A Quick Guide to Customer Due Diligence (CDD) in goAML in UAE

As companies face growing risks of exploitation for financial crimes like money laundering (ML), terrorism financing (TF), and proliferation financing (PF), a robust Customer Due Diligence (CDD) process has become essential. In the UAE, CDD is a critical part of the AML/CFT framework, assessing risks related to customer profiles, geographies, transaction channels, and methods. This guide explores effective CDD practices to help businesses verify customer legitimacy and protect against financial crime threats.

Customer Due Diligence:

Customer Due Diligence (CDD) involves verifying the identity and legitimacy of potential customers and cross-checking their details for legal validity and accuracy. While the core purpose of CDD is consistent across industries, the procedures vary, encompassing four key types: simplified, standard, enhanced, and ongoing. Through CDD, businesses reduce the risk of financial crimes like ML/FT and PF, while also building trust, credibility, and regulatory compliance.

AML/CFT Regulations for CDD:

The UAE has implemented strong AML laws to counter financial crimes such as ML/FT and PF, aligning its federal regulations with international FATF standards. This framework includes specific guidelines from regulatory authorities to enhance compliance measures. Under these laws, Customer Due Diligence (CDD) is required for every customer, following FATF’s recommendation No. 10, which mandates the verification of identities and disclosure of beneficial ownership. Additionally, the UAE’s guidelines for Designated Non-Financial Businesses and Professions (DNFBPs) require these entities to conduct CDD based on a risk-based approach to assess and mitigate customer risks.

Importance of CDD in the AML Regulatory Framework:

As a key component of the UAE’s AML/CFT regulatory framework, regulated entities must implement Customer Due Diligence (CDD) measures, which involve identifying and verifying customers, assessing their risk profiles, and continuously monitoring them throughout their relationship. A robust CDD process helps businesses assess varying risk levels among customers and apply appropriate measures to mitigate these risks. By following the UAE's CDD guidelines, entities can effectively address potential threats from money laundering, terrorism financing, and proliferation financing, ensuring compliance and protecting against financial crimes.

Entities Required to Conduct CDD in the UAE:

The AML/CFT legal framework in the UAE applies to all financial institutions, banks, insurance companies, Designated Non-Financial Businesses and Professions (DNFBPs), as well as Virtual Asset Service Providers (VASPs). These DNFBPs include:

• Dealers in precious Metals and Stones

• Real Estate Agents and Brokers

• Trust and Corporate Service Providers

• Auditors & independent Accountants

• Lawyers, Notaries & Other Legal Professionals

As a result, all reporting entities in the UAE must implement a robust AML/CFT framework to effectively mitigate and manage the risks associated with money laundering, terrorism financing, and proliferation financing.

CDD is conducted:

1. Before entering into a business relationship or

2. During the course of entering into a business relationship or

3. Before opening an account or

4. During the course of opening an account or

5. Before carrying out a transaction with a new customer

6. Before entering into occasional transactions exceeding monetary thresholds

7. When there is a suspicion as to ML/TF

8. When the previously obtained customer identification data is not proper or adequate.

CDD- The Process:

1. KYC – Identification & Verification

2. Name Screening

3. Customer Risk Profiling

4. Ongoing Monitoring

5. Reporting Suspicion

6. Record Keeping

Reporting entities deal with different types of customers, having different backgrounds, reasons for business establishment, wealth structures, etc. Similarly, risks associated with customers also vary, requiring different kinds of measures to deal with them.

To enhance the overall capabilities of the AML framework, reporting entities need to undertake different CDD procedures.

ALWAHAT ACCOUNTS AND INTERNAL AUDIT SERVICES offers comprehensive Anti-Money Laundering (AML) and Customer Due Diligence (CDD) solutions as part of an effective AML/CFT program. CDD is a crucial responsibility for compliance teams and frontline staff, helping to identify red flags and address ML/TF risks. We provide expert consulting on customer onboarding, KYC processes, CDD, and customer risk profiling. If you're looking to automate your CDD functions, we offer tailored customer due diligence software. Additionally, we provide training to ensure compliance with UAE AML laws and regulations.