Fraud Prevention in the UAE: Key Areas and Solutions

Federal government agencies in the UAE handle billions of Dirhams in public funds each year. These agencies are responsible for managing the money carefully and ensuring it’s spent for its intended purposes.

Fraud is a big problem everywhere, but because the UAE is a big center for global business this makes it a big target for fraud. So, fraud prevention is a key part of financial work in the UAE.

What is Fraud Prevention?

Fraud prevention is different from fraud detection because it includes the steps that block fraud before it even starts. Research has shown that it’s way cheaper to prevent fraud than to fix it after it happens as it has always been said, “an ounce of prevention is worth a pound of cure”, so stopping fraud early is always better than catching it later.

So, a good fraud prevention strategy includes planning ahead of time, placing rules, and setting up systems, to prevent fraud from happening in the first place. The main goal is to reduce the chances of fraud and the damage it causes, which means stopping people from trying to commit fraud, spotting fraud when it happens, and fixing things quickly when it does occur.

A simple but effective example of how financial institutions prevent fraud is by using multi-factor authentication, if a bank notices that the number of stolen accounts online is increasing they can add an extra step before their customers login to their accounts so when a customer tries to log in, they first enter their password and then they receive a one-time code to their email or phone, where the login process won't be complete without this code. In this case, the bank uses the MFA as a fraud prevention technique.

What is Fraud Protection?

Fraud protection comes into play after fraud takes place to limit the damage and recover losses so if multi-factor authentication is a fraud prevention technique, sending fraud alerts is part of the anti-fraud protection after fraud is detected.

What is Fraud in the UAE’s Anti-Fraud Framework?

As per the anti-fraud framework in the UAE, frauds are categorized into two main types a) internal frauds and b) external frauds, where the first occurs when individuals employed by the Licensed Person engage in fraudulent activities, whereas the latter involves fraudulent acts carried out by external parties targeting the Licensed Person's business.

The UAE's anti-fraud framework also explains the common types of fraudulent acts such as misappropriation, misrepresentation, corruption, misconduct, or any intentional deception aimed at achieving unlawful personal gain.

Read more: AML Transaction Monitoring in the UAE: Regulations & Best Practices

Fraud Risk in the UAE

The UAE’s financial ecosystem’s vibrancy attracts diverse risks:

1. Cross-Border Transactions: The UAE’s position as a trade hub increases exposure to cross-border fraudulent schemes.

2. Rapid Digitalization: Accelerated adoption of fintech solutions introduces vulnerabilities in cybersecurity.

3. Regulatory Challenges: Balancing innovation with compliance can leave gaps for exploitation.

What are the High-Risk Areas for Fraud in the UAE?

The UAE Accountability Authority is the Supreme audit authority in the United Arab Emirates and it expands the benefits of fraud beyond financial gain, it also includes services and favors and information and goods, so for example, if someone in a powerful position abuses this power for personal gain accepts a favor or a gift this is considered one form of fraud.

Fraud risks are particularly significant in certain areas of business, including:

• Payroll operations

• Managing or awarding contracts

• Managing sensitive information

• Purchasing processes

• Overseeing assets

• Handling cash, invoices, receipts, or accounts

Who Oversees an Organization's Fraud Control Framework in the UAE?

In the UAE, the board or the CEO is mainly the entity responsible for an organization's fraud control framework, while in many cases this responsibility is supported by an Audit Committee which assists in developing and implementing the framework and actively reviews its effectiveness and monitors reports of suspected fraud.

A designated Fraud Control Officer is the person who handles day-to-day fraud control management and ensures employees adhere to the organization’s Code of Conduct and relevant policies.

How Do Organizations Prevent Fraud in the UAE?

The first and most important things are creating the right mindset, putting the right processes, and setting a good example!  

1. Leadership Sets the Tone

The way leaders act shapes the behavior of everyone in the organization.

If senior managers don’t care about ethics, employees might feel like it’s okay to bend the rules or cheat. On the other hand, when leaders show they take honesty seriously, people tend to follow their example.

Leaders should:

• Walk the talk—set the example they want others to follow.

• Make it clear that unethical behavior, like fraud, isn’t allowed.

• Take decisive action if someone breaks the rules.

• Be seen addressing issues when they happen.

2. Build a Culture That Values Ethics

A workplace where honesty and fairness are part of the daily routine is less likely to have fraud problems.

Here are some ways to create this kind of culture:

• Create a Code of Conduct

• Have a Conflict of Interest Policy (Sometimes, an employee’s personal life might clash with their work. For example, they could have family ties to a company supplier. A clear policy helps everyone know how to handle these situations fairly.)

• Train Staff Regularly

• Screen New Hires Carefully

• Assign Clear Roles
  

3. Appoint a Fraud Control Officer

The dedicated Fraud Control Officer is responsible for overseeing the development, implementation, and monitoring of fraud prevention strategies within the organization. The FCO ensures that anti-fraud policies are up-to-date and aligned with local regulations. The FCO also educates staff, manages internal investigations, and coordinates with external authorities when necessary.

Read more: An Overview of Anti-Money Laundering (AML) Laws in the UAE

Reporting Fraud Incidents in the UAE

Any fraud incident should be reported right away to:

1. The police for investigation.

2. The Financial Intelligence Department (FID) through the STR system, uses a fraud report; and

3. The Banking Supervision Department, uses the "Fraud Incident Reporting (FIR) Form", if the loss is AED 100,000 or more.

Fraud incidents involving a loss of AED 50,000 or more must be reported immediately to the Board of Directors (or to the Owner/Partners if there is no Board). For incidents below this amount, a summary of all fraud cases should be sent to the Board of Directors (or Owner/Partners) at least once a month.

Fraud Monitoring and Reporting for Financial Institutions

Financial institutions need to have good systems in place to watch for and deal with fraud. These systems should match the level of risk tied to their products or services and how often customers use them.

They also have to make sure customers know how to report if something is stolen, lost, or if they suspect fraud.

These institutions must keep track of fraud trends—how often fraud happens, the types of fraud, and any complaints from customers. This helps them see if there are any weaknesses in their security. If there’s a big fraud event, it should be reported to the Central Bank right away in the way they require.

How to Protect Employees Who Report Suspected Fraud in the UAE?

When employees in the UAE report fraud, the company must take steps to ensure their protection, this can be by 1) keeping the information about the report private and only sharing it with those who absolutely need to know 2) employees should not face any negative consequences for reporting fraud, whether those are real or just threats 3) if anyone tries to hurt or threaten the person who reported fraud, or even thinks they might be the one reporting, the company must take action according to UAE laws to stop it.

However, if someone knowingly makes a false report, there should also be disciplinary measures, as per UAE standards.

FOCAL Fraud Prevention: Real-Time Protection for UAE Businesses

FOCAL’s fraud prevention solution helps businesses in the UAE prevent fraud proactively because it uses smart technology powered by AI to catch fraud as it happens, keeping both your business and your customers safe.

FOCAL’s fraud prevention solution can block risky connections like VPNs or hosting services that fraudsters might use, the system looks at data in real-time, giving you fraud scores to keep everything protected all day, every day.

FOCAL can also spot fraud by looking at how people use their devices. It watches for unusual behavior, for example, if a customer usually logs into their bank account from their home in Dubai, and all of a sudden, the customer tries to access it from a completely different location in another country, using a new device. FOCAL detects this sudden change in behavior, and flags the login attempt as suspicious and, instead of allowing access immediately, it prompts the customer to confirm their identity first.