TL;DR Breakdown
- Red flags identified include virtual assets exchanged in territories where sanctioned people have influence or sanctioned jurisdictions.
- Red flag indicators regarding the use of virtual assets to send funds to a few select wallets at unregulated virtual assets exchanges (or exchanges in territories where sanctioned people have influence or sanctioned jurisdictions).
Description
In September 2023, the UAE Executive office for Control and Nonproliferation published a guidance providing consolidated list of terrorist financing (TF) and proliferation financing (PF) red flags that include provisions related to virtual assets. According to the published document, the purpose is to provide a consolidated list1 of Terrorist Financing (TF) and Proliferation Financing (PF) … Read more
In September 2023, the UAE Executive office for Control and Nonproliferation published a guidance providing consolidated list of terrorist financing (TF) and proliferation financing (PF) red flags that include provisions related to virtual assets.
According to the published document, the purpose is to provide a consolidated list1 of Terrorist Financing (TF) and Proliferation Financing (PF) red flags that aim to assist financial institutions (FIs), designated non-financial businesses & professions (DNFBPs), and virtual asset service providers (VASPs) in identifying and detecting suspicious TF and PF activities, including those that may be related to the evasion of targeted financial sanctions (TFS) imposed under United Nations Security Council Resolutions (UNSCRs) or by local designations.
Red flags identified include for example carrying out of multiple ATM cash withdrawals in short succession in territories on the border of sanctioned countries; as well as virtual assets exchanged in territories where sanctioned people have influence or sanctioned jurisdictions.
The document also discusses requirements of financial institutions, DNFBPS and VASPs ( Virtual asset service providers) to put in place indicators that can be used to identify suspicions that may indicate illicit activities and update those indicators on an ongoing basis.
The document recommends that FIs, DNFBPs, and VASPs update their screening systems with the latest red flags and indicators in order to be able to better identify and detect unusual or suspicious transactions and activities.
This would include red flag indicators regarding the use of virtual assets to send funds to a few select wallets at unregulated virtual assets exchanges (or exchanges in territories where sanctioned people have influence or sanctioned jurisdictions).
In addition to the transfer of funds to a virtual assets exchange’s operational banking account (to fund a virtual asset wallet) followed by the crypto-to-fiat conversion (either more or less) from the same exchange within a relatively short period of time.
The guidance comes after The UAE Central Bank has issued its long awaited virtual assets and virtual assets service provider framework under the umbrella of a new guidance on anti-money laundering and combating the financing of terrorism (AML/CFT) for licensed financial institutions (LFIs) with a focus on the risks of dealing with virtual assets.
The UAE Central Bank has clarified what is considers as virtual assets and who can offer services in this realm, as well as how banks and financial institutions will work with VASPs when it comes to opening accounts for them and meeting compliance requirements. It also makes clear that virtual assets are not considered a legal tender in the UAE.
The UAE while working to build its crypto economy and ecosystem is keen to meet FATF requirements. This is also clear in VARA’s latest virtual asset rulebookfor, the virtual assets transfer, and settlement service. As published in the rulebook, VASPs providing VA Transfer and Settlement Services must comply with all applicable legal and regulatory requirements issued by the Central Bank of UAE which apply to the VASP, which pertain to the end-to-end enablement of payments, remittances and/or other related services as may be amended from time to time.
VASPs providing VA Transfer and Settlement Services must ensure that they comply with all legal and regulatory requirements for such services, inside and outside of the UAE. VASPs must ensure at all times that any transmission or transfer, and/or settlement being undertaken is permissible and can be facilitated through, and concluded in, all jurisdictions that are relevant to that transmission or transfer, and/or settlement.
The VASPs also have to comply with the compliance and risk management rulebook. VASPs providing VA Transfer and Settlement Services must comply with all requirements with respect to AML/CFT contained in that Rulebook, including but not limited to FATF-specific compliance requirements such as the Travel Rule.
In conclusion, the UAE is preparing itself to accept virtual assets while continuing to adhere to international regulations and requirements.
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