AML Compliance Requirements for Jewellers in UAE
AML Compliance Requirements for Jewellers in UAE
The industry of gems and jewellery, and precious metals and stones is a key contributor to the UAE’s economy. But, it is also an attractive point for illicit activities and financial crime. So, jewellers must protect themselves from money laundering and terrorism financing activities.
In this article, we focus on the factors that make the jewellery industry vulnerable to money laundering activities. We will list the regulations that govern AML compliance in UAE. We will also enlist the AML requirements that jewellers have to fulfill to comply with AML regulations.
Factors contributing to the higher vulnerability of jewellery industry to financial crime
- The jewellery industry’s products have high intrinsic value, which may increase over time.
- It is easy to physically transport the jewellery pieces, gems, and precious metals from one place to another.
- Money launderers can use jewellery in two ways in money laundering activities. Firstly, they can use it as the source to generate illegitimate money. They can also use it as the vehicle to launder the proceeds of criminal activities.
- Money launderers can use jewellery directly as a form of currency. They can also use it indirectly by exchanging its value with other financial products.
- It is difficult to track the movement of jewellery items and precious metals since it requires the capability and capacity of laboratory techniques
- Cash-based markets exist for certain types of gems or precious metals. These are often decentralized and well-established. It is easy to trade or exchange precious stones through these cash-based markets by remaining anonymous.
- There is a low level of involvement of the formal financial system in jewellery transactions.
- The market for jewellery and precious metals and stones is global in nature. So, many cross-border and multi-jurisdictional situations arise in jewellery transactions. Criminals find it easier to take advantage of such situations to engage in financial crime.
- There are several small and medium-sized companies in this industry. Generally, their awareness of ML/FT risks and due diligence requirements is low. This increases their exposure to money laundering and terrorism financing activities.
- There is a common cultural practice of buying and selling precious metals and stones in some regions. This leads to difficulty in identifying which transaction is legitimate and which one is illicit.
- Different regulatory regimes in different countries affect global transactions. Some countries have a strict regime while some have few to no restrictions. Also, some jurisdictions do not pay heed to supervision and monitoring of every transaction.
All the above factors make the jewellery industry an attractive means of money laundering activities. So, the UAE government introduced relevant regulations to combat such activities. These regulations run parallel to the global AML/CFT regulations.
Also read why gold is still the second-best mode for money launderers
AML regulation for jewellers in UAE
Decree-Law No. 20 of 2018on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations is the primary law for AML in UAE. The Cabinet Decision No. 10 of 2019 concerning the Implementing Regulation of this Decree-Law makes dealers in precious metals and stones (DPMS) subject to the AML law. This means that the AML law applies to jewellers and dealers in precious metals, gems, and stones.
The Guidelines for Designated Non-Financial Businesses and Professions mentions the Customer Due Diligence (CDD) obligations for jewellers. But, they must also be aware of the ways to identify suspicious transactions followed by reporting. In the next section, we describe the compliance requirements for jewellers in UAE.
AML compliance requirements for jewellers in UAE
AML Policy Documentation
Jewellers need to document their AML Policy and prepare an AML Policy Manual describing the procedures and controls embedded to counter the risk of money laundering.
The jewellers must implement necessary measures to manage and mitigate the ML/FT risks. One of the key measures is the implementation of strong and effective internal policies, controls, and procedures. You must assess these policies for effectiveness and update them accordingly as and when the need arises.
The AML Policy Manual should cover the following areas:
- The identification and assessment of ML/FT risks
- Customer due diligence (CDD, EDD, SDD), including its review and updating, and reliance on third parties in regard to it
- Customer and transaction monitoring and the reporting of suspicious transactions
- AML/CFT governance, including compliance staffing and training, senior management responsibilities, and the independent auditing of risk mitigation measures
- Record-keeping requirements
Read more about AML/CFT Policy
Understand possible ML/FT Risk Exposure
- You must adopt a risk-based approach to identify risks in your business transactions. These risks may be of different types based on business nature, type of service, the operational environment, and other factors. Accordingly, you must adopt risk mitigation measures.
- You must be aware of the source of ML/FT risks and the phase in which the money laundering risk is high.
- You must know the latest ML/FT trends and how money is getting laundered in the jewellery industry.
- You must consider different types of risks to your business due to money laundering. These risks include customer risk, geographic risk, transaction risk, channel risk, or any other. You must be able to identify each type and strategize for their elimination.
- You must conduct a risk assessment to understand the impact of these risks on your business. You must also analyze it in depth, document it, and update it as and when the changes occur.
Read more about the risk-based approach in anti-money laundering compliance
Implement customer due diligence measures
These due diligence measures include the following:
- You need to identify the customers, beneficial owners, beneficiaries, or controlling persons. You must collect the necessary documents and relevant information that prove your identity.
- You must understand the nature of your business’s relationship with that customer or business associate. Also, you must identify the key purpose of having this relationship.
- You must employ policies to monitor and supervise the business relationship. If you see any sudden change in the transaction or behavior of the customer, it is a red flag.
- You must keep updating the customer risk profiles to avoid any errors or missing data.
- In the case of customers from high-risk countries or politically exposed persons, you must execute enhanced due diligence measures.
Read the complete guide to effective customer due diligence
Report suspicious transactions to Financial Intelligence Unit (FIU)
- Unnecessary complex transactions whose purpose or beneficial owner is not known
- Transactions that are inconsistent with the customer’s risk profiling
- Large transactions (relatively large to a customer’s income or turnover)
- Large deposits or withdrawals inconsistent with customer’s business nature
- Unexplained changes in the ownership of entities or unnecessary involvement of a third party
- Transactions involving high-risk countries or third parties with no relationship with customers
- Unclear or dubious sourcing of funds for a transaction
- Refusal of customers to provide relevant information or proofs required for due diligence measures
Devise and implement a sound governance structure
Effective AML consulting services
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Keep and maintain records
- Records of all domestic and international financial transactions for at least five years, including customer correspondence, customer payment proofs, agreements, and analytical data of customers’ financial transactions
- Records of customer accounts, customer correspondence, personal identification proofs, KYC and CDD forms, customer risk assessment, and classification records
- Corporate documents and information on beneficial owners, legal shareholders, and senior managers
- Records of ongoing monitoring of business relationships such as transaction reviews, customer correspondence, CDD profiles and documents, and transaction handling decisions
- Records of suspicious transaction reports, related correspondence, competent authority’s investigation files, and notes by FIU on the feedback for suspicious transaction reports
Conclusion
Role of AML UAE
AML UAE is a leading AML compliance services provider in UAE. We help you with fulfilling all the requirements for AML and CFT in UAE. Our spectrum of AML compliance services is not restricted to national boundaries, but we also make sure that you comply with the global regulations of AML.
We can help you with:
- Creating firm-specific AML policies, procedures, internal controls, best practices, and guidelines for your smooth business operations
- Setting up an expert AML compliance department for your firm that can handle all AML-related activities
- Selecting the most effective and appropriate AML software for your business needs to ensure AML compliance
- Helping you in filing and submitting annual AML/CFT risk assessment reports with the UAE government
- Conducting training for your employees in handling KYC, screening, risk profiling, CDD, EDD, and filing of STRs
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Frequently Asked Questions (FAQs)
Here are a few frequently asked questions when it comes to the need and importance of sanction and PEP screening in the customer onboarding process.
The jewelry industry’s AML guidelines in UAE include the creation of an AML/CFT policy manual, understanding of possible ML/FT risk exposure, implementation of CDD measures, reporting of suspicious transactions to FIU, formulation of a governance structure, and record-keeping to ensure jewelry industry’s compliance with jewelry industry’s anti-money laundering laws.
Whenever you engage in a business relationship with a new customer or associate, obtain the following information:
- Name
- Date and place of birth
- Address
- Nationality
- Name of company or business, its address, and nature, and type
- Personal contact details
- Passport details or any other Identification document
- Purpose of the transaction
- Beneficial owner
In the case of a transaction with a company, you must collect the following details:
- Business name and address
- Registration number and details
- Nature of business
- Beneficial owners
- Partners and directors
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About the Author
Pathik Shah
FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)
Pathik is a Chartered Accountant with more than 25 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.
He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.