I read an article recently on NATO’s website which discussed monarchies in the Gulf helping the US fight terrorism. On the same day I also saw the most recent FATF mutual evaluation of Singapore, where Singapore was found to be compliant (to varying degrees) with the FATF Recommendations and it got me thinking about how areas in the Gulf have fared in respect of AML/CFT issues.
One jurisdiction that particularly struck me was Oman, not just because it isn’t as well-known as some of its neighbours, but it is the oldest independent state in the Arab world. This led me to investigate further around the developments in Oman’s anti money laundering (AML) and combating the financing of terrorism (CFT) laws and regulations - with some surprising results.
Background on Oman
Oman is a country on the south east coast of the Arabian Peninsula that counts UAE, Yemen and Saudi Arabia as its neighbours. It is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF) and is officially a sultanate, meaning it is ruled by a sultan.
In 2010, Oman was named by the United Nations Development Programme (UNDP) as the “Top Mover” in its Human Development Report which highlights the countries that have improved most in the previous 40 years. Oman has so far managed to largely avoid the militant Islamist violence that has afflicted some of its neighbours and is ranked as the 74th most peaceful country in the world according to the Global Peace Index.
In May 2011, MENAFATF conducted its first Mutual Evaluation of Oman’s levels of implementation of FATF’s 40 Recommendations. FATF conducts these evaluations on all its members on an ongoing basis and they are peer reviews, so they are conducted by members from different countries. The report provides ‘an in-depth description and analysis of a country’s system for preventing criminal abuse of the financial system as well as focused recommendations to the country to further strengthen its system.’
FATF found that Oman’s AML/CFT system was broadly in line with international standards and comparatively high for the region. Of the 40 Recommendations, the evaluation found that Oman was non-compliant with seven, however FATF did note that a pending legal update caused some gaps in the legal framework for preventative measures. These include Recommendations 5, 6 and 7 (now 10, 12 and 13 respectively) which are:
- Customer due diligence (CDD) (R5)
- Politically exposed persons (PEPs) (R6)
- Correspondent Banking (R7)
Customer Due Diligence
Amongst other things, with regards to CDD, it was found that within the AML laws of Oman there were inadequate requirements with regards to prohibiting financial institutions (FIs) from keeping accounts under false names or anonymous accounts. It was also found (and some of these are quite surprising) that under legislation in Oman, FIs were not obligated to apply CDD when:
- beginning a business relationship
- performing transactions above the threshold (USD or EUR 15,000), whether it be in one go or in several smaller transactions that seem to be linked
- there is a suspicion of money laundering (ML) or terrorist financing (TF)
- the FI has misgivings about the reliability of previously gathered customer information data.
The AML law didn’t require FIs to verify customer’s identities using independent and reliable sources, and similarly FIs weren’t required to verify that a person claiming to be acting on behalf of the customer is authorised to do so and to identify that person. FATF did note that the Central Bank of Oman issued circulars to firms which included general requirements around establishing identity, but these circulars were outside the legal framework. Oman also had an inadequate definition regarding beneficial ownership.
PEPs and Correspondent Banking
With regards to PEPs, the mutual evaluation found, again, that there was an incomplete definition in the AML law and that FIs aren’t required to have suitable risk management systems to verify if a customer/potential customer/beneficial owner is a PEP. They also had no requirement to have sign off from a senior manager to establish or continue a business relationship with a PEP. Another finding was that FIs were under no obligation to take sufficient measures to establish the source of wealth of beneficial owners who have been identified as PEPs.
When it comes to correspondent banking, there were some more surprising results (particularly when viewed through the lens of current debates around correspondent banking). It was found that FIs were not obligated to:
- obtain enough information about a respondent to completely understand their business and determine, from public sources, the institution’s reputation and the quality of its supervision and this includes if it has been part of a ML/TF investigation or regulatory action
- evaluate the respondent’s AML/CFT controls
- attain senior manager approval before beginning a new correspondent relationship
- record the AML/CFT responsibilities of each institution within a correspondent relationship
My research indicated that Oman has undertaken FATF follow up reports between the last mutual evaluation and 2016. However they don’t appear to have been published and have only been reported on in the MENAFATF Plenary meetings. It does look as if Oman is improving as the press release for most these plenary meetings since 2011 states that ‘the reports revealed the progress made…in developing their AML/CFT regimes in light of the recommended action plan established for that purpose in their adopted mutual evaluation reports.’
However, as the follow up reports haven’t been published, it is unclear what the progress was and no new laws have come into being until recently.
There are alternative sources of information though. In the 2015 International Narcotics Control Strategy Report (INCSR) prepared by the US Department of State, it advises that in 2015, Oman released a series of recommendations for progressing its AML legislation and developing training for the Royal Oman Police’s Financial Intelligence Unit (FIU). It is also looking at extra legislation to reinforce its KYC regulations.
The INCSR advises the Omani authorities to fully empower the FIU and law enforcement as well as enhancing and integrating its databases to provide access to the relevant information for the authorities. Moreover, the report states that the Omani government should demand enhanced due diligence for PEPs.
Oman didn’t then appear on the 2016 INCSR ‘countries/jurisdictions of primary concern’, which is a positive sign.
Subsequently, in March 2016, a new draft of the AML/CFT law was referred to the Legal Committee of the Majlis Al Shura (in Arabic culture this is an advisory or consultative council) and was approved in April the same year.
These new amendments have come about due to the Sultanate wishing to conform to the internationally recognised standards of AML and CFT. They follow best practise as advised by FATF and address the observations made in the mutual evaluation. It will contribute to tackling ML and TF by addressing any shortcomings in the law and fighting any risks that arise from ML and TF. This new law has come to be called the Sultani Decree 30 2016, or ‘New Law’ and it replaces the Sultani Decree 79 2010 or ‘Old Law’.
Then in June 2016, Oman announced the new amendments to the law which were extensive and comprehensive in a wide-ranging number of areas, although at the time of writing, it hasn’t been published in English (apologies, my reading level of Arabic isn’t what it should be!), so all I have to go on is a summary.
The areas of the law that have been amended include risk assessment and prevention as well as KYC procedures and CDD. This will include the requirement for both FIs and non-FIs to extensively check their records, accounts and employee details for anything that may imply that ML or TF has taken place.
The revisions also focus on PEPs and correspondent banking. Additionally, it establishes the National Centre for Financial Information which, unlike the existing FIU, will have complete autonomy with financial and legal independence. The extradition of anyone involved in ML or TF is also included.
The ‘New Law’ has also afforded the public prosecutor more extensive powers with regards to investigating possible breaches including wiretapping and using undercover police. It also has much more severe penalties than the ‘Old Law’, including higher prison sentences and financial penalties.
How will this help?
Well the amendments do appear to have focussed on dealing with the shortcomings in legislation of the ‘Old Law’ and has generated a comprehensive framework to combat ML and TF in keeping with the international recommendations. However it will be interesting to see the full document when it’s available.
Hopefully this ‘New Law’ should have a big impact on how the authorities in question can act in regards to AML and TF especially now they have been given more extensive investigative powers.
With FATF not due to visit for the next mutual evaluation until 2021, this gives Oman a good few years to get this law implemented and any problems ironed out before they are assessed again, however it seems they are on the right track so far and their AML/CFT regulations are heading in the right direction.
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