A salute to DIFC regulators

It may be sheer coincidence. But the substantive issue raised by it simply hits the bull’s eye. In the end it is a tribute to the foresight and approach of the DIFC regulators, who clearly appear to be on top of the issues they should be concerned with.

No more suspense: the reference is to a consultation paper issued by the Dubai Financial Services Authority, the agency that regulates DIFC companies, on how to effectively deal with Politically Exposed People (PEP) in the application of laws against money laundering and other irregularities.

To suggest that the move has anything to do with recent developments in India, in which certain high-profile individuals close to the ruling party leadership have been accused of corruption, would be to stretch things too far. At the same time, the context makes it stunningly interesting in terms of the objectives and scope of the DIFC move. The most interesting aspect of all is that the Indian case provides probably the best illustration of what the term Politically Exposed People means.

For the benefit of those who are not familiar with the issue, controversy has been raging in India over alleged favours granted to ruling party chief Sonia Gandhi’s son-in-law Robert Vadra by leading real estate development firm DLF in return for political backing for its business deals. The case has generated much heat and in response the ruling party functionaries, including Cabinet ministers, have put up a spirited defence of Vadra on the pretext that dealings between a private individual and a company cannot be open to public scrutiny.

Should the concept of Politically Exposed People be applied to the case, all the deals entered into by Vadra and other people of similar situation would qualify to be brought under the scanner. But despite India’s status as the world’s largest democracy and its judicial system having gone through centuries of evolution, the Indian system does not recognise the need to be wary of influence peddling by close relatives of those who wield power. The reason: no breach of privacy please!

Not an eyebrow raised

It’s a great relief that the burglars of the world do not object to the institution of police as a violation of their right to practice trade…and to privacy!

That one of the party to the deals is a listed company, which by the laws of the land is obliged to play by the rule book, has also not been much of an issue. In fact, it is a shame on India’s corporate regulators that not an eyebrow has been raised over the possible violations by a public listed company. And for the benefit of the uninitiated, a minister even suggested that as long as any of the directors of the company haven’t raised an objection, there was no need for any scrutiny. He has a point: why spent huge money on courts and judges if the accused themselves can choose their punishment?

But the DIFC regulators have decided to play safe: and opted to be watchful, and old-fashioned, if it means that. They have proposed that all Politically Exposed People need to be watched for possible violations and, therefore, brought under the purview of anti-money laundering laws. They even go a step further by including both domestic and foreign PEPs under the law and as such the new anti-money laundering module does not differentiate or prescribe a different approach to dealing with PEPs based on whether they are domestic or foreign.

DFSA believes that a foreign PEP may present a higher risk of money laundering compared to a domestic PEP. This is because a foreign PEP is more likely to attempt to launder money in or through a foreign jurisdiction where the person may be less likely to be recognised and where he or she may consider the assets are better protected from the courts of their home jurisdiction. A PEP may also attempt to disguise an unlawful transaction by routing it through a foreign jurisdiction.

— The writer is a UAE-based journalist