The above proverb/saying does hold good when it comes to white collar crimes and economic offenses and it goes without saying that continued attempts by criminal organizations to launder money lead to a corrosive effect on a country’s economy. Cross border transactions and shipments are a recurring activity that involve exchange of money between the emerging markets almost every day which in turn is increasingly becoming a venue for large-scale money laundering.
Money laundering in general is the criminal act of acquiring money through illegal means and disguising its principal source. It is the most prevalent form of financial and economic crime and such illicit activities undermine the credibility of the formal financial sector. In order to combat such a crime, cooperation at both the domestic and international level is required and concerted efforts by international bodies have been implemented for the same effect. Some of the international agreements and bodies such as the Vienna Convention, the Financial Action Task Force (FATF), Office of Foreign Assets Control (OFAC), Anti-bribery regulations have laid the groundwork for creating obligations for countries to formulate policies and frameworks to promote effective implementation of legal and regulatory measures for combating money laundering. FATF is the main international body engaged in bringing about comprehensive efforts to promote the adoption of countermeasures against money laundering. The Gulf Cooperation Council is a part of this 1989 Economic Summit which urges member countries to ensure criminalization of money laundering and encourage overall assessment of such illicit activities by the competent authorities.
In the United Arab Emirates, Federal Decree Law Number (20) of 2018 on Anti-Money Laundering (AML) and Combating the Financing of Terrorism and Financing of Illegal Organizations (the Law) is the principal legislation that governs the act of money laundering and is an amendment to the previous law (law number 4 of 2002 on anti-money laundering in United Arab Emirates).
Article 2 (1) of the Law mandates that any person who willfully commits any of the following acts or has knowledge that the fund’s (assets including the digital and electronic form) received are proceeds (funds generated directly or indirectly from the commitment of any crime) of a felony or misdemeanor, shall be considered a perpetrator of the crime of Money Laundering:
- conducting the transfer or moving of proceeds;
- concealing or disguising the true nature, source or location of the proceeds as well as the method involved in their disposition, movement, ownership of or rights with respect to said proceeds;
- acquiring, possessing or using the proceeds upon receipt; and
- assisting the perpetrator of the predicate offense to escape punishment.
Understanding Money Laundering in the UAE Context
Various measures have been taken up under the Law including the establishment of a Financial Information Unit (FIU) to investigate suspicious activities, issuance of guidelines by the Central Bank Panel and implementing orders as part of the National Committee to Counter Money Laundering. This requires all financial institutions, businesses and professionals to continuously perform diligence in and analyze the risks associated with each financial transaction. The major points under the Law are covered below:
- The Law states that money laundering is an independent crime considering that it is a different crime from the main crime (predicate offence), which was the source of the laundered money. Even if the punishment for the predicate offence has been established, an individual could potentially face a separate sentence for the crime of money laundering. This means that in an investigation for a money laundering case, the prosecutor will not have to wait or depend on a judgment of the main crime (predicate offence) to convict the criminal (Article 2 (2) of Law). A predicate offence can be termed as a component of a more serious crime. For example, if ‘X’ obtains money by selling drugs, then selling drugs is a predicate offence and money laundering in this case would be a more serious offence. Proving the source or conviction of the predicate offence (drug trafficking in this case), will not be a prerequisite for proving the illegality of money obtained via money laundering.
- Consistent with the provisions laid out in Article 4 of the Law, any legal person shall be criminally responsible for the crime if the same has been committed in their name or for its account intentionally, without prejudice to the personal criminal responsibility of the perpetrator.
- The Governor of the Central Bank (renewable by order of the public prosecutor) has the right to seize, evaluate or follow any amounts of money (without informing the owner) for a period of 7 days, if such an amount of money was sourced or linked to any crime (Article 5).
- One of the important provisions that has been introduced in the new Law is under Article 8 of the Act, which sets out that every person has a duty to disclose when he brings into the UAE or takes out from UAE any currency or bearer negotiable instruments or precious metals or stones of value, in accordance with the disclosure system issued by the Central Bank. The failure to comply with the same will impose a penalty and/or imprisonment and in case of conviction of the same, the Court may rule on the confiscation of seized funds (Article 30).
- The Law also deals with international cooperation and empowers the local authorities in their sole discretion to recognize any foreign court order issues in the country that is relevant to money laundering. Consistent with the provisions laid out in Article 18 of Law, the UAE local judicial authority have discretionary power which will be based on request from the courts of any other country (which has a relevant treaty with the UAE), to cooperate with other judicial authorities and to provide such evidence on investigation and trial processes connected to a crime, which has happened in other countries.
A debtor and creditor relationship needs to be established for the crime of money laundering. Money laundering is an offence that will supersede the first offence (the main crime from where such illegal money was obtained) and money laundering will be constituted as the secondary crime. The source of the crime needs to be established to be an illegal source and if it is proven to be so, then it shall lead to the crime of money laundering.
In this article, we will try and understand the recent development on money laundering regulations in the United Arab Emirates with decisions passed by local and international courts as has been discussed further here. Interestingly, the courts in the UAE have passed a few landmark decisions in relation to money laundering. In one of the decisions, for instance, the courts have held that in cases where money is obtained unlawfully, then the mere ‘knowledge’ of such act would suffice thereby constituting the crime to be one of money laundering (Court of Cassation in Dubai, Appeal Number 439 of 2006 and decided on 26 February 2007). A brief review of the above decision clearly suggests:
I. the legislation does not require nor impose any additional burden of proof and mere knowledge is sufficient;
II. knowledge of facts, knowledge of event and circumstances, or indirect knowledge would be sufficient;
III. source of money is important to the extent that it should be derived from one of the 7 sources (narcotics, kidnapping, piracy, etcetera) as mentioned in the old law.
In the Court of Cassation in Dubai (Appeal Number 1224 of 2018), the accused were acquitted on the grounds that the money in possession of such accused was not derived from one of the 7 pillar sources mentioned in the previous statute (Federal law Number 4 of 2002) concerning the Criminalization of Money Laundering and since it was a pre-requisite to prove that the money had been obtained from one of the 7 illegal acts, it could not be shown that the accused were liable for the crime of money laundering. However, under the new Law there is no necessity of proving that the money was obtained from one of the 7 sources mentioned in the old law. Under the old law, It would be easier for an individual to escape punishment under the Act if it was shown that the money was not derived from one of the 7 sources and had instead been obtained from an act outside the purview of this Act. However, the new law fills in the gap by removing the requisition for unlawful money to be obtained from one of these 7 sources and it has been termed as an independent crime irrespective of establishing the source so long as it is proven that it was an illegal source.
In United States v. Peoni (100 F.2d 401 (2d Cir. 1938)), the defendant argued that the mere knowledge that a crime may occur in the future as a result of one’s actions is not sufficient to give rise to accessory liability. The Court ruled in favor of the defendant, holding that the crux of the crime of conspiracy is an agreement to commit a crime and not the knowledge that a crime will eventually be committed.
In 650 Fifth Avenue v. Alavi Foundation, (830 F.3d 66 (2d Cir. 2016)) addressed the element of ‘knowledge’ required for a crime of money laundering. It was held in the present matter that the claimants did not necessarily have the requisite knowledge of the unlawful activity or intent to carry out the unlawful activity under the money laundering statutes. All money laundering offenses required that the claimants know that the property involved in the transaction represented the proceeds of some form of unlawful activity and this was an important pre-requisite for establishing the crime of money laundering
In United States v. Johnson (971 F.2d 562 (Tenth Cir.1992)), it was held that the critical characteristic of the money laundering offense was not the commission of the crime but perpetrator’s knowledge of such a crime.
The Central Bank of UAE
The Central Bank of UAE passed a decision (Cabinet Resolution Number 10 of 2019) through its Board of Directors, concerning the implementation of regulation of Decree Federal Law Number 20 of 2018 on anti-money laundering and combating the financing of terrorism and illegal organizations. The same have been prescribed in Circular Number 59/4/2019 under Article 1 to 8 and the Central Bank has given authorization to form independent financial units with the power to investigate financial reports of various institutions. The Central Bank shall supervise and examine periodically or unexpectedly (without prior notice to the institution), to verify the institution’s compliance with the Decree Federal Law and the executive regulation, relevant instructions and guidelines and notices that are issued by the Central Bank and shall identify any violations occurring, if any .In case of any violation arising from the financial institution, the Central Bank may impose any of the administrative sanctions specified in the Decree Federal Law and the violator shall have the right to appeal against such a decision in accordance with the procedure prescribed by the Central Bank. According to Article 5 of the Law, the Governor or his delegate shall have the right to freeze suspicious funds deposited at financial institutions for no more than seven working days, in accordance with the rules stipulated in the Decree-Law, renewable by order of the public prosecutor or his delegate. In Court of Cassation (Appeal Number 2004/449), the accounts of a company were frozen by the Central Bank and as mentioned in Article 5 and it was held that the Central Bank has the authority to do so for a period of 7 days and further the Public Prosecution shall be informed to take the necessary measures which may include the seizure of the suspected funds.
Financial Intelligence Unit
The Central Bank has given authorization to form independent Financial Units (FIU) under Article 9 of the Law, to which suspicious transaction reports, information on all financial institutions and designated nonfinancial businesses and professions shall be sent exclusively for consideration and analysis and referral to the competent authorities, either automatically or upon request. The FIU has the authority to request financial institutions to submit any information or further documentation or reports and other information deemed necessary for FIU to perform its duties on schedule and in the form determined by the Unit. It shall establish a database to record all available information and to implement privacy and data security procedures to protect this information and to make sure that its database and its technology systems are restricted. It shall also be entitled to exchange information with its counterparts in other countries, with respect to Suspicious Transactions Reports (STR) or any other information to which the FIU has exclusive access or is the exclusive recipient according to international agreements to which the State Is a party including bilateral agreements signed by the FIU with its counterparts governing bilateral cooperation.
Guidelines for Financial Institutions
Guidelines for Financial Institutions have been passed regarding the Anti-Money Laundering and Combating the Financing of Terrorism and the Financing of Illegal Organizations. These guidelines have been issued to provide guidance and assistance to supervised institutions like banks, finance companies, insurance companies, securities and commodities brokers, etcetera , in order to assist them to gain a better understanding and implement effective performance of their statutory obligations under the legal and regulatory framework in force and are intended to be read in conjunction with the relevant laws, cabinet decisions, regulations and regulatory rulings which are currently in force in the UAE and their respective Free Zones. The Financial Institutions have an obligation to inform the Central Bank of any such activity or suspicious transactions related to money laundering to the Central Bank (Court of Cassation, Appeal Number 2004/449). These guidelines are meant to guide the respective Supervisory Authorities regarding the factors that should be taken into attention by each of the supervised institutions while identifying, assessing and mitigating the risks of money-laundering. However, these do not replace or supersede any legal or regulatory requirements or statutory obligations and in the event of a discrepancy between these Guidelines for financial institutions and the legal or regulatory frameworks currently in force, the latter will prevail.
The National Committee for Combating Money Laundering
A committee chaired by the Governor, called ‘National Committee for Combating Money Laundering and the Financing of Terrorism and Illegal Organizations’, shall be established by virtue of the Article 11 of Law and such a decision on the formation of the Committee shall be issued by the Minister. The national committee has identified a number of goals under Article 12 of Law.
The authority of the National Committee for combating money laundering (NCAML) will include, preparing and developing a national strategy to combat crime and proposing related regulations and procedures in coordination with the competent authorities. The monitoring of the implementation of such strategies shall also be pursued by the committee. The committee shall have the duty to assess risks of crimes on a national level and ensure effective coordination between the Financial Intelligence Unit, Law Enforcement Authorities, Supervisory Authorities and other Competent Authorities within the country. It shall facilitate the exchange of information and coordination amongst these various bodies and collect statistics provided by competent authorities to assess their effective compliance with the laws and regulations on combating money laundering. It will also create awareness amongst the financial institutions of the relevant money laundering risks in UAE. The national committee to combat money laundering has the aim of proposing relevant systems, procedures and policies in coordination with the authorities concerned. The main duty of this committee is to follow the implementation of such procedures and identify and assess the risks of crime at the national level.
Punishment for Money Laundering
The provisions for awarding punishment and penalty for the offence of money laundering are laid out in the Law (Federal Decree Law Number (20) of 2018) and have been discussed below -:
- Article 22 provides that any person who commits or attempts to commit money laundering (the acts laid down in Article 2 (1) mentioned above), shall be held liable for an imprisonment of not more than 10 years and/or a fine of no less than AED 100,000 and no more than AED 5,000,000.
- Any person who abuses his influence or the power granted to him by his profession/professional activities or if the crime is committed through a non-profit organization, an organized crime group or in the case of Recidivism (a convicted felon re-commits to offend), the perpetrator shall be liable for a temporary imprisonment and a fine ranging between a minimum of AED 300,000 to a maximum of AED 10,000,000 (Article 22 (2)).
- An attempt to commit the offence of money laundering is liable to punishment by the full penalty described for it (Article 22(3)).
- Anyone using proceeds for terrorist financing will be sentenced to life imprisonment of a minimum of 10 years and a penalty of minimum AED 300,000 to a maximum of AED 10,000,000 (Article 22(4)).
- Information provided to the Judicial authorities regarding any of the offences in this Act leading to the disclosure, prosecution or arrest of perpetrators can lead to the Court exempting or commuting a sentence imposed on an already convicted offender (Article 22(5)).
- Article 23 of the Act imposes a penalty of a minimum AED 500,000 to a maximum of AED 50,000,000 on any legal person whose representatives/managers/agents commit for its account or its name any of the crimes laid out in this Act. A conviction of terrorism financing crime will cause the Court to order dissolution and closure of such an office from where the activity was being performed.
- Article 24 mandates that any person causing a violation on purpose or by gross negligence causing failure to inform any suspicious activity or to disclose reasonable grounds to suspect a transaction resulting from such proceeds shall be liable for an imprisonment of a minimum of AED 100,000 to a maximum of AED 1,000,000.
- Article 25 dictates an imprisonment of no less than 6 months and/or a penalty of a minimum of AED 100,000 to a maximum of AED 500,000) imposed on any person who notifies or warns a person of any such transaction under review in relation to suspicious transactions being investigated by competent authorities under Article 24.
- Article 26 elaborates on the confiscation of funds from the proceeds resulting from such a crime, once the crime is verified. Article 28 lays out imprisonment or fine of no less than AED 50,000 to not more than AED 5,000,000 on any person violating instructions issued by competent authority in the UAE.
- Any person making an entry and exit from UAE has a duty to disclose any such entry and exit from UAE, of any currency or bearer negotiable instruments or precious metals/stones and the failure to comply with the same would impose an imprisonment and/or fine on anyone who intentionally fails to disclose or intentionally refrains from providing additional information upon request from him or conceals such information requested from him in accordance with the disclosure system issued by the Central Bank (Article 30).
- Article 31 imposes imprisonment of no less than AED 10,000 to no more than AED 100,000 on any person violating any other provisions of the Act.
Hence, with the establishment of the national committee for combating money laundering and the Law, various steps have been pursued in order to combat money laundering in the UAE.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.