UAE should escape FATF ‘grey list’

Dubai Tourism

There seems to be a growing confidence inside the UAE that the country can work its way off the “grey list” of the Financial Action Task Force on which it was placed in March 2022.

A plenary meeting of FATF in Paris at the end of last week noted the “significant progress” the UAE has made since it was placed on the list of 28 “jurisdictions under increased monitoring” for their compliance to anti-money laundering and terrorism funding standards.

So the Emirates continue to rub shoulders with the likes of Albania, Syria and Yemen – but it also looks nearer to getting off the list sooner than any of those benighted countries.

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The aim now is to be removed from the list at the next stage of the evaluation process, which involves an on-site visit in October, to be confirmed – all being well – by the next full FATF plenary early next year.

Emirati hopes were also raised by a report on the influential US website Politico, which said that American and some European officials were pushing for the UAE to be taken off the list quickly, though the report also noted some opposition within FATF for an early move.

Politico suggested there were geopolitical, rather than regulatory forces at work, and FATF has in the past been accused of naivety and capriciousness in its recommendations.

Certainly, if it recommended an exit, FATF would find itself at odds with the damning report of another august US institution, the Carnegie Endowment for International Peace.

In 2020 this highlighted the “problematic behaviours, administrative loopholes, and weak enforcement practices that make Dubai a globally attractive destination for dirty money”.

What can the UAE do now to ensure it does get off the list? FATF suggested three areas where more work needed to be done.

First, a tightening of the application of “dissuasive sanctions” against regional financial institutions and, especially, those professional organisations like law firms and real estate agents regarded as lax in their compliance.

Second, cracking down with financial and legal sanctions against those who have been shown to break the rules. The UAE authorities imposed fines of AED115 million in the first quarter of 2023, a sharp increase, taking action against 76 entities and freezing assets worth nearly AED1 billion.

Third, the UAE must “demonstrate a sustained increase in effective investigations and prosecutions” for money laundering. More perpetrators need to be seen in handcuffs and heading to jail, or to extradition flights, essentially.

It is in this last area where the UAE has done itself no favours in the international court of public opinion. Despite some big headlines, really effective action has so far eluded it.

Sanjay Shah, a British businessman accused of an alleged $1.7 billion fraud by the Danish taxman, is still held in the UAE as lawyers argue over the rights and wrongs of his extradition, despite court rulings in Dubai that he should be sent to Denmark for trial.

Requests for the extradition of the Gupta brothers, Atul and Rajesh, back to South Africa to stand trial on charges of alleged money laundering, fraud and corruption have been bedevilled by legal and administrative glitches. According to some reports, the brothers have been able to travel outside the UAE while the extradition process continues.

Most bizarre is the case of the Irish Kinahan family members who have had their assets in the UAE frozen and a $5 million reward placed on their heads by the US Treasury for an array of alleged financial and other crimes. But – according to reports – they are still in Dubai with freedom to travel.

Action on these three cases would significantly advance the UAE’s case for being removed from the grey list.

Not that the UAE’s ability to conduct its business seems to have been dramatically impaired by the FATF action in March 2022.

The period since has seen the economy surge and a big increase in inward investment, much of it coming from Russian exiles from the war in Ukraine  – itself a complicating factor in the FATF negotiations.

UAE institutions and professions have learned to live with the higher burden of paperwork required for due diligence and know-your-customer regulations. 

The ratings agencies said early on that the grey-listing would have little impact on the UAE economy, and they seem to have been proved right so far.

Nonetheless, there are also mutterings that it is all becoming a troublesome nuisance.

At least one big cross-border deal was stymied, it is said, when the foreign counterparty declined to consummate the deal while the FATF sanctions were in place.

The UAE has prioritised getting off the grey list at the earliest opportunity, and it looks possible now that this could happen.

But the UAE can help ensure that speedy exit with its own resolute actions.

Frank Kane is AGBI’s Editor-at-Large