Promoting Transparency and Mitigating AML Risks

In the current interconnected global financial environment, the concern of money laundering has emerged as a matter of utmost importance. This unlawful activity empowers criminals to conceal the illicit sources of their funds, thereby posing a substantial threat to the integrity and security of financial systems worldwide. To effectively address this threat, the verification of both the origin of funds (SOF) and the origin of wealth (SOW) has developed into a crucial responsibility for Financial Institutions (FIs) and Designated Non-Financial Businesses and Professions (DNFBPs). 

Gaining a comprehensive comprehension of a customer’s SOF and SOW is not just a procedural requirement; it stands as a crucial step toward promoting transparency within transactions. This detailed insight empowers regulated entities to establish an accurate customer financial profile, forming the foundation for vigilant transaction oversight. In the event of any unusual transaction that deviates from the customer’s established financial capability, it triggers an immediate notification. It further assists in assessing whether a customer’s financial undertakings bear any connections, whether direct or indirect, with criminal enterprises or unlawful organizations. 

In the context of high-risk customers, confirming the legitimacy of their sources of funds and wealth offers various advantages. By doing so, organizations enhance the strength and effectiveness of their AML framework. This proactive approach serves as a potent tool in mitigating the risks of ML and FT. 

The concept of SOF specifically concerns the origins of funds used in various financial transactions. Conversely, SOW has a broader scope, exploring the overall accumulation of wealth by individuals or entities over time. Legal sources of funds encompass a wide range, including earned income, business profits, invested capital, inherited assets, and loans from reputable sources. Accurate identification of these legitimate sources is crucial to combat money laundering. In contrast, SOW analysis covers a wider spectrum, revealing an individual’s complete financial history and the intricate paths of wealth accumulation. 

Difference between SOF and SOW is vital to understanding the comprehensive nature of financial transactions and wealth building. While SOF focuses on identifying the exact origin of funds for a specific transaction, SOW involves a more comprehensive examination of an individual’s financial journey. By dissecting these aspects, financial institutions can gain a thorough grasp of their customers’ financial activities and effectively guard against potential money laundering efforts. 

The principal AML/CFT legislation within the State is Federal Decree-Law No. (20) of 2018 On Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations (the “AML-CFT Law” or “the Law”) and implementing regulation, Cabinet Decision No. (10) of 2019 Concerning the Implementing Regulation of Decree-Law No. (20) of 2018 On Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organisations (the “AML-CFT Decision” or “the Cabinet Decision”). 

The AML-CFT Law¹ defines money laundering as engaging in any of the following acts wilfully, knowing that the funds are the proceeds of a felony or a misdemeanour (i.e., a predicate offense): 

• Facilitating the transfer or movement of proceeds or conducting any transaction which results in concealing or disguising their Illegal source;
• Concealing or disguising the true nature, source, or location of the proceeds as well as the method involving their disposition, movement, ownership of, or rights concerning said proceeds;
• Acquiring, possessing, or using proceeds upon receipt;
• Assisting the perpetrator of the predicate offense to escape punishment.

Both the AML-CFT Law and the accompanying AML-CFT Decision adopt inclusive definitions. “Funds” encompass a wide array of assets, tangible or intangible, movable, or immovable, digital, or physical, including currencies, documents, or notes reflecting ownership or associated rights. “Proceeds” encapsulate funds directly or indirectly derived from criminal activities, including profits, privileges, economic interests, or their converted counterparts. 

FIs and DNFBPs are required to establish a risk profile for their customers, commensurate with the types and levels of risk involved². Such risk profiles allow FIs and DNFBPs to compare a customer’s actual activity with the expected activity more effectively, thus contributing to their ability to discover unusual circumstances or potentially suspicious transactions. 

Based on the risk profile, FIs and DNFBPs should carry out ongoing due diligence of their Business Relationships, to be able to ensure that the transactions or dealings conducted are consistent with the information they have about the customer, the type of activity they are engaged in in in in, the risks they entail, and, where necessary, their source of funds. 

In the ever-evolving landscape of AML and counter-terrorism financing CFT, AKW stands tall as a pioneer consultancy service provider and a certified anti-money laundering expert in the UAE.  

AKW is a certified anti-money laundering specialist dedicated to crafting AML solutions that are as unique as the clients they serve. From robust AML frameworks to comprehensive Customer Due Diligence (CDD) procedures, including Enhanced Due Diligence (EDD) measures, the consultancy offers a suite of services that cater to diverse compliance requirements. By tailoring their offerings, we ensure that each client’s AML strategy aligns precisely with their specific operations and risks. 

With ISO 9001:2015 certification, AKW’s commitment to quality management systems is evident. However, our recognition goes beyond mere certifications. In 2020, we received the prestigious “KYC Guru” award, solidifying their expertise in Know Your Customer (KYC) practices. Not resting on their laurels, in 2021, AKW was bestowed the “Best Compliance Team” award.  

In a testament to our multifaceted prowess, Dubai Multi Commodities Centre (DMCC) recognized AKW Consultants as an approved UAE Good Delivery Auditor specializing in the Gold and Precious Metals sector.