Facing global pressure, the United Arab Emirates to begin fining violators of new corporate transparency rules

Advocates ques­tion whether the country’s new rules for report­ing com­pa­nies’ ben­e­fi­cial own­er­ship are enough to crack down on mon­ey laundering.

Dubai.

The United Arab Emirates, one of the world’s top emerg­ing tax havens, will begin col­lect­ing penal­ties and fines on its require­ment for report­ing of com­pa­ny ben­e­fi­cial own­er­ship infor­ma­tion, as it faces inter­na­tion­al pres­sure to address mon­ey laun­der­ing con­cerns. However, ques­tions remain about numer­ous exemp­tions and loop­holes in the new rules.

Companies may use bro­kers or banks as the legal own­ers, but the new laws that require the report­ing of  ben­e­fi­cial own­ers is focused on record­ing the true own­ers who reap the ben­e­fits of own­er­ship, have 25% or more of the company’s shares and vot­ing rights at the com­pa­ny or the pow­er to dis­miss and appoint directors.

Beneficial own­er­ship truth­ful­ly pro­vides you who is behind the com­pa­ny and gives you an indi­vid­ual to go after. It allows enforce­ment agen­cies that are gen­uine­ly invest­ed in under­stand­ing and uncov­er­ing illic­it finan­cial flows to iden­ti­fy an indi­vid­ual,” Lakshmi Kumar, pol­i­cy direc­tor of Global Financial Integrity, said.

Since the Sept. 11 attacks, the UAE has come under spot­light because of the role its banks and air­ports played in facil­i­tat­ing trans­fer of cash, weapons and oth­er mate­r­i­al to alleged ter­ror­ist groups, accord­ing to the Chicago Tribune. The tiny gulf coun­try, which is a fed­er­a­tion of sev­en emi­rates, is ruled by a mix of fed­er­al and local laws in addi­tion to laws gov­ern­ing its sprawl­ing free zones. The legal envi­ron­ment, along with the absence of a sin­gle and cen­tral­ized reg­is­ter and weak reg­u­la­tions, crit­ics say, have turned the UAE to a safe haven for illic­it activ­i­ty, Transparency International said in a report last year.

What makes the UAE attrac­tive to illic­it busi­ness is the absence of any kind of over­sight, ques­tion­ing [or] require­ments,” Kumar said. “In a lot of oth­er coun­tries they may not have the tech­no­log­i­cal capac­i­ty, but that is not Dubai’s prob­lem. Look at how the UAE mon­i­tors civ­il soci­ety groups, peo­ple who advo­cate against human rights vio­la­tions with migrant labor. [The UAE] does an excel­lent job mon­i­tor­ing, enforc­ing and pros­e­cut­ing [them]. There’s a lack of inter­est behind this [ben­e­fi­cial own­er­ship law].”

In 2020, the UAE was placed under a year-long obser­va­tion by the Paris-based Financial Action Task Force for con­cerns over mon­ey laun­der­ing, ter­ror­ism financ­ing, weapons of mass destruc­tion, loop­holes in the prop­er­ty and pre­cious met­al indus­tries and the lack of legal action against mon­ey laun­der­ing. According to Kumar, this law, among oth­ers, may alter the per­cep­tion among for­eign investors that the UAE is a hub for ille­gal mon­ey move­ment. The deci­sion affects 513,000 non-finan­cial busi­ness­es, accord­ing to Gulf News.

The min­is­ter of econ­o­my has yet to decide who the enforce­ment author­i­ties of the law will be, accord­ing to the cab­i­net deci­sion issued ear­li­er this year. The law applies to the entire coun­try with the excep­tion of the finan­cial free zones of Dubai and Abu Dhabi. Government-owned cor­po­ra­tions and pub­licly trad­ed enti­ties are also exclud­ed from the own­er­ship report­ing require­ment. It’s unclear how this data will be stored, and the infor­ma­tion will not be pub­licly available.

The International Consortium of Investigative Journalists inves­ti­ga­tions such as the 2016 Panama Papers have helped prompt numer­ous coun­tries to enact ben­e­fi­cial own­er­ship reg­istries in recent years, includ­ing in Cyprus, Ghana and Kenya ear­li­er this year. More recent exposés by ICIJ, such as FinCEN Files and Luanda Leaks, have high­light­ed Dubai’s rise as a go-to secre­cy haven for peo­ple look­ing to hide illic­it wealth.

Administrative penal­ties and fines of up to 100,000 UAE dirhams for com­pa­nies that don’t com­ply with report­ing ben­e­fi­cial own­er­ship infor­ma­tion will begin July 1.

ICIJ.Org by Anisha Kohli

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