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UAE remains on Financial Action Task Force grey list – for now

UAE financial crime Reuters/Rula Rouhana
The UAE is bolstering its efforts to fight financial crime and be fully compliant with the FATF watchdog's requests
  • Emirates must meet four requests to be considered for removal from list
  • UAE seized $1.29bn worth of assets in 2022 related to financial crimes
  • Russia’s invasion of Ukraine created new problems for institutions

Last month the Financial Action Task Force upheld the decision to keep the UAE on the grey list, a status it had assigned to it in March 2022. 

In its February ruling, the international watchdog dedicated to fighting financial crime said the UAE had made “significant progress” on three of seven recommendations to get off the listing.

It needs to improve its compliance on another four recommendations to be considered for removal from the grey list.

The grey listing means that financial institutions around the world must subject entities and individuals based in the UAE, and transactions emanating from the country, to greater scrutiny.

This is because of what FATF calls strategic deficiencies in the systems the country uses to counter financial crime. This heightened scrutiny typically means increased costs and suppression of demand.

So far, it is not clear that the grey listing is having much tangible effect.

Mohamed Damak of Standard and Poor, a ratings agency, pointed to the fact that UAE banks are in a strong net asset position.

They place more in international markets than they take and do not need to have recourse to international markets for funding.

They are continuing to grow their deposit bases and so their loan-to-deposit ratios – a measure of their liquidity – are strong.

“From a funding and liquidity perspective, the banks are fine, so, overall, the impact is manageable,” Damak told a conference in Dubai on Thursday.

In February 2021, before the grey listing, the UAE set up an Executive Office of anti-money laundering and countering the financing of terrorism (AML/CFT), charged with overseeing the enforcement of a national strategy.

This is credited with having significantly bolstered the country’s efforts in tackling financial crime.

The Executive Office is currently co-ordinating with more than 80 government entities and law enforcement agencies across all seven emirates.

“Instead of having one large regulator with large teams, the UAE has lots of small regulators that operate in a nimble way within a flat structure,” said financial risk management specialist Ryan Lemand, who is chief executive and co-founder of Abu Dhabi-based Neovision Wealth Management.

The UAE has also responded to international enforcement actions.

In December a Dubai court ruled that British-Indian hedge fund trader Sanjay Shah can be extradited to Denmark for prosecution over an alleged $1.7 billion tax fraud.  

Creative Commons/Wikimedia
A Dubai court ruled hedge fund trader Sanjay Shah can be extradited to Denmark for prosecution over an alleged tax fraud. Picture: Creative Commons

The UAE has signed 42 international judicial cooperation agreements (IJCAs) and fully ratified 37, nine of which have been signed since December 2021.

Recent agreements were signed with Serbia, Ethiopia and Poland in September 2022, and with Lithuania in November 2022.

The UAE also successfully seized and confiscated more than AED988 million ($269 million) from July to October 2022, primarily from cases related to professional and trade-based money laundering, according to the Global Coalition to Fight Financial Crime. 

In total, the UAE seized $1.29 billion worth of assets in 2022 related to financial crimes.

When FATF grey-listed the UAE in February 2022, it highlighted information-sharing as one of the areas in need of improvement. 

Vincent Gaudel, a compliance expert at data analytics company LexisNexis Risk Solutions, said that the UAE has been signing partnerships with counterparts in the US and the UK to streamline exchanges of information and collaboration on requests.

These are important for pursuing cross-border money laundering cases.

“Grey listings take time to address,” Gaudel told AGBI. “FATF’s assessments look at a variety of dimensions so it’s not just a case of checking a box or passing a new law.”

Russia’s invasion of Ukraine has created a new set of headaches for UAE-based financial institutions. The UAE has remained neutral in the Russia-Ukraine war, keeping open dialogue and business links with Moscow.

On February 24 – the same day that FATF re-rated the UAE compliant for combating UN sanctions evasion – the US Treasury and the British foreign office announced they were sanctioning MTS Bank, a Russian institution to which the UAE had granted a licence in early February.

CBD Corporate Services, which helps companies to set up in the UAE, told AGBI in January it had recorded a 34 percent increase in foreign direct investment (FDI) by Russian companies into the UAE in 2022, mainly in the general trading and consulting sectors. 

“Whenever there are huge FDIs coming in, obviously there are challenges that come with that,” said Lemand of Neovision. “The UAE has been at the forefront of taking proactive measures to address them.”

Lemand said that while it is largely business as usual, the UAE’s grey-listing has led to more questions being asked.

“We’re still dealing with our international custodians – US, European and Asian banks – who are able to transfer financial securities in and out with complete ease at exactly the same fees.  

“But when we’re being onboarded with certain overseas financial institutions, they request more documents from us than they normally would.”

FATF
Delegates discuss financial crime issues during the FATF Plenary held in Paris in February. Picture: Twitter/@FATFNews

FATF identifies four areas the UAE must continue to address

1 Enhancing and maintaining a shared understanding of the money laundering and terrorist financing risks between the different designated non-financial businesses and professions (DNFBP) sectors and institutions.

2 Showing an increase in the number and quality of suspicious transaction reports filed by financial institutions and DNFBPs.

3 Ensuring a more granular understanding of the risk of abuse of legal persons and, where applicable, legal arrangements, for money laundering and terrorism financing.

4 Demonstrating a sustained increase in effective investigations and prosecutions of different types of money laundering cases consistent with the UAE’s risk profile.

The UAE is now “compliant” with 13 of the 40 FATF recommendations, “largely compliant” with 23 recommendations and “partially compliant” with four recommendations. The country has no “non-compliant” ratings.

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