In the global fight against payments crime, each world region faces unique challenges, and those faced by the Middle East are, arguably, some of the most complex.
Geographical proximity to less stable countries inevitably makes members of the Gulf Cooperation Council vulnerable to money laundering and terrorist financing risks but as a thriving global financial and trade hub, the Middle East takes financial crime very seriously.
The GCC, as a full member of the Financial Action Task Force, is committed to implementing FATF’s 40 Recommendations and as sanctions screening requirements across the region have steadily become more stringent, organizations have turned to automation in order to meet their AML/CFT obligations.
According to a recent industry
Automation brings huge benefits, allowing institutions to accurately and efficiently screen customers and transactions, without negatively affecting the customer experience. With new payment methods facilitating instant payments, customers’ expectations are shifting and a smooth and seamless service is almost a fundamental requirement. The Middle East, however, presents some significant and unique challenges when it comes to AML, CFT and know-your-customer (KYC) compliance checks.
An individual’s name is the starting point for many compliance checks, notably KYC and politically exposed person screening. In Western cultures, identification checks are reasonably straightforward—individuals typically have a surname and one or more given names (although there may be spelling and abbreviation issues to address). If a name is flagged for any reason—for example, similarity to the name of a politically exposed person (PEP), the next level of checks applies, such as address and date of birth.
Traditional Arabic names, though, can complicate compliance checks considerably. Typically, an Arab Muslim name has up to five elements. The first three are patrilineal: a personal name; their father’s name: and grandfather’s name, sometimes separated by "bin" (son of) or "bint" (daughter of). That is usually followed by a "nisba," or family name, which could be a tribal name, ancestral name or even place of birth. In some cases, a "laqab," or descriptive epithet, is also included, and/or a "kunyya," the name of their eldest child (preceded by Abu if the parent is male, or Umm if female).
Obviously, the potential for duplication or confusion is huge, exacerbated by translation and the fact that Arab spelling can be fluid (Mahmoud and Mehmood for example).
Some names are also extremely common; there are an estimated 150 million men and boys in the world named Muhammad, for example. It is hardly surprising that Arab names are the single biggest cause of
Commonality of names is by no means the only difficulty in the Arab world. A number of other cultural issues complicate customer due diligence further:
Date of birth. It is not common practice in some regions to obtain a birth certificate when a child is born, with the result that many people have a birth date registered as 1 January, the date routinely used in a passport application.
Residential address. The use of P.O. box numbers, rather than a street address, is widespread. P.O. box numbers are not accepted as proof of address, and an added complication is that utility companies do not always specify the residential address where services are supplied.
Tax-free jurisdictions. The paperwork and data generated by a tax system is useful for due diligence and compliance checks, however, regulatory reports are limited in tax-free jurisdictions and reporting practices tend to be less rigid and reliable. Tax-free jurisdictions also tend to encourage a culture of opacity and a reluctance to disclose financial information.
Islamic banking conventions. Special purpose vehicles, usually domiciled offshore, are widely used in Islamic financing, as they are a crucial tool in the implementation of Islamic bonds, or Sukuk, which pay investors in profits rather than interest. The charitable income distribution scheme, Zakat, also creates high volumes of transfer activity that need to be screened for compliance.
Complex naming conventions, scarcity of adequate data and volumes of false positives has meant financial institutions in the region have had to be even more cautious in their approach.
False positives add a layer of cost and complexity to customer onboarding and screening. As such, the customer relationship could suffer; if extra checks are for enhanced due diligence, a normally rapid on boarding or transaction screen can be significantly delayed.
