Dubai: Registered Hawala Providers operating in the UAE will be required to comply with a new set of guidance issued by the Central Bank of UAE (CBUAE).
The CBUAE has issued a new guidance on anti-money laundering and combatting the financing of terrorism (AML/CFT) to Registered Hawala Providers (RHP) and Licensed Financial Institutions (LFIs) providing services to RHP.
The new guidance, which came into effect last week will assist in the understanding and effective implementation of the statutory AML/CFT obligations for RHPs and LFIs, as outlined in Federal Decree-Law No. (20) of 2018 on AML/CFT and Cabinet Decision No. (10) of 2019.
This guidance also takes Financial Action Task Force (FATF) standards and guidance into account.
“The CBUAE will continue to keep a suitably close eye on licensed financial institutions in the country, including registered hawala providers to enhance their effectiveness in implementing AML/CFT measures to safeguard the UAE’s financial system”. This guidance reminds all parties of their duties in this respect,” said Khaled Mohamed Balama, Governor of the CBUAE.
Hawala is used today as an alternative remittance channel that exists outside of traditional banking systems. Transactions between hawala brokers are made without promissory notes because the system is heavily based on trust and the balancing of hawala brokers' books.
Hawala originated in South Asia during the 8th century and is popular in South Asia and Arab countries, as an alternative means of conducting funds transfers. Unlike the conventional method of transferring money across borders through bank wire transfers, money transfer in hawala is arranged through a network of hawaladars or hawala dealers.
In simple terms hawala dealers accept money with a promise of delivering it at a predetermined destination for a fee and the counterparty dealer at the destination delivers the money to the beneficiary.
Hawala dealers keep an informal journal to record all credit and debit transactions on their accounts.
As part of making hawala compliant with the anti-money laundering regulations, the Central Bank of the UAE (CBUAE) has made it mandatory for hawala providers operating in the UAE to register and obtain the Hawala provider certificate. This is in accordance with the Registered Hawala Providers Regulation, which ensures only registered dealers can carry out these activities in the UAE.
The new directive reflects the CBUAE’s efforts to ensure transparency of all financial transactions and compliance with the Anti-Money Laundering and Countering Financing of Terrorism procedures in the country.
The CBUAE permits legitimate hawala activity, being considered an important element in its continuous efforts to boost financial inclusion and bring the unbanked segment of the population into the regulated financial system.
Hawala is regulated by the Registered Hawala Providers Regulation issued by the CBUAE in 2019. All providers undertaking hawala activity in the UAE must hold a hawala provider certificate issued by the Central Bank.
RHP are required to comply fully with UAE requirements relating to targeted financial sanctions and suspicious transaction reporting (STR). In addition, RHP are also required to establish and maintain an effective AML/CFT compliance programme designed to prevent misuse of this activity to facilitate money-laundering or terrorist financing. This should include a competent compliance officer, appropriate customer and agent due diligence, transaction monitoring and record keeping.
Furthermore, RHP must maintain an account with a bank operating in the UAE to be used for settlement, and provide the CBUAE with its details.
CBUAE encourages LFIs to accept RHP customers and should manage any risk which may result from these transactions through the use of appropriate controls. LFIs must not accept customers who are unregistered hawala providers based in the UAE, and must immediately report an STR to the UAE’s Financial Intelligence Unit, inform the CBUAE when they are detected, and closely monitor the relationship.