Critical Sanctions Screening Guidelines for UAE Financial Institutions

October 21, 2024

The UAE has established itself as a key financial hub, making sanctions screening a crucial part of compliance for financial institutions. This article provides clear, detailed regulatory information on sanctions screening requirements for Banks, Electronic Money Institutions (EMIs), Virtual Asset Service Providers (VASPs), and Payment Service Providers (PSPs) in the UAE.

Recent Trends in UAE Sanctions Lists

Since 2018, sanctions enforcement in the UAE has significantly strengthened in alignment with international standards, particularly the recommendations set by the Financial Action Task Force (FATF). Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) laws in the United Arab Emirates (UAE) have continued to evolve to meet international expectations.

  • Monitoring High-Risk Jurisdictions: Financial institutions must closely monitor transactions involving countries identified by FATF as high-risk for money laundering and terrorism financing. The UAE Central Bank issues regular advisories on sanctioned entities linked to these regions.
  • Virtual Assets Scrutiny: The UAE has increased oversight of virtual asset transactions in line with FATF’s 2019 Guidance on Virtual Assets, which sets out measures to mitigate the risks posed by cryptocurrencies. Financial institutions and VASPs in the UAE must follow these guidelines.

How to Get Sanctions Screening Right: Industry-Specific Requirements

Sanctions screening requirements vary slightly depending on the type of financial institution. Below are the key regulations that apply to each type of entity in the financial sector.

Banks and Financial Institutions

  • Sanctions Screening Requirement: Banks are required to screen customers and transactions against relevant sanctions lists, as per Federal Decree-Law No. (20) of 2018 on AML and Federal Decree-Law No. (7) of 2017 on Combating Terrorism. Screening must occur at onboarding and continue throughout the business relationship. Any new client must be screened through these four lists – OFAC Non-SDN List, OFAC SDN consolidated list, UAE Local Terrorist List, and UN SDN consolidated list.

 

  • Ongoing Monitoring: Banks are expected to conduct continuous monitoring of transactions, particularly cross-border payments. Although UAE regulations do not specifically mandate real-time transaction monitoring, FATF’s Recommendation 10 advises ongoing monitoring, especially for high-risk customers or transactions.

 

  • Reporting to the Financial Intelligence Unit (FIU): Under Federal Decree-Law No. (4) of 2002, banks must report suspicious transactions involving sanctioned individuals or entities to the FIU, typically within 24 to 72 hours of identifying suspicious activity. Internal escalation protocols must be in place to ensure timely reporting.

Electronic Money Institutions (EMIs)

  • KYC and Transaction Screening: EMIs must apply Know Your Customer (KYC) procedures and screen transactions against sanctions lists under Federal Decree-Law No. (20) of 2018 on AML and FATF Recommendations. All customer identification information must be verified, and transactions must be monitored for compliance with local and international sanctions lists.

 

  • Cross-Border Transfers: For all cross-border payments, EMIs must implement robust sanctions screening processes. The UAE Central Bank’s AML/CFT Guidelines require particular scrutiny for transfers involving high-risk jurisdictions, as flagged by FATF.

 

  • Enhanced Due Diligence (EDD): For high-risk customers or transactions, EMIs must perform EDD in line with Federal Decree-Law No. (20) of 2018, gathering additional information on the customer’s background, the purpose of the transaction, and the source of funds.

Virtual Asset Service Providers (VASPs)

  • Screening of Virtual Assets: VASPs are required to screen all virtual asset transactions against both UAE and international sanctions lists, including those from the UN, OFAC, and the EU, in accordance with Federal Decree-Law No. (20) of 2018 on AML.

 

  • Continuous Monitoring: FATF’s 2019 Guidance on Virtual Assets requires VASPs to monitor transactions in real time to detect suspicious activities. In the UAE, VASPs must adopt this real-time monitoring for virtual asset transactions to prevent the movement of illicit funds.

 

  • STR Filing: If a VASP identifies a transaction involving a sanctioned entity, they must file a Suspicious Transaction Report (STR) with the FIU ideally within 24 to 72 hours of detecting suspicious activity, in accordance with Federal Decree-Law No. (20) of 2018.

Payment Service Providers (PSPs)

    • Transaction Screening: PSPs handling international payments are required to screen all transactions against relevant sanctions lists, as outlined in Federal Decree-Law No. (20) of 2018 and UAE Central Bank AML Regulations. This is critical for cross-border transfers, especially those involving jurisdictions identified by FATF as high-risk.
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    • KYC and CDD Compliance: PSPs must ensure full compliance with Customer Due Diligence (CDD) requirements under FATF’s Recommendation 10. CDD must be applied during onboarding and for any transactions involving high-risk customers or jurisdictions.
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    • Monitoring of Digital Payments: PSPs must implement automated monitoring systems to screen digital payments in real time, ensuring that no transactions involve sanctioned entities. This is especially important for high-volume payment processors.

Common Practices Across Financial Institutions

Certain practices apply to all financial institutions in the UAE, regardless of their specific sector:

  • Sanctions Screening at Onboarding and Throughout the Relationship: Under Federal Decree-Law No. (20) of 2018, all financial institutions must conduct sanctions screening at the time of customer onboarding and continue this screening throughout the entire relationship.

 

  • Ongoing Monitoring: FATF’s Recommendation 10 advises continuous monitoring of customer transactions, with particular attention paid to those involving high-risk countries or industries. Although not explicitly required by UAE law, real-time monitoring is recommended for institutions handling large volumes of transactions.

 

  • Suspicious Transaction Reporting (STR): All financial institutions must file STRs with the FIU typically within 24 to 72 hours of identifying suspicious transactions, as outlined in Federal Decree-Law No. (4) of 2002. Reporting processes must be in place to ensure compliance with this requirement.

Automation in Sanctions Screening: Why It’s Necessary

While automation is not explicitly required by UAE regulations, it is highly recommended for large financial institutions or those handling substantial transaction volumes. Automation offers several advantages, including:

  • Efficiency: Automated systems can screen thousands of transactions quickly, ensuring that no sanctioned entity or individual is missed.

 

  • Accuracy: Automation reduces the likelihood of human error, ensuring that all transactions are screened against the most up-to-date sanctions lists, including those from the UN, OFAC, and EU.

 

  • Scalability: Automated solutions can scale to handle growing transaction volumes, which is especially important for fast-growing institutions like VASPs and PSPs.

Secondary Benefits of Automation

In addition to ensuring compliance with sanctions regulations, automated sanctions screening offers several other benefits:

  • Integration with Customer Due Diligence (CDD): Automated screening can be integrated with CDD processes, ensuring that high-risk clients are flagged for enhanced scrutiny.

 

  • Faster Onboarding: Automation can speed up the onboarding process for legitimate clients, allowing institutions to meet compliance requirements without unnecessary delays.

 

  • Cost Efficiency: By reducing the need for manual oversight, automation lowers operational costs, making sanctions screening more cost-effective.

UAE Government Recommendations and Best Practices

The UAE government and its regulatory authorities have issued several key recommendations to ensure that financial institutions meet their sanctions screening obligations:

 

  • Regular Updates to Screening Systems: Sanctions screening systems must be regularly updated to reflect the latest changes in sanctions lists, as recommended by the UAE Central Bank.
 
  • Comprehensive Monitoring: Financial institutions should implement monitoring systems that cover all types of transactions, particularly focusing on cross-border payments and high-risk jurisdictions.
 
  • Internal Audits: Regular internal audits should be conducted to ensure that sanctions screening processes are functioning effectively and in compliance with UAE AML regulations.
 
  • Collaboration with FIU: Financial institutions must maintain open lines of communication with the FIU and promptly report any suspicious activities, as outlined in Federal Decree-Law No. (20) of 2018.

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