Middle East Edition – September 2019
5.1 Insider Dealer Sentenced in the UK for Money Laundering Charges
5.2 FCA Fines Prudential For Failures Relating to Non-advised Annuities Sales
5.3 ABN AMRO Under Investigation Over AML and Terrorist Financing
On 30th of May 2019, His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE, signed a new employment law in the DIFC which came into effect on the 28th of August 2019, following a 90-day enactment period.
The new DIFC Law No 2 of 2019, replaces the DIFC Law No 4 of 2005 (the “Old Law”) and is aimed at better alignment with the UAE onshore labour law for employment, balancing the needs of employers and employees.
It will apply to all full time, part-time and short-term employees working within or from the DIFC, as well as any employee employed by the DIFC domiciled entity and who has agreed in their employment contract to be subject to the new law No 2 of 2019.
Within the new provisions, requirements for the employment contract stipulate whether:
- The employment is for the fixed term period or for an indefinite time
- Subject to probation (capped at 6 months)
- The employment relationship is governed by HR policies and procedures (which have been shared with employees and are available and have been signed/acknowledged by the employees)
Several critical revisions are required in the new employment contracts, including:
- Ensuring the employer is not misrepresenting, persuading, influencing or inducing an individual in becoming an employee by misrepresenting certain key characteristics of the position, such as job description, job title, or benefits.
- Secondments are not possible between two DIFC domiciled legal entities. A valid secondment can only be entered between a DIFC entity and a UAE entity (onshore or offshore) where an employee is seconded to the DIFC by a foreign entity.
- Part-time employees are those who work less than 8 hours a day or less than 5 days per week.
- Short term employees are those whose services do not exceed 30 days in any 12-months. Under the new law, they are not entitled to any leave or allowances, notice periods, or end of service gratuity, nor can they bring a claim related to discrimination.
- Employees’ duties have been expanded to now requiring employees to ‘serve the employer faithfully’, comply with lawful and reasonable instructions, and to exercise care and due skill in the performance of their duties.
- Annual leave allowance of 20 working days in each calendar year remains unchanged. Employees are only permitted to carry over 5 working days into the following calendar year if accrued but untaken during the current calendar year.
- The 60 days sick leave entitlement remains unchanged, however under the new law, only the first 10 days are covered at full pay - the following 20 working days are covered at 50% and the remaining 30 days are unpaid.
- Male employees are allowed a paternity leave of up to 5 days provided such employees have completed 12 months of continuous service and have notified their employer 8 weeks before the expected week of childbirth.
- 65 working days adoption leave will be granted for females and 5 working days for males.
- Hajj Pilgrimage for Muslim employees has been reduced from 30 calendar days to 21 calendar days.
- Vicarious Liability clause has been added, which holds an employer vicariously liable if:
- in the case of a claim for compensation loss or damages, the act, attempted act, or omission is sufficiently connected to the employee’s employment.
- in case of discrimination or victimisation the employer is unable to prove that it took preventative measures to stop the employee from carrying out the act or omission.
- The employer may be held liable for contributory negligence if an employee sustains an injury or dies due to an accident which arose as a result of the employer’s negligence.
- Discrimination clause now includes age, pregnancy, and maternity.
- The new law protects employees from being subjected to unjust treatment for providing evidence, making an allegation or bringing a claim against employers for discrimination.
- Notice period clause states that when an employee is terminated, the notice must be:
- not less than 7 days if employed for less than 3 months
- 30 days if employed for more than 3 months but less than 5 years
- 90 days if employed for more than 5 years
In addition, employee and employer can no longer agree to notice that is shorter than that which is required by the new law.
- End of Service Gratuity states that basic salary must amount to at least 50% of the total salary and employees remain entitled for their end of service gratuity irrespective of the reason for their termination, including if for cause (in this case, only the notice period can be withheld if employee is terminated for cause)
- Employers are required to cancel employees’ residency visas within 30 days of termination and those who do not comply with this provision are liable to a USD 2,000 fine. Employers are not allowed to retain employees’ passports or other personal documents and are required to maintain the employee records for 6 years after the termination.
Fines will be imposed for employers who contravene provisions of the new employment law.
The DIFC FinTech Hive Accelerator Programme has accepted a further 31 firms into the regulatory sandbox to enable innovative solutions and developments regarding FinTech, RegTech, InsurTech, and Islamic FinTech.
The selection was based on an assessment of set criteria including business proposition availability, the applicability of technology to the region, the potential to benefit from the programme and one on one interviews. The selection includes 15 start-ups with four specialising in Islamic FinTech, ten in InsurTech and two in RegTech.
CCL is the DIFC FinTech Hive’s Compliance Partner. Through this partnership, we run Compliance Clinics for the participants in which we provide advice pertaining to operating fintech products in a regulation environment.
We are well established in the Middle East FinTech arena and have worked with Roboadvisors, Crowdfunding operations, Crypto asset business and payment service providers. For further details, click here.
The Abu Dhabi Global Market’s (ADGM) Registration Authority has launched an instant licence renewal service for entities that are registered in the ADGM. The service allows firms to complete their annual licence renewal through the “Online Registry Solution” once the renewal form is submitted. They will also be able to continue to use the platform to submit other annual filings as per the ADGM Companies Regulations 2015.
The Financial Services Regulatory Authority (FSRA) has published Guidance – Regulation of Digital Securities Activity as part of its relation to digital assets. The publication provides clarity and transparency to participants in the market who would like to conduct digital asset activities within the ADGM. The guidance also complements the implementation of the FSRA’s Crypto Asset Regulatory Framework as well as “Guidance on Initial Coin/Token Offerings and Crypto Assets”. As part of the firm’s Regulations on Crypto Assets and Digital Securities, the guidance applies to, and will be of interest to, firms such as exchanges, clearing houses, custodians, brokers, and other intermediates as well as those who issue, list and trade Digital Securities. The guidance also provides a “roadmap” for entities (both conventional and in the Crypto Asset space) to migrate into conducting Digital Securities activities within the ADGM.
The Saudi Arabian financial regulator, the Saudi Capital Market Authority (CMA) has granted four “Financial Technology Experimental Permits.” Each company that has obtained the permit has received permission to create an equity crowdfunding platform allowing them to invite investors to participate in the funding of small to medium enterprises in return for shares in the enterprises. The timing of the permits coincides with the CMA’s authorising of the second batch of FinTech innovations, letting firms develop financial technology solutions within the regulatory sandbox.
European Union finance ministers are considering setting up a bloc-wide supervisor on money laundering. Following recent cases in the EU regarding financial institutions and money laundering - notably including Dankse Bank’s 200 billion euro worth of suspicious cases - the EU has highlighted a possible need for a specialised regulator for the Union. If a new regulator is not established, then there may be an overhaul of rules for financial firms and other sectors at risk of money launderings, such as art and sport.
The Senate Banking Committee has introduced a Bill aimed at enhancing the transparency of corporations, both when working, as well as when aiding law enforcement during money laundering and terrorist financing investigations.
The ‘Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act’ will require shell companies to disclose their true owners to the Department of Treasury. Currently, shell companies can be used by criminals to cover illicit sources of wealth or funding through money laundering, terrorist financing or human trafficking so this legislation will provide a usable record of owners of said companies.
An insider dealer, Richard Baldwin, has been sentenced to 5 years and 8 months imprisonment for charges relating to dealing in criminal property between October 2007 and November 2008. The criminal property laundered was £1.5 million, representing the proceeds of a conspiracy to insider deal.
Richard Baldwin’s involvement occurred within “Operation Tabernula”, the name given to one of the FCA’s largest and most complex insider dealing investigations. Two accomplices, Martyn Dodgeson and Andrew Hind, were dealing secretly and sourcing inside information from within the investment banks they worked and passed this on to each other. Baldwin was a business partner of Hind and set up a company in Panama and opened a company bank account in Zurich. In October 2007 Baldwin received £1.5 million into the company account in Zurich and explained the source of funds through a false invoice to his bankers. Baldwin, over the course of the next year or so, dissipated £1.5 million through the use of his other Panamanian companies and offshore accounts. Those offshore companies acted as buffers, which had the effect of concealing the true source of the funds.
Richard Baldwin absconded from justice and was finally convicted in May 2016 but currently still has an arrest warrant issued for him.
The UK financial regulator, the Financial Conduct Authority (FCA) has fined the Prudential Assurance Company Limited (Prudential) £23,875,000 for failures related to non-advised sales of annuities.
Firms are currently required to explain to customers that they may receive a better rate elsewhere if they shop around in the open market, something Prudential failed to relay to its customers. They also failed to take reasonable care to organise and control its affairs, thereby breaching its “obligation to ensure fair treatment of customers”.
The failures were seen to cause harm to its customers and following its discovery, Prudential voluntarily agreed to conduct a past business review of non-advised annuity sales to identify any customers who may be entitled to redress as a result of its failures. The firm offered £110 million in redress as well as agreeing to pay the FCA fine.
ABN AMRO has been accused of not performing due diligence or customer monitoring and not reporting suspicious transactions to the correct or proper authorities by the Dutch Central Bank. Suspicious transactions that were reported were also not carried out in the correct time scales. The bank is preparing for fines and has now invested over $241,000,000 to strengthening its diligence practices and procedures to tackle money laundering.