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UAE removed from FATF ‘grey list’

  • UAE removed in under two years
  • FATF praised ‘significant progress’
  • Watchdog had raised 58 issues

The Financial Action Task Force (FATF) said on Friday that it had removed the UAE from its so-called grey list, in recognition of the Gulf state’s efforts to curb illicit financial flows.

Experts told AGBI the cleared status is expected to restore the UAE’s correspondent banking ties with institutions which had withdrawn services over the adverse rating. 

The decision should also ease constraints on outside investment into the country and spur economic growth, the experts said.

The FATF – an intergovernmental organisation established to combat money laundering and terrorist financing – placed the Gulf state under enhanced supervision, known as the grey list, in March 2022, citing weaknesses in systems to fight financial crime and combat the financing of terrorism.

Abdullah bin Zayed Al Nahyan, the UAE minister of foreign affairs, welcomed the lifting of the monitoring regime and thanked those ministries and local entities which had worked to address weaknesses identified by FATF.

“These collective endeavours serve to expedite the national strategy … to further strengthen the country’s leading status and competitiveness, and advance its position globally as an economic, trading and investment hub,” he said.

The FATF plenary on Friday congratulated Barbados, Gibraltar, Uganda and the UAE for their “significant progress” in addressing the deficiencies highlighted in 2022.

“These countries will no longer be subject to the FATF’s increased monitoring process,” FATF said in a statement.

The UAE’s removal from the international watchdog’s list in under two years is significant, as the timeframe is less than half the average duration for countries to achieve de-listing.

Financial Action Task Force (FATF) president T. Raja KumarMade Nagi/Pool via Reuters
Financial Action Task Force (FATF) president T. Raja Kumar. A statement by the organisation said: ‘The UAE should continue to work with Mena FATF to sustain its improvements in its AML/CFT system’

The UAE’s response to being placed on the FATF grey list was “swift and methodical”, said Hazem Mulhim, CEO of Dubai-based Eastnets, an IT consultancy company which develops anti-fraud and payment technology.

“The two-year time frame under which the UAE have managed to shift their anti-money laundering (AML) and counter-terrorism financing regulations (CFT), apply them and demonstrate positive results, is quite impressive,” he said.

“On average, a country takes from five to 10 years to be removed from a grey list.”

In 2021 the UAE established an Executive Office for Anti-Money Laundering and Counter Terrorism Financing.

The Emirates has also responded to international enforcement actions. In December a Dubai court ruled that British-Indian hedge fund trader Sanjay Shah could be extradited to Denmark for prosecution over an alleged $1.7 billion tax fraud.

The UAE announced it froze assets related to illegitimate activities such as money laundering and financing of terrorism valued at $123 million in 2022.

The government imposed almost $68 million in AML/CFT fines from January to October 2023, representing a more than three-fold increase from the year prior.

In November 2022 the Dubai Financial Services Authority penalised the Dubai International Financial Centre branch of the Bank of Singapore with a fine of more than $1 million for failing to have adequate AML-related controls in place.

Electronics, Mobile Phone, Phone

The UAE has also scrutinised virtual asset service providers, categorising them as financial institutions or “designated non-financial businesses and professions”, as well as adopted strict measures against proliferation financing and dual-use items.

Jonny Bell, director of financial crime compliance and payments at LexisNexis Risk Solutions, said Friday’s FATF announcement will bring both “reputational and tangible benefits” for the UAE. He said that he expected the UAE to continue to improve monitoring and enforcement.

“The removal of the grey list would likely improve correspondent banking relationships with institutions that had stopped their services to UAE institutions because of the greylisting,” Bell said, without naming any banks. 

“Cross-border transactions may materially increase as a result.” 

It could also increase foreign investment into the UAE, expand international trade facilitated by improved credit agreements, decrease dependence on foreign lending and reduce exposure to money laundering, he said.

AGBI previously reported that UK banks have shut the accounts of some British expatriates in their home country on the grounds that they are classed as living in a high-risk jurisdiction.

Eastnets’ Mulhim said the economic cost of the UAE’s greylisting is difficult to gauge because the nation’s economy performed well last year. GDP grew by nearly 4 percent in the first half of 2023 and non-oil sector growth outperformed overall growth.

According to a 2021 International Monetary Fund study, being greylisted leads to a capital inflow decline averaging over 7 percent of GDP, and FDI inflows declining on average by 3 percent.

But the detrimental impact to the UAE has potentially been overshadowed by a surge in investment by high-net-worth individuals and in the property sector.

Russia’s invasion of Ukraine created a new set of headaches for UAE-based financial institutions in light of global sanctions imposed on Moscow.

The UAE has remained neutral in the war, but the Biden administration in the US has criticised its continued open dialogue and business links with Moscow.

Trade between Russia and the UAE, which stands at about $9 billion, increased by 63 percent between January and September last year.

As of 2022 700 Russian companies were established in the UAE while the number of real estate investors from the country also grew.

Russians also purchased real estate in the UAE worth $500 million last year and tourist numbers surged 60 percent to 1.2 million visits. 

Abdullah bin Touq Al Marri, the minister of economy, said that the lifting of the greylisting would not deter the UAE authorities from clamping down further on financial crime.

“Preventing illegitimate financial flows, and supporting the efficiency of our national plan for combating money laundering and terrorism financing,” Al Marri said, “are the foundations for strengthening the UAE’s position as a global hub for trade and investment.”

The UAE’s steps to exiting the grey list

FATF said the UAE has “taken positive steps” to address the 58 issues the watchdog had raised including strengthening supervision of financial institutions and designated professions and businesses, increasing the transparency of “legal persons”, and investigating terrorist financing cases in line with its risk profile.

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