In 2023, the United Arab Emirates (“UAE”) introduced significant updates to its regulatory framework for Countering the Financing of Terrorism (“CFT”) and Anti-Money Laundering (“AML”) through Cabinet Decision No. 109 of 2023 and Cabinet Decision No. 132 of 2023. These updates provide clearer guidance for registrars and licensing authorities in both free zones (excluding DIFC and ADGM) and the mainland on conducting due diligence processes in relation to ultimate beneficial ownership (“UBO”) and complex ownership structures. We previously outlined these regulatory changes and their implications for businesses here. UAE authorities such as the Dubai Integrated Economic Zones Authority (DIEZA), which oversees several free zones in Dubai including the Dubai Airport Free Zone (DAFZ), International Free Zone Authority (IFZA) and Dubai Silicon Oasis (DSO), have since implemented so-called offsite assessments to ensure ongoing compliance with these new UBO regulations.
1. What is the current CFT and AML framework?
Due to its commitment to combat money laundering and the financing of terrorism, the UAE has implemented a comprehensive regulatory framework for CFT and AML.
Following the strict implementation of these regulations by, amongst others, licensing authorities and financial institutions, businesses operating in the UAE are regularly subject to disclosure requirements. The disclosure requirements cover, amongst others, a legal entity’s ownership structure, including information on the UBO of a legal entity. To ensure that legal entities are not being misused for money laundering and terrorism financing crimes, compliance with these requirements is a prerequisite for the establishment of legal entities and for opening bank accounts in the UAE.
With the aim to further strengthen the country’s AML and CFT framework and to meet international standards, the UAE government made legislative changes to the relevant UBO regulations and the respective catalogue of administrative fines for violations in 2023. These changes enable licensing authorities to apply a risk-based approach when identifying the UBO especially in com-plex ownership structures as these structures are at higher risk for being used to conceal the identity of the individual who owns or controls a legal entity.
The new Cabinet Decision No. 109 of 2023 On the Regulation of the Real Beneficiary Procedures (“Cabinet Decision No. 109 of 2023”) was issued on 6 November 2023. It repeals the previous Cabinet Decision No. 58 of 2020.
Cabinet Decision No. 132 of 2023 On the Administrative Penalties to Be Imposed on the Violators of Cabinet Decision No. 109 of 2023 Concerning the Regulation of Beneficial Ownership Procedures (“Cabinet Decision No. 132 of 2023”) was issued on 15 December 2023. It repeals Cabinet Decision No. 53 of 2021.
2. What are offsite assessments?
Licensing authorities and registrars in both free zones and the UAE mainland play a central role in ensuring compliance with the UAE’s CFT and AML framework and the new UBO regulations. Under Cabinet Decision No. 109 of 2023, they are responsible for obtaining, verifying and maintaining accurate UBO records of their licensees.
Offsite assessments, conducted as part of this process, ensure that businesses in the UAE maintain accurate records, operate transparently and mitigate risks related to financial crimes such as money laundering and terrorism financing on an ongoing basis. These assessments do not involve physical inspections but rely on submitted documentation to confirm compliance.
3. What documents are required?
Businesses undergoing offsite assessments must provide the relevant free zone or mainland authority with comprehensive documentation as set out in the relevant AML regulations. This includes UBO declarations, corporate records such as Articles of Association and trade licenses, as well as financial statements, audited reports and bank statements. Authorities may also request additional KYC (Know Your Customer) information, including proof of identity and address for relevant stakeholders, alongside evidence of operational activities such as contracts and invoices, to verify the genuineness and substance of business operations.
For entities with complex UBO structures, additional documents, such as diagrams or charts detailing ownership relationships, may be required to clarify ownership and control structures and assist authorities in verifying ultimate beneficial ownership. In case of an involvement of foreign entities, this may include foreign documents that might require translation and legalisation depending on the circumstances of an individual case.
4. What are the potential consequences for non-compliance?
Entities subject to offsite assessments must submit up-to-date UBO information that accurately reflects the current ownership and control structure. Businesses are required to submit the necessary documentation within the specific timeline set by the relevant licensing authority and notify the licensing authority of any changes to the relevant data.
Failure to comply with these obligations can lead to significant consequences, including administrative fines and penalties as outlined in Cabinet Decision No. 132 of 2023. Penalties for licensees range from written warnings for initial violations to AED 100,000 for repeated or severe breaches.
Non-compliance may also result in operational disruptions, such as the suspension or revocation of commercial licenses and reputational damage.
Additionally, failure to comply may trigger additional audits and increase the likelihood of further regulatory measures being im-posed.
5. Conclusion & Outlook
With comprehensive AML and UBO regulations in place, businesses in the UAE must ensure they have the necessary systems and documentation readily avail-able to always meet respective compliance requirements.
Businesses need to be aware that offsite assessments may be conducted by UAE licensing authorities to ensure continuous compliance with the country’s CFT and AML framework. Each relevant UAE licensing authority is obliged to ensure that legal entities within the licensing authority’s jurisdiction are not misused for money laundering or terrorism financing purposes. Offsite assessments enable authorities to determine whether companies demonstrate UBO transparency and genuine economic activity. Along with the introduction of corporate income tax (CIT) in the UAE in 2023, these assessments highlight the importance of accurate (financial) reporting while supporting the UAE’s efforts to improve transparency and align with international standards.
Whilst these measures help to build investor confidence and strengthen the regulatory environment, they can also create challenges, particularly for businesses with complex ownership structures or limited resources. In practice, companies with layered ownership arrangements often face difficulties in providing clear UBO disclosures, particularly where various jurisdictions or foreign lesser-known corporate structures are involved or where entities are ultimately owned by a foundation or trust. Small and medium-sized enterprises (SMEs) may struggle with the administrative burden, leading to higher costs and reliance on external advisors. Deadlines can pose challenges, especially when legalised documents, additional records or translations are required.
Given that the previous Cabinet Decision No. 58 of 2020 entered into force in 2020, existing businesses established in a commercial free zone or in UAE mainland should have already complied with the relevant UBO disclosure obligations and should have the required data and documentation in place. However, the offsite assessments being conducted following the recent legislative changes also highlight that CFT and AML compliance is an ongoing task that requires businesses to continuously and proactively address gaps in their respective compliance framework. For in-stance, companies are required to update relevant UBO information following changes in ownership or control structures to ensure sufficient transparency of the actual UBO on an ongoing basis, to fully meet regulatory obligations and to ultimately avoid potential penalties or business disruptions.
Dr. Constantin Frank-Fahle, LL.M.
Founding Partner
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