Legal persons and arrangements are critical to the conduct of business, charitable activity, estate planning, and many other activities. They have a wide variety of acceptable and desirable purposes, and the vast majority of legal persons and arrangements are engaged solely in licit behaviour.

Nevertheless, certain aspects of legal persons and arrangements are acknowledged to pose risk for LFIs that accept such entities as customers. Most importantly, the use of legal persons and arrangements to manage funds or do business can obscure or conceal the identity of the individuals who are truly controlling, directing, or benefiting from the services the LFI offers its legal person or legal arrangement customer. This concealment can allow illicit actors to abuse services offered by LFIs in order to launder the proceeds of crime, engage in terrorist financing, evade United Nations or UAE sanctions, and threaten the integrity of the UAE financial system and the security of the State.

Legal persons and arrangements are attractive to participants in illicit finance—including money laundering (ML), the financing of terrorism (TF), and the financing of proliferation (PF)—because these entities offer the opportunity to transact anonymously, or nearly anonymously, through complex and/or opaque corporate structures. Section 2.1 discusses the ways that legal persons and arrangement can be abused to conceal illicit transactions from financial institutions.

It is important to be aware, however, that not all legal persons and arrangements pose equal risk of abuse. The vulnerabilities arising from the basic characteristics of legal persons and arrangements can be enhanced or mitigated through the formation process and other controls jurisdictions apply to legal persons and arrangements. Thus, it is critical for LFIs seeking to understand the risks of their customer base to be aware of the presence or absence of these features and controls in the jurisdiction of formation. Section 2.2 below discusses specific aspects of a control regime and how these can impact vulnerability.