Identification and Timely Reporting of Suspicious Transactions

Introduction

After the successful Financial Action Task Force (FATF) meeting in June 2023, FATF, while addressing concerns about the UAE’s AML/CFT laws, noted that the UAE demonstrated substantial progress in its commitment to cooperating with FATF and MENAFATF since February 2022. This progress included efforts to enhance understanding of money laundering (ML) and terrorist financing (TF) risks across designated non-financial businesses and professions (DNFBPs) and institutions, with a particular focus on preventing the misuse of legal entities and arrangements for such activities.

Despite these advancements, FATF emphasised the need for continued efforts, including an increase in the quantity and quality of Suspicious Transaction Reports (STRs) filed by financial institutions (FIs) and DNFBPs.

Recent Developments

In a recent interview, Hamid Al Zaabi, the Director-General of the UAE’s Executive Office of Anti-Money Laundering and Counter Terrorism Financing, shared significant progress. He highlighted a 17% increase in total STRs reported from Q1 to Q2 2023.

Notably, DNFBP submissions increased by 14%, and submissions related to Designated Non-Financial Businesses and Professions (DPMS) surged by 23% during this period. Additionally, Q2 2023 saw a remarkable 108% increase in the number of inspections compared to the first quarter of 2023.

The Director-General stressed that the private sector’s reporting of Targeted Financial Sanctions (TFS) and Terrorism and Proliferation Financing (PF/TF)-related STRs/Suspicious Activity Reports (SARs) to the Financial Intelligence Unit (FIU) had substantially increased. Statistics from March to June 2023 indicated an approximate 93% rise compared to the previous reporting period.

In light of these developments, it is essential for DNFBPs to have a clear understanding of how to identify and report STRs.

Meaning of Suspicious Transactions

Under the AML-CFT Law and its implementing AML-CFT Decision, a suspicious transaction encompasses any transaction, attempted transaction, or funds that a DNFBP reasonably suspects of constituting, in whole or in part, and regardless of the amount or timing, any of the following:

  • The proceeds of crime (regardless of whether designated as a misdemeanour or felony, and regardless of whether the crime occurred within the State or in another country where it is also a crime).
  • Transactions related to the crimes of money laundering, financing of terrorism, or financing of illegal organizations.
  • Transactions intended for use in activities related to such crimes.

It is important to note that the sole requirement for a transaction to be considered suspicious is the presence of “reasonable grounds” with respect to the aforementioned conditions. Therefore, a transaction’s suspicious nature can be inferred from various information sources, including indicators, behavioural patterns, or Customer Due Diligence (CDD) information, without the need for concrete evidence of a predicate offense or the illicit source of the proceeds.

DNFBPs are not required to have knowledge of the underlying criminal activity; reasonable grounds are sufficient.

Identification of Suspicious Transactions

DNFBPs are obligated to establish indicators for identifying suspicious transactions (AML-CFT Decision 16), updating them in line with Supervisory Authorities or FIU instructions, and staying informed about developments in ML/TF typologies. DNFBPs should also consider the results of National Risk Assessments (NRAs), Topical Risk Assessments, and their own ML/FT business risk assessments. Depending on the nature and size of their businesses, DNFBPs must determine internal policies, procedures, and controls for identifying, implementing, and updating indicators, as well as identifying and evaluating potentially suspicious transactions.

DNFBPs should ensure they have an appropriate process and experienced staff for investigating and handling alerts. The investigation process and its conclusion should be documented, including the decision to either close the alert or promptly report the transaction as suspicious.

Requirement to Report

As per AML-CFT Decision Articles 13.2, 17.1, 20.2, DNFBPs are obligated to report transactions to the FIU without delay when there are suspicions or reasonable grounds to suspect that the proceeds are related to a crime, or to the attempt or intention to use funds or proceeds for the purpose of committing, concealing, or benefiting from a crime. There is no minimum reporting threshold; all suspicious transactions, including attempted transactions, should be reported, regardless of the transaction’s amount. Furthermore, there is no statute of limitations regarding when the possible crimes or the suspicious transaction took place.

Failure to report a suspicious transaction immediately, whether intentionally or due to gross negligence, constitutes a federal crime. Except for exemptions, any person, including DNFBPs, their managers, and employees, failing to fulfil their statutory obligation to report suspicions of money laundering, financing of terrorism, or illegal organizations, may face a fine ranging from AED 100,000 to AED 1,000,000 and/or imprisonment.

Conclusion

In conclusion, the significance of filing STRs cannot be overstated in the context of the UAE’s AML/CFT efforts. The meticulous identification and timely reporting of suspicious transactions play a pivotal role in safeguarding the UAE’s financial system from the nefarious activities of money laundering and terrorism financing.

In essence, filing STRs is a fundamental pillar of the UAE’s AML/CFT framework. It reflects the country’s dedication to upholding the rule of law, ensuring the stability of its financial system, and contributing to the international efforts aimed at creating a secure and transparent global financial environment. As the UAE continues to emphasize the importance of STR reporting, it reinforces its position as a proactive and vigilant participant in the global battle against illicit financial activities, ultimately paving the way for a more secure and trustworthy financial landscape both nationally and internationally.

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