One of the factors that has transformed the United Arab Emirates (UAE) into one of the world’s most important economic centers is its successful investment in free trade zones (FTZs). Spread throughout the territory, FTZs now host thousands of foreign companies that enjoy tax concessions and customs duty benefits, and have cemented the UAE’s status as a major node of the global economy.
However, incorporation in a FTZ also involves compliance with the UAE’s trade and financial laws, which are now expanding to include more rigorous KYC requirements as part of its AML and Counter Terrorist Financing (CTF) regulatory regime.
Indeed, in April 2021, the United Arab Emirates (UAE)’s National Anti Money Laundering and Combatting Financing of Terrorism and Financing of Illegal Organisations Committee (NAMLCFTC) adopted new Anti-Money Laundering (AML) guidelines designed to strengthen its existing AML and CTF protocols.
As the UAE is also home to one of the most important and active commodities trading centers in the world – the Dubai Multi Commodities Centre (DMCC) – these new efforts to combat illicit financial activity will have a major impact on a multitude of different companies, organizations and industries operating within its jurisdiction.
The DMCC hosts a wide range of different commodities trading and financial services firms, including those involved in agricultural commodities and industrial materials, and even cryptocurrencies. A particularly active sector in the DMCC includes gold/silver refiners and precious metals and stones trading firms. Dealers in precious metals and precious stones (DPMS) are treated as Designated Non-Financial Business and Professions (DNFBPs) in the UAE, and are regulated by the Ministry of Economy.
AML/CTF Rules and Risks for DPMS
Due to the considerable risk of money laundering and criminal/terrorist financing through the trade in previous stones and metals such as gold – DPMS need to implement specific safeguards and protocols to ensure compliance with the Ministry of Economy’s AML rules – and avoid the potentially hefty penalties and/or sanctions it has the power to mete out.
This is important both in terms of reducing their risk exposure to criminal and terrorist financial activity, as well as for remaining compliant within the increasing regulatory purview of the UAE government.
However, as many of these industries are still implementing their KYC/AML efforts through laborious, paper-based processes, there is plenty of room for error and manipulation by criminals seeking to use the DMCC as a conduit for money laundering.
As trading activity – as well as its exploitation for money laundering – continues to accelerate and become more globally diffuse and complex, the need for technological, automated solutions to the compliance challenge is more prescient than ever.
Due to the highly globalized nature of the DMCC, compliance teams of companies using the center need to be able to adequately and efficiently process, analyze and vet documentation from many different countries and legal regimes.
Indeed, the DMCC has issued a set of guidelines for a risk-based approach to due diligence and compliance for gold and precious metals trading companies to follow, which closely track the Organisation for Economic Cooperation and Development (OECD) 5-step framework for risk-based due diligence. These consist of a comprehensive and exhaustive approach to compliance that the organisation has deemed necessary for a robust AML/CTF approach in the industry.
The high levels of regulatory scrutiny on DPMS are not confined to the UAE. As these sectors are particularly prone to exploitation by criminals seeking to convert illicit funds into highly liquid commodities – as well as being a potential destination for precious metals and stones originating from sanctioned conflict zones – companies operating within these spaces across the world will need to ensure they have robust KYC/AML/CTF protocols in place.
The FATF frequently cites the trade in diamonds and other high-value precious metals and stones as particularly vulnerable to money laundering. Indeed, one gold trader active in Dubai was the subject of a years-long investigation by US authorities – reported in the so-called “FinCEN Files” – which reportedly uncovered over US$9 billion in suspicious transactions carried out through the company.
However, effectively complying with these regulations presents an enormous challenge for companies – if they attempt to handle all compliance checks manually.
KYC-Chain’s end-to-end workflow solution has been designed – and is constantly refined – to meet the complex compliance challenges faced by companies seeking to onboard new customers and realize transactions with both individuals and businesses.
Our solution offers dynamic, comprehensive checks against government and commercially-produced databases containing individual and corporate identification data, which is cross-checked against biometric and other verifier documentation submitted by prospective customers.
The KYC-Chain solution allows our clients to vet individuals through triangulated ID verification – as well as corporate entities through our Corporate KYC (also referred to as KYB) features – establishing true customer identities while also automatically formulating detailed risk scores.
Using global company registry checks, KYC-Chain is able to verify a company’s directors and UBO/shareholder information, allowing companies to have a clear view of prospective corporate customers – and their associated risks.
For companies that need to process large volumes of transactions or customer applications, these automated capabilities can facilitate a drastic reduction in resource expenditure for compliance.
Through our automated risk scoring, compliance teams can be used to review applications that have been delegated a high risk score. This risk-based approach allows for both exponentially greater speeds in processing transactions and customer onboarding, as well reduced chances for human error creeping into the compliance process.
Case Study: Al Etihad
Al-Etihad Gold is a DMCC-registered entity engaged in the gold/silver refining and trading business. Prior to the Covid-19 crisis, the company was almost exclusively using a manual, paper-based customer onboarding form, involving countless back and forth emails with customers attempting to use their services.
This process was clearly heavily resource-intensive, and also resulted in customers abandoning the process due to its often drawn-out timeframe and complexity. The Covid-19 crisis acted as a catalyst for the company to pursue a digital transformation of their onboarding and KYC processes, and chose KYC-Chain to be their partner.
Using KYC-Chain’s end-to-end workflow solution, Al Etihad Gold was able to digitize their document collection, allowing them to perform instant KYC verification on both individuals and corporate entities using government databases and corporate registries across over 160 global jurisdictions, document authentication, AML screening, shareholder and UBO verification and risk scoring.
Since then, Al Etihad has been able to significantly increase its compliance turnaround, reduce onboarding friction and automate most of its KYC processes, allowing it to focus on the core nature of its business while remaining compliant with the UAE’s AML/CTF laws.
If you’re looking for an automated KYC solution that can be adapted to the specific needs of your business, get in touch and we’ll be happy to arrange a demo and/or discuss how we can collaborate.