The Central Bank of the UAE (CBUAE) has issued fresh guidance on anti-money laundering and combating the financing of terrorism (AML/CFT) to Registered Hawala Providers (RHP) and Licensed Financial Institutions (LFIs) providing services to hawala providers.
The new guidance, which came into effect on 18 August 2021, will assist in the understanding and effective implementation of the statutory AML/CFT obligations for RHPs and LFIs, as outlined in Federal Decree-Law No. (20) of 2018 on AML/CFT and Cabinet Decision No. (10) of 2019. This guidance also takes Financial Action Task Force (FATF) standards and guidance into account, the CBUAE said in a statement.
The UAE central bank permits legitimate Hawala activity, considering it an important element in bringing the unbanked segment of the population into the regulated financial system.
Hawala is regulated by the Registered Hawala Providers Regulation issued by the CBUAE in 2019. All providers undertaking Hawala activity in the UAE must hold a Hawala provider certificate issued by the central bank.
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Hawala is an unofficial and informal channel to transfer money mainly used among South Asian expatriates, including Pakistanis. Using this channel, they give money to agents who then instruct their associates in the country to deliver it to the customer's house. With UAE being one of the major markets for remittances, the introduction of new guidelines is aimed at monitoring money-laundering activity and curbing terror financing.
Last year, the Financial Intelligence Unit (FIU) of the UAE signed a Memorandum of Understanding (MoU) with the Financial Monitoring Unit of Pakistan in order to promote financial stability and combating money laundering and financing terrorism.
UAE is a major source of remittances for Pakistan. In FY21, remittances reached a historic high of $29.4 billion with UAE accounting for over 20% i.e. $6.1 billion of the amount. In July 2021 alone, remittance inflows from UAE to Pakistan reached $531 million.
Meanwhile, as per the new guidelines, the Registered Hawala Providers RHP are required to comply fully with UAE requirements relating to targeted financial sanctions and suspicious transaction reporting (STR). In addition, RHP are also required to establish and maintain an effective AML/CFT compliance program designed to prevent misuse of this activity to facilitate money-laundering or terrorist financing.
This should include a competent compliance officer, appropriate customer and agent due diligence, transaction monitoring and record keeping.
"Furthermore, the RHP must maintain an account with a bank operating in the UAE to be used for settlement, and provide the CBUAE with its details. CBUAE encourages LFIs to accept RHP customers and should manage any risk which may result from these transactions through the use of appropriate controls. LFIs must not accept customers who are unregistered hawala providers based in the UAE, and must immediately report an STR to the UAE’s Financial Intelligence Unit, inform the CBUAE when they are detected, and closely monitor the relationship," added the statement.