Guidance for Licensed Financial Institutions on Risks Related to Trade-Based Money Laundering and Transshipment

CBUAE Classification: Public

ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM AND ILLEGAL ORGANISATIONS GUIDANCE FOR LICENSED FINANCIAL INSTITUTIONS ON RISKS RELATED TO TRADE-BASED MONEY LAUNDERING (“TBML”) AND TRANSSHIPMENT October, 2025.

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Contents

1. Introduction...........................................................................................................3
   1.1. Purpose and Scope of the Guidance.............................................................................3
   1.2. Applicability ....................................................................................................................4
   1.3. Legal Basis ....................................................................................................................4
   1.4. Acronyms and Definitions ..............................................................................................5
2. Understanding and Assessing TBML ..................................................................7
   2.1. Background of International Trade System and Trade Finance....................................7
   2.1.1. Documentary Trade Finance....................................................................................8
   2.1.2. Non-Documentary Trade Finance and Open Account Trade.................................13
   2.2. TBML Typologies .........................................................................................................20
   2.2.1. Over- and Under-Invoicing of Goods and Services................................................21
   2.2.2. Over- and Under-Shipment of Goods and Services...............................................21
   2.2.3. Multiple Invoicing of Goods and Services ..............................................................22
   2.2.4. Falsely Described Goods and Services .................................................................22
   2.2.5. Use of Shell, Front, or Shelf Companies................................................................23
   2.2.6. Use of Free Trade Zones .......................................................................................24
   2.2.7. Illicit Cash Integration.............................................................................................25
   2.2.8. Third-Party Intermediaries......................................................................................26
   2.2.9. Back-to-Back Letters of Credit ...............................................................................27
   2.2.10. Fictitious Documents..............................................................................................27
   2.2.11. Accounts Used as Pass-Through...........................................................................28
   2.2.12. Use of Registered Hawala Providers and Alternative Remittance Systems ..........29
   2.3. Services-based Money Laundering .............................................................................29
   2.4. Economic Sectors and Products Vulnerable to TBML.................................................30
   2.4.1. Gold, Precious Metals, and Minerals .....................................................................30
   2.4.2. Agricultural Products and Food Items ....................................................................31
   2.4.3. Car Parts and Vehicles ..........................................................................................31
   2.4.4. Clothing and Second-hand Textiles .......................................................................31
   2.4.5. Portable Electronics ...............................................................................................32
   2.4.6. Art and Antiquities ..................................................................................................32
   2.4.7. Construction Materials ...........................................................................................33
3. Understanding and Assessing Illicit Transshipment Risks .............................33
4. Mitigating TBML and Illicit Transshipment Risks .............................................34
   4.1. Enterprise-wide Risk Assessment and Risk-based Approach ....................................35
   4.2. CDD and EDD Measures.............................................................................................37
   4.2.1. General CDD Measures.........................................................................................37
   4.2.2. EDD Measures for Heightened Trade-related Risks..............................................38

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CBUAE Classification: Public
4.3. Targeted Financial Sanctions Obligations ...................................................................40
4.3.1. Confirmed Matches ................................................................................................43
4.3.2. Partial Name Matches............................................................................................43
4.4. Transaction Monitoring and Suspicious Transaction/Activity Reporting......................44
4.4.1. Transaction Monitoring...........................................................................................44
4.4.2. Suspicious Transaction/Activity Reporting .............................................................45
4.5. Governance and Independent Audit............................................................................47
4.6. Training ........................................................................................................................47
4.7. Record-keeping............................................................................................................48
Annex 1. TBML and Illicit Transshipment Red Flags..............................................49
Annex 2. Visual Synopsis.........................................................................................54
Annex 3. Synopsis of the Guidance ........................................................................55

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CBUAE Classification: Public

1. Introduction
   As a major financial centre, trade is central to the United Arab Emirates (“UAE”)’s economy. Situated at the crossroads of significant trade routes, the UAE’s ports make the country an essential distribution hub in global supply chains and the international movement of goods. In addition, the UAE’s commitment to business and commerce, as evidenced through the expansion of the country’s Financial Free Zones (“FFZs”) and Commercial Free Zones (“CFZs”), has led to the UAE playing an increasingly important role in global trade and the international financial system as a whole. Accordingly, the UAE is exposed to illicit financing risks associated with trade, commonly referred to as “trade-based financial crime.” Trade-based financial crime encompasses a wide range of illicit activities, including money laundering (“ML”), terrorist financing (“TF”), proliferation financing (“PF”), sanctions violations, illicit transshipment, and proliferation of weapons of mass destruction (“WMD”). This guidance (“Guidance”) seeks to explore risks specifically associated with trade-based money laundering (“TBML”) and illicit transshipment. The Guidance has been developed to assist licensed financial institutions (“LFIs”) with identifying and understanding TBML and illicit transshipment activities, and to manage the risks associated with TBML and illicit transshipment. LFIs are uniquely positioned to identify TBML activities and illicit transshipment and to report suspicious activity, which enables law enforcement to connect the dots in the often-fragmented sets of trade-related transactions. No single typology can be used to identify TBML or illicit transshipment activities, and as a result, LFIs should use a combination of the typologies highlighted (but not exhaustive) in this Guidance when designing or enhancing their policies, procedures, and processes.
   1.1. Purpose and Scope of the Guidance
   Article 44.13 of the Cabinet Decision No. (10) of 2019, as amended by Cabinet Decision No. (24) of 2022,
   Concerning the Implementing Regulation of Decree Law No. (20) of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organisations charges Supervisory Authorities with “providing Financial Institutions…with guidelines and feedback to enhance the effectiveness of implementation of the Crime-combatting measures.” The purpose of this Guidance is to assist the understanding and effective performance of LFIs licensed by the Central bank of the United Arab Emirates (“CBUAE”) of their statutory obligations under the legal and regulatory framework in force in the UAE, as detailed in Section 1.3 below. It should be read in conjunction with the CBUAE’s Procedures for Anti-Money Laundering and Combating the Financing of Terrorism and Illicit Organizations (issued by Notice No. 74/2019 dated 19/06/2019) and Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism and Illicit Organizations for Financial Institutions (issued by Notice 3090/2021 dated 29/06/2021) and any amendments or updates thereof.1 As such, while this Guidance neither constitutes additional legislation or regulation nor replaces or supersedes any legal or regulatory requirements or statutory obligations, it sets out the expectations of the CBUAE for LFIs to

1 Available at: https://www.centralbank.ae/en/cbuae-amlcft.

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CBUAE Classification: Public be able to demonstrate compliance with these requirements. In the event of a discrepancy between this Guidance and the legal or regulatory frameworks currently in force, the latter will prevail. This Guidance may be supplemented with additional separate guidance materials, circulars, and notices, and outreach sessions and thematic reviews conducted by the CBUAE. Furthermore, this Guidance takes into account standards and guidance issued by the Financial Action Task Force (“FATF”), 2 and red flag indicators identified by the FATF and other relevant international bodies. 3 These are not exhaustive and do not set limitations on the measures to be taken by LFIs in order to meet their statutory obligations under the legal and regulatory framework currently in force. As such, LFIs should perform their own assessments of the manner in which they should meet their statutory obligations. This Guidance comes into effect immediately upon its issuance by the CBUAE with LFIs expected to demonstrate compliance with its requirements within one month from its coming into effect.
1.2. Applicability
Unless otherwise noted, this Guidance applies to all natural and legal persons, which are Financial Institutions or Licensees, or any other defined term which brings all entities within the scope of licensed and/or supervised entities by the CBUAE, in the following categories:

• National banks, branches of foreign banks, exchange houses, finance companies, payment service
  providers, registered hawala providers (“RHPs”); and
• Insurance and re-insurance companies, agents, and brokers.
  1.3. Legal Basis
  This Guidance builds upon the provisions of the following laws:
• Federal Decree-Law No. (20) of 2018 on Anti-Money Laundering (“AML”) and Combatting the
  Financing of Terrorism (“CFT”) and its amendments (“AML-CFT Law”);
• Cabinet Decision No. (10) of 2019, as amended by Cabinet Decision No. (24) of 2022, Concerning
  the Implementing Regulation for Decree-Law No. (20) of 2018 on AML and CFT and Financing of Illegal Organisations (“AML-CFT Decision”) and its amendments;
• Cabinet Decision No. (74) of 2020 Regarding Terrorism Lists Regulation and Implementation of
  United Nations Security Council (“UNSC”) Resolutions on the Suppression and Combating of Terrorism, Terrorist Financing, Countering the Proliferation of Weapons of Mass Destruction and its Financing and Relevant Resolution (“Cabinet Decision 74”), and its amendments; and
• CBUAE/BSD Notice No. 1943.2022 Regarding AML/CFT Minimum Standards and Supervisory
  Expectations.

2 For example, please see: https://www.fatf-gafi.org/content/dam/fatf-gafi/reports/Trade-Based-Money-Laundering-Risk-Indicators.pdf. 3 For example, please see: https://library.iccwbo.org/content/tfb/pdf/trade-finance-principles-2019-amendments-wolfsberg-icc-baft-final.pdf.

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CBUAE Classification: Public
1.4. Acronyms and Definitions
Terms Description
AML Anti-money laundering
BAFT Bankers Association for Finance and Trade CBUAE Central Bank of the United Arab Emirates CDD Customer due diligence CFT Counter the financing of terrorism EDD Enhanced due diligence FATF Financial Action Task Force FIU Financial Intelligence Unit ICC International Chamber of Commerce LFI Licensed financial institution ML Money laundering RHP Registered hawala provider SAR Suspicious activity report SBML Service Based Money Laundering STR Suspicious transaction report SWIFT Society for Worldwide Interbank Financial Telecommunications TBML Trade-based money laundering TFS Targeted Financial Sanctions UNSC United Nations Security Council

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CBUAE Classification: Public
Bank guarantee: A formal assurance from a lender or an LFI that a borrower will be able to pay its counterparty, irrespective if the borrower fails to perform against their obligations and pay the counterparty. Buyer: A party to a trade transaction that purchases goods either for their direct use, to manufacture into another good, or for further resale. Documentary trade finance products: Trade finance products that require a party to present certain documents to an LFI in order to trigger a payment obligation for the trade transaction. Dual-use items: Items, including goods, technologies and software, that have both commercial and military applications, and/or contribute to the proliferation of weapons of mass destruction. Forfaiting: A method in trade finance where exporters obtain cash by selling their receivables at a discount on a “without recourse” basis. Import and export factoring: The process of purchasing account receivables from an exporter in one country and collecting the invoice value later from the importer in the second country. Landlocked country: A sovereign state that lacks direct access to the seas. Letter of credit: A letter issued by an LFI guaranteeing that the LFI will make a full payment for goods under specified conditions, namely, that the LFI will provide payment to a seller or supplier once the seller or supplier presents the documents that enable the buyer to take possession of the goods. Non-documentary trade finance products: An arrangement that does not tie payment from an LFI to the presentation of all the documentation related to the trade. Open account trade: A trade transaction in which the goods are shipped and delivered before payment is due, and invoices and shipping documents are sent directly from the supplier to the buyer, rather than through the banking system. The only role of an LFI is processing the payment, which may or may not indicate that it relates to a trade transaction. Phantom shipping: A fraudulent technique used in TBML in which documents indicate that goods are shipped from a supplier/exporter to a buyer/importer when, in fact, no product has moved at all. Seller or Supplier: A party to a trade transaction that sells goods to a buyer. Structured trade finance: A type of debt finance that aims to reduce the gap between the time a manufacturer procures materials until the final product is sold to a consumer by structuring trade finance products across the supply chain. Trade finance: The provision of finance products, typically by LFIs, to facilitate movement of goods and services between two parties, either within a country or cross-border. In trade finance LFIs take on certain payment or supply risk. Trade-based money laundering: The process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illegal origins or finance illicit activities. Transshipment: The shipment of goods from the country of origin to one or more
intermediate destinations prior to shipment to the country of ultimate destination.

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CBUAE Classification: Public
2. Understanding and Assessing TBML
According to the FATF, illicit actors move funds for the purpose of hiding their illicit origin and integrating them into the formal economy through three main methods:4

• Moving value through the financial system (e.g., through wire transfers);
• Moving value through the physical movement of money (e.g., through the use of bulk cash
  smuggling or other valuable items like gold); or
• Moving value under the disguise of a transaction related to traded goods or services.
  Due to strengthened controls related to the first two methods and the growth of global trade overall, TBML has become an attractive method for laundering funds. TBML is defined by the FATF as “the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins.”5 TBML therefore can be understood as the manipulation of trade transactions to disguise the true nature of the underlying financial activity and/or the identities of trade participants. In this Guidance, “trade transactions” refers to both domestic and international transactions involving the buying and selling of goods or services. As trade has become an attractive option for money launderers to disguise the proceeds of crime, the UAE faces a range of threats from a number of illicit actors— international organized criminal groups and third-party money launderers—seeking to exploit the UAE to engage in TBML. 6
  2.1. Background of International Trade System and Trade Finance
  Over the past several years, the volume and the value of international trade have increased, and the value of global trade reached a record level of more than USD 32 trillion in 2022. 7 The UAE, in particular, has attracted an increase of goods and capital in recent years, as one of the world’s largest exporters of goods and services8 , and a central logistics and trading hub in the Middle East. 9 The increasing volume of trade in the international economy is underpinned by an inherently complex, diverse, and complicated set of interconnected supply chains spanning the globe. For example, the transit of goods in a trade often involves several parties across multiple countries other than the supplier and buyer. This Guidance seeks to detail the role of LFIs in detection and prevention of trade based financial crime. LFIs often facilitate trade transactions by: (i) providing financing (credit) through trade finance products, and (ii) settling payments for trade transactions, sometimes on an open account. Trade finance typically involves short-term financing to facilitate the movement of goods either within a country or cross-border. In this capacity, LFIs address the lack of trust between the parties in a trade transaction, provide financing to parties in need of capital, and take on the role of a guarantor. LFIs also facilitate trade transactions by

4 FATF, Guidance on Trade-Based Money Laundering, 2006, available at: https://www.fatf-gafi.org/content/dam/fatf￾gafi/reports/Trade%20Based%20Money%20Laundering.pdf 5 Ibid. 6 FATF, United Arab Emirates Mutual Evaluation Report, April 2020, available at: https://www.fatf-gafi.org/content/dam/fatf-gafi/mer/Mutual￾Evaluation-Report-United-Arab-Emirates-2020.pdf.coredownload.pdf 7 Global Trade Update (March 2023), UNCTAD, March 2023, available at: https://unctad.org/publication/global-trade-update-march-2023. 8 UAE Ministry of Economy, UAE ranks 11th globally in commodity exports in 2022 with a 41 per cent growth, April 6, 2023, available at:
https://www.moec.gov.ae/en/-/uae-ranks-11th-globally-in-commodity-exports-in-2022-with-a-41-per-cent-growth 9 World Bank, United Arab Emirates, 2023, available at: https://thedocs.worldbank.org/en/doc/5bae5632e2d8425830fbf0bac721cce3- 0280012021/original/17-mpo-sm21-united-arab-emirates-kcm3.pdf

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CBUAE Classification: Public transferring value from the buyer to the supplier when processing payments related to trade, whether as
part of a trade finance settlement or on an open account.
In the following sections, this Guidance differentiates between documentary trade finance and non￾documentary trade finance, and the role of LFIs across trade finance products. Each type of trade products carries specific risks, hence LFIs are required to implement controls based on the type of trade transaction, the level of information available and their role in the transaction.
2.1.1. Documentary Trade Finance
Traditional documentary trade finance products include performance-based products, such as letters of credit (“LCs”), in which payment is due once the supplier has performed according to contract terms and presents the required documents. Traditional documentary trade finance products also extend to non￾performance-based products, such as guarantees and standby LCs, that provide compensation to one of the transacting parties in the event that a party fails to perform according to contract terms. In documentary trade finance transactions, a party to the trade transaction approaches an LFI to open a documentary product, such as a LC, a documentary collection, or a guarantee. At the initiation stage, the parties agree on the conditions of the settlement and establish the documents a party should present to the LFI against the payment or acceptance. Once goods are shipped (or a supplier has failed to act), the beneficiary presents certain documents to the LFI in order to trigger a payment obligation. The LFI reviews the presented documents related to the underlying transfer of goods and pays the invoice (or a claim in the case of a guarantee), if it finds the documents conform with the terms of the agreement and applicable rules. Such documentation can include title and transport documents, bills of lading, invoices, packing lists, and certificates of origin or inspection. Based on these documents, the LFI may have access to information relevant to identifying potentially suspicious activity. Even though transaction information may be difficult to verify based on the documents alone, the LFI may have information regarding the type and quantity of the underlying goods involved in shipment; the identity and location of the supplier and buyer; the vessel name and shipping company; and applicable shipping routes and destinations. As a best practice, LFIs should review the presented documents to detect potential red flags or involvement of sanctioned parties once they are made available to an LFI and before processing a payment related to a trade finance product or instrument. If an irregularity is detected, LFIs should review the irregularity for indicators of potentially suspicious activity and report suspicious activity to the FIU. LFIs should also take appropriate follow-up measures to address the risk associated with the transaction in question and the parties involved, including if an LFI identifies a confirmed match of an individual, entity, or group to the key identifiers published in the UAE Local Terrorist List or the United Nations Security Council (“UNSC”) Consolidated List, as further discussed in Section 4.3 on Targeted Financial Sanctions Obligations.
2.1.1.1. Description of Documentary Trade Finance Products and Instruments
There are several types of documentary trade finance products that differ in payment terms, presented documents, LFI’s involvement, and other characteristics. LCs and bank guarantees, two of the most prevalent types, are discussed in further detail below. However, all trade finance products, even if not explicitly referenced in this guidance, can be exploited in TBML. Therefore, it is important for an LFI to assess the types of products it offers, their characteristics, and mitigating measures the LFI can apply to such products based on principles discussed in Section 4.

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2.1.1.1.1. Letters of Credit
An LC is a letter from an LFI guaranteeing that the LFI will make a full payment to the supplier once the supplier presents the documents that confirm their performance and that would allow the buyer to receive the ownership of goods and services. If the supplier presented the full and correct documents and the buyer is unable to make a payment on the agreed-upon date, the LFI will be required to cover the full or remaining amount of the purchase. There are different types of LCs, commercial LCs, standby LCs, and bank guarantees, discussed in further detail below:
(1) Commercial LC (also known as a documentary LC or simply an “LC”): Commercial LCs are extensively used as a means of payment in cross-border or domestic trade. The buyer’s LFI (i.e., the issuing bank) pays a pre-determined amount to the supplier’s LFI (i.e., the advising bank) upon presentation of certain pre-agreed documents that prove that the goods were shipped by the supplier. Since the terms of each LC could be different, different documents might be presented as part of the trade transaction. These documents contain information about the underlying trade that should be used by LFIs to determine the legitimacy of the transaction. These documents are discussed in Section 2.1.1.2 Types of Documents Available in Documentary Trade Finance Instruments. Commercial LCs can have many other variations, as follows:
Revocable versus Irrevocable
LC
Irrevocable LC means that the LC cannot be cancelled or amended unless all parties to the LC agree to do so (i.e., the buyer and the supplier). Revocable LC allows the buyer or the buyer’s LFI (i.e., issuing bank) to amend or cancel the LC at any time and without notice to the supplier, and as a result of these conditions, revocable LCs are less common than an irrevocable LC. Confirmed versus Unconfirmed LC Unconfirmed LC is a type of the LC where only the buyer’s LFI (i.e., issuing bank) guarantees performance. Confirmed LC is used when a supplier would like additional assurances of performance under the LC. In this case, the supplier can ask a reputable LFI or its own LFI to add a confirmation to the LC. With a confirmed LC, even if the buyer’s LFI (i.e., issuing bank) fails to pay, the LFI that has confirmed the LC has to make the payment against complying presentation of the documents presented by the supplier. Transferable versus Non￾transferable LC Transferable LC is a type of LC where the beneficiary can transfer all or part of the payment due under the LC to another party (i.e., a second beneficiary). Non-transferable LC, by definition, means that the LC cannot be transferred.

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(2) Standby LC: In contrast to a commercial LC, standby LCs serve as a secondary payment method (i.e., it will only be called upon when one of the parties to a standby LC fails to perform against their contractual obligations in a trade). For example, if a supplier plans to dispatch 10 shipments of goods in a year to a buyer, it may ask the buyer to open a standby LC valid for that period of time. The supplier and the buyer then continue their relationship (e.g., exchange documents and payment) without involving the issuing bank or calling upon the standby LC. However, if a buyer fails to pay under one of those 10 shipments and the standby LC’s term is still valid, the issuing LFI will have to pay the supplier. Similar to commercial LCs, presentation of certain documents may be required in order for the issuing LFI to make the payment. Such documents contain information about the underlying trade that should be used by LFIs to determine the legitimacy of a transaction. These documents are discussed in Section 2.1.1.2 Types of Documents Available in Documentary Trade Finance Instruments.
2.1.1.1.2. Bank Guarantee
A bank guarantee is largely similar to a standby LC, as it represents an undertaking from an issuing LFI to pay to a beneficiary if one of the parties to a contract has failed to perform against their contractual obligations in a trade. The major difference between the two instruments is that bank guarantees have a wider application and are not limited to securing a performance under a trade-related transaction. Thus, for example, a bank may issue a guarantee that a certain construction project will be completed in time and under a certain specification. If a builder fails to perform against the agreed-upon terms, the beneficiary can demand a payment from the bank. In connection with a trade transaction, a bank may issue a guarantee, for example, that a supplier will manufacture and dispatch certain goods within an agreed￾upon period of time and will have to pay the buyer if the supplier fails to do so. Letter of Credit:

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Figure 1 – The above figure illustrates a typical payment flow for an LC. The Buyer (Importer/Applicant) applies
for an LC with the Buyer’s Bank (Issuing Bank), and the Buyer’s Bank (Issuing Bank) guarantees that it will make a full payment to the Supplier’s Bank (Advising Bank) (Step 3: LC Issuance) once the Supplier (Exporter/Beneficiary) presents certain documents (in this case, shipping documents) that confirm goods have been shipped to the Buyer (Importer/Applicant).
2.1.1.2. Types of Documents Available in Documentary Trade Finance Instruments
The following documents are the most common types of documents available in documentary trade finance products. The terms of each LC and bank guarantee will differ, and the parties involved in a trade transaction may decide to request more or fewer documents, depending on the nature of their relationship. Please refer to Section 4.3 Targeted Financial Sanctions Obligations for further information on sanctions screening best practices involving documentary trade finance products.

• Air Waybill: An air waybill is a document dispatched by an international air courier, furnishing
  important details about the shipment and facilitating its tracking. An airway bill generally would consist of multiple originals designed to be assigned to different parties. The important aspect of this multi-part document an LFI would require is the original for consignor or shipper, whereas the recipient would receive the original for consignee, which is the document that travels alongside goods. An air waybill typically includes:
  o Names and addresses of the shipper and the recipient; o International Organization for Standardization (“ISO”) codes for the origin and destination airports; o Description of the cargo, and, occasionally, the declared value of the cargo; and o The number and gross weight of the cargo.
• Bill of Lading: If the goods are shipped by sea, the title and ownership of the goods will be covered
  by a bill of lading. This is a document that can be issued by multiple parties (e.g., a master, carrier, owner, charterer, or their agents) acknowledging the receipt of cargo on board the vessel. The issuer issues the original bill of lading to the shipper that in turn presents the same to the LFIs. A bill of lading will indicate:
  o The name and address of the shipper of the goods; o The name and address of the recipient of the goods; o Carrier information, including the name of the vessel and number of loaded containers; o Type(s) of goods and its weight or volume; o The date of shipment; LC and Bank Guarantee Vulnerabilities: LCs and bank guarantees are especially vulnerable to the risk of TBML as they can create the illusion of legitimacy for an otherwise illicit transaction. At the same time, LCs involve the most detailed documentation that an LFI may collect under a trade transaction (bank guarantees may have less detailed documentation), allowing LFIs to carefully review the transactions for suspicious activity, red flags indicating TBML, or indicators of potential sanctions evasion.

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CBUAE Classification: Public o Ports and places of receipt and delivery; o Number of originals issued; and o Issuer details.

• Certification of Inspection/Quality: A certification of inspection/quality is typical for exports of
  perishable items or items that require special handling instructions. The certificate will typically indicate:
  o The type of goods; o Whether the goods have been inspected by either a government agency or a private entity; and o The requested quality, quantity, or packaging of the goods.
• Certificate of Origin: A certificate of origin document is not always required in documentary trade
  finance; however, when included in a trade, it confirms the country where the goods have been manufactured and can also state the manufacturer, the authority/party issuing the certificate, as well as contain a general description of the goods.
• Customs Bond: A customs bond, when available, is a contract that guarantees a specific
  obligation will be fulfilled between a customs authority and an importer; specifically, it ensures compliance with a country’s customs regulations and payment of duties and taxes by the importer. There are three parties to customs bonds: importer or principal, surety firm who issues the bond and pays any fees to the customs authority, and the customs authority. Customs bonds typically indicate:
  o The name and the address of the importer or broker; o The name and the address of the surety firm who issues the bonds; o The port of entry; and o Transaction and execution dates.
• Insurance Certificate: An insurance certificate is used by parties to a trade transaction that choose
  to insure goods in transit. The certificate, if available, will typically indicate:
  o Type of goods shipped and insured; o The type and name of the vessel used; o The dates and other details of insurance coverage; and o The beneficiary of the certificate in case of a loss.
• Invoice: An invoice will typically indicate:
  o A general description of goods; o The type and weight of goods; o The price per unit and total price of goods; o Currency of the invoice;

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CBUAE Classification: Public o The name and address of the buyer and the supplier; and o The terms of delivery.

• Packing List: A packing list contains information about the shipment by itemizing all of the products
  being shipped. The packing list will indicate:
  o The name and address of the shipper of the goods; o The name and address of the recipient of the goods; o Type(s) of goods and type, number, dimensions, and weight of each package, container details; and o Invoice number.
• Underlying Contract: An underlying contract is a document that will be most common for a bank
  guarantee to understand the nature of the transaction and performance it will guarantee. Sometimes LFIs also request an underlying contract as part of an application for an LC, in accordance with their internal policies.
• Other Transportation Documents: LCs may also contain other transportation documents such
  as a railway transportation note or trucking invoice. These documents would typically contain information on, similar to the bill of lading, the name and address of the shipper, the name and address of the recipient, the type(s) of good and its weight or volume, the place of loading, and the destination point.
  2.1.2. Non-Documentary Trade Finance and Open Account Trade
  In recent years, suppliers, buyers, and their LFIs have shifted away from traditional, document-based trade finance products and toward non-documentary finance and open account trade. According to the Wolfsberg Group, the International Chamber of Commerce, and Bankers Association for Finance and Trade (“BAFT”), open account trade comprises approximately 80 percent of all international trade transactions.10 In non-documentary trade finance, an LFI still acts as a financing party; however, in this scenario, the trade transaction requires a smaller subset of documents, if any, and such documents typically relate to the creditworthiness of a party involved in trade. Examples of non-documentary trade finance products include trade loans in the context of structured trade finance, and financing of receivables/payables through import/export factoring and forfaiting, discussed below. In open account trade, goods are shipped and delivered without involvement of an LFI as an intermediary, and the supplier and the buyer exchange shipping and other documents directly, rather than through an LFI. The parties then settle the balances due via a bank payment. As a result, even the LFIs that are originating the payment on behalf of their customers may lack critical information regarding the goods, shipping vessels, or transport routes associated with a given transaction. Sometimes they may not even know a payment relates to a trade transaction. LFIs processing open account trade transactions may therefore have little visibility into the type of goods involved in the underlying shipment; who is transporting the goods, including whether they are sanctioned or high-risk entities; and whether the shipment is originating, passing through, or stopping in a sanctioned jurisdiction. Whereas, if the buyer utilizes the trade

10 Wolfsberg Group, ICC and BAFT Trade Finance Principles, The Wolfsberg Group, ICC and BAFT Trade Finance Principles, 2019, available at:
https://library.iccwbo.org/content/tfb/pdf/trade-finance-principles-2019-amendments-wolfsberg-icc-baft-final.pdf

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CBUAE Classification: Public finance facilities of the LFI, all details can be derived, and all controls checks and measures can be exercised prior to completing the transaction. As a result, non-documentary trade finance and open account trade are among the highest-risk activities in which LFIs routinely engage, as illicit actors seek out methods where LFIs have a reduced role, namely less oversight, than in traditional documentary trade finance. LFIs should therefore be aware of the particular transparency challenges associated with non-documentary trade finance and open account trade transactions, which typically provide LFIs with less risk-relevant information regarding the parties and goods involved in the underlying trade activity than traditional, document-based instruments.
2.1.2.1. Description of Open Account Trade and Non-Documentary Trade Finance
Products and Instruments
The following section discusses open account trade as well as the most common types of non-documentary facilities used in trade-related transactions. As noted above, precisely because these products do not involve an LFI collecting, inspecting, and accepting the underlying trade documents, the TBML patterns are very hard to detect. Instead, an LFI should focus on Customer Due Diligence (“CDD”)/Know Your Customer (“KYC”) and Enhanced Due Diligence (“EDD”)-related processes, as well as transaction monitoring that may alert an LFI to indicators of suspicious activity associated with TBML. (1) Open Account Trade: this is a type of a sale that is very advantageous to the buyer (importer). The exporter (seller) ships the goods to the buyer and specifies when the payment is due (typically within 30, 60, or 90 days after the shipment). This is a type of financing extended directly by the seller to the buyer, without involvement of a third-party LFI or trade finance provider. In theory, the buyer should then pay the invoice (e.g., via wire transfer or a cheque) when it becomes due; however, if the buyer fails to pay the seller has little recourse against the buyer other than bringing a legal action for non-payment. Typically, an exporter is willing to trade on open account in situations when it knows the importer well and the two have a long￾established relationship. In the alternative, if the exporter overproduced certain goods that it cannot easily sell in the open market, it might be willing to sell the goods on an open account to a willing buyer, taking on the risk of non-payment. Some importers in developing markets may also pressure exporters on the basis that LCs or other traditional types of finance have prohibitive costs for the buyer. The opposite but similar type of a settlement in a trade transaction that is advantageous to the seller is cash in advance, i.e., a scenario where the buyer pre-pays the seller via wire transfer/cheque/credit card the entire value or a percentage of the goods to be shipped before the shipment.

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CBUAE Classification: Public
(2) Import and Export Factoring: Import and export factoring (also known as “international factoring”) is the process of purchasing account receivables from a supplier/exporter in one country and collecting the invoice value later from the buyer/importer in the second country. The company purchasing the accounts receivables is called a “Factor” and can be a bank or a non-bank “Factoring Company.” A factoring transaction will typically involve two Factoring Companies, an Export Factor and an Import Factor, each of which are local companies for, respectively, an exporter and an importer. As international trade continues to shift away from LCs and documentary trade finance, and towards open account terms, factoring gains more traction. Factoring is particularly relevant as it helps parties to a transaction manage their cash flow, helping suppliers that would otherwise have to wait a certain period of time before a buyer makes a payment. While factoring can take several forms, Figure 2 below illustrates this typical Import and Export Factoring arrangement:
Open Account and Cash In Advance Vulnerabilities:

• Considering hundreds of millions of wire transfers processed by global banks daily, it may be
  hard for an LFI to identify trade conducted on an open account, even in instances where the transfer references an invoice or a type of good. Thus, manual intervention and review becomes impossible unless a transaction triggers an alert, e.g., in case of a transaction monitoring or sanctions or watch list screening that would then allow an analyst to review the payment and request supporting documentation, if necessary.
• Thus, millions of transactions a day are settled on open account between buyers and sellers
  without any oversight from LFIs. While the majority of such settlements do not relate to any illicit activity, some illicit actors will abuse trade on open account and may even conduct test transactions to verify if certain types of transfers may trigger compliance review from various banks.

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CBUAE Classification: Public
Import/Export Factoring:
Figure 2 – The above figure illustrates a typical Import and Export Factoring arrangement. The Buyer
(Importer) orders goods from the Supplier (Exporter). The Supplier (Exporter) ships the goods and issues an invoice to the Buyer (Importer). The Supplier (Exporter) then assigns the invoice to the Export Factor B who pays up to 80% of the invoice value to the Supplier (Exporter). The Buyer (Importer) meanwhile pays the invoice to Import Factor A, and when the funds are remitted to Export Factor B, the Export Factor B pays the remainder of the invoice, minus interest and fees, to the Supplier (Exporter). (3) Forfaiting: Forfaiting is similar to the factoring example above. A forfaiting company is either a bank or a specialized finance firm that purchases an exporter’s receivables at a discount. The key difference is the fact that forfaiting is non-recourse, meaning a forfaiting company Forfaiting Vulnerabilities: Similar to factoring, a forfaiting company will have limited visibility into the underlying trade transaction and would collect fewer documents than in a documentary trade finance. Thus, a forfaiting company is unlikely to detect illicit activity. Import and Export Factoring Vulnerabilities: The following are particular vulnerabilities of Import and Export Factoring:

• An Import/Export Factoring Company may undertake less stringent CDD/KYC and trade￾related controls than a typical bank. Factoring Companies also often advertise their services
  as an alternative to banking, targeting companies that may have previously been denied banking services (although under banking may be caused by numerous reasons unrelated to illicit activity).
• A bank or an Import/Export Factoring Company participating in a transaction will receive fewer
  documents than in a documentary trade transaction. The documents may be limited to, for example, an invoice and a bill of lading, making it difficult to understand the trade transaction and all the parties and goods involved in the underlying trade activity.

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CBUAE Classification: Public assumes the risks of a buyer’s non-performance and cannot ask the supplier to pay if the buyer fails. At the same time, in forfaiting, unlike factoring, the receivables are typically guaranteed by the importer’s bank. The receivables in forfaiting also take on a form of a debt instrument that can later be traded in a secondary market. Forfaiting is typically used in capital goods transactions (e.g., equipment) and commodities trading. (4) Structured Trade Finance: Structured trade finance helps manufacturers, suppliers, and buyers reduce the gap between the time a manufacturer procures materials until the final product is sold to a consumer. A financial company, typically a bank, will loan funds to a company to cover the multiple stages of a trade. For example, the bank can loan funds to the supplier/exporter to finance the pre-export activities, such as manufacturing and storage. The bank can also loan funds to the buyer/importer that has received a shipment of goods but has yet to sell these goods. The borrowed funds are then repaid through the lifecycle of production, storage, transfer, or sale of the goods. Common trade finance structures are warehouse financing and pre-export finance, discussed below:
o Warehouse Financing: A type of inventory financing where a company or a manufacturer secures a loan from an LFI by using their goods as collateral. The commodities are kept in a warehouse approved by the lending institution or managed by a third party. For example, a buyer of wheat or another commodity secures a warehouse financing. If the buyer fails to repay the loan or delays the payments, the lender can seize and sell the goods to recover the losses.

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CBUAE Classification: Public
Warehouse Financing:
Figure 3 – The above figure illustrates a typical warehouse financing arrangement. The Lender and Seller
(Borrower) enter a credit agreement, after which, the Seller (Borrower) places goods in a warehouse. The warehouse issues a receipt to the Seller (Borrower), and the Seller (Borrower) provides this receipt to the Lender as a collateral. The Lender then proceeds to issue a loan to the Seller (Borrower). The Seller (Borrower) sells stored goods to the Buyer, and the Buyer makes a payment to the Lender. The Lender then releases a receipt and applies the Buyer’s payment to the loan. The Buyer then redeems receipt at the warehouse for the goods. o Pre-Export Finance: In pre-export finance, funds are paid to the supplier/exporter of the goods based on the confirmed orders from buyers. Typically, the borrower uses the funds to meet working capital needs which can include the purchase of raw materials, manufacturing costs, and costs associated with storing and movement of goods. LFIs should ensure they have controls in place so that a trade transaction matches the description provided at the time of pre-export financing. Warehouse Financing Vulnerabilities: LFIs that engage in warehouse financing should pay attention to the valuation of the inventory in trade since over-valuation may be used by illicit actors to gain funds that would otherwise not be available to them. Similarly, warehouse financing may be used to cover “phantom shipments”, referred to in Section 2.2.2. Over- and Under-Shipment of Goods and Services, and/or involve commodities trade, which is particularly susceptible to TBML. LFIs should consider conducting additional due diligence on the warehouse(s) and the supplier of the goods to make sure they are legitimate and operating businesses. Finally, in warehouse financing, the financing LFI may have little visibility into the origin of the goods or the underlying documentation that supports the trade transaction.

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CBUAE Classification: Public
Pre-Export Financing:
Figure 4 – The above figure illustrates a typical pre-export financing arrangement. The Buyer places an order
and receives an invoice that specifies the payment details and due date. The Supplier then enters a pre-export agreement with a Finance Provider and receives a percentage of the invoice value as a loan, after which, the goods are shipped to the Buyer. Based on the payment due date, the Buyer is required to pay the invoice payment as part of the escrow/collection terms with the Finance Provider, and the Finance Provider is informed of payment to the escrow/collection account. The Finance Provider sends the remainder of the invoice value, minus fees and interest to the Supplier (Exporter). (5) Countertrade: Countertrade is a reciprocal form of international trade in which goods or services are exchanged for other goods or services rather than for hard currency. This type of international trade is more common in developing countries with limited foreign exchange or credit facilities. A major benefit of countertrade is that it eliminates the need for one country to procure stable foreign currency that is often expensive and/or spend such currency from its reserves, which is a prime consideration for cash-strapped nations and provides an alternative to traditional financing that may not be available in developing countries. Offsetting is also more common for larger, more expensive items. Pre-Export Finance Vulnerabilities: In pre-export finance, an LFI has visibility only into one aspect of a trade transaction (i.e., activities by a borrower before shipment of goods). Therefore, in this scenario, it is harder for an LFI to identify any red flags or verify whether the borrower used the financing for the specified purpose. Thus, CDD/KYC measures play a particularly important role in pre-export finance, as further discussed in Section 4.2. CDD and EDD Measures.

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CBUAE Classification: Public
An example of countertrade is a barter arrangement, whereby the supplier/exporter exports certain goods to the buyer/importer, and instead of receiving a payment, the supplier/exporter receives a different type of a good or commodity from the buyer/importer or a third party nominated by the buyer/importer. Another example of a countertrade is a buyback agreement where a supplier/exporter exports certain manufacturing equipment and training services to the buyer/importer and accepts a percentage of the buyer/importer’s manufacturing output as a form of payment.
2.2. TBML Typologies
The following sections examine common features of TBML activities by outlining specific TBML typologies identified by global standard-setters and industry groups. TBML typologies—ranging from basic to highly intricate schemes—all capitalize on the movement of goods in exchange for payment to move value within and across borders. Illicit actors may engage in one or several TBML typologies to complicate a trade transaction. LFIs should therefore assess their exposure to trade activity and determine whether customers involved in trade transactions should be subject to EDD measures. When dealing with high-risk customer relationships, an LFI may decide to de-risk the relationship by either limiting the types of products offered to a customer or exiting the customer relationship if risks cannot be sufficiently mitigated. LFIs should incorporate this assessment into their AML/CFT program and update their policies, procedures, and processes with the aim to detect TBML and manage associated illicit financing risks. In addition to the typologies listed below, the Guidance provides several risk indicators across the following four categories in Annex 1:

• Red flags relating to payments and trade transactions;
• Red flags relating to jurisdictions;
• Red flags relating to goods; and
• Red flags relating to corporate structures used.
  LFIs should consider and incorporate these red flags into their internal controls, as appropriate. Furthermore, it is recommended that LFIs review the red flags, risk indicators, and examples provided in the Updated Strategic Analysis Report on TBML published by the UAE’s FIU in June 2024. 11

11 Updated Strategic Analysis Report, Trade-Based Money Laundering, June 2024, The UAE’s FIU, available at https://www.uaefiu.gov.ae/media/vduba40z/updated-strategic-analysis-report-on-trade-based-money-laundering-rsas-2024.pdf Countertrade Vulnerabilities: Countertrade is the least transparent form of a cross-border trade since the parties do not involve any LFIs, and thus, are not subject to CDD/KYC, transaction monitoring or other transaction checks. It may also take place in a country with weak AML/CFT and recordkeeping regulations, making it nearly impossible to reconstruct the transaction or understand the parties involved.

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CBUAE Classification: Public
2.2.1. Over- and Under-Invoicing of Goods and Services
Over- or under-invoicing of goods and services is one of the most common techniques used by illicit actors to transfer value across borders without detection by law enforcement or customs officials. This technique requires a level of collusion between the “supplier” and “buyer” to misrepresent the price of the good or service. In some cases, the supplier and the buyer are part of the same criminal organization. While the value of goods and services could vary based on the quality of the underlying goods and services, LFIs are able to identify over- and under-invoicing by independently inquiring about the market value of the same, or similar, goods and services as those involved in a trade transaction. LFIs should consider using external resources to determine whether the price of underlying goods or services is in line with the market value, and in this context, identify over- or under-invoicing of the goods and services. Such external sources are most relevant in the context of commodities trading where the price of the commodity in question is less prone to variation. This control may also be referred to as “price-validation.” Over-Invoicing: By invoicing the goods or service at a price above the fair market price, the supplier is able to receive value (profit) from the buyer, as the payment for the goods or service will be higher than the value that the buyer receives when it is sold on the open market. Under-Invoicing: By invoicing the goods or services below the fair market price, the supplier transfers value (profit) to the buyer. The buyer sells the under-invoiced goods in the market for real value, and the difference between the real value and the invoiced price is the value (profit) transferred to the buyer. o Example: A criminal organization (i.e., supplier in this case) exports 1,000 high-end electronic widgets at the fair market cost of AED 6,000 per widget (total market value of AED 6,000,000). Commercial invoices, the sales agreement, and the bill of lading show an export of 1,000 widgets at the price of AED 5,000 each, as the criminals have under-invoiced the high-end electronic widgets. The customs officials in the exporting country release the export, as they can confirm that the exported goods are the same as described on the shipping documentation. The buyer, which is also part of the criminal organization in question, receives the widgets and pays the supplier AED 5,000,000 via a wire transfer through its bank, referencing the invoice number in the free text field. Since there is nothing suspicious on the face of the transaction, this transaction is not stopped for further review by the bank. The buyer proceeds with selling the widgets in the market at AED 7,500 each, the actual retail price, generating a total of AED 7,500,000 in their bank account. This effectively results in the supplier transferring a surplus (profit) of AED 2,500,000 to the buyer.
2.2.2. Over- and Under-Shipment of Goods and Services
Prices are not the only piece of information that can be misrepresented; the quantity of the goods shipped and the services provided are also subject to misrepresentation. By over- or under-stating the quantity of goods in a trade transaction, the supplier and the buyer can transfer value to one another. In extreme cases, the supplier may not ship any goods to the buyer but will send a fake invoice and other supporting documentation to the buyer for so-called “phantom shipments.” Phantom shipment was relevant in 61% of SARs and STRs filed in 2022 and 2023 analysed by the UAE’s FIU. 12 While LFIs normally do not have the opportunity to inspect the shipments to detect over- and under￾shipment of goods and services, they may compare different pieces of information provided to them by their

12 Id.

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CBUAE Classification: Public customer. For instance, the quantity of the shipped goods should match across different trade documents, such as invoices, shipping documents, and other custom clearing documents. Also, LFIs should ensure that the quantity of goods or services provided matches the profiles of the supplier, buyer, or any intermediary involved in the trade transaction, such as by reviewing the size and geographic location where the parties do business and have operations. When in doubt, LFIs may ask for attestation from the parties to the trade. o Example: Company A located in Dubai sells 10,000 laptops to Company B in Central Asia, at a fair market price of AED 4,500 each. However, Company A only ships 5,000 laptops to Company B (under-ships the declared number of goods) with the invoice and shipping documentation stating 10,000. Company B pays Company A AED 45,000,000 via a wire transfer. Company A reimburses its suppliers AED 22,500,000. This results in the surplus of AED 22,500,000 that Company A moved to Dubai for future use.
2.2.3. Multiple Invoicing of Goods and Services
Illicit actors may issue more than one invoice for the same trade transaction. In applying this technique, illicit actors request payment from different LFIs for the same underlying goods or services. This technique does not misrepresent any piece of information, and as such, it may be more difficult to detect. In addition, even if multiple payments relating to the same shipment of goods or delivery of services are detected, the illicit actors can claim “legitimate” explanations such as amendment of the price terms, payment of late fees, or additional logistics charges. Close examination of invoices to detect potential anomalies and evaluating the invoices in the context of the customer’s profile is beneficial to LFIs to detect such practices. LFIs should also be on the lookout for fictitious invoices. When the authenticity of a document is doubted, information accompanying the documents, including the meta data of the digital files, could help LFIs determine whether an invoice is fictitious or not. o Example: Company A located in Central America ships 500kg of bananas to Company B, a trading company in a Financial Trade Zone in the Middle East. Company A issues an invoice for AED 150,000 to Company B to be paid to Company A’s bank account held with Bank X. Company A has all the documents that proves the bananas were shipped at the stated price. Company A produces documents, including the bill of lading, that shows the delivery term was for Company A to deliver them to a Financial Trade Zone in the Middle East. Company A issues another invoice for AED 150,000 for the same shipment to Company C located in Central Asia to be paid to Company A’s bank account held at Bank Y. Company C, in fact, distributes illicit drugs throughout the region and often accumulates significant funds in its bank accounts. In this case, Company A uses the same documents that it used for Company B in the FTZ. The LFIs involved, which checked the documents, did not detect any irregularities, and as such, the transactions went through. The transaction helped Company C to move AED 150,000 to Central America under the disguise of payment for legitimate goods.
2.2.4. Falsely Described Goods and Services
Similar to misrepresentation of the value or the quantity of the goods shipped or services provided, the quality or type of good or service can also be misrepresented. In this case, there is a discrepancy between the description of goods on the shipping documents (such as a high-priced luxury item) and the goods that

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CBUAE Classification: Public the supplier actually shipped (such as a low-priced commodity item or a lower quality item). Falsely describing goods and services is also particularly relevant in the context of proliferation finance, as illicit actors substitute controlled or restricted goods for similar non-controlled or restricted goods. While this typology is very difficult for LFIs to detect, LFIs may ask for representation in cases where other red flags, including those listed in the Annex 1 of this Guidance, signal the risk of a false description of goods and services. o Example: Company A sends a shipment described as two tons of bronze to Company B in another country for AED 32,000, while in fact, the shipment contained two tons of silver valued at AED 2,755,000. By falsely describing the goods, Company A transferred AED 2,723,000 in value to Company B under the disguise of a trade transaction. Company A systematically declared the nature of the goods as bronze in all trade documents which went undetected by customs agents. Company A was the beneficiary of an LC issued by Company B’s bank. Company A takes all the documents, including customs clearing, bill of lading, and invoice, to the advising bank. The advising bank confirms the conformity of the documents and informs the issuing bank. Once the issuing bank approves the conformity of the documents, it pays AED 2,755,000 to Company A.
2.2.5. Use of Shell, Front, or Shelf Companies
The use of shell, front, or shelf companies is commonplace across different types of illicit finance activities; TBML is not an exception. Those engaged in TBML schemes involve shell, front, or shelf companies to conceal the beneficiaries behind trade transactions, obfuscate the payment flow, and otherwise complicate a trade transaction with the objective of making it difficult for LFIs and law enforcement to detect irregularities. Similarly, these types of companies are often used by sanctioned persons who cannot act in their own name, knowing that an LFI’s screening software would otherwise be able to detect their involvement. As a result, these sanctioned persons set up a front or shell company under a generic name to avoid detection. Corrupt government officials also hide behind shell or front companies, as many countries’ laws prohibit government officials from owning or operating a business. Strong initial and ongoing CDD/KYC controls are the most effective measures to mitigate the risks posed by the illicit use of such companies for TBML schemes. LFIs should be particularly aware of companies established in tax havens, at an address where hundreds of other companies are registered, or companies represented by lawyers, secretaries, or other agents appointed by a corporate formation law firm. Additionally, to detect front companies, LFIs may add scenarios to their transaction monitoring systems that are designed to detect sudden activation of a longstanding dormant account, a payment request under a trade finance document to an unrelated third party, unusual geographic patterns of a trade transaction, or transaction volumes that are not in line with a company doing a similar type of business as the party in question. Shell, front, and shelf companies are defined as follows:
o Shell company: A shell company is an incorporated company with no independent operations, significant assets, ongoing business activities, or employees. o Example: Members of a criminal organization with ties to a government official in Country A use shell companies to participate in cross-border trade backed by the government of Country A. Government contracts that involve importing goods to Country A are first directed to the shell companies, portrayed as legitimate actors. In fact, these shell companies are only intermediaries, buying low-quality goods in a third country and re￾supplying them to Country A at inflated prices, while keeping the price difference.

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CBUAE Classification: Public o Front company: A front company is another type of a company that may lack operations, assets, or employees. The only difference between a front company and shell company is that occasionally a front company is a functioning company created with an intent to hide the true beneficiaries or stakeholders. o Example: Company A is located in Country A with stringent export controls that prevents it from exporting goods to Country B. However, a purchaser in Country B is willing to pay a high premium for Company A’s goods. They agree that Company A will set up a front company with a different name and untraceable ownership in Country C. Company A then proceeds to ship the goods to Country C, where there are no restrictions, for further reexport to Country B, without raising a suspicion from its banks or law enforcement. o Shelf company: A shelf company is an incorporated company with inactive shareholders, directors, and secretary that is left dormant for a long period of time. Shelf companies may even have open bank accounts to bolster their legitimacy. An illicit actor may attract less scrutiny by using a company that on paper appears to have been incorporated and operating for several years. o Example: Company A was incorporated in 2010, and since then, has had no activity. In 2016, the company starts to engage in the trade of high-value electronic items. It engaged in over-invoicing activities and manged to transfer additional value under the disguise of trade. Company A was not subject to strict controls since the bank involved has lowered the risk rating of Company A as it did not have any high-risk transactions in the first five years of its relationship with the bank.
2.2.6. Use of Free Trade Zones
Free Economic Zones (“FEZ”) are designated areas within a country’s borders where certain economic activities are encouraged and facilitated by special regulatory and legal frameworks. One of the most common types of FEZs is a Free Trade Zone (“FTZ”). FTZs are designed to attract trade and investment by suspending the collection of import duties and taxes and also implementing simplified customs procedures. In addition, the process of setting up a company is typically less complicated in an FTZ. As a result, FTZs are ideal locations for storing and distributing products, and function as critical logistics hubs for importing, transshipping, and re-exporting goods. While FTZs promote legitimate trade, they also attract illicit actors who try to exploit the eased controls (such as through illicit goods manufacturing and smuggling) and high volume of trade conducted in FTZs. As a result, illicit actors benefit from minimal checks and transparency requirements in an FTZ,13 and for the UAE, the complexity of TBML in FTZs, combined with the country’s high number of FTZs, poses a significant challenge to LFIs in combatting illicit financing flows. Accordingly, LFIs can mitigate the risk of FTZs by inquiring about the reasons a customer chose to use a FTZ for their activity and to evaluate a customer’s response as part of the CDD/KYC process. LFIs may also ask for the names and the location of a customer’s counterparties to evaluate if there are any suspicious indicators involving the customer (e.g., whether the customer’s counterparties are all located in high-risk jurisdictions and lack a legitimate business connection to the customer).

13 To see more about the risks associated with FTZs, see Improving Governance and Tackling Crime in Free-Trade Zones, RUSI, October 2020, Available at: https://static.rusi.org/20201012_ftzs_web_2.pdf

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CBUAE Classification: Public o Example: Company A located in Country A’s FTZ orders navigation equipment from a manufacturer, Company B, in Country B. Country B has restricted the exportation and re-exportation of navigation equipment produced in Country B to Country C. Company A applies for a LC for the benefit of the manufacturer, Company B, in Country B. Once goods are shipped to Country A, the manufacturer, presents relevant documents to the advising bank which then passes them to the issuing bank. One of the documents is a bill of lading in which the consignee is Company A in Country A’s FTZ. Nothing on the face of the documents suggests that the navigation equipment will be transported elsewhere. The consignee from Company A in Country A’s FTZ receives the navigation equipment and re-packages the goods into boxes that suggest the navigation equipment are household kitchen appliances. The consignee from Company A in Country A’s FTZ re-exports these goods to Country C in violation of laws of Country B with a packing list stating the navigation equipment represents household appliances.
2.2.7. Illicit Cash Integration
Cash is vulnerable to abuse by illicit actors to conduct ML activities and finance criminal activities. Illicit actors use different techniques to integrate criminally derived cash into the financial system. The three main ways that illicit actors integrate cash into the financial system are the following: exploitation of non-bank financial institutions, offsetting schemes, and infiltration of legitimate supply chains. The specific characteristics of cash—anonymity, interchangeability, and transportability—make it an attractive method by illicit actors seeking to conceal the proceeds of crime within the context of trade. Unlike other monetary instruments, such as wire transfers, cash holds no record of its source or owner. Cash transactions are also instantaneous and widely accepted across jurisdictions. Strong CDD/KYC controls help LFIs to lower the risk of engaging with customers involved in criminal activities that generate illicit cash proceeds. Also, by filing reports to the FIU, LFIs contribute to helping the FIU detect illicit actors who use the following techniques to integrate illicit cash into the UAE’s financial system. o Exploitation of non-bank financial institutions: Illicit actors seeking to circumvent the AML/CFT controls applied by banks may opt to use non-bank financial institutions to introduce and integrate illicit cash into the financial system as part of a TBML scheme. While a large bank may detect unusual activity in the case of large or frequent payments and ask for supporting documentation, non-bank financial institutions are perceived to have less stringent controls to detect TBML schemes. Thus, by using non-bank financial institutions, the criminals ensure movement of funds without additional inquiries. This is particularly important as numerous financial technology companies with various degrees of compliance programs start offering payment services. o Offsetting schemes: When one criminal organization has excessive cash and another criminal organization needs cash, illicit actors may engage with one another and offset cash funds they have in different locations. One of the best ways for such illicit actors to offset their cash is to engage in trade. For example, one criminal organization can purchase high-value goods for cash and export it to a country where cash is the predominant means of payment. The buyer/importer sells the goods and transfers cash proceeds to another criminal organization operating in the importing country. By hiding behind trade transactions, illicit actors can move cash between criminal organizations. o Infiltration of legitimate supply chains: Sometimes illicit actors take over a stake in a legitimate business and use the business’ legitimate supply chain as a method to introduce and integrate illicit

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CBUAE Classification: Public cash into the financial system. Money launderers slowly and steadily increase the amount of illicit cash they introduce into the business while maintaining the business’ operations. o Surrogate shopping networks: A network of individuals, known as surrogates or personal shoppers, who purchase products on behalf of others to circumvent customs controls, export controls, or other forms of trade or tariff restrictions. These networks could be exploited as part of TBML schemes, whereby illicit actors provide local currency that are the proceeds of crime to surrogate shoppers to compensate for the items surrogates purchase using their credit cards, as well as incentives or fees. The decentralized and often anonymous nature of these transactions can make it difficult for LFIs to track the funds and identify the real beneficiaries, increasing the risk of money laundering. Example: Criminal organization A in Country A sells illicit drugs through a network of individuals, selling it for cash. Each individual deposits the cash they have collected to their personal accounts. Later they use their debit cards linked to the accounts at a point-of-sale in a supermarket that is owned by the criminal organization. While it appears that all these individuals are purchasing food items at the supermarket, in fact they are not purchasing anything. By doing so, they aggregate the funds collected from the sale of the illicit drugs in the account of the supermarket. Criminal organization A then uses the funds to pay to Company B for the supply of the illicit drugs to Country A under the disguise of a transaction related to importation of food items to the supermarket. None of these transactions appear to be related to any illicit activities. In this case, the criminal organization infiltrated the legitimate supply chain to launder funds under the disguise of trade between the supermarket, customers, and Company B which supplies the illicit drugs.
2.2.8. Third-Party Intermediaries
A third-party intermediary may take part in a trade transaction by settling an invoice on behalf of an illicit actor. Sometimes such third-party intermediaries are incorporated in offshore jurisdictions that offer corporate secrecy. Even though there may be legitimate grounds for a third party’s involvement in a trade transaction, whether financially or through physically supporting a trade (e.g., a service provider acting in the capacity of a shipping company), illicit actors have often used this technique to transfer value. This TBML technique is particularly challenging for LFIs to detect because it often occurs as part of open account trade where LFIs have very limited information about the underlying transaction. To the extent that information is available on an underlying transaction, LFIs should question the involvement of unrelated third parties if there is no economic justification for the third party’s involvement in the trade transaction and if the third party was not previously identified as a principal counterparty during the customer’s onboarding. o Example: Company A exported 500 widgets to Company B which is located in another country. 15 days after the delivery of the goods, Company A received funds from Company C located in yet another country. Company A’s bank stopped the payment and conducted due diligence. Since Company C is incorporated in an offshore jurisdiction which is perceived to be high-risk, the bank asked for further documents. Once Company A provided documents, it revealed a third party was paying for the goods delivered to Company B. The bank compliance proceeded to request further information, including trade documents, showing the relationship between Companies B and C, and the source of funds for the transaction coming from Company C. In providing the requested

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CBUAE Classification: Public information, Company A shared contradictory documents that did not match the transaction detail. Specifically, the information regarding the ultimate creditor of the transaction that was provided in the MX/ISO 20022 message did not match the information on the purchase agreement provided by the customer. The bank returned the transaction in question since it could not determine whether it was a legitimate transaction. The bank filed a suspicious activity report with the FIU that later led to an investigation that unearthed a ML scheme which involved the movement of funds gained from illegal gambling in a country where Company C was located.
2.2.9. Back-to-Back Letters of Credit
Back-to-back LCs are a financing arrangement made up of two distinct LCs, one issued by the buyer’s LFI for the benefit of an intermediary and the other issued by the intermediary’s LFI for the benefit of the supplier. Such back-to-back letters of credits can be used for legitimate purposes when, for example, the intermediary is a commodities broker purchasing goods at one price and then selling at a higher price to a willing buyer. In this case, the broker wishes to maintain a certain level of secrecy, because otherwise, in the future, the buyer can acquire goods directly from the supplier without the mark-up. However, this technique is also used by illicit actors to complicate the financing arrangements, making it harder to trace the flow of funds. This technique can also be used to evade sanctions. Back-to-back LCs allow the intermediary to hide certain information that could have led to detection of a sanctions target in the trade. For instance, if the issuing bank of the first LC is a sanctioned bank, with a back-to-back LC, the ultimate beneficiary receives the second LC from an unsanctioned bank of the intermediary without mention of the original issuing bank. LFIs should carefully consider when any customer requests to open back-to-back LCs and conduct appropriate due diligence on the customer. In addition, LFIs should monitor customer accounts for frequent incoming and outgoing funds transfers that occur in a short period of time and involve similar amounts, as this can be a sign of back-to-back transactions in a TBML scheme. o Example: An oil extraction company in Country A sells 200,000 barrels of crude oil to a broker in Country B. Country A is sanctioned by several jurisdictions prohibiting purchase of oil originating in it. The broker arranges for the oil to be transported via railroad to Country B that does not maintain sanctions against Country A, where it is then onloaded onto a vessel for delivery to Country C. The broker, using a bank in Country B, opens an LC in favour of the supplier. The buyer in Country C opens the second LC in favour of the broker (note that the buyer and buyer’s bank will be unaware of the nexus to Country A in the transaction and will not be able to conduct a sanctions analysis). The documentation provided as part of the second LC shows Country B as the origin country.
2.2.10. Fictitious Documents
Presenting fictitious documents is a ubiquitous technique money launderer use when transferring funds under the disguise of a trade transaction. As stated in the Updated Strategic Analysis Report on TBML published by the UAE’s FIU in June 2024, fictitious documents are the most frequently used technique used in TBML based on the SARs and STRs analysed by the FIU in 2022 and 2023.14 Trade transactions usually involve multiple documents, increasing the opportunity for criminals to temper with the documentation or

14 Updated Strategic Analysis Report, Trade-Based Money Laundering, June 2024, The UAE’s FIU, available at https://www.uaefiu.gov.ae/media/vduba40z/updated-strategic-analysis-report-on-trade-based-money-laundering-rsas-2024.pdf

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CBUAE Classification: Public create fake documents. Considering that there is no uniform model for trade-related documents, parties facilitating the trade, such as LFIs, shippers, vessel owners, and insurers, cannot always detect fraudulent documents absent obvious red flags. However, LFIs should conduct further due diligence in instances when there are clear discrepancies or visible alterations among documents presented. Additionally, LFIs may also benefit from creating an internal repository of different documents that are commonly used in trade finance by their customers to have a comparison point when reviewing documents. While there are several varieties for each type of document (e.g., several versions of invoices), this practice will help LFIs detect fictitious documents that can be carelessly generated by illicit actors who try to defraud the LFI. o Example: Company A in Asia exported 60 tons of steel to Company B in Africa. Both Companies A and B are in a secret agreement to inflate the volume of shipped steel to 600 tons. The two companies decide to settle the transaction via open account. Company B sends a wire with an MX/ISO 20022 message to Company A, but an intermediary bank stops the transaction as suspicious and asks for supporting documentation. Company B prepares a fictitious invoice and also finds online a sample export origin declaration prepared by a government authority of the Asian country. Company B drafts a fraudulent export origin declaration and submits both documents to the intermediary bank which finds them acceptable.
2.2.11. Accounts Used as Pass-Through
Money launderers and criminal organizations may set up accounts that are merely used to complicate the ability to trace funds. This could be achieved by opening a separate account for an existing shell or front company, or a legitimate business. Money launderers and criminal organizations may alternatively create new entities with no economic purpose other than acting as a pass-through account in a trade transaction. By passing funds through such accounts, money launderers try to make it more difficult for LFIs involved in payments to investigate the origin of funds or purpose of a transaction. Furthermore, if such pass-through accounts are opened at jurisdictions whose risk of ML is perceived to be lower, the money launderers will be able to move funds with less scrutiny. This technique can be used in TBML to further complicate the financial flows pertaining to trade transactions, which in many cases, are already complex. Trade transactions often involve multiple parties such as shippers, ship brokers, local transport companies, consignees, commodities brokers, and others, making it easier for illicit actors to justify multiple payments to pass-through accounts that serve no other purpose other than layering funds. LFIs should ask for more information if they find that a transaction is unnecessarily complicated. For example, LFIs should seek explanation in these cases: (1) when there are entities involved in a trade transaction without a rational justification; (2) when the trade transaction is going through several currency exchanges even though it is not necessary for the trade; or (3) where the shipping route passes through countries that makes the route longer without a clear purpose. o Example: A criminal organization located in Europe creates a legal entity, Company A, in the Middle East and opens a bank account for Company A at a local bank in the Middle East. It then creates a website for the company suggesting it is a local logistics company, even though Company A has no legitimate business operations. The criminal organization then starts making regular payments to Company A. When the bank asks about the purpose of the payments, Company A provides fake invoices suggesting it facilitates movement of goods that the criminal organization allegedly (or actually) exports to the Middle Eastern country. The criminal organization that has

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CBUAE Classification: Public control over Company A’s account effectively transfers funds from Europe to the Middle East and can use the accumulated funds to buy goods or services elsewhere.
2.2.12. Use of Registered Hawala Providers and Alternative Remittance
Systems
When illicit actors are seeking to place and layer illicit funds into the financial system, they often turn to alternative remittance systems to structure remittances for the import and export of potentially prohibited or restricted goods, disguising the illicit funds as legitimate transfers abroad. With regards to RHPs, RHPs are more vulnerable to abuse for TBML schemes if the provider conducts larger transfers on behalf of businesses to conduct commercial operations and trade-related transactions. For RHPs seeking to detect TBML schemes, RHPs should obtain a clear understanding of the intended purpose and nature of a transaction and whether it is consistent with what they know about the customer. If the customer appears to be acting on behalf of a business, the RHP should perform CDD/KYC on the business, and the business must be registered and based in the UAE to carry out transactions through the RHP. By conducting CDD/KYC on the customer, the RHP will be in a position to identify TBML and potentially suspicious activity associated with the customer (e.g., a customer who is from Country A states that they are sending funds to a family member, but the beneficiary is located in Country B; a customer who says he works as a labourer wishes to transfer a sum that is greater than the average yearly income for someone in his/her position; etc.). Example: Individual A, a representative of Company A in Country A, uses a local hawala service provider in Country A to transfer cross-border remittances to individual B, who was a representative of Company B, unbeknownst to the hawala service provider, in Country B. The payments were for counterfeit high-end apparel items sold by Company B to Company A, but were indicated to be funds that were sent to family members in Country B.
2.3. Services-based Money Laundering
To date, efforts to combat TBML have focused primarily on the trading of goods to facilitate ML, but TBML can also involve the provision of services as part of services-based money laundering (“SBML”) schemes. SBML schemes rely on exploiting the trade of services or other intangibles, such as information, to disguise the proceeds of crime. Global trade in services provides opportunities for ML as the intangible nature of services makes it difficult to detect anomalies in the price of services offered and to prove whether such services have been provided. For instance, it is common to bill for retainer or penalty fees in certain services sectors, such as in consulting and legal professions, even if the service has not been supplied. While this Guidance does not cover SBML schemes in great detail, it is important to understand that similar to TBML, SBML schemes utilize invoice fraud and manipulation in order to justify the movement of funds as payment for the invoiced services. This can involve billing for non-existent services, inflating the cost of services, or using legitimate services to mix illicit funds with legitimate revenue. The most common services and sectors involved in SBML schemes are parties that provide services related to gambling, software, financial services, consultancy and advisory, and intellectual property rights.15

15 FATF, Trade-Based Money Laundering: Trends and Developments, 2020, available at: https://www.fatf-gafi.org/content/dam/fatf￾gafi/reports/Trade-Based-Money-Laundering-Trends-and-Developments.pdf

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• Example: A strategic consulting firm located in Country A billed hundreds of hours of advisory
  services to a company in Country B. The ultimate beneficial owner of both companies was the same person, who was a professional money launderer. Using the consulting firm, the owner transferred large amounts of funds moved from Country B to Country A without being suspected of any wrongdoing.
  2.4. Economic Sectors and Products Vulnerable to TBML
  The FATF has indicated that a number of sectors are vulnerable to TBML, spanning sectors that involve the purchase and sale of both high-value, low-volume goods or low-value, high-volume goods. Common traits of sectors that are more vulnerable to TBML include sectors that experience wide pricing margins, extended supply chains, and goods that are hard for customs authorities to examine.16 As a result, the origin or quality these goods or commodities can be easily mispresented, making it difficult for LFIs to verify the accuracy of trade transactions in these sectors. The following sectors are particularly susceptible to abuse for TBML activity.
  2.4.1. Gold, Precious Metals, and Minerals
  Gold, precious metals, and minerals function as an alternative form of value within the TBML process and thus can be exploited for either moving or storing value. Such materials and metals are also often used for sanctions evasion purposes or to launder the proceeds of government corruption, as governments are the primary owner of mineral exploration rights.
• Example 1: Country A charged four individuals for their involvement in a large international gold
  ML scheme. The defendants purchased billions of dollars of gold derived from criminal sources (e.g., corruption, illegal mining, and smuggling). After exporting the gold to Country B using a fictitious certification of origin and invoices, a dealer in precious metals based in Country A helped them sell the gold to Country B’s refineries. In exchange, the defendants received wire transfers that appeared to be legitimate payments for wholesale gold purchases. In this example, the illicit actors relied on fictitious certification of origin and invoices to misrepresent the source of the commodity (i.e., gold). The illicit actors also benefited from the high value of the underlying commodity to quickly move a large amount of funds. The illicit actors also used a third-party intermediary to facilitate the trade transaction.
• Example 2: Because of sanctions, Country A has very limited food and medicine supplies.
  Government of Country A purchases food at inflated prices from illicit companies in Country B. Instead of distributing it for free, Country A requires citizens to bring scrap gold items in exchange for food. Government officials then recast them as gold bars and export the bars to Country B by declaring them as lead bars using documents that falsely describe gold bars as lead bars including fraudulent bills of lading. The importer pays the price equivalent to the cost of lead bars to the food suppliers. From Country B, government officials move the gold to other countries to store in private bank vaults.

16 FATF:, Trade-Based Money Laundering: Trends and Developments, 2020, available at: https://www.fatf-gafi.org/content/dam/fatf￾gafi/reports/Trade-Based-Money-Laundering-Trends-and-Developments.pdf

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In this example, the illicit actors benefitted from a high-value, low-volume commodity, and the fact that one commodity can be substituted for another. In addition, the illicit actors were able to melt and recast the goods to resemble another type of good.
2.4.2. Agricultural Products and Food Items
Transactions related to agricultural products and food items may invite less scrutiny; however, they can also be exploited by illicit actors. Illicit actors may purchase foodstuffs from farmers or small suppliers for cash and then export the goods and receive incoming wire payments into their bank accounts.

• Example: A TBML scheme was discovered by three European countries where a network of drug
  traffickers used the illicit cash they accumulated as part of their crimes to purchase potatoes and onions in Europe. Working with an accomplice in an export/import company, they would then send these goods to Country A in North Africa and ask the buyers in Country A to pay the price via wire transfers to the accounts held by the drug traffickers. In this example, the drug traffickers did not use any of the common TBML techniques; instead, they exploited legitimate supply chains to move their cash proceeds into wire transfers that appeared legitimate, relying on the fact that certain industries remain cash-intensive industries.
  2.4.3. Car Parts and Vehicles
  Car parts and vehicles, including second-hand or luxury vehicles, are frequently paid for in cash. Purchasing car parts and vehicles is therefore an effective way to turn illicit cash into goods that will be traded and could even generate additional profit.
• Example: Country A and B jointly disrupted a scheme in which criminals laundered proceeds of
  drug trafficking and tax fraud. The criminals used illicit cash to purchase luxury vehicles and subsequently exported the vehicles for sale to other jurisdictions, often inflating the price. To do so, the criminals established several legal entities and utilized fake paper trails, including fraudulent sale agreements, for the sale and purchase of vehicles to deceive parties involved in the export and sale network. The criminals also secured a large contract with a legitimate second-hand luxury vehicle supplier in Country B, further giving the appearance of legitimacy to their scheme. After layers of sales, the criminals would export the luxury cars to drug traffickers in other countries as a means of payment or sell them to unwitting buyers who would wire the purchase price. In this example, the criminals chose an industry in which cash transactions are common. Furthermore, the criminals exploited legitimate trade flows to layer the illicit funds and use falsified documents to hide the illicit nature of their trade transactions. The high-value luxury car industry allowed the criminal actors to integrate large sums of money into the financial system.
  2.4.4. Clothing and Second-hand Textiles
  Clothing and second-hand textile and apparel can be easily mispriced due to the varying prices of clothing items and general lack of common methods to assign value to such goods. The increasing popularity of second-hand apparel makes this sector more attractive for illicit actors.
• Example: Authorities in Country A noticed a sharp increase in importation of clothing and footwear
  from Country B with which Country A had a free trade agreement. Upon further investigation,

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CBUAE Classification: Public authorities discovered that a drug cartel had been purchasing clothing items in Asia with criminally derived funds, exporting these clothing items to Country B, and then reexporting them from Country B to Country A. This scheme operated under the pretence that the clothes were made in Country B, enabling the cartel to gain a large margin of profit and introduce the illicitly gained funds into the banking system. In this example, illicit actors abused high-volume, low-value goods to conduct TBML. The cartel used fictitious documents (such as fake invoices and packing lists) to hide the origin of the goods. Because the traded goods had a large margin for price misrepresentation, the cartel inflated the value of clothing on the supporting trade documentation.
2.4.5. Portable Electronics
Portable electronics, especially high-end electronics (smart phones, laptops, or watches), can be deliberately misrepresented and incorrectly valued. As such, they create the opportunity to quickly move significant criminal proceeds.

• Example: Authorities in Country A discovered that millions of dollars were laundered through its
  banking system. The scheme involved criminals using drug proceeds in Country B to purchase small, high-end electronic devices. The items were then exported to Southeast Asia and the Middle East, with exporting documentation and invoices significantly undervaluing the cost of items, while the import documentation, including re-issued invoices and customs declarations, stating the true price. This allowed the criminals to increase the illicit value being transferred offshore. In this example, the criminals moved low-volume, high-value goods and used an undervaluation technique that declared low export prices. At the same time, the importers sold the goods in Southeast Asia and the Middle East at the actual price, generating larger sums of funds in third countries that were subsequently integrated into the banking system.
  2.4.6. Art and Antiquities
  The art and antiquities sector is particularly susceptible to TBML due to the high value and subjective pricing of items, which can facilitate the movement of large sums of money under the guise of legitimate transactions. The sector’s opacity and the difficulty in assessing the true value of art and antiquities make it an attractive channel for laundering illicit funds.17 The art and antiquities sector also frequently employs the use of third-party intermediaries, such as art dealers, that can help launder the proceeds of crime across international transactions, with artwork or antiquities purchased in one country and kept in another country.
• Example: Trust A, a shell company that ostensibly specializes in rare art, uses illicit funds to
  purchase an ancient sculpture from an auction house. This transaction allows Trust A to move a substantial amount of money internationally under the pretence of a legitimate art deal. The sculpture, obtained from a legitimate auction house, can continue to increase in value and can later be resold at a premium, concluding the ML cycle. In this example, the criminals obtained high-value, unique goods using illicit funds. Because the sculpture was purchased at an auction, it has been authenticated, and there is an existing record of an auction sale.

17 FATF, Money Laundering and Terrorist Financing in the Art and Antiquities Market, Financial Action Task Force, February 2023, available at:
https://www.fatf-gafi.org/en/publications/Methodsandtrends/Money-Laundering-Terrorist-Financing-Art-Antiquities-Market.html

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In the future, the criminals can sell the sculpture, potentially at a higher price, generating additional profit. Even if the criminals sell the sculpture at the same price or slightly below the purchase price, the criminals were able to launder a substantial amount of money that now appear as legitimate funds.
2.4.7. Construction Materials
Due to their low-value-high-volume nature and at the same time prevalence in international trade, construction materials are appealing for over- or under-invoicing as well as over- or under-shipment. As stated in the Updated Strategic Analysis Report on TBML published by the UAE’s FIU in June 2024, construction materials were involved in 10% of the SARs and STRs filed in 2022 and 2023, analysed by the UAE’s FIU.

• Example: Company A allegedly shipped 15 tons of rolled stainless steel to Company B. Instead,
  the shipment consisted of rolled and lighter aluminium that appeared to be visually the same. Thus, Company A received a value that was larger than the fair market price of the actual shipment, resulting in transfer of inflated value from Company B to Company A.

3. Understanding and Assessing Illicit Transshipment Risks
   Transshipment refers to the shipment of goods from the country of origin to one or more intermediate destinations prior to shipment to the country of ultimate destination. Although transshipment is often employed to streamline the logistics of cross-border shipping and for other legitimate economic reasons, transshipment can be manipulated by illicit actors to evade trade restrictions, including sanctions and export controls. Because export control authorities around the world maintain varying levels of restrictions across different countries or types of end-users, illicit actors employ transshipment to export restricted items to or from embargoed or sanctioned jurisdictions.

• Embargoed jurisdictions: Certain countries that are subject to embargoes have a comprehensive
  or near comprehensive prohibition on any export or reexport to such country.
• Sanctioned jurisdictions: Countries facing unilateral or multilateral sanctions have numerous
  categories of goods and services that cannot be provided to, or sourced from, such country. In these scenarios, because end-users in embargoed or sanctioned jurisdictions are aware of trade restrictions involving the import and export of goods, end-users will often pay a premium to importers or exporters willing to ship goods or services via a third, less controlled country. This often leads to violations of the export control and/or sanctions laws of the exporting country and may implicate LFIs assisting the re-exporter or the transshipment party. For instance, illicit actors may target countries with weak export control laws as part of WMD proliferation efforts. In this scenario, illicit actors have importers or exporters deliver sensitive or dual-use items initially to transshipment hubs rather than directly to their home countries. Accordingly, the UAE lies directly across the Arabian Gulf from Iran and is a significant partner for international trade, increasing the UAE’s potential exposure to illicit transshipment risks. As a result, LFIs should be aware of the different techniques that illicit actors use to evade trade restrictions and engage in transshipment. Particularly, illicit actors have been found to use the following techniques in transshipment schemes:

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• An illicit actor ships goods from a sanctioned country to a non-sanctioned location. Illicit
  actors first ship goods originating in a sanctioned country to a non-sanctioned location. The illicit actors then ship these goods to a third location, with the underlying documentation showing the non-sanctioned location as the country of origin. Sometimes the re-exporter repackages the goods or adds non-sanctioned country seals of origin to the packaging to further obscure the true origin.
• An illicit actor located in a jurisdiction with fewer export restrictions imports goods,
  allegedly for use in the country. An illicit actor (e.g., import/export company) located in a jurisdiction with fewer export restrictions imports goods, allegedly for use in the country. The illicit actor then forwards the goods to either prohibited end-users (i.e., users blacklisted by the countries where the goods originated) or to embargoed or sanctioned countries. Often such schemes involve networks of import/export companies registered in jurisdictions world-wide, with goods travelling across multiple jurisdictions before they reach the prohibited end-user or destination.
• An illicit actor located in a country susceptible to corruption imports goods controlled for
  export. An illicit actor (e.g., import/export company) located in a country susceptible to corruption imports goods. The illicit actor then uses government connections to mislabel the goods or forge customs declarations and reexport goods to a prohibited destination.
• An illicit actor establishes another company in a third jurisdiction. An illicit actor subject to
  sanctions or export control restrictions establishes a company in a third jurisdiction. To disguise the connection, the non-restricted company is registered in the name of residents of the third country and bears a generic name. The company is then used as a transshipment hub, accumulating export controlled or restricted goods and moving them to the prohibited parent company.
• An illicit actor “peels” part of a shipment while transshipping. An illicit actor “peels” part of a
  shipment while transshipping to another non-sanctioned country; as in, the illicit actor delivers a shipment while passing through a sanctioned country (e.g., when a vessel docks in a port in a sanctioned country while enroute to another location).
• An illicit actor exports or reexports under the disguise of transshipment. An illicit actor
  exports or reexports under the pretence of transshipment. An illicit actor located in a landlocked country states that it has to ship the goods via a sanctioned country due to difficulties arranging other routes, while in fact, the country in question is the final destination of the goods. Separately, LFIs should also consider risks related to landlocked countries as part of their enterprise-wide risk assessment, as further discussed in Section 4.1. Enterprise-wide Risk Assessment and Risk-Based Approach. Without direct access to coastal ports, landlocked countries must rely on transit countries to connect them with international markets. Sometimes such transit countries can be subject to restrictive sanctions or export controls, increasing the risk of potential non-compliance for an LFI.

4. Mitigating TBML and Illicit Transshipment Risks
   To mitigate risks associated with TBML and illicit transshipment, LFIs should design and implement controls that are commensurate with the nature and size of their business. The sections below discuss how LFIs that are involved in trade transactions can apply preventive measures to identify, assess, manage, and mitigate the risks associated with the TBML and illicit transshipment. This is not a comprehensive

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CBUAE Classification: Public discussion of all AML/CFT requirements imposed on LFIs. LFIs should therefore consult the UAE legal and regulatory framework currently in force. The controls discussed below should be integrated into each institution’s broader AML/CFT compliance program and supported by appropriate governance, independent audit, and training.
4.1. Enterprise-wide Risk Assessment and Risk-based Approach
Under Article 4 of the AML-CFT Decision, LFIs are required to identify, assess, and understand the ML/TF risks to which they are exposed in order to determine the nature and extent of AML/CFT resources necessary to mitigate and manage those risks. For this purpose, LFIs should also perform, document, and regularly update an enterprise-wide risk assessment that includes an assessment of risks related to trade. Conducting a risk assessment is the first step in LFIs effort to counter illicit finance, including TBML and illicit transshipment. Specifically, LFIs should evaluate the risks associated with customers involved in trade and the LFI’s geographies, products, services, and role in a trade transaction. To form a clear understanding of their risk exposure, LFIs may opt to perform a standalone risk assessment of their trade finance business. When performing the risk assessment, LFIs should take into account different categories of risk. The most common categories of risk are associated with customers, intermediaries, geographies, products and services, delivery channels, and operations.

• Customers: LFIs should identify customers with exposure to and involvement in trade. To better
  understand customer risk, LFIs should also assess customers engaged in potentially higher-risk activities, including industries that are recognized by global standard-setters and regulators as high￾risk for TBML (as discussed in Section 2.4) and sanctions evasion (commodities trading, export/import, and related shipping and insurance, among others). Certain customer behaviour may also indicate higher levels of risk and thus require additional scrutiny, including cross-border transactions involving legal persons and arrangements or multiple shell or front companies; high transaction volumes involving individuals acting on behalf of legal persons or arrangements; customers who frequently transact with high-risk countries; customers located in a landlocked jurisdiction, and customers whose transaction behaviour is not related to their stated business purposes. o Intermediaries: As part of the customer risk assessment, LFIs should consider assessing to what extent customers involve intermediaries either in payment transactions or in the process of exporting/importing goods. In cases in which the involvement of an intermediary can decrease the level of transparency or does not appear to have a legitimate business purpose, LFIs should consider implementing controls that would require collection of additional information from the relevant customers as a best practice.
• Geographies: LFIs should consider the countries their customers are exposed to (e.g., customers’
  locations of incorporation or registration, primary place of business, and locations of beneficial owners), flow of the transactions facilitated by the LFI, and the LFI’s own locations around the world. Identifying and understanding jurisdictions and regions exposed to specific sanctions evasions risks is particularly important in the context of international trade. LFIs should consider its geographic proximity to a country or region that is subject to sanctions as a risk factor in the risk assessment, including publicized instances of specific countries flagged by the regulators or reputable news sources as common transshipment hubs.

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As discussed in Section 3, LFIs should also consider the risks related to landlocked countries, whether through their customers’ locations or the LFI’s own locations. A landlocked country may rent port space, warehouses, and other facilities from neighbouring countries that have seaports, and these neighbouring countries may be subject to restrictive sanctions or export controls. LFI should therefore seek to understand the true origin or destination of goods based on a thorough review of trade finance documents provided by their customers.

• Products and Services: LFIs should consider their products and services and assess the inherent
  risk associated with such products by taking into account product transparency, complexity, potential for intermediation, settlement times and terms, usage of cash, and cross-border funds flows. Specifically, LFIs should evaluate products and services that finance trade transactions and the extent to which these products and services can be abused for illicit activity, such as by masking end-users and disguising payments. Generally, trade-related transactions carry more risk for LFIs compared to other financial transactions due to the fact that the LFIs do not always know all the parties involved in a trade and the goods that are being traded. For example, although wire transfers are generally less complicated mechanisms of financing trade transactions, it is often more challenging for LFIs to obtain sufficient information to understand the purpose of transactions, the underlying goods or services paid for by the transactions, the shipping or transportation of the goods involved, and other parties related to the transactions (e.g., importers and exporters).
• Delivery Channels: Delivery channels are an important element of risk that is closely related to
  products and services. The primary drivers of risk for delivery channels include whether a particular delivery channel involves non-face-to-face transaction initiation mechanisms, is operated by or through a third party, or offers rapid or near-instantaneous processing and settlement. Services provided through higher-risk delivery channels—that create anonymity and obscure the source or destination of funds—are more susceptible to abuse by illicit actors for TBML and sanctions evasion.
• Operations: Operational risk encompasses risks of loss and disruptions to business that stem from
  ineffective or failed internal processes, people, or systems or from external events. Operational risk includes inadequate or fluctuating staffing levels; material changes in the size or composition of the customer base; fluctuations in technological systems and models used to support AML/CFT compliance; and the emergence of backlogs of transaction monitoring alerts or CDD refreshes. Risk assessments should provide a consolidated assessment of an LFI’s ML/TF risks across all business units, including those of branches, subsidiaries, parent entities, or other affiliates located outside the UAE. The identified risks should be consistently reported to senior management, and any internal control deficiencies noted during the risk assessment process should be appropriately tracked and remediated. LFIs should also ensure that their risk assessments are integrated into their overall risk management frameworks. Risk assessments should be an ongoing process and should be reviewed regularly to ensure that they remain relevant, effective, and up to date.

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4.2. CDD and EDD Measures
4.2.1. General CDD Measures
Under Article 5 of the AML-CFT Decision, LFIs should conduct CDD before or during the establishment of the business relationship or account, or before executing a transaction for a customer with whom there is no business relationship. An LFI’s CDD program should cover, at a minimum: customer identification and verification; beneficial owner identification and verification; understanding of the nature of the customer’s business and purpose of the business relationship; and ongoing monitoring. CDD, and where necessary EDD, are the core preventive measures that help LFIs manage the risks of all customers, particularly higher￾risk customers. In the context of trade, each LFI should identify which party to a trade transaction is their customer and subject to the LFI’s CDD process. Although it is not the responsibility of the LFI to perform due diligence on all parties to a trade transaction, an LFI should have an appropriate understanding of their customer’s business model. CDD measures are particularly important for clients that engage in open account trade where it is difficult to gather information about each trade at transaction level. In addition, trade settlement on open account in and of itself may serve as a red flag if the underlying LFI customer is an exporter and/or if trade transactions involve particularly complex goods or delivery methods, since open account trade is one the least preferable means of settlement from the exporter’s perspective. As a best practice, the LFI should consider requesting specific information in order to appropriately understand the customer’s business model, which could include:

• Purpose of the customer’s trade activities;
• History and geography of operations;
• Goods or services exchanged and industries serviced;
• Licenses required for the trade of underlying goods or services, if applicable;
• Principal counterparties with whom the customer intends to transact with;
• Parties involved in the trade (e.g., shipping company, freight forwarder, insurer, etc.);
• Countries where the counterparties are located; and
• The anticipated transaction volumes, value, frequencies, and flows.
  If an LFI determines that a customer or prospective customer has materially misrepresented itself or its business, it should not accept the customer; should exit the relationship if one has been established; should add the customer, its beneficial owners, directors and managers to its internal watchlists; and should file a suspicious activity report (“SAR”) or suspicious transaction report (“STR”) with the FIU. Please refer to the goAML platform to view a list of red flags and SAR and STR options relevant to TBML. In addition, if the LFI detects a change in a customer’s trade-related activities from the customer’s profile established at onboarding, the LFI should request further CDD information to assess whether there are legitimate grounds for the customer’s activity. For instance, the irregularity in a customer’s trade-related activity could be caused by a change in a customer’s CDD information that should be reflected in the customer’s CDD file (e.g., the customer changed their headquarters office without informing the LFI). If the LFI is unable to establish a reasonable explanation for the customer’s activity, the LFI should have protocols in place to escalate the activity for further review, as discussed in Section 4.4.2. Suspicious Transaction/Activity Reporting.

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LFIs should ensure proper documentation and record-keeping of both the CDD conducted at onboarding and any updated information collected on the customer throughout the customer’s business relationship (such as a record of site visits; call logs; and the rationale for onboarding a high-risk customer). Utilizing the information collected through general CDD, an LFI should screen the following parties against lists of sanctioned persons, internal watchlists (such as lists of customers previously exited for financial crime reasons), and, on a risk basis, relevant ML/TF information sources (such as adverse media databases) prior to a customer's onboarding:

• All customers, regardless of risk rating or risk profile;
• Beneficial owners of legal entity customers;
• Natural persons appointed to act on behalf of the customer;
• Directors, partners, and managers of customers that are legal persons;
• Natural persons having executive authority over customers that are legal arrangements; and
• Principal counterparties with whom the customer intends to transact, if collected as part of CDD.
  With respect to sanctions lists, the parties listed above must be screened prior to a customer's onboarding and on an ongoing basis thereafter. The results of screening and assessment by the LFI should be documented.18 LFIs should consult the UAE legal and regulatory framework currently in force and related CBUAE Guidance for a full discussion of their CDD obligations and of the CBUAE’s expectations for CDD procedures. Consistent with local regulatory requirements, all LFIs must ensure compliance, where applicable, with Recommendation 10: Customer Due Diligence, as outlined in the FATF 40 Recommendations. Additional detail regarding general CDD measures is available in the CBUAE’s Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism and Illicit Organizations for Financial Institutions, sections 6.1 through 6.3.19
  4.2.2. EDD Measures for Heightened Trade-related Risks
  The AML-CFT Law and the AML-CFT Decision impose EDD obligations on LFIs with respect to three classes of customers or transactions:
• Customers that are politically exposed persons (“PEPs”), which include the direct family members
  or associates known to be close to the PEPs (AML-CFT Decision, Article 15);
• Business relationships and transactions with natural persons, legal persons, or legal arrangements
  from high-risk countries (AML-CFT Decision, Article 22); and
• Correspondent banking or other similar relationships (AML-CFT Decision, Article 25).
  In addition to these classes of customers and transactions, for which EDD is mandatory, LFIs are expected to implement appropriate policies and procedures to determine whether relationships with or transactions undertaken for or on behalf of a customer present a higher risk for illicit finance.

18
Please see Section 4.3. to see more about sanctions screening best practices.
19 Available at: https://www.centralbank.ae/en/cbuae-amlcft.

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CBUAE Classification: Public
In the context of trade and as a best practice, in order to mitigate the risk of illicit transshipment, an LFI should consider implementing procedures to identify certain dual-use or high-risk goods, if warranted based on its risk assessment. Such procedures may include obtaining additional information when a customer provides a vague description of the goods (for example, software, chemicals, and technology), which presents challenges to reasonably identify the intended use for these goods. This may also include incorporating certain key search words into the LFI’s screening system (for example, defence, military, unmanned aerial vehicles, ammunition, and lasers) to ensure that screening software intersects payments referencing such items for manual review. More generally, if a customer appears to be involved in dual-use or high-risk goods, LFIs should request further information on the goods or services exchanged for this information to be screened by the LFI. As part of this due diligence, the LFI should also establish whether the customer will be trading goods subject to export or import controls and whether any of the goods traded by the customer will ultimately be transported to or through a sanctioned country. Additionally, LFIs should inquire whether their client engages in open account trade and if the client does, the LFIs must ensure that they understand the trade activities of their client. For particularly sensitive goods or industries (for example, goods with military applications, oil, minerals and other natural resources), an LFI may consider having a customer complete a tailored due diligence questionnaire, indicating its internal compliance policies. In cases where customers, products, or countries involved in a trade transaction are deemed to be “high risk;” where the goods are seen as being high risk or of a “dual use” in nature; or where a customer is the subject of frequent requests for information either from counterparty banks or from government authorities, LFIs should apply EDD which may include a combination of the following steps:

• Putting a transaction on hold until the LFI understands, and obtains supporting documentation for,
  the full picture of the transaction including the goods, countries, and parties involved;
• Using independent databases to verify customer and beneficial owner(s) identifying information
  and business industry to inform the individual customer risk assessment;
• Using third party service providers that offer trade finance documents authentication services;
• Ensuring that the customer is aware of the risks associated with trade, including TBML and
  sanctions evasion;
• Conducing additional searches (e.g., verifiable adverse media searches, open-source intelligence)
  to inform the individual customer risk assessment;
• Obtaining an intelligence report on the customer or beneficial owner(s) to better understand the risk
  that the customer or beneficial owner(s) may be involved in TBML;
• Verifying the source of funds or source of wealth involved in the business relationship to be satisfied
  that they do not constitute the proceeds of illicit activities;
• Collecting and screening additional trade-related documentation from the customer, such as
  invoices, bills of lading, and certificates of origin;
• Collecting and reviewing information (e.g., route, ownership/management, vessel picture and class,
  IMO number, AIS activity, etc.) about the vessels involved in a transaction, if relevant;
• Collecting business references for the customer and conducting other market research; and
• Seeking additional information from the customer about the purpose and intended nature of the
  business relationship.
  While, as stated in section 2.1.2.1, it remains challenging for LFIs to identify trade conducted on an open account, LFIs can nevertheless apply additional measures such as conducting random transaction

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CBUAE Classification: Public sampling, increasing the risk profile of customers engaged in such trade as determined based on KYC refresh, or adding particularly high risk clients engaged in such trade to internal watch lists to ensure manual review of their transactions meeting certain thresholds. LFIs may also detect unusual transactions using transaction monitoring tools. These measures may help LFIs in deciding whether EDD is necessary for a particular client or a transaction. Following the initial CDD and EDD, the LFI should perform ongoing monitoring. Ongoing monitoring has to be done continuously and if triggered by a specific event, the LFI should conduct additional scrutiny of transactions to determine whether they are consistent with the LFI’s knowledge of the customer and the nature and purpose of the business relationship. Monitoring also involves identifying changes to the customer profile throughout the relationship (for example, their behaviour, use of products, payment flows through the account, geographies of operations), and keeping it up to date, which may require the application of new, or additional, CDD measures.
4.3. Targeted Financial Sanctions Obligations
The AML-CFT Law and AML-CFT Decision require LFIs to promptly apply directives issued by the Competent Authorities of the UAE for implementing the decisions issued by the UNSC under Chapter VII of the Charter of the United Nations. In furtherance of this requirement, the Cabinet Decision 74 of 2020 sets out the legal and regulatory framework in the UAE regarding Targeted Financial Sanctions (“TFS”), including the UAE Local Terrorist List and the UN Consolidated List. In addition, under Article 21 of Cabinet Resolution No. (74) of 2020, LFIs are required to have suitable risk management systems and take sufficient measures to identify whether a customer, or the beneficial owner of a customer, has been added to an international sanctions list or the UAE Local Terrorist List. In practice, it will generally be appropriate to conduct screening prior to onboarding and ongoing screening on all customers. LFIs should take appropriate steps to screen customers and transactions. Trade transactions frequently use Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) messages, and LFIs with a high volume of SWIFT messages should determine whether their screening efforts are adequate to detect involvement of a sanctions target, particularly in the case of screening backlogs, unusual spikes in screening activity, updates to the relevant sanctions lists, and other operational events. All the information available to an LFI (e.g., payer’s information, payee’s information, and intermediary’s information) should be screened against relevant sanctions list to ensure there is no sanctioned person involved in the transaction. As a best practice, screening can also cover all additional documentation, outside of SWIFT messages, collected as part of a trade transaction. The timing of the screening should be in a manner that allows blocking of assets once such assets are in an LFI’s possession. For more information and details on obligations in relation to sanctions obligations, LFIs should consult the Executive Office for Control and Non-Proliferation (“EOCN”)’s Guidance on Targeted Financial Sanctions for FIs, DNFBPs, and VASPs20 and the CBUAE’s Guidance for Licensed Financial Institutions on the Implementation of Targeted Financial Sanctions” and Guidance for Licensed Financial institutions on Transaction Monitoring Screening and Sanctions screening.21

20 Available at: https://www.uaeiec.gov.ae/API/Upload/DownloadFile?FileID=7f006d28-4a65-4829-aa35-b9dc3059e89a. 21 Available at: https://www.centralbank.ae/en/cbuae-amlcft

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CBUAE Classification: Public
Best Practices: Sanctions Screening of Trade Transactions

• LFIs should ensure that their sanctions screening program is able to absorb the data points
  that might indicate involvement of sanctioned persons in trade-specific message types (such as SWIFT MT 7XX or MX messages), including, for example, names of the beneficiary, originator, ultimate beneficiary, ultimate originator, country codes, where relevant, intermediary banks, and high-risk terms mentioned in free-text fields.
• While the availability and the placement of such information varies depending on the type of
  transaction and the means of communication (such as SWIFT and other financial messaging protocols), an LFI should screen the following pieces of information when available:
  o Any names whether individual, entity, or vessel regardless of their role in a trade transaction (i.e., principal parties or intermediaries).
• LFIs should conduct sanctions screening of documentation that the parties to a trade finance
  transaction make available to an LFI, such as invoices, bills of lading, shipping documents, and customs declarations, which are examples of documents involving documentary trade finance products. LFIs should consider using technologies that will recognize certain information on trade documents to increase the quality of their sanctions screening controls. o Please refer to Section 2.1.1.2. Types of Documents Available in Documentary Trade Finance Instruments for information on the types of documents involved in documentary trade finance.
• LFIs should similarly employ screening technologies that take into account name variations
  of parties.
• As referred to in Section 4.2.2. EDD Measures for Heightened Trade-related Risks, LFIs
  should consider implementing procedures to identify certain dual-use or high-risk goods, which may include obtaining additional information when a customer provides a vague description of the goods (for example, software, chemicals, and technology).
• LFIs should verify to what extent a trade transaction may involve a country subject to
  comprehensive or substantial sanctions imposed by third countries. If an LFI detects such links, it should conduct an analysis on whether the sanctions imposed by a third country could have any impact on the LFI’s sanctions exposure and associated risk appetite, even if the sanctions are not applicable in the UAE.
• LFIs should review a customer’s location, including whether a customer has exposure to a
  landlocked country, to determine whether the customer’s trade-related activities are in line with the country in question. For instance, an LFI should assess whether the items that are being traded by a customer are produced in that landlocked country. Similarly, an LFI should understand how goods are being delivered to a landlocked country and ensure that a customer’s transportation documentation is complete and does not stop with the shipping documentation. This will help the LFI determine whether the customer could be using the landlocked country as a transshipment point to or from another country that might be subject to financial sanctions or trade restrictions.
• LFI should also consider developing a list of high-risk landlocked countries, for example,
  landlocked countries that are neighbouring or surrounded by countries subject to financial sanctions or trade restrictions. A few examples of such countries include Afghanistan, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, but this list may change as sanctions continue to evolve.

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4.3.1. Confirmed Matches
If an LFI identifies a confirmed match of an individual, entity, or group to the key identifiers published in the UAE Local Terrorist List or the UNSC Consolidated List, LFIs are required to take the following actions:

• Implement all necessary measures without delay as outlined in Article 15 of Cabinet Resolution No.
  (74) of 2020, to include freezing without delay, refraining from offering any funds or other assets and services, and reporting freezing measures to the EOCN and CBUAE; and
• If the confirmed match is a potential customer, reject the transaction immediately and report the
  case.
  22
  Per Section (5) of Article 21 of Cabinet Resolution No. (74) of 2020, LFIs are expected to report any freezing measures, prohibition to provide funds or services, and any attempted transactions immediately via the goAML platform by selecting the Funds Freeze Report (“FFR”) option. LFIs should also ensure that all necessary information and documents regarding the confirmed match are submitted along with the FFR. Pursuant to Section (1) of Article 22 of Cabinet Resolution No. (74) of 2020, supervisory authorities should receive all information within five working days.
  4.3.2. Partial Name Matches
  If an LFI identifies a partial name match of an individual, entity, or group to the key identifiers published in the UAE Local Terrorist List or the UNSC Consolidated List, LFIs should take the following actions:
• Cross-check the identifiers published on the relevant sanctions list with the LFI’s internal customer,
  beneficial ownership, and other data as well as external sources where appropriate to determine whether the partial name match is a confirmed match or can be waived as a false positive; and
• If the LFI is unable to determine whether the partial name match is a confirmed match or a false
  positive, the LFI must suspend any transaction and report the case to the EOCN and the CBUAE and uphold the suspension measures until a response is received from the EOCN on the status of the partial name match.

22 See also EOCN, Guidance on Targeted Financial Sanctions for FIs, DNFBPs, and VASPs, section 4, available at:
https://www.uaeiec.gov.ae/API/Upload/DownloadFile?FileID=7f006d28-4a65-4829-aa35-b9dc3059e89a. Best Practices: Sanctions Screening of Trade Transactions (continued)

• LFIs should consider including sanctions clauses in trade finance instruments to allow non￾payment in case of a true sanctions hit.
• LFIs should ensure an employee cannot proceed with a trade-related transaction unless an
  appropriate screening unit within the LFI has cleared all sanctions-related alerts. Please note, ISO 20022 is global open standard for financial information and provides an improved, standardized way of transacting and communicating between LFIs. The richer data means an increased opportunity for LFIs to detect suspicious activity as part of the LFI’s transaction monitoring program. LFIs should ensure they are able to process this enriched data and communicate using the XML format.

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LFIs are expected to submit a Partial Name Match Report (“PNMR”) through the goAML platform within five business days of implementing the suspension measures. LFIs should ensure that all necessary information and documents regarding the potential match are submitted to the PNMR.
4.4. Transaction Monitoring and Suspicious Transaction/Activity
Reporting
4.4.1. Transaction Monitoring
Under Article 16 of the AML-CFT Decision, LFIs must monitor activity by all customers to identify behaviour that is potentially suspicious and that may require filing of an STR, SAR, or other report types. Moreover, as required by Article 7 of the AML-CFT Decision, LFIs must continuously monitor all their transactions to ensure that the transactions conducted are consistent with the information they have about the customer, their type of activity, and the risks they pose, including, when necessary, the source of funds. Transactions may be suspicious simply by virtue of their individual characteristics (such as their value, source, destination, or use of intermediaries). Alternatively, transactions may be suspicious because, together with other transactions, they form a pattern that diverges from expected or historical transactional activity and may otherwise be indicative of illicit activity. Transaction monitoring programs should be calibrated to the size, nature, and complexity of each institution. Transaction monitoring can include manual monitoring processes and the use of automated and intelligence-led monitoring systems (e.g., intelligence related to the vessel routes can be integrated into the monitoring program of an LFI to tackle TBML), with automated solutions being the preferred option. LFIs with a larger scale of operations are expected to have automated systems capable of handling, in real time, the risks from an increased volume and variance of transactions. Such systems may incorporate external data points (e.g., use of international trade and commodities pricing databases) to increase the LFI’s capability in detecting suspicious activities. LFIs utilizing automated systems should apply rules with appropriate thresholds and parameters that are designed to detect common typologies for illicit behaviour. While smaller LFIs may rely on transaction monitoring systems that are less automated, they should still ensure that their systems and controls are appropriately executed to address the risks from their day-to￾day transactional activity. With that understanding, smaller LFIs should look to employ automated systems wherever feasible.

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CBUAE Classification: Public
4.4.2. Suspicious Transaction/Activity Reporting
As required by Article 15 of the AML-CFT Law and Article 17 of the AML-CFT Decision, LFIs must file an STR, SAR or other report types with the UAE FIU when they have reasonable grounds to suspect that a Best Practices: Trade-related Transaction Monitoring

• LFIs should take into account the nature of their trade-related products and services in addition
  to common TBML typologies and red flags when designing appropriate trade-related monitoring mechanisms. o For instance, an LFI may use automated monitoring to flag higher-risk customers for investigation, which may include conducting a lookback to understand a customer’s patterns of activity. In all cases, the type and degree of monitoring should appropriately match the ML/TF risks of the LFI’s customers, products and services, geographic exposure, and delivery channels, and may therefore vary across an LFI’s business lines or units, where applicable.
• LFIs should periodically reassess and test their transaction monitoring systems in the context
  of trade-related activities, taking into account changes in their customer base, business operations, and ML/TF-related risks and trends.
• LFIs should use intelligence related to vessel(s) involved in a trade to detect anomalies in a
  customer’s behaviour that may be indicative of TBML.
• To detect the risk of transshipment, LFIs should consider trends associated with a customer’s
  transactional behaviour in line with any updates to sanctions and export control restrictions. o For instance, an LFI should consider a customer’s change in behaviour following new restrictions imposed by international bodies, or other countries. Even though sanctions imposed by other countries are not applicable in the UAE, and though there might be legitimate reasons for such a change in behaviour, those changes in behaviour following new restrictions may be indicative of less transparent practices and potentially fraudulent activities by a customer.
• LFIs should consider using external resources to determine whether the price of underlying
  goods or services is in line with the market value, and in this context, identify over- or under￾invoicing of the goods and services. Such external sources are most relevant in the context of commodities trading where the price of the commodity in question is less prone to variation. This control may also be referred to as “price-validation.”
• LFIs should consider the information available in a customer’s CDD/KYC file and compare this
  information with a customer’s transactions. For instance, if the customer at onboarding indicated that it would have a certain transactional behaviour, such information should be used when reviewing their transactions. Any unusual or unexplained deviation from a customer’s expected activity should be escalated to an LFI’s Compliance team for further review. o If possible, such information should be used for designing automated controls aimed at detecting unusual and potentially suspicious activities.
• LFIs should use the additional information made available to them by virtue of new ways of
  communication (e.g., MX messages), such as information related to an ultimate beneficiary or ultimate creditor.

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CBUAE Classification: Public transaction, attempted transaction, or certain funds constitute, in whole or in part, or are intended to be used in a crime. This applies equally in relation to suspicious transactions involving trade-related activities. When an LFI is assessing whether to file an STR or SAR, it should, at a minimum:

• Review existing CDD/KYC information on the customer, and, where required, obtain additional
  information;
• Use open-source intelligence to augment the information about the parties and/or suspicious
  transaction or activity;
• Review trade documents associated with the customer and/or transaction (e.g., customs
  declarations, title and transport documents, bills of lading, invoices, packing lists, certificates of origin and inspection, etc.);
• Conduct independent company verifications and adverse news media searches;
• Conduct customer account activity reviews; and
• Review the results of any available screening and monitoring processes, including on a customer’s
  past transactions.
  When analysing trade transactions for unusual or potentially suspicious activity, LFIs should consider obtaining copies of official government import and export forms to assess the reliability of documentation provided. If the LFI obtains what it considers to be a reasonable explanation for the trade transaction and the transaction overall appears to be in line with a customer’s business practices, it may conclude that there are no grounds for suspicion and take no further action. In addition to the requirement to file an STR when an LFI suspects that a transaction or funds are linked to a TBML-related activity, the LFI should consider filing an STR or SAR in the following situations involving higher-risk customers:
• A potential customer decides against utilizing the LFI’s products or services after learning about
  the LFI’s CDD requirements;
• A customer cannot provide required information (including documentation) about its business or its
  beneficial owners;
• A customer cannot adequately explain transactions, provide supporting documents such as
  invoices, or provide satisfactory information about its counterparty;
• A customer cannot explain an unusual trade structure or routes for its trade-related transactions;
• A customer engages in trade-related transactions that are not in line with its size and profile;
• A customer provides documents that appear fraudulent or forged; and
• Other situations that are suspicious or involve activity with no legitimate business or other lawful
  purpose.
  STR filing is not simply a legal obligation; it is a critical element of the UAE’s effort to combat financial crime and protect the integrity of its financial system. By filing STRs with the UAE FIU, LFIs alert law enforcement authorities about suspicious behaviour and allow investigators to piece together transactions occurring across multiple LFIs. Please consult the CBUAE’s Guidance for LFIs on Suspicious Transaction Reporting for further information.23

23 Available at: https://www.centralbank.ae/en/cbuae-amlcft.

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CBUAE Classification: Public
4.5. Governance and Independent Audit
The specific preventive measures discussed above should take place within, and be supported by, a comprehensive institutional AML/CFT program that is appropriate to the risks the LFI faces and organized in accordance with the “three lines of defence” model. All three lines of defence should report up to and have the active support and oversight of the LFI’s senior management, defined broadly to include executives, senior leadership, and the Board of Directors. The senior management plays an important role in the fight against TBML by establishing a strong culture of compliance, allocating appropriate resources, ensuring independence of the compliance function, and supporting the compliance department’s efforts to detect and counter TBML. In particular, the senior management can take a proactive role in managing TBML and other ML risks by asking compliance functions to present periodic reports summarizing, for example, identified risks, any instances of non-compliance with LFI’s policies, if any, root cause analysis, and remediation measures. By putting in place appropriate governance, LFIs should be able to continuously monitor and manage TBML and illicit transshipment risks. As such, LFIs should ensure the following points are present in an AML/CFT program:

• The Head of Compliance/Money Laundering Reporting Officer (“MLRO”) and an LFI’s Compliance
  team should have the authority, independence, resources, and information necessary to understand, assess, and address TBML and illicit transshipment risks.
• The AML/CFT program should ensure a division of roles and responsibilities and ownership of risks
  relating to critical functions, including AML/CFT controls that manage the risks associated with TBML and illicit transshipment.
• Reporting lines and escalation channels should be clearly documented, and senior management
  should be regularly informed on how TBML and illicit transshipment risks are being managed through ongoing reporting and associated metrics. No AML/CFT program is immune from shortcomings whether operational or structural. Independent testing of an LFI’s AML/CFT program plays a crucial role in ensuring the AML/CFT program’s ongoing effectiveness. Therefore, it is vital that LFIs regularly undergo risk-based independent audits to evaluate the design and operational effectiveness of AML/CFT program controls, including due diligence, screening, and monitoring processes for reviewing trade transactions and customers engaged in trade activity. The outcome of the independent audit should be shared with an LFI’s senior management who are responsible for ensuring that all identified gaps are appropriately tracked and remediated. See Section 8 of the Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism and Illicit Organizations for Financial Institutions for further information. 24
  4.6. Training
  Training and raising awareness are an effective way to manage risks associated with TBML and transshipment. LFIs should implement a training program that is tailored to their risk profile and is delivered to all appropriate employees. LFIs should consider delivering additional training to employees regularly exposed to high-risk customers or trade-related activity.

24 Ibid.

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More specifically, LFIs should ensure that the training:

• Is up-to-date and incorporates the most recent guidance from the relevant authorities;
• Is delivered periodically, with the frequency determined by the risk exposure of each LFI;
• Provides information about various products and services that are exposed to TBML and
  transshipment risks;
• Describes the system of internal controls designed to mitigate TBML and transshipment risks;
• Includes relevant, and if available, real-life case studies;
• Describes emerging trends and red flags associated with TBML and transshipment; and
• Provides clear guidance on the course of action when a suspicious activity is detected.
  LFIs should keep the record of the attendance and test participants knowledge of the training to the extent possible. Such training should be offered to new employees who are exposed to the risk of TBML and transshipment, and the training should be refreshed regularly.
  4.7. Record-keeping
  According to Article 16 of the AML-CFT Law and Article 24 of the AML-CFT Decision, LFIs must maintain detailed records associated with their ML/TF risk assessment and mitigation measures, as well as records, documents, data, and statistics for all financial transactions; records obtained through CDD measures and ongoing monitoring (including copies of personal identification documents); account files and business correspondence; and SARs or STRs and results of any analysis performed. LFIs should maintain the records in an organized manner so as to permit data analysis and the tracking of financial transactions. In the context of processing trade-related transactions, LFIs should record and retain trade-related documents and information in a structured database to comply with record-keeping and AML/CFT and TFS obligations. Records should be sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal activity. LFIs should make the records available to the competent authorities immediately upon request. Consistent with local regulatory requirements, all LFIs must ensure compliance with FATF’s Recommendation 11: Record Keeping. The aforementioned provisions also require that all records be retained for at least five years from the date of completion of the transaction or termination of the business relationship with the customer, or from the date of completion of the inspection by the CBUAE, or from the date of issuance of a final judgment of the competent judicial authorities, or liquidation, dissolution, or other form of termination of a legal person or arrangement, all depending on the circumstances.

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Annex 1. TBML and Illicit Transshipment Red Flags
The following is a list of red flags and suspicious activity indicators associated with TBML and illicit transshipment. This list is a compilation of guidance provided by the Dubai Financial Services Authority,25 FATF,26,27 and other regulatory bodies or industry groups. 28, 29 Red flags relating to payments and trade transactions:

• The transaction involves receipt of cash (or other payments like wire transfers, checks, bank drafts
  or postal money orders) from unrelated third parties, an intermediary, or front or shell companies apparently unrelated to the supplier or purchaser of goods or that do not appear on the letter of credit supporting documentation.
• Cash deposits or other transactions of a trade entity are consistently just below relevant reporting
  thresholds.
• A trade entity makes very late changes to payment arrangements for the transaction (for example,
  the entity redirects payment to a previously unknown entity at the very last moment, or the entity requests changes to the scheduled payment date or payment amount.)
• Payment for imported commodities is made by an entity other than the consignee of the
  commodities with no clear economic reasons (e.g., by a shell or front company not involved in the trade transaction).
• The transaction involves the use of repeatedly amended or frequently extended letters of credit
  without reasonable justification or frequent amendments involving the beneficiary, location of payment, changes to countries of origin or destination without an apparent reason.
• When asked, a customer is unable or refuses to produce appropriate documentation (e.g., invoice
  or any other document) or fails to provide adequate information about the originator, beneficiary, and purpose of the wire transfer.
• The method of payment appears inconsistent with the risk characteristics of the transaction (for
  example, an importer makes an advance payment for a shipment from a new supplier in a high￾risk country or transactions frequently involve rounding or whole USD/AED/other currency amounts).
• Documents provided as part of a letter of credit are illogical, illegible, appear to have signs of forgery
  or alteration, or include documents purported to be issued by government authorities but without appropriate stamps or letterhead.

25 Dubai Financial Services Authority, Trade Finance Report, 2016, https://www.dfsa.ae/application/files/1015/8425/3351/TF-Report￾FINAL_Eng_12_october_2016_mid-res.pdf 26 FATF, Guidance on Trade-Based Money Laundering, 2006, https://www.fatf-gafi.org/content/dam/fatf￾gafi/reports/Trade%20Based%20Money%20Laundering.pdf 27 FATF, Trade-Based Money Laundering Risk Indicators, 2021, https://www.fatf-gafi.org/content/dam/fatf-gafi/reports/Trade-Based-Money￾Laundering-Risk-Indicators.pdf 28 BAFT, Combating Trade Based Money Laundering: Rethinking the Approach, 2017, https://www.amlc.nl/wp￾content/uploads/2018/11/baft17_tmbl_paper.pdf 29 Asia/Pacific Group on Money Laundering, APG Typology Report on Trade Based Money Laundering, 2012, https://www.fatf￾gafi.org/content/dam/fatf-gafi/reports/Trade_Based_ML_APGReport.pdf.coredownload.pdf

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• Documents provided as part of a letter of credit contain significant discrepancies (for example,
  invoice and bill of lading contain different amount, price, or description of the goods; terms and route of shipment on the bill of lading are inconsistent with the terms of the letter of credit).
• Documents that are provided are inconsistent or include mismatches.
• Documents include the use of trade contracts for transferring value of intangible assets.
• The type and volume of the goods or the overall size or structure of a transaction appear to be
  inconsistent with the customer’s usual business activity (for example, a customer engaged in wholesale of electronics purchases construction materials).
• Transactions or trade finance structures appear beyond customer’s capacity or expertise.
• Payments for goods originate in third countries that are not the importing country or from importer’s
  bank account in a country when the importer does not operate.
• Beneficiary or applicant of a letter of credit appears too willing to waive discrepancies in
  documentation presented for payment.
• Beneficiary of a letter of credit requests the payment to be made to a country other than its stated
  location.
• Sudden onset and equally sudden cessation of payments – typically wire transfers – within a short
  duration.
• Customer activity deviates significantly from its historical patterns (new markets, monetary value,
  frequency of transactions, volume of goods).
• Trade transactions seem to contradict the customer’s/organization’s core business.
• Customer often asks to open letters of credit that expire unutilized.
• Customer requests an advanced waiver or non-standard clauses without reasonable justification,
  or engages in an unnecessarily complex trade transaction.
• Customer changes terms of the trade agreement (for example, a customer changes the
  beneficiary to a trade transaction or changes their payment location without reasonable justification).
• Irregularities related to the shipment including unreasonably long voyage of a vessel, involvement
  of ports with higher risk of transshipment, manipulated voyage data, and involvement of sanctioned vessels. Red flags relating to jurisdictions:
• The commodity is shipped to (or from) a jurisdiction designated as “high-risk” for ML/TF activities
  or jurisdictions under FATF increased monitoring or non-cooperative jurisdictions.
• The commodity is transshipped through one or more such high-risk/sensitive jurisdictions for no
  apparent economic reason.
• Transaction structure and/or shipment terms appear unnecessarily complex or unusual and may
  be used to obscure the true nature of the transaction or origin of goods.

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• Unnecessarily complicated and complex supply chains, involving multiple transshipment points
  that do not appear to have a valid business justification.
• Unreasonable involvement of FTZs in trade transactions.
• After an LFI refuses to open a letter of credit or process a payment, customer initiates another
  transaction with the amended origin or destination of goods.
• Transaction involves unusual shipping routes (e.g., use of circuitous shipment routes) or routes
  that do not make economic sense.
• Transaction involves Free Trade Zones/Special Economic Zones. To make the jurisdiction
  attractive for business, zone authorities may implement separate company formation services from those that exist in the rest of the jurisdiction. Companies established in Free Trade Zones may therefore provide little-to-no ownership information and profit from other non-transparent practices. Goods introduced into Free Trade Zones are generally not subject to the usual customs controls.30
• Payments are routed in a circle; funds are sent out from one country and received back in the same
  country, after passing through another country or countries.
• Transaction involves shipment of goods inconsistent with normal geographic trade patterns of the
  jurisdiction (i.e., trade in goods other than goods which are normally exported/imported by a jurisdiction), or which does not make any economic sense (e.g., semi-conductor manufacturing equipment being shipped to a jurisdiction that has no advanced technology manufacturing capabilities). Red flags relating to goods:
• Significant discrepancies appear between the value of the commodity reported on the invoice and
  the commodity’s fair market value.
• The size of the shipment appears inconsistent with the scale of the exporter’s or importer’s regular
  business activities.
• The type of commodity being shipped is designated as “high-risk” for money laundering activities
  (see Section 2.4 for examples of such goods).
• The shipment terms or methods are inconsistent with the type of goods (for example, shipment of
  frozen foodstuffs in a regular container; the use of a forty-foot container to transport a small amount of relatively low value merchandise).
• Improbable types of goods, origin, quantities, or destination (for example, shipment of oil from a
  country that has no oil reserves).
• Documentation showing a higher or lower value or cost of goods than that which was declared to
  customs or paid by the importer (i.e., commodity over-valuation or undervaluation).
• Customers involved in potentially high-risk activities, including trading in items subject to
  export/import restrictions (e.g., equipment for military or police, weapons, ammunition, chemical

30 For more information about how Free Trade Zones could be exploited in TBML, see: Money Laundering vulnerabilities of Free Trade Zones, Financial Action Task Force, March 2010, https://www.fatf￾gafi.org/en/publications/Methodsandtrends/Moneylaunderingvulnerabilitiesoffreetradezones.html

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• mixtures, classified defence articles, sensitive technical data, nuclear materials, precious gems, or
  certain natural resources such as metals, ore and crude oil or gas).
• Obvious misrepresentation of quantity or type of goods imported or exported.
• Carousel transactions, meaning the repeated importation and exportation of the same high-value
  commodity.
• Packaging inconsistent with commodity or shipping method.
• A customer or a counterparty without significant industry experience begins trading in sophisticated
  equipment.
  Red flags relating to corporate structures used:
• A transaction involves the use of front (or shell) companies.
• The size of the shipment appears inconsistent with the scale of the exporter or importer’s regular
  business activities.
• Previously established customer specializing in one sector that unexpectedly pivots into an entirely
  unrelated sector (for example, an IT company quickly establishes a foothold in the acquisition and distribution of bulk pharmaceuticals).
• A trade entity is simultaneously involved in more than one unrelated sector.
• Transaction involves newly formed companies in competitive markets that, at the onset, engage in
  high volume or value transactions.
• A trade entity’s identifying information appears inconsistent with the business profile (for example,
  a company trading in medical equipment is registered at a residential address; a company trading in sophisticated manufacturing equipment is a sole proprietorship).
• A trade entity displays a notable lack of typical business activities (for example, a company lacks
  regular payroll transactions in line with the number of stated employees, transactions relating to operating costs, tax remittances).
• Transactions reveal links between representatives of companies exchanging goods (for example,
  companies exchanging goods are registered to family members).
• Owners or senior managers of a trade entity appear to be nominees acting to conceal the actual
  beneficial owners (e.g., they lack experience in business management or lack knowledge of transaction details, or they manage multiple companies).
• Due diligence reveals numerous sole proprietorship businesses/private limited companies set up
  by seemingly unrelated people are in fact controlled by the same group of people.
• A trade entity engaged in trade of highly technical, sophisticated goods, has no online presence
  and/or use free email domains for business communication.
• A trade entity is registered or has offices in a jurisdiction with weak AML/CFT compliance.

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• A trade entity is registered at an address that is likely to be a mass registration address (e.g., high￾density residential buildings, post-box addresses, commercial buildings or industrial complexes,
  especially when there is no reference to a specific unit).
• A trade entity maintains a minimal number of working staff, inconsistent with its volume of traded
  commodities.
• The name of a trade entity appears to be a copy of the name of a well-known corporation or is very
  similar to it, potentially in an effort to appear as part of the corporation, even though it is not actually connected to it.
• Use of fiduciary companies established in FTZ.

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Annex 2. Visual Synopsis
Record￾keeping
Funds
Goods or Services
Supplier/Seller Intermediaries Buyer
LFI
Risk
Assessment
CDD and
EDD
Sanctions
Screening
Transaction
Monitoring
Governance and
Independent
Audit
Training
Shipping
Company
LFIs in Other
Jurisdictions
Freight
Forwarder
Over/Under Invoicing; Over/Under Shipment; Multiple Invoicing; False Description of Goods and Services; Use of Shell, Front, or Front Companies; Use of Free Trade Zones; Illicit Cash Integration; Third-Party Intermediaries; Back-to￾Back LoCs; Fictitious Documents; Pass-Through Accounts; and Use of RHPs and Alternative Remittance Systems. Other Intermediaries

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Annex 3. Synopsis of the Guidance
Introduction
Purpose and
Scope of the
Guidance
The purpose of this Guidance is to assist the understanding and effective performance by CBUAE licensed financial institutions (LFIs) of their statutory obligations under the legal and regulatory framework in force in the UAE. Applicability This Guidance applies to all natural and legal persons, which are Financial Institutions or Licensees, or any other defined term which brings all entities within the scope of licensed and/or supervised entities by the CBUAE, in the following categories: national banks, branches of foreign banks, exchange houses, finance companies, payment service providers, registered hawala providers; and insurance and re￾insurance companies, agencies, and brokers. Legal Basis

• Federal Decree-Law No. (20) of 2018 on Anti-Money Laundering (“AML”) and Combatting the
  Financing of Terrorism (“CFT”) and its amendments;
• Cabinet Decision No. (10) of 2019, as amended by Cabinet Decision No. (24) of 2022, Concerning the
  Implementing Regulation for Decree-Law No. (20) of 2018 on AML and CFT and Financing of Illegal Organisations and its amendments;
• Cabinet Decision No. (74) of 2020 Regarding Terrorism Lists Regulation and Implementation of
  United Nations Security Council (“UNSC”) Resolutions on the Suppression and Combating of Terrorism, Terrorist Financing, Countering the Proliferation of Weapons of Mass Destruction and its Financing and Relevant Resolution and its amendments;
• CBUAE/BSD Notice No. 1943.2022 Regarding AML/CFT Minimum Standards and Supervisory
  Expectations.
  Definitions and
  Acronyms
• Several frequently used terms and phrase are defined, and a list of acronyms used in the Guidance is
  provided.
  Understanding and Assessing
  TBML
  Background of
  International
  Trade System and
  Trade Finance
• Background on global trade and the role of the UAE in it.
• Overview of a wide range of commonly used trade finance products including letters of credits,
  factoring, etc.
• Overview of trade transactions particularly vulnerable to TBML, such as settlements on an open
  account or non-documentary trade finance
  TBML Typologies
• 12 typologies of TBML are identified and explained in detail along with relevant examples (e.g., Over￾and Under-Invoicing of Goods and Services; Falsely Described Goods and Services; Use of Shell,
  Front, or Shelf Companies; Illicit Cash Integration; etc.).

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Service-Based
Money
Laundering

• A brief introduction section to service-based money laundering (SBML) highlighting the risks SBML
  schemes represent.
  Economic Sectors and Products
  Vulnerable to
  TBML
• A section dedicated to seven economic sectors and types of products that are particularly vulnerable
  to the risk of TBML (e.g., Gold, Precious Metals, and Minerals; Car Parts and Vehicles; Clothing and Second-hand Textiles; etc.), with detailed explanations of each and relevant examples. Understanding and Assessing Illicit Transshipment Risks Illicit Transshipment
• Definition of transshipment is provided
• The risk of dealing with sanctioned countries using transshipment is discussed.
• Six illicit transshipment techniques that are relevant to the UAE are discussed in detail.
  Mitigating TBML and Illicit
  Transshipment
  Risks
  Enterprise-wide
  Risk Assessment and Risk-based
  Approach
• Per Article 4 of the AML-CFT Decision, LFIs are required to identify, assess, and understand the
  ML/TF risks to which they are exposed in order to determine the nature and extent of AML/CFT resources necessary to mitigate and manage those risks.
• This section provides information about how LFIs may approach their risk when implementing
  enterprise-wide risk assessments.
  CDD and EDD
  Measures
• This section provides points to be considered when conducing CDD (e.g., different pieces of
  information to be considered).
• The EDD sections lays down when EDD measures are warranted in line with the UAE regulations.
  Furthermore, it provides some best practices for conducting EDD.
  Targeted
  Financial
  Sanctions
  Obligations
• This section explains sanctions-specific obligations of LFIs under relevant authorities in the UAE and
  provides several best practices for sanctions screening in trade-related transactions.
• The section also includes guidance on how to adjudicate “hits” generated during the sanctions
  screening process.
  Transaction
  Monitoring and
  Reporting
• This section reminds LFIs of their obligations under Article 7 and 16 of the AML-CFT Decision
  concerning monitoring clients’ activities;
• It offers best practices in transaction monitoring concerning trade-related transactions; and
• It explains the obligation to report suspicious activities or transactions.

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Governance and
Independent Audit

• This section explains the three lines of defence model and specifies the role of senior management in
  a successful compliance program.
• It also discusses the importance of regular independent audits and, when necessary, remediation
  following each audit exercise.
  Training
• This section discusses the importance of training to manage the TBML and illicit transshipment risks
  and outlines points LFIs should consider when developing and implementing a successful training program. Record-keeping • This section reminds LFIs of their obligations under Article 16 of the AML-CFT Law and Article 24 of the AML-CFT Decision regarding record-keeping. Annexes TBML and Illicit Transshipment Red Flags More than 50 red flags associated with TBML and illicit transshipment are listed for the LFIs. They are grouped in four categories:
• Red flags relating to payments and trade transactions;
• Red flags relating to jurisdictions;
• Red flags relating to goods; and
• Red flags relating to corporate structures used.
  Visual Synopsis A visual synopsis of the Guidance has been provided that illustrates the parties to trade transactions, various intermediaries including LFIs, and the controls measures they can implement.