It is no secret that, as a repercussion of the UAE’s fight against money laundering and terrorism financing, operators in the precious metals and stones sector are facing new challenges with regards to banking. Due to the high-risk nature of working with precious metals and stones entities, financial institutions have implemented layers of additional requirements. The traditional way DPMS hve been operating, that is, mostly through cash transactions and outside the financial circuit is slowly proving itself redundant. And as such less and less financial institutions are supporting such DPMS.
The Central Bank of UAE has thus published a Guidance for licensed financial institutions providing services to the real estate and the precious metals and stones sectors dated June 2021 whereby it is made clear that: “Although LFIs (licensed financial institutions) should judge their own risk tolerance and risk management capabilities, the CBUAE does not expect or encourage LFIs to broadly prohibit or exit customer relationships with the real estate and precious metals and stones sectors. These sectors are important parts of the UAE economy, and they need access to financial services to conduct their legitimate business. The CBUAE does expect, however, that LFIs understand their risk and take effective, risk-based steps to protect themselves from abuse and from illicit actors and transactions.”
The FATF’s Mutual Evaluation Report of the UAE issued in April 2020 identified the precious metals and stones sector as highly important in terms of risk and materiality in the UAE. The risks are mostly associated to factors such as the product itself, the jurisdictions of trade, the suppliers and the clients involved.
Hereinunder is a highlight of the risks associated with precious metals and stones and how we would recommend DPMS to mitigate them through a risk-based approach and customer due diligence so as to encourage LFIs to work with them.
Risk – Attractiveness to illicit finance
Recommendations – Clearly identify the UBOs of the entity and provide clear information on the source of funds of the UBOs by providing documents to support the legitimacy of the funds. The same information should be requested from suppliers and clients on their onboarding process by the company to have one more chain of the line checked and a screening should be done in regard to applicable sanction lists. (Usually, financial institutions will ask for a list of suppliers and clients in their onboarding process for another layer of check). If applicable register the transactions with the FIU through the goAML platform so as the authorities may have a better monitoring. Raise a suspicious activity report if needed.
Risk – Facilitation of the International movement of value/ Difficult to track movements/ Can be transformed.
Recommendation – Record all the import and export documents, coupled with accredited refineries or laboratories report in regard to the identification of the bars and the purities. Record the tax payment in the country of origin and record payment to the supplier in the country of origin (preferably by wire transfer).
Risk – AML/CFT regulations in the country of sourcing vary
Recommendation – As part of the due diligence process, DPMS should have an understanding of the legal framework around AML/CFT regulations in the country of origin. They should implement an internal process of evaluating if a minimum number of fundamental requirements are covered by the legislation in place so as to ensure that the companies operating in those jurisdictions should comply to those requirements. If the country is a FATF member then their mutual evaluation report on that particular country could be another tool to assess that at least a fundamental number of requirements are covered. Those requirements could be: obligation of identifying the UBOs, are there any politically exposed persons in the UBOs, shareholders, directors, the identification in regard to the source of funds, amongst others.
Risk – PMS mostly sourced from high-risk jurisdictions
Recommendation – DPMS should refrain from working with sanctioned countries. An internal evaluation should be done in regard to other sourcing countries based on factors such as the jurisdiction’s regulations in regard to AML/CFT, political and economic stability, corruption index, geographical position, borders control, yearly production in PMS and yearly export, banking system, availability of value in transit operators, among others. Working from those jurisdictions should automatically trigger the enhanced due diligence internally.
Risk – Illegal mining or mining supported by the proceeds of crime
Recommendation – As part of the onboarding process, suppliers should be asked to submit their gold trading license and the mining permit from where they are sourcing. The DPMS should have a full understanding of the supply chain and checks should be made in compliance with the OECD Due Diligence Guidance for responsible supply chains of minerals from conflict-affected and high-risk areas.
Below is a proposed checklist for DPMS to onboard suppliers and clients so as to give LFIs confidence in working with them:
– Identify the name, address, incorporation, tax details, website and if the company has audited accounts.
– Understand the business, the product, the market and the transactions flow of the customers and suppliers.
– Identifying the shareholders, Ultimate beneficiary and management structure of customers and suppliers.
– Identify the financial information of the customers and suppliers.
– Identify the economic substance of customers and suppliers (number of employees, physical office).
– Identify the source of funds of customers and suppliers (Company profile, partners profile).
– Identify the compliance of the customer or supplier in terms of AML/CFT policies and procedures, Anti Bribery policy and procedures, Data protection.
– Identify the transactions monitoring of the customer and supplier.
– Identify if the gold is sourced responsibly in regard to the OECD guidelines, not financing any illegal activity and export procedures complies with local laws and regulations.
– Identify that the transaction is not being used as an instrument for money laundering or terrorism financing.
– Identify of the customers and the supplier’s due diligence process for another layer of checks.
– Identify if there is any Politically Exposed Person in the transaction.
– Keep record of the relevant supporting documents for at least 5 years.
Federal Decree-law No. (20) of 2018 ON ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM AND FINANCING OF ILLEGAL ORGANISATIONS
Cabinet Decision No. (10) of 2019 CONCERNING THE IMPLEMENTING REGULATION OF DECREE LAW NO. (20) OF 2018 ON ANTI- MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM AND ILLEGAL ORGANISATIONS
Guidance for licensed financial institutions providing services to the real estate and the precious metals and stones sectors
OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict- Affected and High-Risk Areas
FATF UAE Mutual Evaluation Report April 2020
About the Author:
Asif Sooltangos is a Director and the General Counsel of Gold Hive Trading LLC, a licensed precious metals and stones trading company in UAE. He advises on DPMS compliance in regard to their AML/CFT and their responsible sourcing obligations. He also advises on cross-border precious metals and stones deals.
He may be contacted at email@example.com.
Visit our website at www.goldhivellc.com for more information on the company, our products and our services.