How KYB can limit money laundering and fraud in UAE

Catch bad actors, avoid falling prey to money laundering and fraud
How KYB can limit money laundering and fraud in UAE
Benjamin Haas, Senior Sales Director EMEA for IDnow

Fraud has become endemic for online businesses. In Dubai alone, a whopping 25,000 cybercrimes were reported to Dubai Police in 2021. What was once the practice of a few shady individuals, has increased to organized crime syndicates operating as “legit” companies to siphon millions of dirhams from UAE businesses.

Benjamin Haas, Senior Sales Director EMEA for IDnow explains why the UAE might be more susceptible to this type of criminal activity, gives insights into Know Your Business (KYB) processes and how these can help to catch bad actors and thus avoid falling prey to money laundering and fraud.

Multiple licensing authorities across free zones


The existence in the UAE of more than 40 different free zones with individual authorities makes it difficult to standardize the process of licensing businesses and their activities. The diligence of checks across companies who are applying for a license differ in each free zone with regulators whose approaches, processes and rules are not always in sync, thus potentially resulting in gaps, which can be exploited by bad actors, or legitimate companies with bad intentions.

While there are similarities across the due diligence processes of the various free zone authorities, some authorities have different application rules, processing timeframes, different activity lists, and fees, thereby making it harder or sometimes easier to set up a business there. Thorough due diligence can cost a few thousand dollars, which is why some free zones are using easy, open-source intelligence tools, thus leaving themselves exposed to risks of money laundering and fraud.

This is where KYB comes in: It identifies the ultimate beneficial owner of the company and any major shareholders via automated services that quickly and efficiently flag discrepancies (e.g. business addresses, business licenses and registrations, and identification documents of the business owners that are submitted). Why is it important? Because legitimate businesses and regulators need to know who the owners, directors, and major shareholders of these companies are. They need to detect if any financial crimes have been committed before they decide to enter into a business relationship with them.

Read more: Black Friday: Great for sales, wonderful for fraudsters


Making financial transactions safer


But what are KYB processes? KYB and KYC (Know Your Customer) procedures have much in common; they share the main objective of following Anti-Money Laundering (AML) regulations to make financial transactions safer and prevent money laundering activities. The difference between them is in the type of customers that a company is dealing with. KYC regulations and procedures are appropriate when the customer or consumer is an individual. KYB regulations have been developed to deal with cases where the customer is any type of business or corporate entity.

If KYB is the first line of defense, then identity proofing is the secret weapon for companies. Used as an integral part of the KYB setup for added security, identity proofing, or identity verification, can highlight fraud. It can also help to pinpoint who the ultimate owner is and what, if any, key shareholders exist and provide assurance that those individuals are who they claim to be. It can take the heavy workload of verifying new customers and partners, so enterprises can evolve and concentrate more time on other areas of their business. While the primary function of identity proofing is to prevent fraud, it also speeds up the onboarding process and helps to garner trust amongst new and existing customers and partners.

Ongoing monitoring


In the UAE, marketplaces and trading platforms often find it difficult to do their due diligence on corporate businesses – they frequently end up having very little to no information about the organization or its directors. Decision makers should keep in mind that KYB checks are not only important when starting a new business relationship – to catch bad actors at the point of entry –  but also as the relationship develops. Transactions need to be monitored on an ongoing basis, just as under KYC, with unusual or high-volume transactions flagged.

In summary, KYB with identity proofing can prevent opportunists or organized criminals from taking advantage of businesses. Therefore, KYB processes need to be standardized across all jurisdictions, with room for variations according to the business activity. And most importantly, these standardized KYB processes need to be monitored and audited by an independent body or the national regulator to ensure they are adhered to.

For more on what’s making news, go to Economy Middle East

Disclaimer: Opinions conveyed in this article are solely those of the author. The information presented in this article is intended for informational purposes only. It does not constitute advice on tax and legal matters; neither are they financial or investment recommendations. Refer to our full disclaimer policy here.