Tackling money laundering in the Gulf

09 August 2021
Recent policy efforts in the region hint at sea change for the tackling of illicit monetary flows, but there is plenty more to be done

The world of compliance with anti-money laundering (AML) legislation, which entails the laws, regulations and procedures to prevent criminals from disguising illegally obtained funds as legitimate income, is overly complex and in need of change.

Perceptions around AML and the understanding of how we combat it are also flawed and urgently need re-examining.

To stop AML compliance measures from falling short, new ideas, a reassessment of strategies, and a willingness to embrace fresh policies, procedures and processes are required.

Regional progress

At a regional level, the UAE has made significant recent headway on AML rules and regulations, with the Central Bank of the UAE (CBUAE) recently issuing two new guidances: the first on AML in general, and the second specifically on combating the financing of terrorism (CFT) for its Licensed Financial Institutions (LFIs) on suspicious transaction reporting and legal persons and/or arrangements.

The guidances build on the UAE Federal Decree-Law No. (20) of 2018 on AML/CFT and Cabinet Decision No. (10) of 2019 – measures that took into account the standards and guidance issued by the Financial Action Task Force (FATF), the Paris-based intergovernmental global AML policy-making body.

Under the new guidance, LFIs must report any suspicious behaviour linked to money laundering, financing of terrorism or a criminal offence directly to the UAE’s Financial Intelligence Unit.

Additionally, the UAE also introduced strict penalties for those flouting its anti-money laundering laws.

An exchange house was fined AED496,000 ($135,058) in April this year for failing to achieve the necessary compliance levels with respect to AML regulations.

Businesses not registered with the country's AML system meanwhile face the threat of AED5m fines and closure.

Saudi Arabia has also set up various regulatory bodies, such as the Saudi Arabian Monetary Authority (now named the Saudi Central Bank, but still referred to as Sama), the Capital Market Authority and the Saudi Arabia Financial Investigation Unit, which regularly assess the country’s financial system and take corrective measures to ensure compliance with the international standards set by FATF.

The greatest AML threat is the acceptance of the status quo of a failed regime. Now is the time for courage, innovation and disruption
Helen Langton, International Compliance Association

Combined effort needed 

However, there is a strong need for integrated efforts between all the countries in the Middle East. We need to remember that we are only as strong as our weakest link.

The Middle East region is a global trading hub and provides easy access to unstable or sanctioned locations. There are huge cash transactions that happen on a regular basis which need to be checked and bought under the regulated economy of the region. 

David Lewis, FATF executive secretary, enumerated the new and existing risks that technology and cultural change have ushered in. The new FATF mantra, ‘Stop money laundering, save lives’, adopted from the fight against Covid-19, draws attention to the severity of the threat of AML and the illicit trade and business associated with it, and calls for more potent and energised AML measures.

The lives in question include the hundreds of thousands of people who have died as a consequence of violence linked to drug trafficking, as well as the tens of thousands of people who die each year around the world due to the end-use consumption of illegal drugs.

The threat is very real, and very prevalent, and the FATF’s stance confidently asserts that our role as compliance officers is to save lives. 

Data and transaction monitoring

Regionally, we need to join the dots between the money, the crimes, the drugs and the devastation caused to families and communities.

We need to demonstrate to each other and our colleagues that what we do matters and that we need to do it differently. The greatest AML threat we all face is the acceptance of the status quo of a failed regime. Now is the time for courage, innovation and disruption. 

In an example of progressive AML thinking, the London-based International Compliance Association (ICA) recently partnered with Feedzai, a highly regarded machine-learning and artificial intelligence fintech firm, to bring new thinking and new ideas to the global AML community through a series of interviews with leading AML professionals.

The joint endeavour is designed to demonstrate the benefits of collaboration and cooperation, and in particular the reduction of duplicated efforts and the sharing of knowledge of failed processes to ensure they are not repeated elsewhere.

In one interview, leading AML commentator Martin Woods, a man also known as the Wachovia whistleblower, spoke to illicit financial transaction expert Robert Mazur, aka The Infiltrator (author of the book of the same name, adapted into a movie in 2016), on two key areas of AML: training and transaction monitoring. 

Woods contends that we – the global AML community – have historically failed to apply and exploit data that will both improve the outputs from transaction monitoring, whilst simultaneously frustrating money launderers and making banks/firms a more hostile environment to dirty money seeking a home.

Both Mazur and Woods firmly believe we have a common enemy in money laundering, just as we have a common enemy in Covid-19. As with scientists trying to lives, it is through collaboration and data sharing that AML stands the best chance of succeeding.

Just as the ‘contact and trace’ process is an investigative process to isolate and ultimately eradicate the virus, when dealing with suspicious activity or a potential money laundering, we need to understand how launderers work, move and think in order to give ourselves the best opportunity of identifying the wider spread of the money laundering network.

In the Gulf, there is much that can still be done, particularly with respect to cooperation.

An April 2020 Mutual Evaluation Report by the FATF and the UAE’s Central Bank found significant enhancements in the UAE’s policies and efforts, but also particular need for improvement in the dialogue with overseas AML counterparts.

This brings us back again to the need for communication, collaboration and courage.

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