Even after a recent government attempt to wipe out illegal transactions, the United Arab Empires (UAE) is at risk of being added to a global watchdog's list of nations subject to heightened scrutiny for failures in countering money laundering and terrorism funding.
According to people acquainted with the issue who requested anonymity because the discussions are private, the Financial Action Task Force is leaning toward counting the UAE to its "gray list" early this year, one of two categories used by the intergovernmental body for nations specified to have "strategic deficiencies."
If the FATF approves the designation, it will be one of the most meaningful actions in the Paris-based group's three-decade existence, considering the UAE's role as the Middle East's primary financial hub. The FATF presently scrutinizes 23 nations, including Albania, Syria, and South Sudan, with only Iran and North Korea on its highest-risk "black list."
The United Arab Empires are at Risk
The United Arab Emirates ranks poorly on a vulnerability scale to money laundering and terrorism funding. The table below, which is based on FATF data, shows the nation's ranking among other jurisdictions that are at high risk.
"Many worldwide authorities require that banks and financial institutions assess, if not change, their risk ratings and related due diligence methods for counterparties in FATF-listed countries," said Bauer, an associate at the Washington Institute for Near East Policy.
The UAE filed a report to the FATF in November but hasn't met several of the standards required to keep off the gray list. The panel will conclude a plenary meeting scheduled for late February. They added that there are still other possibilities for Emirati officials to present their case to the FATF, including a trip to Paris planned in the coming weeks.
The FATF examined the UAE's system in an April 2020 assessment, despite what it called "significant initiatives" to enhance controls, including new legislation in 2018 and 2019.
"Fundamental and significant reforms are required throughout the UAE to demonstrate that the system cannot be utilized for money laundering/terrorist funding and the financing of the proliferation of weapons of mass destruction," the organization stated at the time.
According to Ibtissem Lassoued, the Dubai-based head of advising in financial crime at law firm Al Tamimi & Co., the UAE government has taken various efforts since the FATF's warning in 2020 to better conform with global criteria on anti-money laundering and counter-terrorism funding.
Authorities established financial crime courts, and now demand firms reveal their ultimate owners to the government. UAE officials also formed the Executive Office, directed by Al Zaabi, to improve collaboration between the central bank, Finance Ministry, and other institutions in UAE.
UAE Takes Action
In recent years, the UAE has made significant efforts to combat money laundering and terrorist financing by implementing various laws and regulations. In 2018, the UAE implemented Federal Law No. 20 of 2018, which introduced new measures to combat money laundering and terrorist financing. The law requires businesses to maintain adequate records and conduct customer due diligence, including the identification and verification of the customer's identity, source of wealth, and the nature of the business relationship. It also established a financial intelligence unit to combat money laundering and terrorist financing.
In addition to the new law, the UAE has also taken steps to strengthen its regulatory framework. The Central Bank of the UAE has issued regulations requiring financial institutions to develop and implement comprehensive AML/CFT policies and procedures. The regulations also require financial institutions to report suspicious transactions to the authorities and provide them with information upon request.
The UAE has also signed several international agreements to enhance its AML/CFT efforts. The country is a member of the Financial Action Task Force (FATF) and has implemented the FATF's recommendations on AML/CFT. The UAE has also signed bilateral agreements with several countries to enhance cooperation in the fight against money laundering and terrorist financing.
Despite these efforts, the UAE has faced criticism for not doing enough to combat money laundering and terrorist financing. In 2019, the FATF identified several deficiencies in the UAE's AML/CFT regime, including a lack of effective implementation of the regulations and inadequate supervision of financial institutions. The UAE has since taken steps to address these deficiencies, and it remains to be seen whether the country will be placed on a global watchlist for money laundering.
The UAE's Efforts to Combat Money Laundering
Despite the measures taken by the UAE to combat financial crimes, organized crimes, and terrorism, money laundering remains a problem for the country. To address this issue, the UAE maintains a strong AML system to protect against money laundering and terrorist financing.
The UAE government has been taking steps to improve transaction monitoring through the UAE financial system since 2001 and to cooperate with international efforts to combat terrorist financing. The UAE has implemented two laws that serve as the basis for the country's AML and CFT efforts: Law No 4/2002, the Anti-Money Laundering law, and Law No. 1/2004, the counterterrorism law.
Although the Anti-Money Laundering law criminalizes money laundering, it is administrative Regulation No. 24/2000 that provides guidelines for financial institutions to monitor money laundering activity. This regulation requires financial institutions to follow strict Know Your Customer (KYC) guidelines and verify the customer's identity. Financial institutions must also maintain transaction details for all exchange house transactions over $545 and all non-account holder bank transactions over $10,900. Customer records must be maintained for a minimum of five years and periodically updated as long as the account is open.
The UAE passed Law No. 1/2004 in 2004 to enhance its legal power in the fight against terrorism and terrorist financing. The law imposes severe penalties for the crimes covered, such as life imprisonment and the death penalty, and permits asset seizure or forfeiture. Additionally, it punishes the illegal production, importation, or transportation of "non-conventional weapons" or their components for use in terrorist activities.
In July 2013, the Dubai Financial Services Authority (DFSA) amended its AML Module to include the Anti-Money Laundering, Counter-Terrorist Financing, and Sanctions Module (AML Rules).
A gray-list listing would be a setback when the oil-rich country is facing more competition from neighboring Saudi Arabia, which is expanding its financial markets and making moves to attract more investment. Dubai and Abu Dhabi are also attempting to earn billions of dollars by selling state-owned enterprises. In addition, the UAE altered its workweek to Monday-Friday at the beginning of this year to attract global industry.
The nation's capital, Abu Dhabi, is home to sovereign wealth funds with over $1 trillion in assets. Meanwhile, most global bankers have regional offices in Dubai, and the skyscraper-studded emirate has grown in recent decades, owing primarily to its lax regulation and low taxes.
The UAE government is engaging a group of consultants, including K2 Integrity, to enhance monitoring. Juan Zarate, who led operations against terrorist funding and financial crimes at the US Treasury under George W. Bush's administration, is one of the firm's executives in New York.