UAE FATF Grey List Removal: Lessons for Countries Under Increased Scrutiny

Financial Action Task Force, the international organization establishing guidelines to address money laundering and financing of terrorism, has removed the United Arab Emirates (UAE) from the grey list, following substantial progress in reforms. UAE recognized as a vital global trading hub, was under heightened scrutiny in 2022 when FATF raised concerns about rising risks of money laundering & terrorist financing linked to banks, precious metals, gemstones, and property.

Following a comprehensive on-ground evaluation of Arab’s second-largest economy, the watchdog decided to remove the UAE from the list of increased monitoring.

On February 23, 2024, FATF concluding its February Plenary declared that UAE would be exempt from further scrutiny citing notable advancements in monitoring and mitigating illicit financial activities. Along with UAE, three other nations including Barbados, Gibraltar, and Uganda have been removed from the FATF grey list.

However, the removal of the UAE FATF grey list has sparked objections from certain anti-corruption activists, deeming it premature and stressing the need for continued international pressure on the UAE to uphold its reform initiatives.

Sheikh Abdullah bin Zayed, Minister of Foreign Affairs, son of the founder of the United Arab Emirates, Zayed bin Sultan Al Nahyan, embraced the decision warmly and expressed his gratitude to those who played a pivotal role in making this happen. He reportedly remarked,

“These collective endeavors serve to expedite the national strategy and action plan, achieve the directives and aspirations of the UAE’s leadership, aiming to further strengthen the country’s leading status and competitiveness, and advance its position globally as an economic, trading and investment hub.”

How UAE Managed to Get Off the FATF Grey List?

Along with three nations, the UAE coordinated extensively with FATF to enforce compliance standards and enhance monitoring before the evaluation. The evaluation, constituting the final stage before nations’ removal from the grey list, involved an assessment of anti-money laundering/counter-terrorist financing measures and their implementation. In addition, authorities pledge to ensure the continuous execution of these endeavors made this happen.

Over the past few years, the UAE has made considerable progress in the fight against money laundering (ML), terrorist financing (TF), and weapon proliferation by enacting robust legal frameworks and enforcing multiple regulations to clamp down on financial crimes.

From March to mid-July 2023, UAE intensified its efforts against ML/TF, leading to the seizure and confiscation of assets valued at over Dh1.3 billion ($354 million). In the initial half of 2023, the Emirates issued fines reaching Dh199 million to combat money laundering, while the value of fines exceeded Dh76.2 million in 2022, and Dh800,000 in 2019.

Under the FATF action plan, the UAE implemented AML/CFT reforms to streamline investigations into money laundering, impose sanctions for non-compliance, and enhance prosecution efforts to address money laundering activities.

While talking about the efforts made by UAE, Abdulla bin Touq, Minister of Economy, Chairman of the Securities and Commodities Authority, reportedly remarked,

“Reinforcing the effectiveness of our national system to combat money laundering and terrorism financing is regarded as a cornerstone for enhancing the UAE’s position as a global hub for trade and investment.”

Advancements of Mutual Legal Assistance Treaties

UAE has augmented its count of mutual legal assistance treaties (MLAT), having 45 treaties at present, to develop more soon, as highlighted by Hamid Al Zaabi, director-general of the Executive Office for AML/CFT.

By developing MLAT, UAE aims to strengthen international security by sharing information among criminal investigation agencies and law enforcement sectors. From January to October 2023, UAE submitted 200 MLAT requests to streamline investigations into money laundering, terrorist financing, and predicate offenses within financial information exchange, reported Wam.

Suspicious Activity Reporting

As a part of UAE’s National AML/CFT strategy, Businesses and financial sectors in the Emirates played a crucial role in filing suspicious activity reporting (SARs), and suspicious transactions reporting (STRs), contributing greatly to detecting and mitigating potential illicit financial transactions. As deliberated by Mr Al Zaabi,

“The designated non-financial businesses and professions sector achieved a 266 percent increase in suspicious transaction activity reports, while the real estate sector increased its STRs by 106 percent.”

He further highlighted that the sector of corporate service providers and trust funds recorded a rise of 49% in STRs filing.

Between January and October 2023, the UAE regulatory bodies levied fines reaching approximately Dh249.2 million, a threefold increase in fines compared to Dh76 million in 2022. The regulatory bodies collected fines of Dh10 million concerning financial sanctions, from July to October 2023, showcasing the country’s commitment to address financial crime.

Essential Lessons For Nations Facing Enhanced Scrutiny

UAE’s removal from the grey list, attributed to robust AML/CFT regulations, set a trend for the rest of the nations worldwide and serves as a beacon, inspiring others to strengthen financial integrity.  The UAE’s successful strategies for tackling financial crime stand as a role model for the nations grappling with high ML/TF scores, delivering crucial guidance on addressing this ever-evolving dilemma.

The Ministry of Economy in UAE announced its operational plans under the National Strategy on AML/CFT, advancing UAE’s efforts against money laundering & terrorist financing.  The Ministry also established an “Anti-money Laundering Department” to monitor and enforce its national strategy for Designated Non-Financial Businesses and Professions (DNFBP) as well.

DFNBPs include non-financial sectors such as dealers of precious metals & gemstones, brokers & real estate agents, corporate service providers, independent accountants, and auditors. The execution of AML/CFT regulations in the non-financial sector along with the financial sectors showcases the country’s commitment to completely eradicate illicit funds movement in the country.

The jurisdictions under increased scrutiny need to develop robust AML/CFT regulations as part of the FATF action plan. Along with developing these regulations, the nations are mandated to ensure effective implementation and enforcement.

To ensure the effective implementation of regulations, the nations must take concrete steps to conduct enhanced due diligence (EDD) for high-risk transactions and conduct thorough background checks to monitor suspected accounts.

The incorporation of innovative technology such as artificial intelligence, and blockchain technology can improve the overall effectiveness of AML/CFT regulations, and enhance the monitoring of transactions in real-time. Through the integration of digital technologies and collaboration with more than 90 entities, the UAE has established an advanced surveillance and reporting system. The high ML/TF risk score countries are urged to integrate advanced technologies into their systems to stay ahead of bad actors and keep an eye on suspicious activities.

The most crucial measure taken by the UAE is the development of Mutual Legal Assistance Treaties. MLAT is an agreement between two or more countries collaborating to exchange information in criminal investigations & prosecutions. International cooperation probably increases global response to address the complex and continuously evolving translational crime, ultimately strengthening international security.

What Opportunities Await UAE’s Removal from Grey List?

UAE has come a long way by taking stringent measures against money laundering and terrorist financing. When a country is eliminated from the FATF grey list, it indicates greater assurance from the global community that the country has mitigated loopholes in monitoring money laundering and addressing threats of financial crimes.

Analysts anticipate that the decision will drive up more sustainable capital, international direct investments, and portfolio inflows. Furthermore, this will strengthen investors’ trust and confidence in the Emirates.

An immediate positive impact would enhance investors’ confidence in UAE, leading to an increase in sustainable capital, reported the national news.

Expansion in the Financial Sector

This removal would facilitate the expansion of both the domestic banks and financial sectors, along with international financial free zones. The continued growth is projected as affluent global investors and foreign enterprises gain confidence in investing in the UAE, acknowledging its commitment to international laws and regulations.

Another substantial beneficiary would be the asset and wealth management operations of family offices rooted in the UAE. Through the removal, the family offices are anticipated to enjoy increased confidence from investors & clients. This enhanced confidence could drive growth in investments managed by these offices, attracting a larger pool of high-net-worth individuals and families seeking reliable wealth management services.

Increasing Opportunities for Foreign Investors

The potential decision could yield diverse benefits including increased foreign investment in the UAE, expanded global trade backed by improved crest agreements, reduced reliance on foreign loans, and less exposure to money laundering. It will further promote streamlined foreign currency exchange, eliminating the need for stringent scrutiny.

The UAE’s removal from the grey list is expected to play a pivotal role in the expansion of the country’s economy. This would enhance investor confidence in regulatory compliance and streamlined transparency. Given the enhanced credibility of global financial markets, the UAE would probably attract an influx of foreign investments, economic growth, and better employment prospects.

Final Thoughts

UAE’s successful removal from the FATF grey list makes it imperative for jurisdictions under heightened scrutiny to heed the lesson and take decisive actions to show compliance with AML/CFT standards. Implementing robust monitoring, developing robust regulatory frameworks, and strengthening international cooperation can facilitate the nations to combat financial crimes effectively. This momentum spurs jurisdictions to build sustainability, resilience, and transparency in the world. To ensure a brighter and more prosperous future, the government and financial institutions are mandated to collaborate and address illicit financial activities.