A Practical Guide to Navigating International Financial Sanctions Rules in the UAE
Written by: Peter Gray and Zak Bakkali
As political tensions swell in what is an increasingly unstable global environment, the risks to businesses in the UAE have risen significantly. It is important that firms are aware of the risks posed by this international instability and remain compliant with rapidly evolving regulatory regimes to avoid serious financial and legal implications to their operations, employees, and directors.
In times of international crisis, a commonplace response of many countries is to impose financial sanctions against other countries including individuals, businesses, and economic sectors. These sanctions have far-reaching consequences not just for those subject to them, but also any third-party companies or individuals who may currently be engaged or are prospectively engaging with a sanctioned client.
This article will seek to offer a practical guide as to what risks UAE businesses may face in undertaking such activities and how to remain compliant.
What are financial sanctions?
Generally speaking, financial sanctions refer to any restrictions imposed on an individual or company that affect what that party can do with their assets and funds. One common financial sanction is asset freezing. This is intended to prevent the sanctioned party from being able to access or use their assets and funds and imposes restrictions on third parties from dealing with frozen assets. Examples of eligible assets might include but are not limited to the funds directly held by the sanctioned individual or company; the property of that individual or company; the stocks, shares and assets of any company which is majority owned or where the controlling interest is held by a sanctioned individual or company; or any other tangible or intangible asset (including ships, aircraft, and vehicles owned by the sanctioned individual.
Does the UAE have a local sanctions regime?
Yes. As a member state of the United Nations, the UAE is required to implement sanctions imposed by the UN against any individual or company which is placed on the UN sanctions list. The UAE also formulates what are called ‘local lists’, effectively the UAE’s own sanctions regime which predominantly targets terrorist threats. The UAE is also member of the GCC, Terrorist Financing Targeting Centre, and the Arab League, all of whom may issue financial sanctions which the UAE may implement from time to time. The UAE Central Bank as well as the relevant Executive Office actively enforces its sanction policy having very recently issued fines to financial institutions for failing to implement robust anti-terrorist finance mechanisms
How do I know if I am engaged or engaging with a sanctioned client?
Financial sanctions can apply to anyone and any business. First and foremost, businesses should consult the relevant UAE sanctions lists as outlined above. Having confirmed the client is not on any of these lists, you should then check the international sanctions lists that are relevant to you (see below). Different countries operate different regimes so there is no global consolidated list which businesses can definitively refer to in order to ensure they are not inadvertently breaching sanctions rules. This highlights the importance of stringent and robust ‘Know Your Customer’ (KYC) and anti-money laundering (AML) checks. In conjunction with various software solutions which can check individual databases, firms should always undertake manual checks on relevant databases.
How do I know which international sanctions regimes are relevant to my business?
If your business is registered overseas or operates as a subsidiary of a company registered in a non-UAE jurisdiction, you should check the rules which apply in that jurisdiction as you may be required to comply with them even if your subsidiary does not operate in that jurisdiction.
Second, if your business employs foreign nationals, or a company director or shareholder is a foreign national from outside the UAE, you should check the relevant sanctions lists and regulations of those countries as some jurisdictions may impose duties on their nationals to comply with their sanction regulations outside the territory of that country.
For example, UK citizens based overseas and UK-registered companies operating overseas are prohibited from dealing with the funds of any individual or company who is subject to an asset freezing order by the UK government and may face civil and criminal prosecution upon their return to the UK if they fail to comply.
What do I need to do to comply with international sanction regulations?
Different jurisdictions will have different standards. Most sanction regimes will prohibit dealing with the financial assets of a sanctioned individual, including but not limited to: making funds available for the sanctioned party, undertaking any actions which might cause a material change to the value, quantity, or nature of the funds, and it may be prohibited under some regimes to ‘deal’ (deliberately ambiguous) in any way with a sanctioned party. As such, it is critical that you seek legal advice or thoroughly and specifically check every applicable international sanction regime that you may be subject to.
What are the penalties that can apply if I fail to comply with international sanctions?
Again, these can vary between different jurisdictions but range from civil claims to criminal prosecution. The penalties may apply to any employee, manager, or director of a company which breaches sanction rules. It may also be possible that you or your company may yourself become subject to international sanctions as a penalty for breaching them, which in many cases is effectively irreversible and can have catastrophic business consequences. Consult the relevant guidance from applicable jurisdictions to find out more about specific penalties which businesses and individuals may be subject to.
In the UAE, the penalties for violations of local sanction regulations are particularly severe and punishable by criminal prosecution with the possibility of maximum fines of AED 100,000,000, prison sentences, and in some cases capital punishment.
What can I do to comply with sanctions whilst still engaging or prospectively engaging with sanctioned companies or individuals?
If you are in operating in the UAE and doing business with a sanctioned person, you will likely have to cease from doing so immediately. The more vexed question is where another country has sanctioned a company or individual. Many people who are not American, British or European, see no reason why they should follow a foreign country’s laws, particularly where there appears no good reason why that person or company has been sanctioned. They may be right. However, bear in mind that using one of those country’s banking systems (eg by wiring US Dollars) can make you subject to its jurisdiction.
In cases where international financial sanction rules only apply to specific employees who are nationals of the sanctioning country, it may be possible where practical to implement a so called ‘Chinese-wall’ policy. This can be a form of compartmentation within a company where those individuals who cannot be part of any deal pertaining to a sanctioned individual or company due to home-country sanction rules are wholly excluded from any decisions or information relating to that matter.
Seeking Legal Advice
Assessing risks and managing compliance with international financial sanction rules can be highly complex. It is advisable that you seek expert legal advice to ensure you and your business are protected from any potential civil or criminal liability. ADG Legal has extensive experience in dealing with international financial sanction cases and can offer you or your business insightful legal advice in all matters related to financial sanctions. The firm works with leading US, UK and European firms to deliver global sanctions advice.
Mohammed Al Dahbashi
+971 4 441 2031