Annex 2. Red Flag Indicators in the Context of the UAE

How it works: Laundering proceeds of crime by purchasing valuable commodities, for example, precious metals or gems.

Possible indicators

Significant and/or frequent cash purchases of valuable commodities.

Regularly buying and selling of valuable commodities that is not supported with a business purpose and/or does not make economic sense.

يسري تنفيذه من تاريخ 3/8/2022

The FIU published the following typologies and indicators in their Biannual Financial Crime Trends and Typologies Report (January - June 2020). These typologies and indicators, as well as any future ones the FIU may determine, should be incorporated into an LFI’s AML/CFT program with a view to update policies, procedures, detection scenarios, and red flag indicators for identifying potentially suspicious activity.

B.1 General indicators

According to the FIU, the following indicators are present in many of the typologies used in money laundering and the financing of terrorism and illegal organisations.

	•	Transactions involving locations with poor AML/CFT regimes or high exposure to corruption.
	•	Significant and/or frequent transactions in contrast to known or expected business activity.
	•	Significant and/or frequent transactions in contrast to known employment status.
	•	Ambiguous or inconsistent explanations as to the source and/or purpose of funds.
	•	Where relevant, nervous or uncooperative behavior exhibited by the LFI’s employees and/or customers.

B.2 Wire transfers to and from bank accounts

•	How it works: Transferring proceeds of crime from one person to another via money remittance services.
•	Possible indicators
	o	Significant and/or frequent cash payments for transfers.
	o	Transfers to or from locations that have poor AML/CFT regimes or high exposure to corruption.
	o	Transfers to high-risk countries or known tax havens.
	o	Transfers to numerous offshore jurisdictions with no business rationale.
	o	Same home address provided by multiple remitters.
	o	Reluctant to provide the LFI with identification details.

B.3 Purchase of valuable commodities

B.4 Purchase of valuable assets

B.5 Offshore companies

•	How it works: The process of registering companies in the UAE, especially in the free zones, with foreign directors and/or shareholders in order to open bank accounts to facilitate money laundering and/or the financing of terrorism and illegal organisations by unverified beneficiaries.
•	Possible indicators
	o	Large numbers of companies registered with the same office address.
	o	Address on file is for a ‘Virtual office’.
	o	Accounts/facilities are opened/operated by company formation agents.
	o	Lack of information regarding overseas directors/beneficiaries.
	o	Complex ownership structures.
	o	Companies where there is no apparent business purpose.
•	Additional indicators:
	o	The same natural person is the director for a large number of single director companies.
	o	The same person (natural or corporate) is the shareholder of a large number of single-shareholder companies.
	o	Use of a small number of local 'agents' who undertake transactions with the companies’ register.

B.6 Nominees, trustees, family members or third parties

•	How it works: Utilizing other people to carry out transactions in order to conceal the true identity of the individual ultimately controlling the proceeds of crime.
•	Possible indicators
	o	Customers using family members or third parties, including the use of children’s accounts.
	o	Transactions where third parties seem to be retaining a portion of funds, which would indicate the use of mules.
	o	Accounts operated by someone other than the account holder.
	o	Many transactions conducted at various LFIs and/or branches, in one day.
	o	Significant and/or frequent transactions made over a short period of time.

B.7 Trade-based money laundering

•	How it works: Manipulating invoices, often in connection with international trade, by overstating the value of a shipment providing criminal entities with a paper justification to either launder proceeds of crime and/or send funds overseas to finance terrorism.
•	Possible indicators
	o	Invoice value greater than value of goods.
	o	Discrepancies in domestic and foreign import/export data.
	o	Suspicious cargo movements.
	o	Suspicious domestic import data.
	o	Discrepancies in information regarding the origin, description, and value of the goods.
	o	Discrepancies with tax declarations on export declarations.
	o	Sudden increase in online auction sales by particular vendors (online auction sites).
	o	Frequent purchases between same buyers and vendors (online auction sites).

B.8 Cancellation of credits or overpayments

•	How it works: Laundering proceeds of crime by overpaying then requesting refund cheques for the balance.
•	Possible indicators
	o	Frequent cheque deposits issued by car dealers, dealers in jewelry, etc.
	o	Significant and/or frequent payments to utility companies, for example, prepaid cards for fuel, telecom e-wallets etc.
	o	Frequent cheque deposits issued by utility companies (i.e., electricity providers).
	o	Significant and/or frequent payments for purchases from online auction sites.
	o	Frequent personal cheque deposits issued by third parties.

B.9 Electronic transfers to and from bank accounts

•	How it works: Transferring proceeds of crime from one bank account to another via LFIs.
•	Possible indicators
	o	Transfers to or from locations that have poor AML/CFT regimes or high exposure to corruption.
	o	Transfers involving accounts located in high-risk countries or known tax havens.
	o	Transfers to offshore jurisdictions with no business rationale.
	o	Multiple transfers sent to the same person overseas by different people.
	o	Departure from the UAE shortly after transferring funds.
	o	Transfers of funds between various accounts that show no economic purpose (i.e., multiple transfers incurring bank fees where one single transfer would have been sufficient).

B.10 Co-Mingling

•	How it works: Combining proceeds of crime with legitimate business takings.
•	Possible indicators
	o	Significant and/or frequent cash deposits when business has electronic funds transfer at point-of-sale facilities.
	o	Large number of accounts held by a customer with the same LFI.
	o	Accounts operated by someone other than the account holder.
	o	Merging businesses to create layers.
	o	Complex ownership structures.
	o	Regular use of third-party accounts.

B.11 Gatekeepers/professional services

B.12 Cash deposits

•	How it works: Placement of cash into the financial system.
•	Possible indicators
	o	Large cash deposits followed immediately by withdrawals or electronic transfers.

B.13 Structuring

B.14 Smurfing

B.15 Credit Cards/Cheques/Promissory Notes

B.16 Transactions inconsistent with intended purpose of the account

B.17 Cash couriers

B.18 Other payment technologies

B.19 Underground banking/alternative remittance services

•	How it works: Transferring proceeds of crime from one person to another via informal banking mechanisms such as unregistered Hawaladars.
•	Possible indicators
	o	Mostly prevalent under the auspices of a general trading company license.
	o	Significant and/or frequent cash payments for transfers in which the cash deposits could be from many different individuals using the cash deposit machines.
	o	Cash volumes and transfers in excess of average income of migrant account holders.
	o	Transfers to or from locations that have poor AML/CFT regimes or high exposure to corruption.
	o	Large transfers from accounts to potential cash pooling accounts.
	o	Significant and/or frequent transfers recorded informally using unconventional bookkeeping.
	o	Significant and/or frequent transfers requested by unknown or intermittent customers.
	o	Numerous deposits to one account followed by numerous payments made to various people.
	o	Vague invoices and documentation which may deliberately be made to appear complex.

B.20 Cash exchanges

•	How it works: Exchanging low denomination notes for high denomination notes (also known as refining) as a means to launder proceeds of crime, as well as reduce large volumes of cash obtained from serious crime.
•	Possible indicators
	o	Significant and/or frequent cash exchanges from small to large denominations.

B.21 Currency conversion