DUBAI (Reuters) - The United Arab Emirates has passed a law to combat money laundering and terrorism financing, it said on Tuesday, as it aims to bring its rules into line with international standards on combating illicit money flows.

FILE PHOTO: United Arab Emirates President Sheikh Khalifa bin Zayed al-Nahyan listens to closing remarks during the closing ceremony of the Gulf Cooperation Council (GCC) summit in Kuwait's Bayan Palace December 15, 2009. REUTERS/Stephanie McGehee

The law, which is in line with the requirements and recommendations of the Financial Action Task Force (FATF), recommends the establishment of an independent financial information unit within the central bank to receive and investigate reports of illicit financing activity.

FATF is an international organisation that sets global standards for fighting illicit finance.

The UAE has been tightening its financial regulation to try to close regulatory gaps and overcome a perception that it is a hot spot for illicit money flows owing to its raft of free trade zones and geographic proximity to Iran. Dubai International Financial Centre this month updated its anti-money laundering and counter-terror financing rules.

“This decree is a fundamental pillar of anti-money laundering and countering the financing of terrorism, and contributes to raising the effectiveness of the legal and institutional framework of the nation,” said deputy ruler of Dubai and finance minister Sheikh Hamdan Bin Rashid.

The law, which follows a decree by UAE President Sheikh Khalifa bin Zayed al-Nahyan, will be implemented one month after its publication in the Official Gazette.

The law signals an acceleration in the UAE’s efforts to modernise its financial regulatory environment after it announced on Sunday new legislation governing the central bank and the regulation of financial institutions and activities.

In line with the new law, a committee under the chairmanship of the central bank governor has been set up to identify and assess risks and the effectiveness of efforts to stem money laundering and terror financing among financial institutions. The authorities will also supervise and inspect financial institutions, other businesses and non-profit organisations to check on their compliance levels.

The law repeals legislation from 2002 on combating money laundering and terror financing.

As part of a trip focussed on combating terrorist financing, U.S. Treasury Secretary Steven Mnuchin visited the United Arab Emirates, Qatar and Saudi Arabia in the last week.