Financial Crime World

Know Your Customer Rules in United Arab Emirates: A Comprehensive Guide

The United Arab Emirates has implemented stringent Know Your Customer (KYC) rules to prevent money laundering and terrorist financing in the financial sector. The Central Bank of UAE, also known as the State’s central bank, requires Licensed Persons, including banks, financial institutions, and other regulated entities, to carry out a comprehensive KYC process for their customers.

Understanding the Purpose of KYC

Primary Objective

The primary objective of KYC is to verify the identity of customers and ensure that the funds involved in transactions are originating from legitimate sources and used for legitimate purposes. This process helps to mitigate the risk of money laundering and terrorist financing, thereby maintaining the integrity of the financial system.

Types of KYC Processes

There are three types of KYC processes that must be applied based on the Money Laundering (ML) and Terrorist Financing (TF) risks associated with a customer:

1. Customer Identification (CID)

  • Verifying the identity of customers, including their name, date of birth, nationality, and address.

2. Customer Due Diligence (CDD)

  • Obtaining information about the customer’s business, ownership structure, and control structure.

3. Enhanced Due Diligence (EDD)

  • Conducting a more in-depth investigation into the customer’s background, including their source of wealth and financial history.

Transaction Thresholds

The Licensed Person must apply different KYC processes based on the transaction thresholds specified by the Central Bank of UAE. The following are some examples:

Natural Persons

  • Currency exchange: AED 3,500 to AED 35,000 - CID
  • Currency exchange: AED 35,000 to AED 55,000 within a 90-day period - CID and CDD
  • Money transfer: Any value less than AED 55,000 - CID and CDD
  • Any activity: Any value - CDD and EDD

Additional Requirements

Licensed Persons must also apply additional requirements for certain customer types, including:

Politically Exposed Persons (PEPs)

  • CID, CDD, and EDD

High-Risk natural persons

  • CID, CDD, and EDD

High-Risk circumstances

  • CID, CDD, and EDD

Consequences of Non-Compliance

Licensed Persons that fail to comply with the KYC requirements may face severe consequences, including:

  • Termination of customer relationships
  • Suspension or revocation of licenses
  • Filing of Suspicious Transaction Reports (STRs) and other reports with the Financial Intelligence Unit (FIU)

In conclusion, the Know Your Customer rules in United Arab Emirates are designed to prevent money laundering and terrorist financing by ensuring that Licensed Persons verify the identity of customers and understand their business activities. By implementing these rules, the Central Bank of UAE aims to maintain the integrity of the financial system and protect its citizens from illicit financial activities.