The entrepreneurs who land in Dubai with an ambitious idea to set up a startup with co-working space may face some unique challenges. The difficulty in opening a corporate bank account due to highly stringent regulations such as UAE visa and tenancy contract are some of them. The increased due diligence process after the tightening of the Anti-Money Laundering Law (AML) has proved to be a setback for the company formation dreams of startups in Dubai. The process of corporate banking has to become a time-consuming as well as a painful process for the startups in Dubai. Due to the high due diligence process, the startups are faced with a lack of assistance about the banking process, timing and accurate information on the documents required. The banks repeatedly request startup entrepreneurs for additional documents and verification. Further, entrepreneurs complain that they don’t get any empathy while dealing with bank employees. The lack of clarity on the KYC requirements often put the foreign entrepreneurs in a tight spot.
Why the UAE Introduced the New AML Guidelines?
The illicit flow of money is a grave threat to the global financial system and the countries including the UAE has set a strong benchmark to prevent money laundering and financing of terrorism. The UAE has implemented a strong (AML) in line with the standards set by the Financial Action Task Force (FATF), which is a global watchdog for AML and Counter-Terrorist Financing benchmarks. The FATF regularly evaluates the robustness of the AML/CTF measures implemented by the member countries. The UAE has always been conscious about bolstering its AML/CTF laws to comply with the international standards and best practices, well ahead of the FATF evaluations. The Federal Law No. 20 of 2018 on Anti-Money Laundering, Combating the Financing of Terrorism and Financing of Illegal Organisations was a strong move by the UAE to enhance its AML/CTF defence and improve from its previous FATF evaluations.
Increased Due Diligence Process After the New AML Law
It is thing of the past when a businessman in Dubai was free to receive money by cash or by bank transfer from various undisclosed sources out of Dubai, UAE against the invoice. Now every transfer should be supported by the invoice and transfer should be from an approved customer. Also, new AML guidelines have made it mandatory for the banks to have due diligence of not only new clients but also existing account holders. The banks have introduced new KYC forms and guidelines to their existing and new customers which require all the information such as top customers, top suppliers and main products.
The new UAE Anti-Money Laundering Law enhances the regulatory role of the UAE government through the UAE Central Bank. The UAE Central Bank regulates and monitors the operations of financial institutions and banks operating in the UAE. In accordance with the AML compliance law, any activity or transaction suspected to be related to Money-Laundering shall be reported to the central bank of the UAE. The common money-laundering related suspected activities are:
- Large cash transfers or deposits
- A high volume of exchange of money into other currencies
- Setting up a business with no commercial purpose
- Unusual transactions of debit and credit into the accounts
AML Guidelines Made the KYC Procedures More Stringent for Startups
The AML/CTF regulations have forced all the banks, money exchange houses, finance companies, and other financial institutions operating in the UAE to adhere to stringent Know Your Customer (KYC) guidelines. Financial institutions need to verify the identity of their customers and maintain details of transactions to comply with the regulations. The increased due diligence has made the business setup procedure highly difficult for startups.
The banks take several Customer Due Diligence Measures to mitigate the risks of money-laundering:
The FIs need to verify the identification of customers, beneficial owners, or controlling persons based on documents or data from reliable, independent sources. To comply with the AML regulations the financial institutions including banks, verify the customer’s identity, including their address, based on documents issued by the government in most cases. In the absence of such documents, the FIs may ask for more documents or more information to verify the identity of the customer.
2) Background Screening
The customers, beneficial owners, or controlling persons will have to undergo a background check for the applicability of financial sanctions or criminal history. The customers will be screened to identify if they are Politically Exposed Persons (PEPs), high-risk nationalities, or are associated with suspicious activities.
3) Understanding the Purpose
The KYC process by the banks will scrutinise the customer’s documents to identify the purpose of the business relationship with the FIs. In the case of the companies or startups, the FIs will check the nature of the customer’s business, ownership and control structure. The FIs will check the size of the expected account balances, volumes of transactions, third-party intermediaries with whom the customer is going to conduct transactions etc.
4) The Core Objectives of the AML Law in the UAE
The UAE AML Law has highly stringent provisions that made the banks under high compliance pressure. The following are the major provisions in the law that make the banks to stick strict KYC procedures:
5) Enhanced Investigative Powers
The UAE AML law has provision to not only collect and share the financial data but also to take pro-active action using financial intelligence. With this, the authorities are able to trace the flow of illicit money to track the other perpetrators associated with financial crime.
6) Hefty Penalties
The UAE’s AML measures have provisions for greater crime prevention methods bolstered by the high detection power and increased fines. Corporates who engage in money laundering activities may attract hefty fines up to AED 50mn. Mandatory liquidation of the company may happen in case the illicit is the flow of money was found to have channelled for terrorist financing.
7) Power to Freeze Funds
The AML Law ensures that the authorities can speed up the action against the criminal perpetrators due to the involvement of the Central Bank Governor. The procedure allows the freezing of funds and therefore the risk of the suspected funds being dissipated can be minimized.
8) Greater Power for Prosecution
The Public Prosecution has greater power for carrying out the investigation of the financial crimes under the new AML provisions. The Public Prosecution is allowed to obtain and investigate third party data and records and the perpetrators are required to cooperate with the investigation.
Why Choose Jitendra Business Consultants?
It is mandatory for the banks in the UAE to comply with the AML regulations and AML compliance is a complex task to achieve. This pressure on the banks has presented startups with immense challenges while setting up a business in the UAE. Almost all startups in Dubai have cited banking as the major challenge that makes their operations tougher. The startup entrepreneurs often find themselves in the dark about the clarity of the additional documents required and are often faced with a lack of guidance in the banking process. It is at this juncture that the expertise of a business setup consultant becomes crucial for startups.
Jitendra Business Consultants (JBC) is a reputed company formation service provider in Dubai, UAE with years of experience in assisting numerous clients including startups. JBC’s highly qualified company formation specialists could assist the startups in getting their company established in the UAE with quick business setup procedures right from registration to incorporation.