UAE’s Exit from FATF’s Watchdog Grey List: A Breakthrough in Combating Financial Crime

CVML

Published on February 28 , 2024

The United Arab Emirates “UAE” has achieved a significant milestone in its efforts to combat money laundering and terrorism financing. On 23 February 2024, the Financial Action Task Force “FATF” removed the UAE from its list of "Jurisdictions under Increased Monitoring," commonly referred to as the "Grey List." This decision came after the UAE was first included on the list on 4 March 2022. The removal from the Grey List marks a major achievement for the country and reflects its commitment to adhering to global anti-money laundering and counter-terrorism financing (AML/CTF) standards.

The Report of June 2023

The decision was made during the FATF meeting held in Paris from 19-23 February 2024, where the UAE's exit from the follow-up process under the International Cooperation and Review Group “ICRG” was approved. This approval was granted following the implementation of all action items and requirements of the action plan set forth by the FATF. The global watchdog and its members congratulated the UAE on this accomplishment, highlighting the country's effectiveness and sustained efforts in the fight against financial crime.

The UAE's dedication to addressing critical issues over the past two years is evident in the Enhanced Follow-Up Report (EFUR) published by the FATF in June 2023. This report, essentially a re-evaluation of previous shortcomings noted in FATF's on-site evaluations, acknowledges the substantial strides the UAE has made, especially in aligning with FATF Recommendations 1, 19, and 29. It underscores the significant improvements in the UAE's anti-money laundering and counter-terrorist financing framework, with the nation achieving a rating of "largely compliant" or "compliant" in almost all 40 FATF Recommendations. Moreover, the report commends the UAE for introducing further legislative actions to protect businesses from fraudulent entities. Critical highlights from the report include the UAE's effective risk assessment strategies, enhanced dealings with high-risk nations, and the strategic use of its Financial Intelligence Unit (FIU) to scrutinize sectors vulnerable to money laundering and terrorist financing activities.

Enforcement Escalation: Authorities Amplify Efforts and Heighten Vigilance

Since 2022, the UAE has demonstrated an escalated commitment to enforcing measures against financial crimes, marked by imposing substantial fines, conducting thorough inspections, and exercising asset seizure authorities. This period also saw the introduction of comprehensive legislation aimed at bolstering oversight and efficacy in combating financial misconduct. Notably, the UAE established new entities specifically designed to address money laundering and terrorist financing issues. The formation of dedicated Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) courts, the Executive Office for Combating Money Laundering and Terrorist Financing, and the issuance of new regulatory guidelines for financial institutions and Designated Non-Financial Businesses or Professions (DNFBPs) are testament to the UAE's unwavering resolve to strengthen its regulatory infrastructure and safeguard the integrity of its financial system.

Regulatory Fines

Based on the data revealed by the Ministry of Economy on March 2023, the UAE levied fines of AED 22.6 million against 29 DNFBP firms for failing to adhere to regulations, underscoring the nation's intensified enforcement actions and the robustness of its regulatory systems. Moreover, comprehensive amendments to the Anti-Money Laundering and Counter-Terrorist Financing law (Federal Decree Law No. 26 of 2021), along with updates to the Penal Code and the legislation overseeing virtual assets (Law No. 4 of 2022 on the Regulation of Virtual Assets), have ensured that the UAE's legal framework is in strict conformity with international standards. These actions have led to the imposition of fines totalling over AED 115 million in the first quarter of 2023 alone and the confiscation of assets valued at more than AED 925 million from November 2022 to February 2023. Enhanced international legal cooperation and a significant increase in the reporting of suspicious transactions have further bolstered the efficacy of the UAE's financial defence mechanisms.

Future Impact

As the UAE plays a leading role in combating financial crime on a global scale, the next steps for the country include unveiling the findings and insights from the latest National Risk Assessment “NRA” in 2024, launching the next national AML/CTF strategy for the period 2024-2027, and preparing for the FATF's next Mutual Evaluation Review “MER” of the UAE in 2026.

The impact of this development for the UAE are many:

Improved Reputation

The removal from the grey list enhances the UAE's international reputation, highlighting its commitment to upholding global AML/CTF standards. This positive development is expected to strengthen the country's standing on the world stage.

Smoother Business Operations

With reduced regulatory scrutiny and compliance burdens, businesses operating in the UAE can expect smoother international transactions and an increase in foreign direct investments. This favourable business environment is crucial for the continued growth and prosperity of the UAE's economy.

Enhanced Trust and Confidence

Clients and partners of UAE-based entities can now have increased confidence in the reliability and security of the country as a business environment. This trust is fundamental for promoting strong and sustainable business relationships.

Competitive Advantage

The UAE's strengthened position in the financial landscape provides a competitive advantage, making it an even more attractive destination for investors and businesses looking to operate in the region.

Summary

In summary, the UAE's removal from the FATF's grey list is a testament to the UAE's dedication to combating financial crime and maintaining a robust AML/CTF framework. This accomplishment not only enhances the UAE's reputation but also opens up new opportunities for business and investment, contributing to the nation's economic growth and stability.