Introduction
Money laundering supports criminal activities, both locally and globally. Many criminal undertakings generate financial resources for individuals and groups. Money laundering involves crimes that profit from other criminal processes while disguising the illegal source of funds. Money laundering is vital for individuals and criminal organizations because it enables them to enjoy financial benefits while protecting their sources of income. Notably, organized criminal operations, unlawful sale of weapons, and trafficking of humans and drugs generate considerable finances for involved parties. Other sources of substantial profits include insider trading, embezzlement, bribery, and fraudulent activities. The unlawful activities incentivize the process of “legitimizing” the illegally-obtained money through money laundering.[1] Although other efforts to facilitate the growth of anti-money laundering regulations could be available, the FATF is a significant global body whose standards are crucial in anti-money laundering regulations because they align with the UAE laws related to money laundering.
Money Laundering
Before discussing the FATF and the significance of its standards, a deeper understanding of the concept of money laundering is necessary. Some criminal activities generate considerable high amounts of profits. Consequently, the involved individual or group may find an effective means to conceal illegal activities and continue using the money to create more or to finance further crimes. They use mechanisms to control their finances and prevent attracting the attention of authorities about their source of income.[2] Such individuals achieve the objective by concealing the sources of the money, changing the currency, or transferring the funds within borders or across nations. Consequently, they can attract minimal attention to their source of profits. Such actions amount to money laundering, making it illegal nationally and internationally.[3] Therefore, governments worldwide have attempted to create effective mechanisms to prevent money laundering and curtail related criminal activities, including terrorism.
What is the FATF?
Many governments and other stakeholders within the international community have been, for years, concerned about the prevalence of money laundering activities around the world. Therefore, they have implemented attempts to coordinate anti-money laundering activities. One of the main successes towards the objective has been the creation of the Financial Action Task Force (on Money Laundering) (FATF). The body was established during the G-7 Summit in Paris in 1989 to fight money laundering and related criminal activities.[4] The coordinated international response would help overcome the activity, which affects countries worldwide. For example, money laundering involves moving money from a domestic bank toward a foreign financial institution to conceal the crime used to generate finances. The body’s initial task was to create recommendations, 40 in all, for member states to implement.[5] Overall, the organizations included the measures countries could take to implement the recommendations.
The FATF is the leading international body that updates money laundering laws and regulations. The FATF is an intergovernmental organization that would help states to combat money laundering activities; hence, the countries recognized the need for policies to curtail illegal undertakings. FATF had limited its mandate to other money laundering activities besides terrorist financing until 2001. Hence, it expanded the mandate in 2001 to cover terrorism financing because of the increase in such acts in the global arena. The FATF monitors the progress in the adoption of the FATF Recommendations. The body conducts “peer reviews,” which are “mutual evaluations” of member states to determine their level of implementation of the Recommendations.[6] It informs anti-money laundering activities in the member countries to prevent criminal activities at the global level. These actions are critical in the modern world that has become increasingly connected, allowing people to commit crimes on a global scale.
The FATF has clear objectives to achieve to prevent money laundering and related criminal activities at the global level. The body aims at setting standards and promoting the effective adoption of legal, regulatory, and operational anti-money laundering mechanisms. The current interconnectedness of the world requires addressing most of the crimes in the global arena. Therefore, the body ensures the coordination of anti-money laundering laws and regulations. The FATF motivates countries that have ratified it to implement measures to address money laundering and other issues that pose risks to the effective working of the international financial system. Thus, the FATF is a “policy-making body” with the primary mandate of creating the required political motivation to initiate national legislation and regulatory changes to address money laundering and terrorist financing.[7] The FATF tasks all member countries to develop an active regulatory environment to fight crime locally and internationally.
The FATF has reformed in the past to improve its mandate to curtail money laundering, terrorist financing, and related crimes. Countries, such as the United Arab Emirates, have reformed their national laws in response to changes made by the FATF. The recent changes made by the organization were institutionalized in February 2012. The latest amendments created policies and standards to implement legal, regulatory, and operational mechanisms in preventing criminal activities. The intergovernmental body issued “the Forty Recommendations on money laundering and the 9 Special Recommendations on Terrorism Financing.”[8] The original Forty Recommendations were released in 1990. The organization has revised the recommendations according to crime and operation environment changes. Significant improvements were implemented in 2012 and codified in “FATF Recommendations 2012.”[9] The reforms covered innovative regulations regarding WMD, corruption, and wire transfers. The FATF has improved the regulatory mechanisms to combat money laundering.
The Importance of the Standards
The seven standards that the FATF released are essential because of the significance of money laundering and their relevance in addressing crime. Money laundering is a complex activity because it conceals the actual source of profits to support national and international crime. The first standard specifies the list of crimes that underpins the money laundering crime. The rule is necessary because laws and regulations should have a relevant list of the crimes that amount to money laundering. Countries and blocks, such as the UAE, should have guidance upon which to base their anti-money laundering laws. The second standard is also essential because it ensures that financial institutions have an active customer due diligence process to curtail the loopholes that allow money laundering. Another standard is associated with managing high-risk customers and transactions, including banking through correspondence and individuals with political associations.[10] Such measures are necessary to prevent money laundering in financial institutions.
Anti-money laundering measures are necessary for other environments outside financial institutions. The next standard helps to fight money laundering crime related to non-financial operations and occupations. For instance, it deals with precious metals or stones, casino businesses, legal representatives, accounting professionals, and those working in real-estate ventures. Governments require laws and regulations affecting institutions and professions to prevent money laundering. Hence, considering the importance of international cooperation in the current globalized world, it is vital to include institutional measures to prevent money laundering. The sixth standard relates to the need to improve transparency through information on the legal persons’ beneficiary ownership.[11] The rule will prevent loopholes through legal ownership that could allow money laundering. Most importantly, legal measures are necessary to avoid money laundering to finance terrorist activities. For instance, Shell banks are the main sources of such money.[12] In general, all seven standards are necessary to prevent money laundering and related criminal activities.
The standards are also critical due to the amount of money laundered annually. Thus, it is necessary to have the means to prevent the process and protect national economies from the detrimental effects of illegal activities. Since money laundering covers all unlawful activities that are conducted outside a country’s legal economic and financial statistics, many other illegal actions are carried out, which amount to money laundering. Money laundering and other aspects of underground economic activities are detrimental to the economy because of their illicit nature.[13] A study by the United Nations Office on Drugs and Crime (UNODC) focused on the amount of financing that comes from money laundering and internationally organized criminal operations. The survey included an investigation of the amount of money that is laundered. They approximated that in 2009, 3.6 percent of GDP globally emanated from crimes. Hence, the percentage of money laundering stood at 2.7 percent (or USD 1.6 trillion).[14] The International Monetary Fund reveals similar estimates, indicating the seriousness of the criminal activities. Therefore, considering such statistics, an urgent need to formulate standards to control money laundering at the national level is critical.
Money laundering in the UAE
The United Arab Emirates (UAE) is one of the world’s main havens for money laundering. Transparency International indicated that the country is a “money laundering paradise.” For example, Dubai has created a reputation as a pre-eminent business hub. While such a status is positive because the country welcomes many individuals and companies to do business, it has also become a suitable ground for money laundering activities.[15] Standard economic rules are sometimes averted by criminals who use any loophole to conceal money generated through criminal activities. According to a recent Corruption Perceptions Index, the country has become increasingly attractive to money laundering activities. Corrupt and other criminals enter the country and conduct illegal activities without facing a lot of restrictions.[16] The country has strong financial institutions that they use to hide the funds. As a result, money laundering has become prevalent in the UAE, creating a need to analyze how the government implements the FATF standards.
Considering the prevalence of money laundering in the UAE, the federal government has instituted attempts to address the crime and reduce the extent of the offense’s impact in the country. The government commits to changing the country’s reputation as a hub of money laundering and terrorist financing. The legal mechanisms instituted in the country aim to close the loopholes that money laundering in the country and abroad uses to commit a crime within the UAE borders. The government has, since 2002, committed to fighting crime by improving the regulatory grounds in accordance with FATF recommendations and standards.[17] The law specifies the crimes that fall under money laundering, such as drugs, bribery, or fraud. The FATF has also been expanding its scope to cover other money laundering activities, such as those involving proceeds of felony or misdemeanor. The government has implemented significant efforts to combat all relevant crimes under money laundering and terrorist financing in the UAE under the FATF guidelines.
The UAE Anti-Money Laundering Laws
The United Arab Emirates has comprehensive laws criminalizing money laundering in the country. The UAE Federal National Council has recently adopted an attempt to improve the legislation covering the criminal aspect. The Federal Law No. 4 of 2002 has been in place since 2002 to criminalize money laundering. On 30 April 2014, the federal organizations conducted a recent reform by drafting a law to reform Federal Law No. 4. The change was a major reform on the AML Law’s name to “Federal Law No. 4 of 2002 on Confrontation of Money Laundering Offences and Combating the Financing of Terrorism” (“New AML Law”).[18] The new law is comprehensive legislation addressing the problem of money laundering in the UAE, which is argued to be one of the affected countries worldwide. Therefore, the federal government recognized the need to create mechanisms to address criminal activities.
The Extent to Which the UAE Implements the FATF Standards
The UAE operates under the FATF guidelines in confronting money laundering and terrorist financing. The 2014 draft law was created in response to the FATF recommendations, revealing the country’s observance of its Recommendations. In February 2012, the FATF created new standards and guidance for member states to combat money laundering and terrorist financing.[19] The UAE operates per the policies established by the FATF to combat money laundering and terrorism financing. The 2012 changes motivated the recent modification in the UAE relating to the criminalization of money laundering in the country. The federal government has always implemented “the Forty Recommendations on money laundering and the 9 Special Recommendations on Terrorism Financing”.[20] The UAE administration referred to “FATF Recommendations 2012. Hence, the government operates under the FATF standards and guidelines, which oppose money laundering and terrorist financing.
The recent changes in the UAE law relating to money laundering aimed at including changes in the FATF recommendations and standards. The New AML Law responds to the need to improve the national regulatory environment to fight against money laundering and terrorist financing. They integrated the FATF Recommendations 2012 into the legislative process in the nation. The New AML Law instituted a replacement, “17 of the 23 substantive articles.”[21] In addition, it included three new provisions to improve the legislative environment. The new law incorporates necessary mechanisms to determine money laundering and terrorist financing activities. For example, the new law changed the definition of Suspicious Transactions and expanded it to capture additional potential criminal activities. The changes could make it more effective for law enforcement to identify and fight against money laundering and terrorist financing in the UAE.[22] Overall, it addresses the reasonable grounds for money-laundering suspects and fights related crimes covered by the law.
Bibliography
Alberto Chong and Florencio Lopez-De-Silanes, ‘Money Laundering and its Regulation’ (2015) 27Economics & Politics 78.
Dominic Dudley, Dubai Has Become A “Money Laundering Paradise” Says Anti-Corruption Group (2019) https://www.forbes.com/sites/dominicdudley/2019/01/29/dubai-has-become-a-money-laundering-paradise-says-anti-corruption-group/#41c65451315e accessed 9 February 2020.
Donato Masciandaro, ‘Global Financial Crime: Terrorism, Money Laundering and Offshore Centres. (Taylor & Francis, 2017).
Doug Hopton, ‘Money Laundering: A Concise Guide for all Business’ (Gower, 2016).
FATF, ‘What is Money Laundering?’ 2019 https://www.fatf-gafi.org/faq/moneylaundering/ accessed 9 February 2020.
Fatima Al Sakkaf and Fadh Nazeer, ‘Fighting Money Laundering in the UAE’ (2018) 5 Ct. Uncourt 5 13.
Force, Financial Action Task. ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, The FATF Recommendations’ (February 2012) http://www. fatf-gafi. org/media/fatf/documents/recommendations/pdfs/FATF% accessed 9 February 2020.
John A. Cassara, ‘Trade-Based Money Laundering: The Next Frontier in International Money Laundering Enforcement (John Wiley & Sons, 2015).
Khalid Al Hamrani, UAE Enhances Battle Against Money Laundering and the Financing of Terrorism (2014) https://www.tamimi.com/law-update-articles/uae-enhances-battle-against-money-laundering-and-the-financing-of-terrorism/ accessed 9 February 2020.
Mohammed Ahmad Naheem, ‘Presenting a Legal and Regulatory Analysis of the United Arab Emirates’ Past, Present and Future Legislation on Combating Money Laundering (ML) and Terrorist Financing (TF)’ (2020) Journal of Money Laundering Control 1.
Muhammad Usman Kemal. ‘Anti-Money Laundering Regulations and its Effectiveness’ (2014) Journal of Money Laundering Control 1.
Usman W. Chohan, ‘The FATF in the Global Financial Architecture: Challenges and Implications’ (2019) International, Transnational & Comparative Law Journal 1.
[1] Muhammad Usman Kemal. ‘Anti-Money Laundering Regulations and its Effectiveness’ (2014) Journal of Money Laundering Control 1
[2] Donato Masciandaro, ‘Global Financial Crime: Terrorism, Money Laundering and Offshore Centres. (Taylor & Francis, 2017).
[3] Doug Hopton, ‘Money Laundering: A Concise Guide for all Business’ (Gower, 2016).
[4] FATF, ‘What is Money Laundering?’ (2019) https://www.fatf-gafi.org/faq/moneylaundering/ accessed 9 February 2020.
[5] Force, Financial Action Task. ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, The FATF Recommendations’ (February 2012) http://www. fatf-gafi. org/media/fatf/documents/recommendations/pdfs/FATF% accessed 9 February 2020.
[6] Usman W. Chohan, ‘The FATF in the Global Financial Architecture: Challenges and Implications” (2019) International, Transnational & Comparative Law Journal 1
[7] Alberto Chong and Florencio Lopez de-Silanes, ‘Money Laundering and its Regulation’ (2015) 27Economics & Politics 78
[8] Khalid Al Hamrani, UAE Enhances Battle Against Money Laundering and the Financing of Terrorism (2014) https://www.tamimi.com/law-update-articles/uae-enhances-battle-against-money-laundering-and-the-financing-of-terrorism/ accessed 9 February 2020.
[9] Khalid Al Hamrani, UAE Enhances Battle Against Money Laundering and the Financing of Terrorism (2014) https://www.tamimi.com/law-update-articles/uae-enhances-battle-against-money-laundering-and-the-financing-of-terrorism/ accessed 9 February 2020.
[10] Force, Financial Action Task. ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, The FATF Recommendations’ (February 2012) http://www. fatf-gafi. org/media/fatf/documents/recommendations/pdfs/FATF% accessed 9 February 2020.
[11] Usman W. Chohan, ‘The FATF in the Global Financial Architecture: Challenges and Implications’ (2019) International, Transnational & Comparative Law Journal 1
[12] Force, Financial Action Task. ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, The FATF Recommendations’ (February 2012) http://www. fatf-gafi. org/media/fatf/documents/recommendations/pdfs/FATF% accessed 9 February 2020.
[13] Alberto Chong and Florencio Lopez‐De‐Silanes, ‘Money Laundering and its Regulation’ (2015) 27Economics & Politics 78
[14] John A. Cassara, ‘Trade-Based Money Laundering: The Next Frontier in International Money Laundering Enforcement (John Wiley & Sons, 2015).
[15] Dominic Dudley, Dubai Has Become A “Money Laundering Paradise” Says Anti-Corruption Group (2019) https://www.forbes.com/sites/dominicdudley/2019/01/29/dubai-has-become-a-money-laundering-paradise-says-anti-corruption-group/#41c65451315e accessed 9 February 2020.
[16] Fatima Al Sakkaf and Fadh Nazeer, ‘Fighting Money Laundering in the UAE’ (2018) 5 Ct. Uncourt 5 13.
[17] Khalid Al Hamrani, UAE Enhances Battle Against Money Laundering and the Financing of Terrorism (2014) https://www.tamimi.com/law-update-articles/uae-enhances-battle-against-money-laundering-and-the-financing-of-terrorism/ accessed 9 February 2020.
[18] John A. Cassara, ‘Trade-Based Money Laundering: The Next Frontier in International Money Laundering Enforcement (John Wiley & Sons, 2015).
[19] Mohammed Ahmad Naheem, ‘Presenting a Legal and Regulatory Analysis of the United Arab Emirates’ Past, Present and Future Legislation on Combating Money Laundering (ML) and Terrorist Financing (TF)’ (2020) Journal of Money Laundering Control 1.
[20] Khalid Al Hamrani, UAE Enhances Battle Against Money Laundering and the Financing of Terrorism (2014) https://www.tamimi.com/law-update-articles/uae-enhances-battle-against-money-laundering-and-the-financing-of-terrorism/ accessed 9 February 2020.
[21] Mohammed Ahmad Naheem, ‘Presenting a Legal and Regulatory Analysis of the United Arab Emirates’ Past, Present and Future Legislation on Combating Money Laundering (ML) and Terrorist Financing (TF)’ (2020) Journal of Money Laundering Control 1.
[22] Khalid Al Hamrani, UAE Enhances Battle Against Money Laundering and the Financing of Terrorism (2014) https://www.tamimi.com/law-update-articles/uae-enhances-battle-against-money-laundering-and-the-financing-of-terrorism/ accessed 9 February 2020.
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