A senior UK anti-money laundering (AML) expert now based at Dubai International Financial Centre (DIFC), today voiced his concerns over firms in the region operating without adequate protection against money laundering and stressed many may still not be meeting regulatory requirements.
Terry Douglas a senior consultant and trainer for compliance consultancy, CCL Limited, said there is a danger that many employees in the financial sector have been merely following procedures and not really looking at the considerable risk of their firm being exploited by criminals.
He said: "With the prospect of further recommendations from the UN’s Financial Action Task Force (FATF), the DFSA, whose efforts to tackle this problem since 2002 have been admirable, will undoubtedly continue to pass new laws and regulations to combat what is a truly international problem."
All UN member states are expected to adhere to the 40 FATF recommendations relating to money laundering and the additional nine that were added after the 9/11 attacks in the US to combat terrorist activity. The regulators in Dubai have made giant strides in recent years to implement these recommendations.
Douglas explained that the AML regulations now in place through the Dubai Financial Services Authority (DFSA) are not just about meeting requirements, but about remaining extra vigilant to help combat money laundering and terrorism.
Economically, the UAE Minister of State for Finance and Industry, Dr Mohamed Khalfan bin Kharbash recently cited a study findings that US$5 billion of money laundered results in Gross Domestic Production (GDP) losses of between US$5.63 billion and US$11.26 billion. The study also claimed this amount of laundering would result in the loss of 125,000 to 250,000 jobs in the national economy.
Money laundering is one of the biggest challenges facing the financial industry and the global economy at large, representing five per cent of Worldwide GDP, or more than US$1 trillion annually, according to the reports of the International Committee for Combating Money Laundering.
By law every employee of a DFSA regulated firm, from secretary to CEO, needs to complete annual AML training. A relatively new regulatory environment, money laundering became a crime in Europe in 1988, and the UAE passed its money laundering laws in 2002, before updating them in 2004. Before 2002 if anyone laundered money in the UAE there were no specific powers to prosecute those taking part.
Douglas, who trains staff in anti-money laundering practices throughout the UAE, said: "The Middle East still has a very cash-oriented business community, whereas this has largely been replaced by electronic transactions in other parts of the world. This has made it much more difficult to regulate money laundering here, as large amounts of cash are legitimately being transacted every day. This cash may well be dirty money, but the volumes of transactions can make it harder to identify criminal activity.
"Where the DFSA regulator has not taken any high profile action against firms so far for failing to comply, it is early days. However, we expect the regulator here to take a comparable approach to the Financial Services Authority in the UK and there have been numerous damaging high-profile fines there.
"Those in the region working in the financial services industry can expect to see the focus on money laundering increase over time as has happened in other countries."
One of the fundamental controls firms should have in place is the awareness and alertness of their staff. Firms need to train their staff independently of the DFSA and every firm must have a Money Laundering Reporting Officer (MLRO), who is responsible for ensuring procedures are disseminated throughout each firm and appropriate training is taken by each staff member.
Many firms opt for an external consultant to train staff, largely due to the fact that a compelling training course takes time to devise and deliver. Also, not all MLROs are natural trainers, and would prefer to use the services of an expert.
Douglas, who became one of the UK's first money laundering reporting officers when the UK laws were passed in 1993, explained the benefits from firms using a specialist training consultancy.
He said: "My team trains using decades of anecdotes, examples and case studies to bring the presentations to life and encourage staff to take a real interest in measures that can prevent devastating consequences for their organisations.
"Interest is often sparked through question and answers, with people throwing questions at the vastly experience trainers, who can almost always use a real life example to answer.
"I've observed many attendees that may just be 'going through the motions' during training to achieve compliance with the regulations. Also, the message might not be getting through to senior management that this is a risk to the business that needs to be actively and effectively managed. In the UK we have seen a chief executive fined personally for failing to comply with the regulations. How long will it be before the DFSA takes similar action here?
"Speaking to MLROs, this is the major problem they are facing – trying to convince management and staff that this is a serious risk and could be devastating for their firms and ultimately, their jobs.
"A key element to the training is for us to take the time to know the client and the client's operation thoroughly before even beginning the training process. Through this our training can be tailored to even low risk staff.
"No-one can be complacent. There was an example of a receptionist who identified a strange instruction and unusual behaviour from a regular client. She filed a report to her MLRO who reported it on to the appropriate agency. This turned out to be a drugs trafficker trying to push through payments to cover the purchase of more illegal narcotics and prosecutions were made with minimal disruption to the organisation.
"Even firms dealing with huge worldwide financial institutions, who think they have a low risk, still have an element of risk and should be aware and remain vigilant. Senior managers should be aware that there is no such thing as 'no risk'!"
Established in 1988, CCL services over 30 regulated firms in DIFC and has been involved in the authorisation process of more than 25 Dubai-based companies. In the UK, CCL handles over 300 regulated firms and has obtained authorisation for more than 600 firms. CCL provides professional practitioner advice to a wide range of financial services clients, advising on authorisation and general compliance matters and offering specialist anti-money laundering and risk management services.
© 2007 Al Bawaba (www.albawaba.com)
