On November 6, 2023, the United Arab Emirates (“UAE”) took a significant step in fortifying its legal framework to combat money laundering and the financing of terrorism with the issuance of Cabinet Decision No. 109/2023 (“New Law”). This decision, which came into effect on November 16, 2023, supersedes the previous Cabinet Decision No. 58/2020 (“Old Law“). The New Law introduces a series of amendments aimed at enhancing the efficacy of the ultimate beneficial ownership (“UBO”) requirements and streamlining the regulatory process.
Amendments to Ultimate Beneficial Ownership Requirements:
The core of the New Law revolves around amendments to the UBO requirements. While the fundamental framework remains intact, notable changes include a redefined delegation of responsibilities, revised time frames, and the establishment of oversight procedures to monitor the progress and effectiveness of the Registrar. Additionally, the creation of an administrative unit focused on combating money laundering and financing terrorism highlights the UAE’s commitment to proactive measures.
Introduction of Complex Legal Structures:
A pivotal addition to the New Law is the concept of a “complex legal structure,” defined as an institutional mechanism designed to obscure and conceal the identity of the natural person who owns or controls a legal entity within a group of interconnected entities. This provision aims to address sophisticated attempts at concealing beneficial ownership.
Exclusions for Government Entities and Financial Freezone Companies:
Regarding the scope of the New Law, Article 3.2 introduces the exclusion of Partners that are Government Entities from the provisions of the New Law while maintaining the same about the Financial Freezone Companies. This amendment aligns with the exemption maintained from the Old Law. This provides a clear scope of application for the legislation.
Risk-Based Approach in Identifying Real Beneficiary:
Article 5.2 introduces a risk-based approach for the registrar to identify the real beneficiary, especially concerning complex legal structures. This approach underscores the need for a nuanced evaluation to prevent the exploitation of loopholes in the system.
Enhanced Registrar Responsibilities:
The New Law empowers the Registrar further, as seen in the amendment to Article 8.4. Interested parties can now apply directly to the Registrar, shifting the responsibility from a “competent Court.” This change aims to streamline the correction process for the Real Beneficiary Register.
Consolidation of Preservation Responsibilities:
Article 11.8 consolidates the responsibility of preserving registers and data in the hands of the Registrar, a departure from the Old Law’s broader allocation to “the legal person, the person in charge of its management, the liquidator, or other persons.” This amendment contributes to increased clarity and efficiency in the regulatory process.
Risk-Based Approach for Anti-Money Laundering Measures:
Article 13.10 empowers the Registrar to apply a risk-based approach, ensuring that legal entities are not exploited for criminal money laundering or financing terrorism. The New Law outlines various methods to implement and monitor these measures.
Creation of Administrative Unit and Changes in Sanctioning Powers:
A significant development is the creation of an administrative unit, outlined in Article 14, focusing on combating money laundering and financing terrorism. Moreover, the Registrar is now delegated the power to issue administrative sanctions, a departure from the previous authority held by the Minister. The appeals process for these sanctions has also undergone restructuring.
Oversight Procedures and Reporting Systems:
Articles 20 and 21 introduce oversight procedures, with the Ministry supervising the Registrar’s compliance with the New Law. This involves the submission of semi-annual reports by the Registrar to the Minister, creating a chain of accountability from the Registrar to the Senior Management, and ultimately to the Cabinet.
Conclusion:
The amendments brought about by Cabinet Decision No. 109/2023 demonstrate the UAE’s commitment to fortifying its anti-money laundering and counter-financing of terrorism framework. The changes not only provide further clarity on existing responsibilities but also proactively introduce reporting systems to foster the continued growth and development of the regulatory system. The pivotal role assigned to the Registrar underscores the Cabinet’s determination to achieve these ambitious goals. As the UAE continues to adapt and refine its legal framework, it positions itself as a global leader in the fight against financial crimes.
Disclaimer
This publication does not provide any legal advice and it is for information purposes only. You should not rely upon the material or information in this publication as a basis for making any business, legal or other decisions. Therefore, any reliance on such material is strictly at your own risk.
Author: Yousif Al Kalisy (Junior Associate – Corporate/Commercial Team)
