Compliance screening is a process used by organizations to ensure adherence to legal and regulatory standards, and prevent financial crime. This practice is essential for organizations in regulated sectors such as finance, healthcare, and international trade, as it helps mitigate legal risks, financial penalties and reputation damage.

In the Middle East, compliance screening is challenging due to the complex financial crime landscape, evolving financial laws, and varying levels of expertise and resources. Against this backdrop, organizations much enhance their compliance practices and leverage technology and data to improve their screening processes, a new paper by LexisNexis Risk Solutions, a global data and analytics firm, says.

The whitepaper, titled “The Crucial Role of Compliance Screening in the Middle East”, explores the importance of compliance screening and its role in fostering transparency, preventing financial crimes and ensuring the sustainable growth of businesses in the Middle East. It discusses the challenges of compliance screening in the Middle East and discusses recent improvements in countries.

Compliance screening

Compliance screening refers to the process of verifying whether individuals, entities or transactions meet specific legal, regulatory or internal standards. It’s a crucial practice to ensure that an organization is not engaging in activities that could expose it to legal risks, financial penalties or reputational damage, such as financial crimes, regulatory violations and ethical issues such as bribery and corruption.

In recent years, jurisdictions across the Middle East have made significant improvements to their regulatory frameworks to enhance compliance and heighten requirements.

The United Arab Emirates (UAE), for example, has introduced new laws to expand investigative authority, increase fines, streamline the ability to freeze suspicious funds and provide specific guidelines on AML/CFT compliance. Together, these reforms helped to get the UAE removed in February 2024 from the Financial Action Task Force (FATF) “grey list.” The FATF is an intergovernmental organization that sets international standards and which promotes effective measures to combat money laundering, terrorist financing, and other threats to the global financial system.

Similarly, Turkey has made significant progress in addressing strategic deficiencies, leading to the FATF to remove the country from the grey list following an on-site assessment in June 2024.

In contrast, Yemen and Syria continue to lack in their AML/CFT controls and remain under enhanced monitoring by the FATF. This showcases the varying levels of regulatory maturity and enforcement in the Middle East’s compliance landscape.

Recommendations

The LexisNexis Risk Solutions paper formulates several recommendations for organizations to address the evolving AML/CFT regulatory landscape and growing complexity of business transactions.

First, it advises organizations to establish accurate customer risk profiles, starting with know-your-customer (KYC) checks during onboarding to verify identities, reduce financial crime risks, and ensure regulatory compliance. It notes that regular customer screening is necessary, as risk profiles may change over time, influencing relationship decisions.

Secondly, organizations should implement risk-based screening controls, focusing on detecting potential suspicious activity, especially in transactions involving high-risk individuals or jurisdictions with elevated financial crime risks. They should also screen beneficial owners, third parties and their associates, as well as the extended supply chain as part of the overall risk assessment.

The paper also emphasizes the importance of adverse media screening, which, while not directly required by regulations, supports KYC and customer due diligence (CDD) processes by identifying potential risks.

Organizations must also have clear processes for managing high-risk relationships and entities, as well as politically exposed persons (PEPs). In some cases, filing a suspicious activity report may be necessary.

Finally, staying ahead of changing risks requires leveraging data and technology. By combining reliable global risk data from reputable sources with specialized screening solutions, institutions can better protect against current and emerging risks, the paper says.

Financial crime in the Middle East

Rapid economic development in the Middle East has brought about new challenges, including corruption, money laundering and other financial crime. This has led to increased regulatory scrutiny.

In January 2021, the UAE central bank fined 11 banks a total of US$12.5 million for deficiencies in their AML controls. Bahrain also took legal action against 13 banks later that year, accusing them of laundering US$1.3 billion for Iran.

But it’s not just banks that are under the microscope. In November 2020, seven law firms in the UAE were fined for violating AML/CTF rules, a month after the government suspended the licenses of 200 law firms for one month over non-compliance with established procedures to combat money laundering.

There are currently a little over 20 nations in the FAFT grey list. These countries, which include Nigeria, South Africa and Syria, are working with the organization to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation of financing. North Korea, Iran, and Myanmar, meanwhile, are the three nations in the high-risk “black list.” These nations have significant deficiencies in their AML/CFT frameworks and are subject to enhanced due diligence and countermeasures to protect the international financial system.

For a detailed analysis on the topic, download the whitepaper at this link.

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