offer a wide range of services such as AML CFT Controls and Procedures Documentation, In-house AML compliance department set up, and AML training. They will also assist in AML software selection, Annual AML/ CFT Assessment Report, and AML / CFT Health Check-up services. The experts will handle the complexities involved in the AML compliance process at a nominal fee and help the business avoid hefty fines and penalties. AML UAE is one of the top AML Consultants in the UAE, assisting thousands of companies with its expertise, knowledge, and experience in the AML domain. For more information on this company, feel free to visit AML UAE.

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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.