AML Compliance in Dubai Real Estate

The UAE is one of the wealthiest countries in the world. In terms of GDP PPP (Purchasing Power Parity) per capita, the UAE ranked 6th globally in 2022. PPP measures the relative value of currencies by comparing the cost of a fixed basket of goods and services in different countries. It, therefore, provides a consistent and accurate comparison of GDP, cost of living, and other quality-of-life measures between countries. In 2022, the UAE’s GDP (PPP) per capita was $87,172, nearly 4.25 times higher than the world average.

Dubai, with its towering skyscrapers and luxurious lifestyle, epitomises this incredible prosperity. According to a report published in The National News in May 2024, Dubai has the highest concentration of resident millionaires in the Middle East. The city is home to 72,500 millionaires, 212 centi-millionaires (individuals with a net worth over $100 million), and 15 billionaires. This immense wealth, among many other things, has also contributed to a burgeoning real estate sector. Compared to 2020, the total value of real estate transactions in Dubai rose by more than 360% by 2023.

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This trend has continued into 2024. In the first half of the year, residential property sales in Dubai increased by 38% compared to the same period in 2023, according to Arabian Business. The UAE’s effective response to the COVID-19 pandemic, which earned it the top spot in Bloomberg’s Covid Resilience ranking in January 2022, has driven exponential growth in Dubai’s real estate sector post-COVID. With a substantial influx of capital, the real estate sector in Dubai must be well-equipped to prevent attempts of money laundering.

In this blog, we will explore the risks associated with money laundering and measures to ensure effective AML compliance in Dubai’s real estate sector.

The Financial Action Task Force (FATF) is an intergovernmental organisation established in 1989 to develop policies to combat money laundering and terrorist financing. In July 2022, FATF published an updated Risk-Based Guidance to the Real Estate Sector to reflect the evolution of money laundering and terrorist financing so that the sector can protect itself from such activities. As high-value properties attract money launderers due to the nature of purchases allowing large sums of illicit funds to be moved in a single transaction, they are commonly used in both the layering and integration phases of money laundering. The FATF guidance suggests a risk-based approach (RBA) for assessing, understanding, and managing these risks associated with the real estate sector.

Money laundering typologies in the real estate sector can be quite varied making AML compliance complicated for entities operating in the sector. The FATF Guidance talks about several of them, including the use of complex loans or credit finance, the involvement of non-financial professionals, the use of corporate vehicles or complex structures, and unexplained virtual assets. Irrespective of the typologies and the country, the real estate sector has been perceived as especially risky when it comes to money laundering.

A review of 32 FATF and FSRB (FATF-Style Regional Bodies) countries found that 37% of these jurisdictions identified real estate as a high-risk sector for money laundering.

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FATF puts special emphasis on the risks of money laundering associated with complex ownership structures during AML compliance. These structures often obscure the true ownership and source of funds, making due diligence requirements more challenging. To understand how complex ownership structures can complicate due diligence, let’s look at a hypothetical example of a Dubai-based real estate agent named Tom.

At one point in time, Tom clearly understood his customers when selling a property. Customers would typically need to buy a home or an office. The ownership structure was also straightforward. Essentially, Tom knew the owner, the source of funds, and the intention to buy the property.

With time, Tom’s job became more complicated. Now, he often needs to deal with large investment funds, some of which are created only to buy and manage property. Things can get even more complicated. The fund buying the property from Tom might be a part of an even larger international fund, and a separate company might have been created solely to purchase the property that Tom is selling to the fund. As the web of ownership becomes more intricate, it becomes challenging for Tom to identify who the actual beneficial owner of the property will be after he sells it. Shell companies, nominee directors, and opaque financial structures might also be involved to further obscure the true ownership and the source of funds.

This opacity raises significant concerns about potential money laundering as well as challenges related to AML compliance. Apart from risks arising from complex ownership structures, other money laundering risks associated with real estate sectors have been outlined in the Supplemental Guidance for the Real Estate Sector issued by the UAE Ministry of Economy. A few of these risks have been described below:

Risk Category	Description
Geographical Factors	Risks associated with the property and clients’ geographic location, including countries with deficient AML regimes.
Unusual Client Behaviour	Reluctance or refusal to provide required due diligence information, unexplained sources of funds, or avoidance of face-to-face contact.
High-Risk Clients	Clients from high-risk countries known for corruption, or those listed on sanctions lists.
Politically Exposed Persons (PEPs)	Involvement of PEPs or individuals with connection with PEPs.
Cash Transactions	Use of large sums of cash in transactions without adequate explanation or legitimate business rationale.
Third-Party Involvement	Use of intermediaries, third parties, or foreign companies to conduct transactions, especially from high-risk jurisdictions.
Transaction Anomalies	Unexplained or abrupt changes in financing arrangements, unusual haste to conclude transactions or transactions that do not make economic sense.
Adverse Media or Reputation	Clients with adverse media reports
Monetary Instruments	Use of monetary instruments, including bearer negotiable instruments, without adequate explanation or legitimate business rationale.
Suspicious Company Details	Company names that do not align with their stated business activities, use of non-professional domain emails, or difficulty in contacting directors/shareholders.
Loans from Private Third Parties	Loans received from private third parties without supporting loan agreements.

According to Article 3 of Cabinet Decision No. (10) of 2019, brokers and real estate agents involved in the purchase and sale of real estate, as well as lawyers, notaries, other independent legal professionals, and independent accountants, when preparing, conducting, or executing financial transactions for their customers with respect to the purchase and sale of real estate, are considered Designated Non-Financial Businesses and Professions (DNFBPs) under the UAE’s AML/CFT (Anti-Money Laundering and Combating the Financing of Terrorism) law.

As part of their AML compliance in Dubai real estate, all the above entities operating in the sector need to conduct Customer Due Diligence (CDD) when:

1. Establishing a business relationship.
2. Conducting occasional transactions that amount to or exceed AED 55,000, whether in a single transaction or multiple linked transactions.
3. Conducting transactions in the form of wire transfers for amounts equal to or exceeding AED 3,500.
4. There is suspicion of a crime.
5. There are doubts about the customer identification data.

Companies need to manage identified risks that arise during due diligence protocols. To do so, companies should obtain and investigate detailed information about the customer and beneficial owner, including their identity and the purpose of the business relationship or transaction. Regular updates to CDD information should be maintained, and reasonable steps should be taken to verify the source of the funds used by the customer and beneficial owner. For high-risk entities, enhanced due diligence should also be performed for AML compliance. For transactions suspected to be part of criminal activities or related to crime, regardless of the amount, it is necessary to report an STR to the FIU without delay.

The Federal Decree-Law No. (20) of 2018 specifies that if entities falling under the ambit of this law fail to comply with the law and its executive regulation and other regulatory resolutions, administrative fines can reach up to five million AED per violation, including the cancellation of business licences. As per the “Real Estate Money Laundering Typologies and Patterns: A Strategic Analysis Report,” published in December 2023 by the UAE’s Financial Intelligence Unit, the Ministry of Economy alone has imposed 228 violations, resulting in total fines of AED 22,700,000. Additionally, they issued warnings to 64 real estate brokers and agents and temporarily suspended six real estate brokerage firms..

Real estate companies that fall under the definition of DNFBP are required to appoint a Compliance Officer. The Compliance Officer is responsible for detecting transactions related to any crime. They also need to review, scrutinise, and study records related to suspicious transactions and decide whether or not to notify the FIU and document the reasons for the decision. Additionally, they are required to review internal rules and procedures and ensure their consistency with different regulatory requirements is maintained. They must submit semi-annual reports to senior management and send a copy of the report with senior management’s remarks and decisions to their respective Supervisory Authority. They also need to execute training and development programmes on money laundering for employees.

It’s important to note that companies are allowed to outsource these responsibilities to an external consultant. This can be particularly beneficial for three very important reasons. First, an outsourced consultant has extensive expertise, familiarity with the process, and access to technology, which enhances the overall effectiveness of the compliance functions. Second, it reduces costs for the company because it eliminates the need for hiring and training full-time staff. Third and most importantly, it ensures independence and objectivity, which are critical for maintaining the integrity of the compliance process.

With extensive experience in preparing compliance manuals, conducting training, and acting as an outsourced compliance consultant for over 200 UAE-based companies, including top real estate firms, AKW Consultants helps real estate companies in Dubai conduct risk assessments, design AML compliance frameworks, and train compliance departments to meet UAE regulations and avoid penalties and reputational damage in the process.