Money evasion or laundering is the endeavor to cover or mask the nature, area, source, proprietorship, or control of illicitly acquired cash. By implication, money laundering or tax evasion is illegal. This definition covers an extensive variety of movement. To prevent money launders and agents, most countries enacted the anti-money laundering acts with the goal of tracking and prosecuting offenders. The compliance guide for business and personal transactions provides documentation that might be utilized to indict cash launderers, thus, the legislature requires organizations to document particular reports and keep up records on certain money exchanges.
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Thus, anti-money laundering compliance prevents criminal activities that rely on the placement, layering, and integration to evade detection. The initial arrangement that transfers money from a legitimate transaction to illegal activity is called placement.
However, the systematic framework designed to evade the anti-money laundering program is called layering. Finally, these activities are recycled to a legitimate transaction, which is called integration. Thus, money laundering laws are established and enforced on individuals, banks, money exchanges institutions, remittance houses, and credit institutions. This paper will discuss anti-money laundering compliance procedures as applicable in Dubai. Consequently, it also will summarize the Hawala system in Dubai and its compliance with anti-money laundering laws.
We will begin this analysis on the framework for anti-money laundering compliance. By implication, the anti-money laundering laws prevent customers and business investment from illegal transactions. Thus, the compliance mechanism enforces record-keeping and customer profiling to prevent money evasion.
The anti-money laundering compliance program must adopt four concepts.
- Recommend written guidelines and policies
- Create and enforce compliance officers or Interpol to monitor customers
- Create awareness and train compliance enforcement agents on crime trends and organizations.
- Conduct periodic reviews of compliance policies and outdated programs in accordance with global practice.
Please note that creating the compliance program includes license requirements, customer profiling, transaction documentation, and compliance training program. The Hawala mechanism and its compliance with the anti-money laundering program in Dubai would be analyzed.
The Meaning of Hawala
Hawala is an option or parallel settlement framework, which enables money transfer from one location to another. It exists and works parallel to traditional money transactions, safekeeping, or monetary channels. It was established in India, prior to the presentation of Western saving money hones and a noteworthy settlement framework utilized globally. Hawala remittance is a framework that encourages “flying money” across regions in the UAE.
The frameworks frequently allude as underground banking”; this term is not generally right, as they frequently work in the open with complete, however, legit transactions are carried out on Hawala systems. The parts of Hawala that recognize it from other settlement frameworks are reliance and the broad utilization of associations, for example, family connections, or territorial affiliations. Unlike conventional money transactions, Hawala makes insignificant utilization of any kind of debatable instrument. Exchanges of cash occur with correspondences between individuals from a system of Hawaladars, or its affiliates.
Hawala settlement frameworks are a quick, safe, and financially savvy approach to exchange reserves locally and globally without utilizing formal money related foundations. Hawala is a casual asset exchange framework that keeps running in parallel to the formal managing an accounting framework. Such frameworks were initially created to encourage exchange between inaccessible districts or in areas where ordinary saving money instruments were truant, frail, or perilous.
As a settlement framework, Hawala is submitted to the national directions controlling settlement administrations. In a few nations, Hawala is unlawful from an administrative viewpoint, because the implementation is troublesome and administrations are publicized in ethnic media or by means of the web in vernacular dialects. Furthermore, Hawala specialists operate real organizations with the settlement benefits they offer, which promote challenges of potential discovery.
In the UAE, for example, Dubai enacted laws that restrict money transfers and transactions outside trade exchanges at rates other than the official trade route, which makes Hawala frameworks illicit. A few nations additionally force enlistment and permitting necessities to cash remitters or strict directions over residential and worldwide settlement (“How does the Hawala System of Transferring Money Work?” par. 3).
Reasons Hawala Thrives in Dubai
When contrasted with a traditional method for dispatching cash, for example, getting a check and requesting a wire exchange, Hawala appears to be bulky and dangerous.
The essential reason is cost viability. The hypothetical scenario, Waheed was ready to transact Rs 30,000 additionally (averaging trade rates, this is about US$ 880), a huge reserve fund by utilizing the Hawala framework. However, Waheed would lose part of his earnings to bank charges as he opts for a wire transfer mechanism. A portion of the explanations behind this cost variable, low overhead, conversion standard hypothesis, and existing business exercises will be examined in the following segment of this paper. The second reason is proficiency.
A Hawala settlement happens in one or two days, which supports most business transactions (“Hawala Remittance System and Money Laundering” par. 7). This can be diverted from the week or so required for a worldwide wire exchange including bank delays and verification protocols (and in addition delays because of occasions, weekends, and time contrast). The third reason is the unwavering quality. Complex universal exchanges, which may include the client’s affiliate bank, its reporter bank, the principal office of a remote bank, and a branch office of the recipients outside the bank can be risky. The fourth reason is the absence of administration.
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Waheed is living and working in the United States on a lapsed understudy visa; he does not have a government-managed savings number (and since he bargains only in real money, he truly does not require one). It would be troublesome, if not inconceivable for him to open a ledger, as he does not have satisfactory recognizable proof. By implication, Waheed does not trust banks and will decline to use them if by any means conceivable. However, Hawala remittance systems do not have a bureaucratic structure, making them the best contrasting option to the bank (“Money Laundering Legislation in the UAE” par. 2).
The fifth reason is the absence of a paper trail. Although Waheed earned the cash that he sent to Mohammad legitimately, he prefers to stay mysterious (this is a vital thought of illegal Hawala exchanges). Since it is uncommon for Hawaladars to keep records of individual exchanges, it is improbable that Waheed’s settlement will not be distinguished as a component of business dealings between the Hawaladars and their partners. The sixth reason is duty avoidance. In Dubai, drug trafficking or parallel economy is 30%-half of the archived economy. Cash dispatched through authority channels may welcome an investigation of expense powers; Hawala gives an examination free settlement channel.
Hawala is a significant part of the multifaceted nature connected with and credited to laundering activities, which originate from patterns practiced in Hawala exchanges. This many-sided quality of variety makes it almost difficult to lay out a clear guide to against money laundering activities, which are critical aspects of a criminal undertaking. It is conceivable to give a couple of markers that might be helpful.
A standout amongst the most steady and legitimate pointers of Hawala action in examinations is found in financial balances. A Hawala financial balance indicates huge money transfers as a rule in the types of money and checks, which are frequently from one or more groups that are connected with the Hawaladar. These records will likewise demonstrate active exchanges (as a rule by wire) to a major monetary focus not included in Hawala. Four of the most widely recognized areas are Great Britain, Switzerland, and, Dubai. Given the adaptable and easygoing nature of the Hawala business, compliance with anti-laundering acts seems unattainable.
Hawala and Anti-Money Laundering Compliance
Hawala agents work transparently in all parts of the world and the framework has a worldwide range. The danger of this transaction associates the remitter to convey money and the limitations of a specialist to cover the exchange. The United Arab Emirates, particularly Dubai, is accepted to handle the biggest volume of exchanges; however, the framework is far-reaching in nations such as Pakistan, India, and the Persian Gulf states.
The degree of Hawala frameworks has not been investigated in previous literature and cannot be measured given the casual way of the exchanges. It is difficult to give an exact figure, however, it is likely that it extents to billions of USD. A few nations make gages based on their ostracized group and enforcement intelligence. In Dubai, authorities evaluate that more than USD 5 to 7 billion goes into the nation consistently through Hawala channels. (“Anti-money laundering: Systems and Controls” par. 1).
In India, Interpol gages the measure of Hawala at conceivably 40% of the nation’s total national output. It is evaluated that universally between USD 100 and USD 300 billion move through casual settlement frameworks consistently (“Hawala” par. 2). Regardless of its casual nature, elective settlement frameworks may have immediate and circuitous macroeconomic ramifications and potentially affect money related records of both transmitting and remitting nations.
Financial crime and drug-related exchanges do not reflect in authority measurements for the beneficiary nation or liabilities of the dispatching nations (“Terrorists and Hawala Banking” par. 2). Consequently, such exchanges are accepted to build the course of trade for the beneficiary nations and influence the organization of cash transfers. Elective settlement frameworks may likewise have an aberrant impact on fiscal arrangements as they influence the interest and supply on external monetary standards.
Elective settlement frameworks additionally have negative financial ramifications for both transmitting and accepting nations. Thus, the roles of compliance laws, agents, and customers will be analyzed in accordance with the Hawala framework. The section overview and assemble data on the significance of these elective settlement frameworks and their practice in the different nations.
The Profile of Hawala Customers. Previous literature on Hawala remittance systems concurred on the upsides of utilizing Hawala both for lawful and illicit purposes. Hawala is appealing to clients as it gives a quick, sheltered, and advantageous approach to exchange cash with a lower commission than that charged by the banks (“Anti-Money Laundering: Know Your Customer Quick Reference Guide and Global AML Resource Map” par. 4). In nations with strict directions representing local and global cash exchanges, Hawala can be driven by capital flight inspirations, inward security, and steadiness utilizing elective settlement frameworks to place cash abroad or pay for training or medical treatment.
The Advantages of Hawala: Customer’s Perception
- The framework is practical. Hawala representatives take a little commission and typically hone more beneficial trade rates than the official rates. Hawala administrators have low overheads, and create benefits through little commissions and swapping scale hypotheses.
- The framework is sheltered. In nations tormented by political unreliability, for example, Afghanistan, it is helpful, sheltered, solid, and cheap approaches to move reserves inside the nation.
- The framework is proficient. A Hawala settlement exchange happens within two days.
- The framework is dependable. The framework depends on trust and there are no reported occasions for clients being deceived at the exchange. A rupture of trust would keep the clients away.
- The framework is adaptable and not bureaucratic. The casual way of the exchanges makes them extremely appealing to clients with movement or other lawful concerns. For instance, unlawful vagrants do not have satisfactory recognizable proof and could not utilize the formal saving money framework to send cash home.
- The framework is mysterious. It encourages the exchange of cash without records or documentation.
- The framework does not leave a paper trail. As it is uncommon that Hawala dealers keep records after the exchange is finished, it is improbable that the exchange will be distinguished or identified.
- The framework is culture cordial. For vagrant laborers, ethnic or family relationship ties with the Hawala specialists make this framework, especially advantageous and simple to utilize.
Profile of Users
The velocity, cost-adequacy, wellbeing, and potential obscurity of Hawala exchanges add to far-reaching use (for both lawful and illicit purposes) and settle with them for the poorest sections of the populace.
Hawala is customarily connected to South Asia and the Middle East. Its essential clients are individuals from the ostracized populaces from the Indian sub landmass, East Asia, Africa, Eastern Europe who relocated to Northern America, Europe, and the Persian Gulf locale and send settlements to their families who stayed in their nation of a starting point. In 2005, World Bank assessed that settlement to remitting nations from abroad laborers added up to USD 126 billion in 2004 (“Informal Funds Transfer Systems: An Analysis of the Informal Hawala System” par. 5).
A study by the Inter-American Development Bank revealed that Latin America and the Caribbean are the fundamental beneficiary territories of settlement in the world (31%), trailed by South Asia (20%) and the Middle East and North Africa (18%). (“Fraud Feature: Hawala Banking” par. 5). The settlement of vagrant specialists whether exchanged through formal or casual channels is extremely critical of both the national economy and individual families as a way to escape compliance.
Anti-Money Laundering Compliance Measures
In accordance with the global initiative against money evasion, anti-money laundering compliance is organized to reduce, prevent, and eliminate illegal exchanges. The enforcement protocol supports the consequences for offenders.
As a result, the operations of terrorist cells and drug dealers would be limited. Compliance mechanisms include systems and operational control. By implication, the anti-money laundering agency is empowered to profile customers and flag areas of importance. Thus, undercover agents are deployed to enforce Hawala compliance with the anti-laundering program. Legitimate business investments that utilize Hawala systems must comply with its guidelines. As a result, customer identity, nature of business transactions, and cash exchange must be reported in accordance with anti-money laundering laws.
Under the Money Laundering Regulations (2007 Regulations), organizations are required to set up suitable danger delicate strategies and techniques, keeping in mind the goal to counteract exercises identified with government evasion. Consequently, the policy counteracts terrorist financing, including those approaches and methodology, which accommodate proof and investigation of complex or curiously extensive exchanges, uncommon examples of exchanges with no obvious monetary or legitimate reason.
In addition, money-laundering regulations mitigate different exercises viewed by the controlled individual as IRS evasion or terrorist financing. The characteristics of the regulation must be a counteractive action of utilization, which is unbiased. The regulation determines whether the customer is a politically exposed person (PEP).
The regulatory method secures information about the company’s customers, business connections, and cash exchanges. Consequently, anti-money policies create inward reporting, which includes an arrangement of an MLRO to get the tax evasion reports required under the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act (TA 2000) and a framework for making those reports. Record keeping including subtle elements of client due diligence and supporting proof for business connections, which should be kept after the end of a relationship and records of exchanges.
Anti-money laundering compliance supports inside control, hazard appraisal and administration, consistency checking, administration, and correspondence. Consequently, organizations are required to take measures that enforce employee compliance with laws identifying money laundering activities and terrorist operations. The policy prepares business representatives to perceive and manage exchanges, which might be identified with government evasion or terrorist financing.
Thus, organizations must guarantee adequate senior administrative oversight, proper investigation, and evaluation of the dangers of customers and work/item sorts, frameworks for observing compliance with techniques and strategies for conveying systems and reports.
Money laundering is characterized by movement, exchange, storing of the property, camouflage, and mask property acquired from any of the accompanying offenses. Any individual who purposefully submits or abets in the exchange store or change of the proceeds with the aim to camouflage or hide the root of such proceeds or nature, source, area, development, or responsibility for proceeds or procures or utilize the ‘benefits of transactions’ is said to have conferred the offense of money laundering. While private individuals are culpable for the offenses of money laundering, officer and workers of financial and different establishments (“Organizations”) working in the UAE is likewise culpable for inability to report an office of money evasion.
The Anti-Money Laundering Framework Under the AML
The UAE Anti-Money Laundering Committee. An advisory group called the “National Anti-Money Laundering Committee” (“NAMLC”), monitors money laundering laws to ensure compliance. The NAMLC proposes anti-money laundering laws, directions, methods, and encourages the trading of data among its affiliates in the UAE and overseas (“Anti-Money Laundering (AML) Source Tool for Broker-Dealers” par. 2).
The Central Bank’s Financial Information Unit. The AML requires the Central Bank to set up a Financial Information Unit (“FIU”) to recognize any suspicious exchanges. Budgetary, business, and financial establishments are required to report suspecting IRS evasion acts to the FIU. The Central Bank is engaged to stop resources held in budgetary organizations of illegal transactions. Money, business, and financial organizations control systems to guarantee compliance with AML directions.
The AML requires Financial Institutions, for example, banks, cash trades, and specialists that are authorized by the Central Bank to set up techniques and components to guarantee compliance with AML directions. Consequently, these institutions are empowered to report suspicious exchanges to the FIU.
Anti-Money Laundering: Systems and Controls. 2015. Web.
Fraud Feature: Hawala Banking. 2016. Web.
Hawala 2016. Web.
Hawala Remittance System and Money Laundering. 2016. Web.
Informal Funds Transfer Systems: An Analysis of the Informal Hawala System 2003. Web.
Money Laundering Legislation in the UAE 2016. Web.
Terrorists and Hawala Banking 2001. Web.