Cryptocurrencies have changed the way people view money with their presence in the digital world. Transactions are based on a technology called the blockchain. Its decentralized nature is quite interesting. It is not surprising that the United Arab Emirates wants to become a hub for cryptocurrency transactions.
The United Arab Emirates is one of the countries that want to be a pioneer in the digital space with cryptocurrency regulations. But while providing all this, it should be wary of cybercriminals. Paying attention to the AML and KYC rules is necessary for the best use of transparency in cryptocurrencies.
Anti-money laundering (AML) in cryptocurrencies relates to laws that prevent cyber criminals from using their illegally obtained money. Regulations and applications made under these laws are also considered AML.
The standards for AML laws are set by the Financial Action Task Force (FATF). The first AML guide for cryptocurrencies was published in 2014. The guide created by the FATF was soon enacted by many institutions, including the European Commission.
A large part of the burden of AML regulations is on the institutions and service providers that have signed the legal regulation. Virtual asset service providers should notify authorities if suspicious activity is observed. The same is true for the United Arab Emirates.
People generally use pseudonyms in cryptocurrency transactions instead of their names. Anyone can send money anywhere in cryptocurrency transactions easily. Although it is transparent and traceable, criminals see it as an opportunity.
In 2020 alone, more than $2 billion in money laundering was carried out with cryptocurrency transactions worldwide, including in countries with stringent regulations. The importance of AML rules shows itself at this point. The United Arab Emirates is aware of this situation.
Thanks to AML rules, it is possible for anyone to make less profit even if their money-laundering plan is successful. Governments ensure that money-laundering strategies become high-risk. In addition, AML opens up new opportunities for investigators to catch and bring criminals to justice.
Know your customer (KYC) is a legal requirement. It enables my virtual presence service providers to implement authentication procedures. KYC is a critical process, as it allows the identification of people or addresses that may be connected to the crime.
Standard financial transactions include ID card verification, face verification, and fingerprint verification. In addition, many banks request a copy of current electricity, water, or natural gas bill. The invoice request is purely for proof of address.
The vast majority of cryptocurrency exchanges require KYC verification. Exchanges request names, official identification information, and current address information from their new customers. Crypto exchange companies that will operate in the United Arab Emirates must also comply with KYC requests.
KYC is one of the most important legal requirements for companies offering cryptocurrency services. The authentication process is the best tool for risk assessment studies and ongoing monitoring activities. Crypto companies in the United Arab Emirates must comply with KYC practices.
KYC is important for companies to build trust and reach more people. Almost all cryptocurrency exchanges operating globally have KYC requirements. KYC is necessary to prevent illegal activities, even if it reduces registrations.
The United Arab Emirates implemented cryptocurrency regulations to comply with all financial security standards (KYC and AML). When UAE announced that it would support blockchain technologies, it did not neglect to underline the AML and KYC requirements.
Different regulators in the mainland and the United Arab Emirates free zone exist. Broad supervisory authority belongs to UAE Central Bank, Securities and Commodities Authority (SCA), and Dubai Multi Commodities Center (DMCC).
In addition to these two central institutions, there are Dubai International Financial Center (DIFC), regulated by Dubai Financial Services Authority (DFSA), and Abu Dhabi Global Market (ADGM), regulated by Financial Services Regulatory Authority (FSRA) within the free zone.
All these institutions can make regulations in the areas they are responsible for. A crypto company in the ADGM region cannot be held accountable for the crypto regulations in the DMCC region. All companies trying to meet legal requirements must be aware of regional situations.
Attempting or carrying out money laundering in the United Arab Emirates results in various sanctions. One of the sanctions is a maximum 10-year prison sentence. Another varies between 100 thousand and 5 million Dirhams.
If the person who disregards the AML rules represents a legal entity, the penalty varies between 500 thousand and 50 million Dirhams. All the crime funds are taken from the person and the company. If it is impossible to receive the funds, assets at an equivalent rate are confiscated.
Enforcement of AML rules in the United Arab Emirates is carried out by several authorized bodies determined by law. The Financial Intelligence Unit, managed by the Central Bank of UEA, is primarily responsible. The DMCC, DFSA, and FSRA are other entities that can control regulations.