Changes to the UAE Legislative Framework on the UBO Regulations – Addressing Complex Legal Structures and Regulations on Procedures

Legislative Framework
i. The UAE Cabinet Resolution No. 58 of 2020 replaced by
ii. The UAE Cabinet Resolution No. 109 of 2023, which became effective on 16 November 2023, and
iii. The UAE Cabinet Decision No. 132 of 2023, issued on 15 December 2023

The UAE’s implementation of Cabinet Resolution No. 109 of 2023 and Cabinet Decision No. 132 of 2023 marks a significant advancement in its anti-money laundering (AML) efforts. These resolutions aim to strengthen the regulation of real beneficiary procedures, ensuring transparency in the economic activities of the approximately 700,000 enterprises across the UAE, including those in commercial-free zones.

Key aspects of these amendments include enhanced registration and reporting mechanisms for real beneficiaries, aligning with international transparency standards. This initiative reflects the UAE’s commitment to achieving high compliance levels and enhancing its global economic standing by introducing effective, sustainable operational and regulatory mechanisms for all registered companies.

• The UAE Cabinet Resolution No. 109 of 2023, which became effective on 16 November 2023, and
• The UAE Cabinet Decision No. 132 of 2023, issued on 15 December 2023

The resolutions introduced significant changes in the regulations related to Ultimate Beneficial Ownership (UBO) and administrative penalties for violations previously addressed by The UAE Cabinet Resolution No. 58 of 2020.

Key intakes of these legislative updates

1. Scope and Applicability: The New Resolution extends to all corporate entities in the UAE mainland and non-financial free zones, with certain exceptions detailed in Article 3. This includes entities in complex ownership structures, addressing previous challenges in identifying UBOs. Clause (1) of this Article covers a risk-based approach of the registrant especially in complex structures within the legal person. Furthermore, Article (5) provides guidelines for situations where no natural person can be definitively identified as the ultimate controlling owner, or where there’s uncertainty regarding their status as the real beneficiary. In such cases, a senior management official of the entity is designated as the real beneficiary.
2. Disclosure Requirements: Similar to the earlier resolution, Article 15 of the New Resolution mandates that legal entities must maintain accurate and up-to-date basic data, including the partners’ or shareholders’ register, the real beneficiary’s record, and any associated records as per Article 8. Additionally, any amendments or changes to this data must be reported to the Relevant Registrar within 15 days of the alteration.
3. Discretionary Powers to Registrars: A significant update is the discretionary right granted to Registrars to determine the beneficial owner in complex structures using a risk-based approach. This aims to address the concealment of real beneficiaries in intricate ownership layers.
4. Anti-Money Laundering Strategy: The New Resolution establishes a Supreme Committee responsible for supervising anti-money laundering and counter-terrorism financing strategies. Each Registrar is also required to adopt measures ensuring entities are not used for these illegal purposes.
5. Administrative Penalties: The Cabinet Decision No. 132 of 2023 outlines a progression of penalties for non-compliance, starting with warnings and escalating to financial fines. Notably, it includes penalties for not disclosing full ownership in complex structures and permits temporary license suspension or entity closure for repeated violations.
6. Clarified and Itemized Violations: The New Decision offers more clarity on penalties, itemizing them for different types of violations and imposing a 14-day limit for entities to respond to Registrar requests for additional information.
7. Grievance Procedures: Companies can now file grievances against imposed penalties, with the grievance committee required to issue a decision within 45 working days.
8. Disclosure Obligations and Exemptions: The New Resolution maintains certain disclosure obligations and introduces an exemption related to international laws and agreements with the UAE concerning tax information exchange.
9. Nominal Board Member Definition: A revised definition for “Nominal Board Member” is introduced, emphasizing their role in representing shareholders or other entities and acting on their directions.

Article 9 of the New Resolution specifies that nominal management members must inform the legal entity of their status within 15 days of acquiring it, or within 30 days if this status was acquired before the decision’s publication. Additionally, any changes to their information, as outlined in Article 10, or cessation of their nominal member capacity, must be reported to the legal entity within 15 days of the change or cessation.

Conclusion

The recent updates to the UAE’s legal framework, including the stringent requirements of Cabinet Resolution No. 109 of 2023 and Cabinet Decision No. 132 of 2023, demonstrate a strong commitment to enhancing corporate transparency and aligning with international standards.

The updates, in conjunction with Federal Decree Law No. (20) of 2018, Federal Decree Law No. (32) of 2021, and Federal Decree Law No. (37) of 2021, form a robust foundation for combating money laundering, terrorist financing, and the activities of illegal organizations through more stringent reporting on the UBO within complex structures. They signify a progressive step towards ensuring compliance and accountability in the financial sector, further solidifying the UAE’s position as a responsible and transparent player in the global economy.