The Supervisor of Banks supports the activities of banks vis-à-vis the United Arab Emirates, but also cools the enthusiasm and emphasizes the need for careful risk management in this activity: “A risk-reduced operating environment must be created for making transfers, providing guarantees and letters of credit.” This is what the Supervisor of Banks, Yair Avidan, wrote in a letter he sent to the banking system this morning (Tuesday), with instructions regarding the strengthening of relations with the United Arab Emirates, in light of the peace agreement signed last month.
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These are not new guidelines, but a reflection and refinement of existing guidelines, regarding cooperation with such countries. The purpose of the letter is to clarify the procedures, to enable business activity with the Emirates. Banks are obliged to comply with these guidelines, and a bank that does not comply with them is likely to be sanctioned accordingly.
The Supervisor of Banks, Yair Avidan Photo: Spokesman for the Bank of Israel
Avidan’s letter indicates that caution should be exercised with regard to economic relations with EU countries. The Commissioner notes that the United Arab Emirates is included in the list of countries and territories at risk under the Prohibition Law money laundering. However, it is clarified that this is not a closed list, and that the bank must examine each case on its own merits in accordance with the circumstances of the case.
The letter also states that an evaluation report published last April by the Financial Action Task Force, which deals with the prohibition of money laundering, stated that the Emirates has deficiencies in the implementation of international standards on the prohibition of money laundering and terrorist financing. “An increased follow-up procedure has been established to correct the deficiencies in the first half of 2021.”
Despite this, the Bank of Israel intends to allow activity between the Israeli banks and the United Arab Emirates, as this is a basic condition for an economic relationship between the countries: “The list of actions detailed in this letter does not prevent a banking corporation from offering its customers additional services “The United Arab Emirates, with careful risk management and taking into account the level of risk inherent in the activity,” it was written.
“To the best of our knowledge, the UAE’s commercial and financial activities are highly complex, due in part to the risk components built into the country, so we believe that careful risk management requires the banking corporation to act carefully and in a gradual manner, allocating adequate resources to learning the diverse and challenging environment. Relevant financial, and ongoing controls. “
As stated, the letter presents a list of possible risks arising from cooperation with parties in the Emirates, and among other things characterizes the parties with whom it is worthwhile to engage in transactions and the manner in which they are contracted. For example, it was written that “a deal involving a company that has not been incorporated in ‘land’ will be seen as a higher-risk deal, and as such will be brought to the approval of a senior manager.” The senior manager will have to check the economic or business logic behind the execution of the transaction, the source of the funds used to execute the transaction and the structure of the holdings and the identity of the controlling shareholders in the company.
It is further stated that the ownership structure of the company must be transparent and understandable to the banking corporation, by obtaining approval from a recognized international law firm or accountant, and that the company must not be held in trust by a professional trust company. Also, the ultimate controlling shareholders in the company must be local citizens. In addition, it was noted that there is no problem in contracting with government companies or other government bodies.
Regarding the financial institutions from which the transfer will take place, it is stated that they must be local banks, supervised by the Central Bank of the United Arab Emirates, or a local branch of an international bank registered and supervised in one of the countriesOECD. The transfer must be made in US dollars or euros.
The Israeli party to the transaction must be a customer of the bank or known to it, and must present a certificate from a recognized international law firm or accountant regarding the sources of financing the transaction, and there must be cooperation with the bank transferring the funds and the client.
The Supervisor of Banks, Yair Avidan, said that “it must be remembered that alongside the opportunities, care must be taken to manage risks, including understanding the business and banking environment and maintaining appropriate controls.”
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