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He invests the proceeds from his illicit drug trade into a local car wash business. The metaphor is clear: Unfortunately, in real life, the process of illegal money laundering is far more complex and subtle.
In Abu Dhabi, 20 people were arrested in February on suspicion of involvement in a bogus car investment portfolio and they face charges including fraud and money laundering. A report by PwC in February concluded that financial crime in the Middle East is as hard to tackle as ever. Trade-based money laundering TBML — the process of disguising and moving the proceeds of crime across borders via trade transactions rather than currency exchange or cash deals — was also highlighted as a threat.
Further, an alarming 40 percent indicated that their organisations had never performed a fraud risk assessment. The cost of falling victim to financial crime, even indirectly, is significant.
Many of them are working in regional offshoots away from the head office, giving them more opportunity. All of these factors give them scope to rationalise their behaviour. Michael Shepard, US-based global anti-money laundering, sanctions and financial crime leader at Deloitte, adds: It is one of the hottest topics in the world.
After a slew of negative stories post-financial crisis [such as the Swiss Leaks scandal], no one wants to be on the front pages of the newspapers as having a regulatory or ethics issue.
The two countries are gearing up to undergo assessment by the Financial Action Task Force FATF , the global inter-governmental body set up by member states in and responsible for developing and upholding policies to combat money laundering and terrorist financing.
The FATF recommendations are a framework of measures that member states are required to implement, and countries are subject to a four-tomonth review every seven years or more to ensure they are maintaining standards. There are only a few countries with that status, including Iran, Iraq, Afghanistan, Syria and Ethiopia. The review process is tough, and the report straight away affects the reputation of the country and every financial institution in it.
Although both countries received satisfactory status in their last reviews in and , the methodology was tightened up in with requirements to assess not only how robust a framework is in place, but how well it is being implemented and enforced.
In , the UAE ratified a new anti-money laundering law intended to clamp down on financial crime. The law also penalises board members and employees who fail to report corruption, and gives legal protection to whistleblowers. Emirates NBD says it is firmly committed to combating financial crime and money laundering.
Dubai established the Dubai Economic Security Centre in April to fight financial crime, and the UAE Central Bank now has an online system for filing reports of suspicious transactions.
But despite the beefed up frameworks, challenges remain. Experts note terrorism financing is hard to detect because it is often legal proceeds that are funnelled into an organisation, rather than the proceeds of crime. Real estate has long been a target. The documentary Cocaine Cowboys showed how South American drug money indirectly financed the construction of much of Miami — and the authorities are aware of this.
However, criminals are also getting smarter. It is now rare to see money laundered in huge piles of cash, as was common in the past with proceeds from drug smuggling, war lords and blood diamonds.
Trade-based money laundering is more common, via under- or over-invoicing, misdescription of goods, and so on. With the Gulf occupying a strategic trading position between East and West it is especially vulnerable, experts say, citing industries such as gold and jewellery. Given the importance of trade to this region, regulators need to effectively oversee and supervise trade finance without hindering actual trade.
A business model may have changed but then again it might not have. Emirates NBD notes the concerns held by banks when it comes to fincrime. A shortage of fincrime monitoring skills does not help. The solution is technology. As the financial crime landscape becomes increasingly complex, cutting-edge digital solutions, such as Blockchain, augmented reality and artificial intelligence AI , are required to identify suspicious transactions.
Banks will also have to stay ahead in terms of cybersecurity, as any cyber attack on a financial institution is, ultimately, a financial crime. How do you monitor hundreds of thousands of transactions, in real time, with the human eye? Khalid Shaikh, head of compliance at Mashreq Bank, agrees: Yet, in working to combat financial crime, authorities must strike a balance between reducing financial risk and promoting financial inclusion, experts warn.
Banks are now required to look through global correspondent bank accounts including in the GCC , and move high-risk accounts elsewhere. As well as digital solutions, increased government sharing is key.
We are all required to engage in efforts to mitigate against and investigate it. With stakeholders working together in the fight against fincrime, it may become easier to detect and intercept corruption.
But, at the moment, criminals are often several steps ahead. Winning the battle against the Gulf's dirty laundry With its strategic trading position, it is little surprise the Gulf has been used as a thoroughfare for illicit funds.
But banks, regulators and technology firms are clubbing together in the fight against financial crime, and hope to wash corruption out of the system for good.
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