Following the Financial Action Task Force's (FATF) decision to add UAE to its "grey list", the UAE agreed to take a number of steps in response. This included a commitment to increase the effective investigation and prosecution of money laundering cases. It is perhaps not surprising then to see the recent DFSA Decision Notice (the Decision) in relation to AML system and control failures at Bank of Singapore (BOS). 

The Decision serves as a timely reminder to ensure that financial crime systems and controls are robust, particularly as the DFSA is likely to be on the lookout for other similar cases in order to support the commitments given by the UAE to the FATF.

What went wrong? 

It is important to note that there was no suggestion that any money laundering occurred because of the relevant failures at BOS. Rather, the DFSA identified weaknesses in internal procedures and record-keeping. These sorts of cases have been commonplace in the UK and other regions for many years, particularly in respect of financial crime controls. 

The DFSA found that there were weaknesses in the following areas:

• Assessing business AML risks – there was a failure to adequately address the financial sanction risk or the risk arising from new products/services and new technologies.
• Assessing customer AML risks – the customer risk assessment methodology did not consider the nature of the client's business, the purpose of the business relationship or the risk relating to the specific product or service.
• Record-keeping – the DFSA identified several issues with the retention of documentation. In some cases, it seems that the correct information had been obtained but was not readily available when requested by the DFSA.
• Source of wealth – there was inadequate evidence of source of wealth and an inappropriate use of benchmarking evidence of source of wealth.
• Suspicious Activity Reports (SARs) – there was a lack of detail and context provided in SARs and a failure to adequately reassess the risks raised by the relevant customers.

The Decision refers to other issues identified by the DFSA, but these were not connected to financial crime (e.g. acting outside the scope of the DFSA Licence). 

What was the outcome? 

DFSA imposed a financial penalty of US$1.12 million. The size of the penalty was reduced as BOS offered to provide an Enforceable Undertaking to remedy the deficiencies in the systems and controls and employ an external expert to verify completion of the remediation. The Enforceable Undertaking also requires the external expert to confirm that all new clients are onboarded in accordance with applicable legislation. 

Recommendation

All DFSA firms should periodically review and test the robustness of their financial crime systems and controls. It is highly likely that the DFSA supervision teams will continue to examine this area and any failures will no doubt be referred to enforcement. 

Please contact us for further advice and assistance in this area.