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Criminals exploit the financial sector to move illicit funds and conceal their origin through methods like shell entities and trade-based money laundering. The UAE faces money laundering and terrorist financing risks due to its expansive financial sector and large remittances. To mitigate these risks, FATF Recommendations advocate a risk-based approach, allowing authorities to assess and implement appropriate anti-money laundering and counter-terrorist financing (AML/CFT) measures. The report shares UAEFIU findings on money laundering typologies in the financial sector, focusing on predicate offenses, alternative banking services, underground banking, and trade-based money laundering. Additionally, it highlights high-risk sectors like lawyers, accountants, and real estate agents, emphasizing their connection to the financial sector.

Target Audience:

This report intended for financial institutions regulated by the Central Bank of the UAE (CBUAE), the ADGM-Financial Services Regulatory Authority (FSRA), and the DIFC-Dubai Financial Services Authority (DFSA). It presents findings previously shared by the UAEFIU with reporting entities from financial institutions, focusing on typologies directly relevant to the sector and highlighting major risk indicators.

Methodology:

This report presents major typologies and patterns of financial sector abuse in the UAE over four years, drawing from UAEFIU typology reports published from 2021 to 2023. Based on analysis of data from various sources including Suspicious Transaction Reports (STRs), Suspicious Activity Reports (SARs), cases disseminated to law enforcement authorities, and freeze requests, among others. Data from international requests and insights from supervisory and regulatory authorities were considered. Each typology report examined a sample of data covering one to three previous years, with a total of 6,729 suspicious reports and over 500 international requests analyzed during the timeframe.

This report discusses the money laundering risks associated with the real estate sector in the UAE. It addresses the main money laundering (ML) concerns regarding the source of funds utilized in the real estate sector in the UAE, whether the source of funds was unknown, generated from criminal proceeds (e.g., fraud, drug trafficking, tax evasion, corrupted politically exposed persons 'PEPs') or linked to circumvention sanctioned subjects.

The report continues by identifying the common typologies and patterns used in abusing the real estate sector, as follows:

1. The use of third parties and family members.

2. The abuse of a legal person's structure and corporate account.

3. The involvement of DNFBPs and broker bank accounts.

4. Claimed rental income.

5. The use of home finance and early settlement.

6. Manipulation of the property price.

The report also uncovers different types of unlicensed practices associated with the real estate sector, such as unlicensed real estate crowdfunding, hawala services, virtual asset service providers, and practicing real estate activities without licensing.

Two lists of risk indicators relevant to abuse of the real estate sector in the UAE are included in this report to guide reporting entities involved in real estate transactions (particularly real estate professionals and financial institutions) in better detecting and reporting suspicious transactions and activities related to the sector.

The UAEFIU concluded this report in line with the UAE's efforts to combat drug trafficking and money laundering, including the UAE national campaign launched in May 2023 by His Highness Lt. General Sheikh Saif bin Zayed Al Nahyan, Deputy Prime Minister of the United Arab Emirates and Minister of Interior, to fight illegal drug promotion and trafficking under the slogan “Join us to stop it”.

The report addresses different elements and attributes associated with the abuse of narcotics and psychotropic substances involving financial institutions. It identifies the most common patterns and trends of how financial institutions are abused in transacting funds associated with the illicit narcotics trade. Moreover, it highlights different examples of how the proceeds of drug trafficking could be laundered in the UAE.

This report scope also develops an understanding of how financial institutions in the UAE are misused in the growing trend of drug trafficking through social media platforms, and highlights different observations related to the potential employment of virtual assets in drug trafficking and laundering its proceeds.

The following typologies and their associated risk indicators constitute the key findings of the analysis, wherein risk mitigation is required:

1. Abusing the banking sector in drug trafficking and money laundering.

2. Abusing the money services businesses (MSBs) in drug trafficking and money laundering.

3. Misusing legal persons in drug trafficking and money laundering.

4. Employing trade-based money laundering (TBML) techniques in drug trafficking and laundering the proceeds of illicit drugs.

5. Abusing the real estate sector in laundering the proceeds of drug trafficking.

6. Employing virtual assets in drug trafficking and money laundering.

Over the past two years, the UAEFIU has issued a number of strategic analysis reports on the abuse of legal persons in money laundering, trade-based money laundering (TBML), professional money laundering (PML), and foreign proceeds of crime, as well as the abuse of dealers in precious metals and stones in illegal activities, among others. This report extended the previous strategic analysis work to identify further typologies and patterns related to the possible abuse of legal persons and arrangements in illegal activities. The findings of this report were based on 14 hypotheses drawn from the UAE National Risk Assessment (NRA), the Legal Persons and Arrangements Risk Assessment, and patterns observed globally and published in other jurisdictions' case studies.

Analysis of a sample of STRs/SARs considered underlying incidents of the possible involvement of foreign legal persons associated with local entities (in line with the FATF's latest guidance on recommendation 24), as well as incidents of potential foreign politically exposed person (PEP) involvement. Furthermore, it considered when difficulty in identifying the ultimate beneficial owner was observed or a complex structure was employed to disguise the ultimate beneficial owner information.

The following typologies and their associated risk indicators constitute the key findings of the analysis, wherein risk mitigation is required:

1. The possible abuse of legal persons as front or shell entities for illegal activities.

2. The possible abuse of offshore structures in illegal activities.

3. The abuse of legal persons in fraudulent activities.

4. The possible involvement of professional intermediaries (DNFBPs) in facilitating the abuse of legal persons in the UAE.

5. The possible abuse of legal persons for cross-border movement of funds.

6. The abuse of legal persons for conducting unlicensed hawaladar activities.

7. The abuse of legal persons in trade-based money laundering (TBML).

8. The possible abuse of legal persons to launder the proceeds of tax evasion.

9. The possible abuse of legal persons in proliferation financing.

10. The possible abuse of legal persons in sanction circumvention.

Precious metals and stones (PMS) are attractive to criminals and terrorists because they offer a high level of liquidity and anonymity, in addition to their compact size, so that they can easily be stored or smuggled. As such, dealers in precious metals and stones (DPMS) are vulnerable to exploitation in money laundering (ML) and terrorist financing (TF) schemes. Within this context, DPMS are considered among the Designated Non-Financial Business and Professions (DNFBPs) under Cabinet Decision No. (10) of 2019 concerning the Implementing Regulation of Decree Federal Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations. Consequently, DPMS are subject to the DNFBPs requirements, including reporting suspicious transactions and any transaction equal to or more than AED 55,000 to the UAE Financial Intelligence Unit (UAEFIU), as well as identifying and mitigating any ML/TF risks encountered.

While the UAE is a major contributor to the global trade of PMS, the risk of DPMS being abused for ML/TF purposes is recognized as high, according to the UAE national and sectoral risk assessments. With this framework, this report addresses the typologies and risk indicators associated with DPMS in the UAE during the period of January 2021-June 2022, based on the UAEFIU strategic analysis of data derived from stakeholders and reporting entities. In such a manner, this report develops raw data and information into knowledge and intelligence to be used in policy and decision-making processes, as well as operational activities. Furthermore, it aims to assist UAEFIU stakeholders, as well as DPMS and financial institutions, in identifying and reporting suspicious transactions and activities associated with ML and TF in the DPMS sector.

The following typologies and their associated risk indicators constitute the key findings of our strategic analysis, wherein the risk mitigation areas required in the DPMS sector are underlined:

1. Trade-based money laundering (TBML) by DPMS entities.

2. Money laundering through 'foreign currency exchange' by DPMS entities.

3. Possible gold/cash smuggling via DPMS entities (conflict gold supply chain).

Fraud is a criminal offense that refers to intentional deception to secure or gain unfair or unlawful profit or deprive the legal right of property ownership. Fraud involves misrepresenting facts either by words or by conduct, withholding vital information, or making false statements made by one party (perpetrator) to another, causing financial, nonfinancial, or potential loss to another party (victim).

In the UAE, fraud is one of the most common crimes facing the financial sector. Fraud crimes are committed daily. While law enforcement and other bodies trace and prosecute financial criminals, fraudsters develop more sophisticated methods to commit such crimes.

The examined sample reviewed by the UAEFIU of STRs/SARs and ISDs/IRIs underlined different fraud patterns and trends, including the following:

• Scam Fraud

• Fake Products/Fake Websites Fraud

• Fake Visa/Ticketing Fraud

• Investment Scam Fraud

• Phishing/Vishing

• Forgery/Counterfeit

The UAE is recognized as a country with a diverse and multicultural population, a secure and stable economy, and strong institutions. It has an accessible financial system, a dynamic market, a strategic geographic location between Asia, Europe, the Middle East and Africa and its well-developed international trading and financial hub. Criminals can exploit the UAE's inherent characteristics in several ways for ML/TF, including its trade system.

TBML is the process of disguising the proceeds of crime and moving value using trade transactions to legitimize their illegal origin or finance their activities (The aim is not the movement of goods but rather the movement of money, which trade transactions facilitate).

The report found 6 emerging typologies associated with possible trade-based money laundering (TBML) activities:

1. Use of back-to-back letters of credit

2. Presentation of fictitious documents

3. Phantom shipments (or fictitious trades)

4. Over or under-invoicing Accounts used as a pass-through

5. Use of shell and front companies

UAE is a country with diverse and multicultural population with a secure and stable economy and strong institutions. As such, the UAE has an accessible financial system, a strategic geographic location between Asia, Europe, the Middle East, and Africa and is a well-developed international trading and financial hub.

There are over 500,000 Legal Entities (LEs) established in the UAE. While LEs are generally established for licit purposes, the analysis suggests that they are still vulnerable and can be abused for illicit purposes, considering some gaps in the identification of the Ultimate Beneficial Ownership (UBO), the extensive use of cash and the recurrence of complex international schemes.

This report provides an overview of the main sources underlying the strategic analysis related to Legal Entities (LEs) and the link between the abuse of LEs and ML/TF schemes, including some of the key features, such as the types of transactions and activities carried out by LEs, the volume of transactions, and the main Jurisdictions involved.

It also emphasizes the possible shortcomings related to the quality of the STRs and SARs in connection with the current list of indicators or 'Reason For Reporting'.

It considers possible links between the abuse of LEs and other relevant elements and risk factors, such as:

• Identification of Ultimate Beneficial Owner (UBO);

• Trade Based Money Laundering (TBML);

• Complex ownership structure;

• Political Exposed Persons (PEPs).

This report includes risk indicators and guidance for reporting entities to effectively detect and report cases of possible abuse of legal entities for ML/TF and other illicit purposes.

Non-profit Organizations (NPOs) are key stakeholders providing services to local communities, particularly to those in need, as well as around the world, and often in remote regions.

Currently, there are more than 493 NPOs registered in the UAE (Source: MOCD) and subject to the supervision of the relevant competent authorities, such as Ministry of Community Development (MOCD - Federal jurisdiction), the Rulers of the individual Emirates (Emirate-level Ruler's Funds), the Islamic Affairs and Charitable Activities Department (IACAD - Dubai jurisdiction), and the International Humanitarian City (IHC - Dubai Free Zone jurisdiction).

The abuse of NPOs, and specially charities, is a serious risk that many countries are facing and are trying to combat. The UAE recognizes the risk of abusing NPOs; particularly in Terrorist Financing (TF).

In assessing the TF risk associated to NPOs, Reporting Entities may consider at least the factors relating the geographic area, the structure and organization, and the activity of NPOs. These are not static assessments. Factors change over time, depending on how circumstances develop, and how threats evolve.

To promote compliance with the AML/CFT Law and the fulfilment of the STRs requirements, the UAE FIU developed a list of indicators (or red flags) based on which there is reason to suspect the abuse of NPOs.

Money Service Business (MSBs), or Money or Value Transfer Services (MVTS), refers to financial services that involve the acceptance of cash, cheques, other monetary instruments, or other stores of value and the payment of a corresponding sum in cash or other form to a beneficiary by means of a communication, message, transfer, or through a clearing network to which the MVTS provider belongs. Transactions performed by such services can involve one or more intermediaries and a final payment to a third party and may include any new payment methods, including internet and mobile technology, and innovative Fintech solutions.

This Guidance is based on the results of the strategic analysis relating to Money Service Businesses (or also named as Money Service Providers) “MSBs”, Money or Value Transfer Services “MVTS” and Registered Hawala Providers “RHP”, operating in the UAE and their possible abuse in the context of Money Laundering (ML) and/or Financing of Terrorism (FT).