UAE Anti-Money Laundering Efforts

UAE Anti-Money Laundering Efforts

  • 13 June 2004

The United Arab Emirates (UAE) Central Bank recently organized a regional seminar on curbing money laundering for South Asian countries in cooperation with the US Department of Treasury. The seminar was borne of the increased attention the UAE government has afforded to combat the phenomenon and the belief that confronting this threat requires full international cooperation in light of the proliferation of the crime, the development of its means, multiplicity of its channels, as well as its close link with terrorist activities. Until recently, money laundering had exclusively referred to the process by which illegally obtained money is made to appear legitimate. However, many of the world's countries, most notably, the United States and specifically, after 9/11, began to use the same term for money employed to carry out terrorist acts, even if such money comes from clean and reputable sources through legitimate financial conduits. 

According to the UN Global Programme Against Money Laundering (GPML), estimates on worldwide money laundered are as high as US $500 billion a year¿about half of which is channeled through drug trafficking, while the rest derives from other criminal activities. However, other sources estimate that the scale of worldwide money laundering operations has reached as high as US $1500 billion and that US banks alone launder nearly one-third of the world's dirty money. Despite this magnitude, the money thus far confiscated by security authorities hasn't exceed US $500 million¿less than 0.1% of suspected laundered money. What increases the gravity of this crime is that every effort by those responsible for combating and confronting it is met by a counter-action, thus increasing the complexity of the crime and multiplying the cost of besieging and eliminating it. In this regard, laundering has benefiting from developments in communications and information technology. This, in turn, contributed to the spread of e-money, the increase in the volume of e-commerce, as well as the globalization of financial and banking services. This has lent money launderers vast space to work new patterns through which, to a great degree, resemble legitimate financial and commercial transactions. 

Moreover, money launderers have managed to make their crime an integrated, developed industry by employing many experts and professionals in the fields of accounting, law, and e-systems to help them create the best means and tricks to enable them to grant apparent legitimacy to their money. Many factors led to misgivings and fears regarding Gulf Cooperation Council (GCC) states' economies after 9/11, as they may be a magnet for laundered money. Such factors include GCC countries' economic and security stability; the possibility to establish companies rapidly; the active commercial and tourism movement in the region; the varied developed financial systems linked with financial centers worldwide; the numerous private exchange offices; GCC countries' developed infrastructure¿airports, ports, roads, and modern means of communications; and their geostrategic location in the heart of drug production areas in Central Asia, where Afghanistan alone produces more than 70% of the world's opium, and of drug consumption areas in Europe and North America. Based on US investigation findings on the financing of terrorist acts, experts and officials in the US, in particular, and the West, in general, attempted to link terrorism financing directly to the UAE 'hawala' system (money-transfer network). 

In this regard, they argue that terrorist organizations exploit this traditional system, ushered in with the flow of Asian emigrants to the UAE, in money laundering operations. In an assessment of many articles and investigations by Western experts and officials, it is evidently difficult for Westerners to grasp the concept of hawala and its process mechanism. Until very recently, it had been widely suspected by many Westerners that hawala is an underground financial system exploited by drug traffickers, arms dealers, criminals, and terrorists in their financial transactions. Some equated the system as turning the banking business into a virtual grocery store in that money transfer is done verbally and through private offices, where a person gives money to a trader who, in turn, phones an agent in another country and instructs him to hand an equal amount to a beneficiary. According to the estimates by a financial expert at the German Ministry of Finance, approximately US $30 billion in verbal money transfers was transmitted in Iran, Pakistan, and throughout GCC countries during the 2nd half of the 1990s. Nearly one-third of this amount is suspect. 

This confirms the West's lack of knowledge regarding the status of workers in the GGC, as estimates show that Indian workers in the UAE alone transferred more than $10 billion during this same period. Meanwhile, Pakistani workers in the UAE transferred more than two-thirds of this amount. Most such transfers have been wired through the hawala system the West suspects of illicit abetment. Most money transfers carried out by hawala brokers (hawaladars) in the UAE are insignificant sums, which are, in most cases, portions of Asian workers' wages. Moreover, those hawaladars don't, as imagined by the West, possess the necessary capabilities to transfer huge amounts of money to be laundered, and the clients themselves don't dare risk using a system the West says it's based only on the trust element in transferring huge amounts of money. The hawala system in the UAE is necessitated by the realty of the existence of more than 2 million workers from Asian countries, who continually transfer their legally earned money to relatives in remote areas, which lack the fundamental necessities, such as modern banking systems. Moreover, the hawala system in the UAE is different from the experience of Asian emigrant flows to the US and the West, where tax evasion and laundered currency is an issue.

The UAE has been aware of the leak of illegally earned money into the national economy since the 1980s, as it has resulted in major defects to the UAE economic structure. It has contributed to a waste of national income for the benefit of foreign entities, a great imbalance in consumption and spending patterns, and an increase in domestic liquidity in such a way that doesn't equal the increase in goods and services. The leak of dirty money into society has also been evident in turning the social structure balance upside-down whereas, criminals tend to rise to the top of the social pyramid. Accordingly, the UAE has sought to establish the necessary controls to uncover any money laundering operations inside domestic institutions and has adopted a series of steps and legislation to combat this phenomenon. In addition to the anti-money laundering law issued in early 2002, the UAE Central Bank has issued a number of procedures and instructions to be adhered to by banks and financial institutions operating within the UAE. In mid-2002, the UAE also organized the first international conference on hawala and restructured the system so that it is more difficult to exploit it in money laundering operations. 

At the international and regional levels, the UAE signed the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances in Vienna in 1988. Moreover, it complied with the principles propounded by the Basel Committee in 1988, an international oversight committee responsible for applying standards for banking regulation and supervision. The UAE is also a major proponent of the Arab Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, which was signed in Tunisia in 1994. The UAE has recently sought to implement a number of important steps and demands based upon its modern view of anti-money laundering operations as well as the universality and divergent nature of the phenomenon. 

The UAE view is not only to reduce a financial crime, which of course begets dirty money, but also to deprive terrorists and criminals of the means that enables them to carry out their objectives. Among these steps are completing and modernizing anti-money laundering legislation; backing and developing regulatory and supervisory bodies and judicial systems, which cooperate to combat the phenomenon; involving leaders of private sector companies and institutions, especially financial institutions, to back the initiatives taken by the competent governmental authorities to combat the trend; as well as participating actively and effectively in international and regional forums, towards enriching awareness and enhancing cooperation to combat money laundering.