January 31, 2023

Volume XIII, Number 31


January 30, 2023

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United Arab Emirates Financial Centers Enhance Economic Security and Business Viability

In an earlier post, here, we examined Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations, the new Federal AML Law enacted by the United Arab Emirates (“UAE”) to ensure best practice anti-money laundering and counter-terrorist financing measures.

In this post, we consider how the UAE’s two financial free zones, established in the Emirates of Dubai and Abu Dhabi, which both possess their own civil and commercial legal frameworks, inclusive of court systems modeled closely on international standards and principles of common law and, importantly, autonomous financial services regulation, have followed suit by augmenting their financial crimes regulatory frameworks.

New DIFC Regulatory Law

Contemporaneously with the issuance of the Federal AML Law, the Dubai International Finance Centre (“DIFC”), which was established in 2004, enacted DIFC Law No. 6 of 2018 (the “DIFC Regulatory Amendment Law”). The DIFC Regulatory Amendment Law is designed to support the alignment of the DIFC’s anti-money laundering and counter-terrorist financing regime with international best practices.

Under the amended law, Designated Non-Financial Businesses and Professions (“DNFBPs”) are prohibited from operating in or from the DIFC absent registration with the Dubai Financial Services Authority (“DFSA”), the free zone’s independent financial services regulator, which has adopted a supervisory approach modeled on the United Kingdom’s former Financial Services Authority (“FSA”).

To register with DFSA, DNFBPs must identify Money Laundering Reporting Officers (“MLROs”), senior management and, importantly for the promotion of transparency and accountability, ultimate beneficial owners (“UBOs”). The amended law also enhances customer due diligence (“CDD”) requirements for DNFBPs and empowers DFSA to suspend or withdraw the registration of DNFBPs in breach of any applicable laws or rules.

The DIFC’s new Ultimate Beneficial Ownership Regulations define UBOs as persons owning or controlling, directly or indirectly, at least 25% of share capital or voting rights, or persons with the right to appoint or dismiss a majority of directors. Registers of UBOs must confirm full legal names, dates of birth, nationalities, residential addresses, passport or other government-issued identification numbers, and the dates on which persons became and, as applicable, ceased to be UBOs. Registers of UBOs must be maintained, with all changes to be filed within 30 days.

Updated ADGM Regime

Following the success of the DIFC, a new financial free zone, the Abu Dhabi Global Market (“ADGM”), was established in the capital city in 2015. Just like the DIFC, ADGM recently has enacted updates to its regulatory framework that combat money laundering, terror financing, and unlawful organizations.

The newly enhanced ADGM AML regime requires that relevant persons, including all DNFBPs that operate within ADGM, be registered with the Financial Services Regulatory Authority (“FSRA”). In addition, ADGM has created a Financial Crime Prevention Unit (“FCPU”).

Additional Considerations

The United Nations (“UN”) Conference on Trade and Development (“UNCTAD”), the body of the UN Secretariat responsible for trade, investment, and development, reported in its World Investment Report 2019, here, that USD 10 billion of Foreign Direct Investment (“FDI”) flowed into the UAE in 2018. The UAE’s continued efforts to ensure its financial sector strongly complies with international best practices are critical to retaining and growing FDI.

The UAE’s financial free zones are key to those efforts. In fact, Dubai and Abu Dhabi have amassed very large business communities in relatively short time frames and, just last month, were ranked eighth and thirty-second, respectively, on the Global Financial Centers Index (“GFCI”), here. This represents the first time any financial center within the Middle East, Africa, and South Asia (“MEASA”) region has featured in the top ten. Only New York, London, Hong Kong, Singapore, Shanghai, Tokyo, and Beijing, in that order, sit ahead of Dubai. Dubai’s ranking centers, in large part, on the DIFC being the largest, most developed, and most stable, MEASA financial ecosystem. GFCI specifically recognizes DIFC’s strength across all five areas of competition between worldwide financial centers: business environment; financial sector development; human capital; infrastructure; and reputation.

Abu Dhabi is likely to continue quickly climbing the rankings as well, with ADGM positioning itself as one of the world’s leading FinTech hubs: a destination of choice for innovators in financial technology and, more specifically, crypto asset investors. Indeed, FSRA recently granted various cryptocurrency exchanges in-principle approval to operate. This is part of a concerted effort on the part of Abu Dhabi to embrace emerging technologies. Indeed, Khaldoon Al Mubarak, Group Chief Executive Officer and Managing Director of Mubadala, a state-owned holding company that can be characterized as a sovereign wealth fund, said that the company is “activating its investments and relationships to establish Abu Dhabi as the technology hub for the Middle East and North Africa region.”

© Copyright 2023 Squire Patton Boggs (US) LLPNational Law Review, Volume IX, Number 317

About this Author

Richard Gibbon Criminal Defense Attorney Squire Patton Boggs Dubai, United Arab Emirates

Rich Gibbon is a partner in our Government Investigations & White Collar Practice and focuses on white collar criminal defense, regulatory enforcement and internal investigations. He has been based in the Middle East for 11 years and has extensive experience managing crises and counselling boards of directors and senior management across the Middle East and Africa, Levant, Europe, and South Asia through multi-agency, multi-jurisdictional financial crime investigations and enforcement actions. This includes multinational corporates in connection with anticorruption regimes and a...

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Kevin McCart White Collar Attorney Squire Patton Boggs Washington DC

Corporations and individuals facing allegations of white-collar criminal and civil violations call upon Kevin McCart to provide the effective legal strategies and investigative skills that will help them avoid prosecution and minimize damaging outcomes. Kevin has been lead counsel in criminal and civil matters in federal district and circuit courts, as well as military courts-martial. His global government and internal investigations background includes representing financial institutions, corporations and individuals in economic sanctions, money laundering, bank fraud, the Bank Secrecy...

Claiborne Clay W. Porter Partner Squire partner Boggs

Clay Porter’s practice focuses on representing clients, including financial institutions, non-bank financial institutions, cryptocurrency businesses and corporations, in complex white collar criminal defense, regulatory enforcement defense, internal investigations and compliance counseling matters. Clay has particular expertise handling cases involving economic sanctions, the Bank Secrecy Act/anti-money laundering laws and regulations (BSA/AML), sensitive employee issues, fraud and embezzlement, corruption and the Foreign Corrupt Practices Act (FCPA). In addition, Clay is routinely called...

Benjamin D. Wood Partner  Washington DC Litigation Government Investigations and White Collar Crime

Ben Wood assists clients in federal and state litigation at the trial and appellate levels, and in government investigations and enforcement matters. Ben has represented financial institutions, corporations, individuals, political organizations, campaigns and foreign governments in matters involving economic sanctions, money laundering, bank fraud, Bank Secrecy Act, public corruption, industrial disasters, healthcare fraud and campaign finance litigation.