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 RiskThe 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.
According to the sources, 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 months, the central bank has fined many banks for violating anti-money laundering regulations and placed new limitations on hawala charities that are frequently accused of facilitating terrorism-related money flows.
According to a 2020 assessment by the Carnegie Endowment for International Peace, illegal transactions are "a feature, not a defect" of Dubai's financial system. The United States considers the UAE to be a "major money-laundering" jurisdiction.
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.