Financial Action Task Force places United Arab Emirates on money laundering 'grey' list

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Tuesday, March 8, 2022

Part of the Dubai International Financial Centre on February 8, 2013.
Image: ianpudsey.

The Financial Action Task Force (FATF) placed the United Arab Emirates on its global grey list March 4 for "strategic deficiencies" in combatting "money laundering, terrorist funding, and proliferation financing", subjecting it to heightened scrutiny.

The UAE joins 23 countries, including Middle East neighbours Jordan, Syria and Yemen, and Pakistan and Turkey elsewhere in Asia, on the list for active cooperation with the FATF. While less severe than a 'black' listing, which includes Iran and North Korea, it could damage the UAE's business-friendly reputation.

It may also subject the regime to unfavourable rate adjustments, higher costs for transactions and increased competition with fellow Gulf state Saudi Arabia. An International Monetary Fund report published May 2021 found grey-listing resulted in an average negative impact of 7.6% of a country's GDP, which would be USD27.3 billion of the UAE's 2020 GDP.

Paris-based watchdog the FATF says grey-listing means "the country has committed to resolve swiftly the identified strategic deficiencies". A November 2021 follow-up to a 2020 evaluation concluded progress had been made in four areas; the UAE is considered "compliant" or "highly compliant" in 36 of forty recommendations.

In 2018, the country passed a federal decree on money laundering to ensure compliance with international organisations, and has since dedicated four specialised courts toward prosecution. The UAE also formed an Executive Office to combat money laundering and terrorist financing in December 2020. However, the FATF urges improving risk management in certain industries and facilitating domestic and international investigations and prosecutions against money laundering.

They also recommend proactive investigation to identify suspicious transactions and sanctions evasion in its economy.

Anwar Gargash in London, United Kingdom on May 15, 2014.
Image: محمد الفلسطيني.

The Executive Office said: "The UAE will continue its ongoing efforts to identify, disrupt and punish criminals and illicit financial networks in line with FATF’s findings and the UAE’s National Action Plan". It also pledged "close coordination with our international partners". Former UAE Foreign Affairs Minister Anwar Gargash wrote on Twitter the UAE remains "resolute in strengthening strategic cooperation with our partners to address this global challenge".

Katherine Bauer, senior Fellow at The Washington Institute for Near East Policy, criticised the UAE's "inherent vulnerabilities to illicit finance due to its role as a regional commercial and financial hub". The former United States Treasury official added the changes needed are not those "that can happen overnight".

In 2016 the UAE was named in the Panama Papers leak as "home to a thriving trade in financial secrecy" by the International Consortium of Investigative Journalists (ICIJ). The leak implicated numerous Emirati officials in suspicious dealings, including Prime Minister Mohammed bin Rashid Al Maktoum, who is connected with a cybersecurity firm accused of espionage.

The ICIJ called the sheikhdoms "a center for financial crime". It cited: "Mass surveillance and the monarchy's firm grip on the courts and media make it difficult to challenge the system or expose suspect business dealings". Jodi Vittori, a Fellow at the Carnegie Endowment for International Peace, was quoted as saying: "the U.S. seems to have turned a blind eye to [the UAE's] role in the facilitation of illicit finance, conflict minerals and organized crime."

The decision to grey-list the UAE was made at the sixth plenary session of the FATF under a German presidency from March 2nd to 4th. Zimbabwe was removed from increased monitoring, and the organisation concluded France had a "robust and sophisticated" framework with room to improve.