The Significance of Sanctions Lists for AML Compliance in the UAE

The Cambridge Dictionary defines a sanction as “a strong action taken in order to make people obey a law or rule, or a punishment given when they do not obey.” In the context of international law, sanctions are designed to address significant threats to peace and security. According to the Association of Certified Anti-Money Laundering Specialists (ACAMS), an organisation that provides training and certification and disseminates information on the detection and prevention of money laundering, described sanctions as punitive or restrictive actions taken by individual countries, regimes and coalitions to provoke a change of behaviour or policy.  

Sanctions lists, published by governments and international bodies worldwide, contain the names of sanctioned individuals and entities who are often involved in crimes such as terrorism, financing of terrorism, proliferation of weapons of mass destruction, and human rights abuses. Because their names are included in the sanctions lists, they may face trade restrictions, asset freezes, travel bans, or other prohibitive measures. These sanctions lists are dynamic and regularly updated according to new information and developments. While sanctions can be broadly applied to entire states, this blog will specifically focus on using sanctions lists for making Targeted Financial Sanctions (TFS) in the context of Anti-Money Laundering (AML) compliance in the UAE.

The UAE has been a global business hub, attracting foreign investment and playing a key role in international trade. The UAE has also implemented stringent Anti-Money Laundering Laws to protect the integrity of its financial systems as well as to strengthen its commitment to fighting financial crimes. The use of sanctions lists, particularly implementing Targeted Financial Sanctions that refer primarily to freezing funds of sanctioned individuals or entities, is one of the most important measures in that endeavour. In the UAE, Financial Institutions (FIs) and Designated Non-Financial Businesses and Professions (DNFBPs) are required to conduct sanctions screenings as part of their overall AML compliance framework.

In September 2005, the United Nations General Assembly adopted the 2005 World Summit Outcome. The resolution included establishing clear and fair procedures for imposing and lifting sanctions. Even though sanctions are an important tool in the arsenal of states to maintain international security and peace without the need for the use of force, they can have potential adverse socio-economic and humanitarian consequences. Therefore, it was decided that sanctions should be implemented with clear benchmarks and reviewed periodically.

The United Nations Security Council (UNSC) has several sanctions committees, and they publish a consolidated list that includes all individuals and entities subject to measures imposed by the Council. This consolidated list contains all the names for which the Security Council has decided to impose measures in response to a threat. Article 41 of Chapter VII of the United Nations Charter grants the Security Council the authority to decide on sanction measures and call upon member states to implement these sanctions. This makes the UNSC Consolidated List one of the most important sanctions lists, as all 193 member states of the UN are required to comply with it. Presently, there are 863 individuals as well as entities and other groups enlisted in the UNSC’s Consolidated List.

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^{Source: UNSC Consolidated List}

For AML Compliance, other significant lists include those published by the United States’ Office of Foreign Assets Control (OFAC), the European Union, the United Kingdom, and the World Bank. It is always better to incorporate other important and comprehensive sanctions lists in a company’s overall compliance framework, even beyond those mandated by the country’s AML law, because these lists contain names of high-risk individuals and screening their names against customers ensures a better risk-management strategy when it comes to AML Compliance.

As a member of the United Nations, the UAE is mandated to implement the UN Security Council directives as per Article 16 (1) and Article 28 of the Federal Decree-law No. (20) of 2018. Cabinet Decision No. 74 of 2020 pertains to the UAE list of terrorists and the implementation of UN Security Council decisions related to preventing and countering the financing of terrorism, as well as the non-proliferation of weapons of mass destruction. According to the provisions of this Decision, the UAE also publishes a Local Terrorist List.

Financial Institutions (FIs) and Designated Non-Financial Businesses and Professions (DNFBPs) in the UAE are required by law to implement policies, procedures, and controls to apply targeted financial sanctions to individuals, entities, and other groups found on both the UNSC Consolidated list and UAE Local Terrorist List. This is done by a process called sanctions screening. Businesses use advanced software to match the customer’s names and other relevant entities, as mentioned later in the blog, with the names on the UNSC Consolidated List, Local Terrorist List, and other sanctions lists, if required. In case of a confirmed match, the FIs and DNFBPs need to immediately enforce TFS on them.

According to Cabinet Decision No. 16 of 2021, administrative fines for failing to take the necessary measures regarding customers included in the international or domestic sanctions lists before establishing or continuing a business relationship with those customers are AED 1,000,000. Considering the heavy administrative fines associated with sanctions violations and the UAE’s strong commitment to combating crimes such as money laundering and terrorist financing, the importance of sanctions screening and implementing TFS measures by the FIs and DNFBPs cannot be overstated. To comply with the UAE’s AML Compliance requirement, Financial Institutions and DNFBPs must abide by the following four essential steps:

1. Registering on the Executive Office for Control and Non-Proliferation website to stay updated and receive timely information about the latest listing and delisting on both the UNSC Consolidated List and the Local Terrorist List.

2. Conducting an initial sanctions screening before onboarding a customer, and then making daily sanctions screening as sanctions lists are continuously updated. The screening process includes matching the names and other details of the sanctioned individuals and entities in both lists with the following names:

a) Existing Customer Database

b) Parties to any transaction

c) Potential customers

d) Beneficial owners

e) Persons and organisations with which they have a direct or indirect relationship

f) Customers before conducting a transaction or entering a business relationship

g) Directors and agents acting on behalf of customers

3. Applying TFS for confirmed matches and freezing all funds without delay (immediately or within 24 hours). Financial services or related services must not also be provided. Since many individuals share names, potential matches may not necessarily mean that the entity is subject to Targeted Financial Sanctions. However, transactions should be suspended while investigating a potential match until a false positive is confirmed through Customer Due Diligence (CDD) measures. If the match is determined to be a false positive and TFS measures are not needed, the evidence of this must also be documented.

4. Reporting to authorities within two business days of implementing the freezing measure. The authorities must also be notified if previous customers are found on the sanctions list or if there is a suspected current or former customer’s direct or indirect relationship with a listed person.

^{Source: TFS Guidance}

Effective implementation of the sanctions screening process is essential for ensuring Anti-Money Laundering (AML) compliance in the United Arab Emirates (UAE). However, screening sanctions lists can be challenging, especially for small businesses, as it requires analysing substantial volumes of data and accurately recording the results. It can be resource-intensive for businesses, particularly since comprehensive AML risk management involves screening names against other important lists, such as those maintained by OFAC, in addition to the UNSC Consolidated List and the Local Terrorist List as mandated by the UAE’s AML/CFT law. It is also important to minimise false positives to avoid disrupting business with legitimate customers.

The software used for screening sanctions lists also needs to be synchronised with regular updates. Any lag in updates can result in missed matches or outdated information, which can be disastrous for businesses as sanctions violations are among the most severe AML regulatory breaches. These breaches, as mentioned earlier, can result in administrative fines of up to one million AED. To avoid such fines, businesses can manage their AML compliance requirements by outsourcing to expert consultants with extensive experience in the field and access to advanced screening technology, ensuring that their businesses remain compliant with all regulatory obligations.

Discover how AKW Consultants’ AML Compliance Solutions, using cutting-edge technology in sanctions screening and documentation, help you remain compliant with the UAE’s AML/CFT laws and avoid administrative penalties and reputational damage to your business.