NEW CENTRAL BANK DIRECTIVE ON POLITICALLY EXPOSED PERSONS

C O N F I D E N T I A L ABU DHABI 001109 SIPDIS NOFORN STATE FOR NEA/FO AND NEA/ARP E.O. 12958: DECL: 11/23/2019 TAGS: EFIN PTER PREL ECON AE SUBJECT: NEW CENTRAL BANK DIRECTIVE ON POLITICALLY EXPOSED PERSONS TENTATIVE MOVE IN RIGHT DIRECTION Classified by AMB Richard Olsen, reasons 1.4 (b, d). ¶1. (C) Summary: On 2 August 2009, the UAE Central Bank (UAECB), issued a circular to local banks instructing them not to handle accounts belonging to Politically Exposed Persons (PEPs). The circular was issued in response to a shortcoming identified in the UAE's Middle East-North Africa Financial Action Task Force (MENAFATF) Mutual Evaluation issued on 9 April 2008. The UAECB circular defined PEPs as "individuals ...entrusted with prominent public functions in a foreign country;" the Central Bank later clarified that GCC nationals would be excluded from this definition. (NOTE: Internationally, PEPs usually refers to senior political figures or persons holding important public positions, who by dint of their authority and access to substantial public funds potentially pose a money laundering risk. END NOTE.) While the language of the new PEPs requirement is comparatively broad and top-down, it is a positive first step bringing the UAE closer to international standards on handling accounts of PEPs. Significantly, the new regulation gives the Central Bank (and the UAEG more broadly) new authority to prevent officials from countries of concern -- e.g., Iran -- from accessing the UAE financial system. As with all matters pertaining to financial regulation in the UAE, the efficacy of the new guidance will be determined by the regulator's enforcement and implementation thereof. End Summary. ¶2. (SBU) In its April 2008 MENAFATF review, the UAE was given a non-compliant rating on its adherence to FATF Recommendation 6 for not imposing any requirements on banks or other financial institutions with respect to handling accounts of either domestic or foreign PEPs, nor for identifying PEPs as a possible money-laundering concern in the relevant articles of the UAE's primary money laundering regulation Central Bank Circular 24/2000 (November 2000). On 2 August 2009, the UAECB moved to address this deficiency by issuing Circular 3802/2009 defining PEPs and instructing banks to provide the UAECB with a list of accounts currently held on behalf of identified PEPs, as well as to seek UAECB permission before opening any new accounts. The circular initially defined PEPs as, "individuals ...entrusted with prominent public functions in a foreign country," but in a revision sent on 19 August 2009, instructed financial institutions to exclude GCC nationals from the definition of foreigners and, therefore, effectively from the definition of PEPs. The revised circular, however, did expand the affected institutions to include money exchangers, investment and finance companies and other financial institutions, as well as to expand the PEPs definition to include family members of primary PEPs. Although the circular was issued by the UAECB's Banking Supervision and Examination Department, responsibility for vetting the names the banks submit will fall to the Anti Money Laundering and Suspicious Cases Unit (AMLSCU),the UAECB's Financial INTELLIGENCE Unit, according to Abdulrahim Al Awadi, head of the AMLSCU. ¶3. (C) Several embassy contacts including a UAECB examiner, the head of compliance for a major international bank and the head of compliance for a large UAE domestic bank expressed reservations about the practicality of implementing the new directive. They noted that the circular, while issued as an addendum to the primary anti-money laundering regulations, lacks guidance on the specific money laundering threats posed by PEPs and how PEPs scrutiny should be integrated into banks' existing anti-money laundering procedures. While the large international banks in the UAE should already follow the established requirements of their home jurisdictions regarding treatment of PEPs, local banks are more likely to relinquish screening responsibilities to the Central Bank. Smaller local banks are likely to rely on commercial PEPs databases such as World-Check in order to identify possible PEPs accounts. Speaking unofficially, the UAECB examiner noted that under the new procedure the UAECB remains the primary arbiter of who is allowed to bank in the UAE. The UAECB's ability to vet and provide timely guidance to banks also remains an open question. ¶4. (C) Comment: While a positive first step, the circular may not satisfy all concerns of the MENAFATF to allow full credit on the PEPs requirement, unless the UAECB issues additional guidance or can demonstrate an enforcement track record. Similarly, the carve-out for GCC nationals could be problematic. However, the circular does give the Central Bank new authority to take action against specific individuals -- a tool that could increase responsiveness to specific USG requests. End Comment.