The FATF’s Mutual Evaluation Report of the UAE issued in April 2020 stated that the Money or Value Transfer Services’ sector (MVTS), including the Exchange Houses’ sector, is weighted as highly important in terms of risk and materiality in the UAE. The inherent risk and materiality of these sectors has been notably increased by their exposure to cash transactions.

The Exchange Houses sector provides widely used financial services to diverse customer sectors. While the majority of its Exchange Business is legitimate in purpose, it can be abused to facilitate illegal activity, including terrorist financing, money laundering, and other type of criminal activity. The Exchange Houses sector may provide significant opportunities for criminals to move, conceal and eventually use the funds generated by their illegal activities, unless appropriate safeguards are in place. This is due to the simplicity and speed of transactions, worldwide reach and often cash-based nature of transactions. Importantly, money laundering and financing of terrorism (ML/FT) vulnerabilities also stem from the fact that Exchange Houses often carry out occasional transactions rather than establishing an ongoing formal relationship with their customers, which means that their understanding of the ML/FT risk associated with the customer may be limited.

Risks to the Exchange Houses sector also stem from generally uneven regulatory disparity, supervision and enforcement of the sector globally because Exchange Business often involves different jurisdictions. Criminals may seek to exploit differences in regulatory requirements in different jurisdictions or deficiencies in certain jurisdictions to move, structure and conceal their funds.

Exchange Houses may also potentially be abused by criminal groups and corrupt employees or agents cooperating with criminals, who may seek to own an Exchange House outright, or indirectly through an associate, or could seek to coerce employees through financial incentives in order to use the Exchange House to circumvent AML/CFT obligations and advance criminal schemes.