Cases of Money Laundering in the United Arab Emirates - Term Paper Example

Money laundering is considered a curse for the banking industry. Money laundering in simple words is all about hiding the base or origin of the fundsdeposited in one’s account. The term money refers to the funds in account holder’s bank account while, the term laundering refers to the practices of hiding the fact or truth about the deposited money. One of the core objectives behind money laundering could be promoting terrorism activities against which, financial institutions tend to come up with policies and procedures to control such activities and illegal crimes (Hopton, 2009, p.170). Anti Money Laundering (AML) refers to programs, policies, procedures and practices that tend to eliminate Money Laundering from the financial sector. These days, existence of compliance department is taken as one of the important aspects in any financial entity worldwide (Goldsmith et al., 2007, p.18). Anti Money Laundering practices ensure that the money is not generated by illegal means and is not supposed to be used for criminal activities. Taking an example of tax avoidance, legitimate money that is earned legally by some business or job can directly be deposited in to one’s bank account without any fear or manipulation. Legitimate money has no issues to finalize issues pertaining to tax return. However, account holders having illegitimate funds in their accounts tend to hide the source of income so also face trouble in tax return case (Hopton, 2009, p.2). These days all banks require source of income to complete the KYC (Know Your Customer) requirement. KYC (Know Your Customer) is done to make sure that the Relationship Officers or the Account Opening Officers have done the prerequisite investigation and is convinced with the source of income provided by the customer at the time of account opening. The proper practice of KYC (Know Your Customer) ensures that the customer has some proper business or job, by which he earns a specific amount on weekly, monthly or annually basis. Customers are even asked to let the Relationship Manager know about any other income that he / she receives (rent, commission, etc) in addition to his basic income. This is done to estimate inflows and outflows of funds. Transactions are to be well estimated and declared on AOF (Account Opening Form) so that to ensure the expected funds would be legal. KYC procedures and requirements are designed and implemented by Compliance Departments of all financial entities. Compliance keeps a check on each and every account and highlights unusual transactions as soon as these take place. For example, if a person declared himself a salaried person with monthly income of 700$. His account history shows the same inflow per month for consecutive nine months, but suddenly, someone deposits 100,000 $ in his account. Such transaction is highlighted as it is considered an unusual transaction that has to be justified by the customer. It could be an amount received by selling a property, etc. On the other hand; it could be in return of some criminal activities. One time deposit could be justified by a customer or is not taken seriously by a bank too, but frequent heavy transactions in an account of average salaried person could be fishy. To deal with such alerts, proper procedures are defined and implemented by Compliance Department. The core objective of Compliance is to make sure that all existing accounts contain legitimate funds and all transactions are clean and under legal boundaries. Compliance also ensures a proper investigation procedure (KYC) to be fulfilled by the Relationship Manager at the time of account opening. Obstacles in meeting the standards of Anti-Money Laundering campaign There could be three biggest threats that are the basic problems Compliance department of any bank faces these days in accomplishing their tasks of eliminating the criminal activities of Money Laundering from bank. All three threats are discussed below. Sales Target These days, Relationship Officers, Personal Bankers, Senior Personal Bankers, Business Development Executives or Account Opening Officers are appointed by banks to introduce more and more clients to banks. As, the banks earn on the money deposited by the account holders. The biggest the account, the more the bank earns out of it. All above roles are mostly given sales targets that are discusses with them on a daily basis. In most of the cases, the Relationship Managers or Personal Bankers do not represent the exact picture of estimated customer transactions. They tend to pose their customers far of Money Laundering by making fake Customer Due Diligence. This is done due to sales pressure. At this point, many problems may arise as in case of reporting a suspicious transaction, a person who actually opened the account is questioned and on his satisfaction, Compliance closes such suspicious transaction alerts. However, in doubtful cases, Compliance can even point out the officer who opened such account. Plenty of Transactions In banks, not only of the United Arab Emirates, but also of all the banks worldwide, thousands of transactions take place on a daily basis. Ultimately, it is not really possible to monitor each and every transaction of each and every account with human eye. However, almost every financial institute acquires software to help in monitoring all accounts in the best possible way. There are numerous software and program available in the market for the purpose of Anti Money Laundering. However, such programs are very expensive and complicated. Proper dedicated staff is hired to take special care of and to execute such software properly. Forge Documents and Proofs The biggest threat to the Anti Money Laundering campaign could be the forged or fake documents. People who are involved in Money Laundering in the United Arab Emirates (UAE) and numerous Asian countries are smart enough in providing forge documents for fund placement in different banks. Once they place their funds, they perform layering by sending their money here and there to hide the base or origin. As soon as they succeed in integration that could be done by purchasing stocks, properties, business or any other asset. On selling of which, they can receive the money back with original documents to show the bank while placing the funds again in their accounts. This time, they do not really need any forge document to secure their position. This is done smartly by those who are in to such Money Laundering practices. Steps of Money Laundering Money Laundering involves three stages which are placement, layering and integration (Lawyer Shop, 2008). Let us discuss each one of them below: 1. Placement: this step refers to the deposit of funds in any bank account. Fund placement in any bank that could be earned illegally. If ignored by the bank can create a lot of problems in the future. This step involves the very first step of money laundering that means cleaning the money. In most of the cases, when banks ask for evidence or proof of deposited money, one can present forge / fake documents to prove the origin of money as legal. Suppose a person deposits 100,000 $ in his bank account posing he sold a family owned property. 2. Layering: this step refers to the manipulation that is done to hide the base or origin of money acquisition. Layering may involve several transactions to misguide the tracking checks. Transferring money here and there from one bank to another in order to hide the base is very common in money laundering. Coming back to the example given in placement where a person deposits the sum of 100,000$ in his bank account posing that he sold his family owned house. Layering could be sending this sum through wire transfer to some other country and after acquiring some asset or property, reselling the property and receiving money back in the same account. Such transactions to clean money are known as layering. 3. Integration: Integration involves the final step of receiving money through genuine sale of some asset or property as defined in the layering part. This step finally cleans the money as it is presented as in return of some real and genuine sale or transaction by the account holder. Money Laundering in the United Arab Emirates (UAE) Before 2008, the United Arab Emirates has been considered a place to relax, invest and save the money. Dubai was considered the easiest place for such activities. The reasons were the opportunities and ease for investment particularly (Nation & World, 2005). Since, Dubai was developed to compete the modern cities, Dubai was made free port to encourage investments. This was decided by the government of Dubai to develop the state as much as possible. Numerous banks are now operating in the UAE since long. All banks are influenced by the state laws and regulations. Unlike other places, the government of the UAE was not so strict in Compliance so as the banks. It has been published at a few places that the funds for the terrorist attack of 9/11 were transferred through the United Arab Emirates. The funds to purchase weapons for terrorist attacks were released from the banks of the United Arab Emirates. It could be a result of ease in hiding the base or origin of funds. The funds generated through legal ways are usually not utilized in terrorism or any other destructive activities. However, the funds that cannot be justified and are transferred here and there without any proper clarification could be risky. Since, the incident of 9/11, money laundering has been taken seriously by the UAE. United Arab Emirates along with the United Kingdom worked a lot on money laundering and related crimes (UAE Interact, 2006). However, the United Arab Emirates is one of the law abiding state with low crime rate and domestic harmony. The UAE has been trying to implement rules to prevent money laundering activities (International Monetary Fund, 2008). Anti Money Laundering (AML) Law in the United Arab Emirates According to the Federal Law No. 4 of 2002, which is also known as the law of Anti Money Laundering (AML), the suspicious transactions are to be sent to the Financial Intelligence Unit inside the central bank of the United Arab Emirates for the Egmont Group. However, bringing all suspicious transactions under the concern of NAMLC (National Anti Money Laundering Committee) is the duty for creating the technicalities as established by the law of Anti Money. The Central Bank Governor is the one to look after all such checks and balances. According to the Dubai International Financial Centre, normally known as DIFC, businesses could either be authorized firms, Ancillary Services Providers and the Designated Non-Financial Businesses and Professions. Authorized firms are those that provide financial services. Ancillary Service Providers are those who are lawyer, accountants or any other accounting or legal professional. Designated Non-Financial Businesses and Professionals, denoted as DNFBPs refer to lawyers or accounting professionals who are not ASP. ASPs are those who are responsible for taking care of suspicious activities reporting. In the United Arab Emirates, there is a committee called the National Anti Terrorism Committee, consists people from the Central Bank, Chamber of Commerce, Customs and Ministries of the United Arab Emirates that is responsible for interagency liaison. Several initiatives were taken to improve the Anti Money Laundering Law of the United Arab Emirates after the terrorist attack of 9 September, 2001. Cases of Money Laundering in the United Arab Emirates In 2009, one thousand seven hundred and twenty suspicious money laundering transactions were reported in the UAE (Baxter, 2010). These transactions were seriously and legally handled. Though, the head of bank’s Anti-Money Laundering and Suspicious Cases Unit, Al Awadhi called the allegations concerning the real estate as baseless because he calls the real estate organizations dedicated and loyal to the money laundering law. However, the banks were appreciated for monitoring suspicious activities in the best possible way. In the most popular money laundering cases in the UAE, it has been reported that the Al-Qaeda network of Osama Bin Laden sent bags of different currencies to Pakistan physically and from Pakistan, this money was sent to the UAE through hawala and then was utilized for numerous terrorist attacks. Another case is about Jain who refused to accept his part in drug abuse. However, he accepted that he did money laundering. Jain earns a lot from his businesses in Africa. It had been believed that Jain forwarded a lot of money to smugglers of diamond and drugs. As Dubai had been a place to ease for all such criminals, his money was also directed to Dubai. Several similar cases including Russian Mafia and Al-Qaeda laundered their money in the UAE so as the Jain. There is another popular case that was investigated by the US officials. As per them, there were several money laundering cases that resulted in sending more than ten million US dollars on a daily basis from the UAE to Kabul for drug deals. Another popular incident involved a minister from Bahrain who was involved in money laundering. Investigations against him proved him guilty in 2009 in a result of his tapped phone calls, etc. Minister was involved in wrongdoings and money laundering in the UAE. It has been found that the compliance of the UAE along with the FATF forty recommendations, 9 AML recommendations and fighting with the terrorist funding (CFT) is deficient. According to the Assessment Report of IMF, the rate of United Arab Emirates is non-compliant with the CDD. CDD is the customer due diligence. CDD is made by the account opening officer. United Arab Emirates is non-compliant on the reporting of suspicious transaction. However, IMF rates United Arab Emirates as somewhat compliant with the money laundering. In the UAE, the overall Anti Money Laundering (AML) framework was not assumed as accurate by the IMF, but the fundamental and important structure of AML/CFT was satisfactory. The United Arab Emirates had not been cooperating in interacting to tackle money laundering. In last two years, UAE has been taking important AML steps (eStandardsForum, 2010). Conclusion Money Laundering refers to the practice of cleaning the money. This involves hiding the base or source of deposited funds. These days, all banks worldwide are pressurized by the central banks to keep a check or track of all funds deposited. The United Arab Emirates was not so rigid about the check and balances in such case, but incident of nine eleven raised fingers on the UAE as a few articles published that the funds to support terrorist attacks were sent from the UAE. It is not easy to put blame on the UAE and neither is it our concern. However, the government of the United Arab Emirates had no answer to its leniency for banking sector. Therefore, they started implementing latest policies and strategies of Anti Money Laundering with the help of other countries. Anti Money Laundering programs are designed and executed to ensure that money laundering is not taking place. Money laundering not only ruins country’s image, but it also put adverse effects on country’s currency value and economy. It involves tax evasion, forge documents, unnecessary remittances and above of all, it may involve terrorist financing. International bodies have designed numerous checks and balances to track such activities. Governments of all countries these days put pressure on their financial sectors to comply with the set standards to ensure that no suspicious transactions are overlooked. This is done by the mean of following practices of KYC. Know Your Customer (KYC) is a practice of completing Customer Due Diligence (CDD). Customer Due Diligence (CDD) is an assessment that is done by the Relationship Manager (RM) or the Account Opening Officer at the time of account opening. During the chit chat with the customer at the time of account opening, Relationship Manager should interrogate to know the expected inflow and outflow of transactions expected each month. Account Opening Officer or Relationship Manager should also enclose any evidence proving the customer potential and financial stability in contrast with the expected monthly transactions. This helps compliance department to monitor if the real time cash flow of customer’s account complies with the document of Customer Due Diligence that is attached by the Relationship Officer or the Account Opening Officer at the time of account opening. Multinational financial institutes and banks purchase and implement heavy software to monitor suspicious transactions. In the United Arab Emirates (UAE), the importance of having a proper operational compliance department is increased after the incident of 9 September, 2001. Catching several cases of money laundering cases prove the existence of Anti Money Laundering programs and campaigns in the United Arab Emirates (UAE). Bibliography Baxter, E., 2010. Money laundering cases rise in 2009. [Online] Available at: http://www.arabianbusiness.com/581197-money-laundering-cases-rise-in-2009 [Accessed 2 August 2010]. eStandardsForum, 2010. Anti-Money Laundering/Combating Terrorist Financing Standard. [Online] Available at: http://www.estandardsforum.org/united-arab-emirates/standards/anti-money-laundering-combating-terrorist-financing-standard [Accessed 4 August 2010]. Goldsmith, J.G., Kälin, C.H. & Muller, W.H., 2007. Anti-money laundering: international law and practice. John Wiley & Sons Ltd. Hopton, D., 2009. Money Laundering: A Concise Guide for All Business. 2nd ed. Gower Publishing Limited & Ashgate Publishing Company. International Monetary Fund, 2008. United Arab Emirates: detailed assessment report on anti-money laundering and combating the financing of terrorism. Washington. Lawyer Shop, 2008. Money Laundering. [Online] Available at: http://www.lawyershop.com/practice-areas/criminal-law/white-collar-crimes/money-laundering/ [Accessed 3 August 2010]. Nation & World, 2005. An Unlikely Criminal Crossroads. [Online] US News Available at: http://www.usnews.com/usnews/news/articles/051205/5terror.b1.htm [Accessed 3 August 2010]. UAE Interact, 2006. UAE-UK Money Laundering seminar wraps up. [Online] Available at: http://www.uaeinteract.com/docs/UAE-UK_Money_Laundering_seminar_wraps_up/20140.htm [Accessed 3 August 2010]. Read More