Case study, UAE compliance
A Dubai trading firm almost onboarded a sanctioned shareholder, here is what went wrong
In early 2024, a mid-sized commodities trader in Dubai was about to sign a distribution deal with a newly incorporated Free Zone company. The paperwork looked clean. The director was a professional nominee, the shareholders were two holding entities registered offshore, and the trade licence was valid. The compliance team ran a name-only sanctions and PEP screen on the director, got a green light, and prepared to onboard. What they missed was that the ultimate beneficial owner sitting two layers up was the brother of a foreign minister already flagged on watchlists. One check would have caught it. Neither did on its own.
What each check actually does
Beneficial ownership checks
A beneficial ownership check, often called a UBO check, identifies the real human being who ultimately owns or controls a company. In the UAE, Cabinet Decision No. 58 of 2020 requires most onshore and Free Zone entities to disclose any person holding 25% or more of shares or voting rights, or who exercises effective control. The check goes beyond the name on the trade licence and unwinds holding companies, trusts, and nominee arrangements until a natural person appears at the top.
PEP screening
PEP screening checks whether a person is a Politically Exposed Person, meaning they hold or have held a prominent public position, or are a close family member or associate of someone who does. PEPs are not criminals by definition, but the FATF guidance treats them as higher risk for bribery, corruption, and money laundering. UAE regulators expect enhanced due diligence when a PEP is involved, whether directly or through a company they influence.
Before and after: what combining the two checks changed
PEP screen only, on the visible director
- Director name screened against sanctions and PEP lists, clean result
- Corporate shareholders accepted at face value
- Two offshore holding layers never unwound
- Ultimate owner never identified
- Onboarding approved in 48 hours
Result: a politically connected UBO sitting behind nominee structures slipped through, exposing the trader to sanctions breach, reputational damage, and a possible Central Bank fine.
UBO check plus PEP screening on every layer
- Corporate shareholders traced to natural persons
- Every identified UBO screened for PEP status and sanctions
- Family and close associate relationships flagged
- Source of funds request triggered automatically
- Onboarding paused, enhanced due diligence applied
Result: the connection to the foreign minister surfaced before contracts were signed. The deal was declined, no regulatory report was needed, and the compliance team documented a clean audit trail.
What the firm tried first, and why it fell short
Like many UAE businesses under pressure to onboard fast, the trader had built a workflow that treated UBO discovery and PEP screening as two separate boxes to tick. Each was outsourced to a different tool, and neither talked to the other. The gaps were predictable once you look at them side by side.
- Name-only PEP screening. The team ran the director’s name through a watchlist database, but never asked whose money was really behind the company. A PEP hiding two ownership layers up is invisible to a check that only sees the front person.
- UBO declarations taken at face value. The Free Zone filing listed the corporate shareholders but stopped there. Without independent verification through registry searches and cross-border corporate records, the declared structure was accepted as fact.
- No screening of family or associates. Even where UBOs were identified in other deals, only the individuals themselves were screened. Spouses, siblings, and business partners of PEPs were never checked, which is where most real exposure sits.
- No ongoing monitoring. Once onboarded, a client was assumed clean forever. Political appointments, sanctions listings, and adverse media that appeared later were not picked up until an audit forced a review.
- Speed prioritised over depth. Sales teams pushed for 24 to 48 hour onboarding. Compliance shortcuts followed. The 25% ownership threshold became a ceiling instead of a floor, and anything below it was ignored even where control was obvious.
What worked: an integrated UBO and PEP workflow
After the near miss, the firm rebuilt its onboarding process so that beneficial ownership discovery and PEP screening became one continuous exercise instead of two disconnected steps. A proper beneficial ownership investigation in the UAE now sits at the centre of every new client file, and every natural person it uncovers is pushed straight into sanctions, PEP, and adverse media checks. The improvements were concrete and measurable.
- Peel the onion first, screen second. Every corporate shareholder is unwound until a natural person is identified. Only then does name screening start, so the list of people checked is complete rather than cosmetic.
- Screen the whole network, not just the individual. Spouses, parents, children, and known business associates of any identified UBO are run through PEP databases. This catches the classic pattern where a minister’s brother or son fronts a commercial venture.
- Trigger points across the customer lifecycle. Checks now run at onboarding, at every renewal, whenever ownership changes, before any new large payment, and at least annually for higher-risk clients. Ongoing monitoring uses automated alerts on the underlying registries and watchlists.
- Risk-based enhanced due diligence. When a UBO is a PEP, or connected to one, the file is escalated. Source of wealth and source of funds documents are requested, senior management sign-off is required, and the relationship is reviewed more often. This matches what the UAE Central Bank expects from regulated entities.
- One audit trail, not two. UBO documents, screening results, decisions, and reviewer names are stored in a single client file. When regulators or auditors ask questions, the answer is one export away instead of a scramble across systems.
If you only run a PEP screen, you are checking whether the person you can see is risky. If you only run a UBO check, you learn who is really there but not whether they are dangerous. You need both, in that order, every time. That is the whole lesson.
When these checks belong in your process
The trader’s rebuilt workflow now applies the combined check at four specific moments, and this is a reasonable template for any UAE business handling meaningful counterparty risk:
- Customer onboarding. Before any account is opened, contract signed, or first payment sent.
- Business partnerships and joint ventures. Whenever you take on a distributor, agent, supplier with concentration risk, or a JV partner.
- Ongoing monitoring. Continuous or periodic re-screening of existing clients, tied to their risk rating.
- Trigger events. Change of ownership, unusual transactions, negative news, or a shift in the client’s country risk profile.
The UAE has tightened its anti-money laundering framework significantly since being placed on and then removed from the FATF grey list. Regulators now expect not just that you did a check, but that the check was designed to actually find something. Combining beneficial ownership work with PEP screening is one of the clearest ways to show that intent, and to protect the business from the kind of quiet exposure that only surfaces when it is already too late.
Frequently asked questions
What is the difference between a beneficial ownership check and a PEP screening?
A beneficial ownership check identifies the real human being who ultimately owns or controls a company, unwinding holding companies, nominees, and trusts until a natural person is found. A PEP screening then checks whether that person, or someone close to them, holds a prominent public position that raises the risk of corruption or money laundering.
They answer different questions: UBO checks tell you who is really behind a business, and PEP screening tells you how risky that person is.
Why is running only one of these checks not enough?
If you only run PEP screening on the visible director or signatory, you miss any politically exposed person hiding one or two ownership layers up through offshore companies or nominees. If you only run a UBO check, you find the real owner but never assess whether they carry corruption, sanctions, or financial crime risk.
Combined, the two checks close the gap. Alone, either leaves a blind spot that regulators and criminals both know how to exploit.
Are UAE businesses legally required to identify beneficial owners?
Yes. Cabinet Decision No. 58 of 2020 requires most UAE onshore and Free Zone companies to identify, record, and disclose their beneficial owners, generally defined as any natural person holding 25% or more of shares or voting rights, or who exercises effective control by other means.
Regulated entities such as banks, exchange houses, DNFBPs, and virtual asset service providers must also verify the UBO information of their clients and keep it up to date as part of their anti-money laundering obligations.
When should combined UBO and PEP checks be carried out?
At minimum, at customer onboarding, before entering new business partnerships or joint ventures, and on an ongoing basis for existing clients. Higher-risk relationships should be re-screened at least annually, and any trigger event, such as a change in ownership, unusual transaction, or adverse news, should prompt an immediate refresh.
What happens if a UBO turns out to be a PEP?
Being a PEP is not automatically a reason to decline a client, but it does require enhanced due diligence. That typically means senior management approval before onboarding, documented source of wealth and source of funds, closer transaction monitoring, and more frequent reviews.
If the PEP is on sanctions lists, or the source of wealth cannot be reasonably established, the relationship should be declined and, where required, a suspicious activity report filed with the UAE Financial Intelligence Unit.
How do these checks help prevent fraud and money laundering in practice?
Most large-scale fraud and money laundering schemes rely on hiding the real controller of a company behind layers of nominees and shell entities. UBO checks strip that concealment away. PEP screening then flags the specific higher-risk profile where illicit funds are most likely to originate.
Together they make it much harder for bad actors to use your business as a channel, and they give you a documented defence if regulators later ask why you accepted a particular counterparty.
