AML Compliance Challenges and Mitigation for Crypto Companies in the UAE

Table Of Contents

Introduction
Crimes and Penalties
Handling AML Compliance Challenges for Crypto Companies
UAE: A Leader in Crypto Regulations
Conclusion

Introduction

On January 23, 2025, just three days after being inaugurated as the President of the United States, President Donald J. Trump passed an Executive Order¹ establishing the Presidential Working Group on Digital Asset Markets which will be chaired by David Sacks, a vocal crypto advocate being appointed as White House AI and crypto czar. This group was tasked not only with enhancing the regulatory framework governing digital assets but also with evaluating the creation of a national digital asset stockpile.

Although this move was widely anticipated, given Donald Trump’s election campaign speeches, this step is expected to positively contribute to the overall integration of digital assets into the mainstream global financial system—a trend that the United Arab Emirates (UAE) has already championed by embracing cryptocurrency adoption through implementing clear and forward-thinking policies. According to Triple-A’s The State of Global Cryptocurrency Ownership 2024 ², the worldwide crypto ownership rate is around 6.8%, which amounts to over 560 million crypto holders—up from 420 million in 2023. This ownership rate is more than 3.5 times the world average making the UAE the country with highest cryptocurrency ownership rate. In fact, The Henley Crypto Adoption Index 2024 ³ ranks the UAE third worldwide for its level of adoption and integration of crypto, including ranking second in public adoption and innovation and technology and first in tax friendliness.

Top10 Countries with the highest cryptocurrency ownership rate in 2024

Source: State of Global Cryptocurrency Ownership, 2024

Crypto companies operating in the UAE work within an environment uniquely suited for their growth. The technology-driven, futuristic policies encourage innovation and investment in digital assets and technology. Additionally, they have access to a market with high-net-worth individuals (HNIs). According to a report⁴ published in The National News in May 2024, Dubai has the highest concentration of resident millionaires in the Middle East, with 72,500 millionaires, 212 centi-millionaires (worth over $100 million), and 15 billionaires. According to the Henley Private Wealth Migration Report 2024, as reported in the CNBC⁵ it was projected that the UAE would experience an unprecedented net inflow of approximately 6,700 millionaires by the end of 2024, the highest globally.

Source: CNBC

Coupled with one of the highest cryptocurrency adoption rates in the world, this creates extraordinary opportunities for crypto companies to evolve in the UAE.

Additionally, one of the most important factors that attracts crypto companies to the UAE is regulatory clarity and a continuous drive to improve these frameworks so that crypto companies know exactly what they are—or are not—allowed to do. To tap into this incredible growth story, however, crypto companies need to take a compliance first approach. In this article, we will look into AML (Anti-money laundering) compliance challenges faced by crypto companies and how they should address them. We will also look at the extraordinary regulatory framework in the UAE that, among other reasons referred earlier, make crypto companies choose the country to set up a company and grow.

Crimes and Penalties

Even though public excitement with blockchain technologies, digital assets, and cryptocurrencies has substantially grown over the last few years, the regulators in certain countries often see the sector with deep suspicion. This perspective is primarily because of the anonymous and untraceable nature of cryptocurrencies. The concerns over the potential misuse of cryptocurrency for illicit activities are overwhelming, and these concerns continue to shape regulations and policies around the world.

How much of this perception is real, though?

Well, according to the Chainalysis 2024 Crypto Crime Report⁶, roughly $24.2 billion, or 0.34% of total on-chain transaction value, was received by illicit addresses, which actually saw a dip in 2023.

Source: Chainalysis

But what is more concerning with the report is that it also found that the overall 61.5% of all illicit transaction volume in 2023, representing $14.9 billion, was related to sanctioned entities and jurisdictions, most of which were sanctioned by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).

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When it comes to fines, the year 2024 has been particularly challenging for the crypto sector. For example, the US Securities and Exchange Commission (SEC) took 11 enforcement actions, with fines in 2024 reaching a staggering $4.68 billion, the majority of which is attributed to Terraform Labs. This amount was considerably higher compared to SEC fines in previous years, as found by Social Capital Markets.⁷

Source: Social Capital Markets

The broader regulatory landscape extends beyond penalties and fines, though. In January 2025, Reuters⁸ reported—as per documents released by the Federal Deposit Insurance Corporation (FDIC)—that banks were urged to “pause dabbling directly in crypto.” This regulatory caution is not confined only to the US. If we look closely at the debates before the Markets in Crypto-Assets (MiCA) Regulation came into force in the European Union in June 2023, we could get a fair idea of how the crypto sector is almost always approached with caution.

This makes cryptocurrency compliance one of the most important aspects for virtual asset companies. They should take these requirements seriously and take extra caution to make sure that they do not inadvertently violate any regulations.

Handling AML Compliance Challenges for Crypto Companies

The VAT treatment of cryptocurrency mining in the UAE depends on the nature of the mining activity. Here’s how VAT applies:

Tackling Anonymity in Virtual Asset Transactions
- One essential aspect that makes cryptocurrency compliance challenging is the pseudonymous and anonymous nature of transactions. This is a major regulatory concern because anonymity can weaken AML measures and make it harder to detect illegal activity. Specialised blockchain analysis tools can help spot patterns and link pseudonymous transactions to suspicious behaviour. Using enhanced controls for anonymity-based transactions and carrying out enhanced due diligence (EDD) on them can also significantly reduce these risks. If the identity is not ascertained behind pseudonyms, then the transactions should not be processed. This could help strengthen cryptocurrency compliance by companies operating in the virtual asset sector.

Navigating Inconsistent Global Regulations
- Regulations governing cryptocurrencies can be unclear or incomplete in many parts of the world. However, some countries—such as the UAE—have developed more thorough frameworks for Virtual Asset Service Providers (VASPs), including elaborate rules on complying with the country’s AML regulations. Because crypto transactions often cross borders, following global best practises of cryptocurrency compliance and keeping up with updated rules adopting Multi-Jurisdictional Compliance Strategies (MJCS) helps firms avoid conflicting regulations when dealing with international transactions. It’s also important to gather and record detailed information on both beneficiaries and originators for virtual asset transactions as per FATF Travel Rule.

Building Effective Screening and Monitoring System
- Establishing a three-tiered governance model (board oversight, compliance team, and independent audits) along with using advanced technological controls is essential for building an effective virtual asset compliance monitoring system in order to combat financial crimes. Automated alerts generated by machine learning (ML) software can help detect red flags early. These controls should be designed following a risk-based approach, so they match each organisation’s specific needs. For example, distributed ledger analytics tools can provide deeper insights into transaction data. Ongoing reviews of both the control mechanisms and the technology are just as important to confirm they’re working well and to make improvements as risks change. Developing whistleblower programmes to encourage internal reporting of suspicious activities is also important in mitigating risks.

Record-Keeping and Reporting
- Keeping detailed and accurate records for a sufficient timeframe is extremely important for meeting crypto-related AML requirements. This includes properly documenting customer data, transaction histories, and risk assessments so that timely, accurate reports can be filed as needed. Regulatory checks for cryptocurrency compliance can also cover trading data, employee activities, and various asset types. It’s equally important to archive communications, such as emails and chats, so that they can be used during inspections.

Third-Party Compliance Function
- Getting associated with external AML compliance consultants can be helpful in managing many of the risks crypto companies face. They often have both the technological and regulatory knowledge needed to help crypto companies mitigate cryptocurrency compliance risks associated with a company. However, it’s essential to perform thorough due diligence on compliance partners as well. Regular internal and external audits of compliance policies and procedures are also necessary to make sure everything stays in order.

Updating AML/CFT Policies for Emerging Blockchain Technologies
- Because blockchain technologies evolve rapidly, organisations must continually update their AML/CFT frameworks to identify new cryptocurrency compliance risks. Frequent reviews of policies are also important. Collaboration between technologists and virtual assets compliance professionals is essential for identifying risks and building strategies to mitigate them. Setting risk rules for screening clients, UBOs, VA wallets, and VA transactions should be integral to these protocols.

Balancing Privacy with CDD requirements
- Privacy is fundamental to the crypto world, but regulations require enough transparency to prevent criminal activities. As crypto regulation expands worldwide, conducting thorough Customer Due Diligence (CDD) by crypto companies has become absolutely mandatory. Addressing AML risks in DeFi protocols, where transactions are often peer-to-peer without intermediaries can indeed be a challenge. Implementing on-chain compliance solutions such as smart contract auditing tools to detect illicit transactions in DEXs and lending protocols can be an important tool. Rigorous CDD processes is at the heart of every AML policy. It’s also important to note that since crypto companies are often targeted for cyberattacks, protecting client data through robust cybersecurity measures is very important.

Training and Governance
- Building a solid AML framework depends on well-trained employees. Regular workshops help employees recognise warning signs and reinforce reporting procedures. Just as technical teams must understand compliance standards, compliance teams need to be familiar with blockchain technology. Clearly assigning tasks avoids confusion during audits and investigations, leading to quick and coordinated responses.

UAE: A Leader in Crypto Regulations

Cabinet Resolution No. (111) of 2022⁹ is one of the most important legislations regulating VAs and VASPs in the UAE, with Cabinet Resolution No. (99) of 2024¹⁰, published in September 2024, detailing the penalties associated with violating the provisions of Cabinet Resolution No. (111) of 2022. However, well before that, Abu Dhabi Global Market’s (ADGM) regulations developed comprehensive frameworks¹¹ to address the evolving crypto ecosystem, such as Guidance on Initial Coin/Token Offerings and Crypto Assets, launched in October 2017. This was followed by the implementation of ADGM’s Crypto Asset Regulatory Framework in June 2018. In Dubai International Financial Centre (DIFC), Dubai Financial Services Authority (DFSA) has proactively developed its own regulatory framework for digital assets. The UAE’s AML/CFT regulations are also integral to VASPs operating in the country.

Needless to say, the most significant development in regulating the market for crypto companies is Dubai’s establishment of the Virtual Assets Regulatory Authority (VARA). Having the world’s first independent regulatory authority dedicated to virtual assets demonstrates exactly how committed the UAE is to meet the highest international standards for crypto compliance and becoming a world leader in cryptocurrency. VARA’s mission is to position Dubai as a global hub for virtual assets and combat unlawful activities surrounding the sector. It also aims¹² to provide “an easy-to-replicate framework to regulate the industry,” establishing itself as a model for other jurisdictions.

To achieve its objectives, VARA introduced the Virtual Assets and Related Activities Regulations 2023 along with Marketing Regulations. Additionally, VARA has published 12 Rulebooks¹³ for Virtual Asset Service Providers (VASPs) under its ambit. Four of these Rulebooks are mandatory for all VASPs, while the remaining eight apply based on the specific activities a firm is licenced to conduct. As of 5^th February 2025, VARA’s Public Record of Licenced VASPs lists 23 active VASPs¹⁴. VARA is also strict when it comes to taking enforcement actions and announced¹⁵ in October 2024 about issuing cease-and-desist orders and imposing fines on seven entities for operating without the required licences and breaching Marketing Regulations. Each entity was fined between AED 50,000 and AED 100,000, depending upon the severity of the violation. This makes cryptocurrency compliance by virtual asset companies in the UAE more important than ever.

Conclusion

The cryptocurrency industry has faced unprecedented regulatory scrutiny, with the SEC imposing its strictest fines on Terraform Labs as mentioned earlier. In January 2025, another cryptocurrency exchange was fined¹⁵ $100 million for “deliberately ignoring” U.S. anti-money laundering laws for the second time. With the introduction of the EU’s new cryptocurrency regulations, regulatory pressure is expected to increase significantly for crypto companies in the West. Against this backdrop, the UAE’s stable and crypto-friendly regulatory environment, coupled with its burgeoning crypto market, is set to attract new companies to the region. However, prioritising regulatory compliance is essential to unlocking the ocean of opportunities that lie ahead for the crypto companies.

With an extensive understanding of both the blockchain technology and AML regulations for cryptocurrency compliance, AKW Consultants has evolved as a leader in the field. AKW Consultants has also been awarded for establishing the AML compliance framework for the first cryptocurrency trading company in the UAE. Learn how AKW can help you implement robust Anti-Money Laundering measures for crypto compliance and establish the technological architecture needed while setting up your crypto company in the UAE.

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