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Money Laundering methods and trends in 2023

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Money Laundering Methods and Trends in UAE 2023

Here are the latest methods used by money launderers and terrorist financiers according to suspicious transaction reports (STRs) filed by banks, exchange houses and DNFBPs in UAE analyzed by the National Financial Intelligence Unit.

The FIU received nearly 7,000 suspicious transaction reports (STRs) from financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) entities in the first quarter of 2023 alone. After studying, analyzing and taking action, a useful list of current types to combat money laundering was issued by Central Bank of UAE.

According to the FIU, the following red flags/indicators were common among a majority of the STRs filed for money laundering and terrorism financing:

• Significant and/or frequent transactions contrary to known or anticipated business activity.

• Significant and/or frequent transactions in contrast to known employment status.

• Ambiguous or inconsistent explanations of origin and/or purpose of funds.

• Nervous or uncooperative behavior by employees and/or customers of FI.

Currency Exchange/Cash Conversion: Used to facilitate smuggling into another jurisdiction or to take advantage of low reporting requirements at money changers to minimize the risk of detection e.g., the purchase of traveler's checks to carry valuables in another jurisdiction.

Possible indicators

• Extensive and/or frequent exchanges of local or foreign currencies.

• Opening currency accounts for no apparent commercial or economic purpose.

• Significant and/or frequent exchanges of cash from small to large denominations.

Cash/currency smuggling couriers: Covert currency movements to circumvent transaction/currency reporting measures.

Possible indicators

• Transactions in regions with weak AML/CFT systems or locations with high corruption

• Customers in locations where AML/CFT systems are weak/highly vulnerable to corruption.

• Large and/or frequent cash payments in a short period of time.

• Large and/or frequent currency exchanges in a short period of time.

Smurfing: Method involving many transactions (deposits, withdrawals, transfers), different people, a large number of small transactions, and sometimes many accounts to avoid record keeping and reporting requirements.

Possible indicators

• Third parties who carry out numerous transactions on behalf of third parties.

• Multiple transactions in multiple FIUs and/or branches in one day.

• Accounts operated by someone other than the account holder.

• Small/frequent cash payments, withdrawals, transfers in a short period of time.

• Repeated domestic or international transfers of low value.

Use of Credit Cards and Checks: Used as a means of accessing funds held at a financial institution, often in another countr

Possible Indicators

• Frequent cheque deposits in contrast to known or expected business activity.

• Multiple cash advances on credit card facilities.

• Credit cards with large credit balances.

Purchase of Precious Metals (Gold, Gems, etc.): Purchasing precious metals/stones to conceal identity of the owner or transfer value without detection and evasion of AML/CFT programs– for example moving diamonds or gold into another jurisdiction.

Use of Wire Transfers: To electronically transfer funds between financial institutions, and often to another jurisdiction, to avoid detection and seizure.

Possible Indicators

• Transfers to or from locations that have poor AML/CFT regimes or high exposure to corruption. Transfers involving accounts located in high-risk countries or known tax havens.

• Transfers to offshore jurisdictions with no business rationale.

• Multiple transfers sent to the same person overseas by different people.

• Departure from the UAE shortly after transferring funds.

• Transfers of funds between various accounts that show no economic purpose (i.e., multiple transfers incurring bank fees where one single transfer would have been sufficient).

Underground Banking/Unlicensed Funds Transfer: Funds transferred outside the traditional banking system using hawala systems. This is an informal way of transferring value between two places without the physical movement of funds.

Possible indicators

• Mostly prevalent with general trading company licenses.

• Large and/or frequent cash payments for transfers in which the cash deposits could be from many different individuals using the cash deposit machines.

• Cash volumes and transfers in excess of average income of migrant account holders.

• Transfers to or from locations that have poor AML/CFT regimes or high exposure to corruption.

• Large transfers from accounts to potential cash pooling accounts.

• Significant and/or frequent transfers recorded informally using unconventional bookkeeping.

• Significant and/or frequent transfers requested by unknown or intermittent customers.

• Numerous deposits to one account followed by numerous payments made to various people.

• Vague invoices and documentation which may deliberately be made to appear complex.

Trade-Based Money Laundering and Terrorist Financing: Typically involves the manipulation of invoices (over-invoicing and under-invoicing) and the use of commercial and commodity financing opportunities to circumvent financial transparency laws and regulations.

Possible indicators

• Invoice value greater than item value.

• Discrepancies in domestic and foreign import/export data.

• Suspicious cargo movements.

• Suspicious data on national imports.

• Inconsistencies in the information on the origin, description and value of the goods.

• Deviations from tax returns to export declarations.

• A sharp increase in online auction sales by individual sellers (auction sites).

• Frequent purchases between the same buyers and sellers (online auction sites).

Comingling of funds: A key step in money laundering is the combining of criminal proceeds with legitimate corporate funds to disguise the illegal origin of the funds.

Shell company/corporation exploitation: A technique to hide the identities of those who control funds and employ relatively low reporting requirements. Ultimate beneficial owners are able to hide behind complex legal structures of companies.

Use of offshore banks/businesses, including trust company service providers: Typically, this involves registering companies in the UAE, particularly in free trade zones, with foreign directors and/or shareholders to open bank accounts to facilitate money laundering (ML) and terrorist financing (TF) using unverified beneficiaries.

Possible indicators

• High number of companies registered at the same legal address.

• The registered address is that of a virtual office.

• Accounts/dealings are opened/managed by the agents who set up the companies.

• No information on foreign directors/beneficiaries.

• Complex ownership structures.

• Companies without a clear commercial objective.

• The same person is the manager/director of several sole proprietorships.

• The same person (individual or legal entity) is a shareholder in multiple sole proprietorships.

Use of nominees, trusts, family members or third parties, etc.: to hide the identities of those controlling illicit fund by using front men. UBO is hidden behind nominees or third parties.

Possible indicators

• Customers using accounts owned by family members or third parties, including child accounts.

• Transactions where third parties seem to be retaining a portion of funds, which would indicate the use of mules.

• Accounts operated by someone other than the account holder.

• Many transactions conducted at various FIs and/or branches, in one day.

• Large and/or frequent transactions in a short period of time.

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