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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.

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.

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