04/03/22

UNITED ARAB EMIRATES: Jurisdiction Poised for Global Watchdog’s ‘Gray List’ Over Dirty Money.

As published on bloomberg.com, Friday 4 March, 2022.

The United Arab Emirates is set for inclusion on a global watchdog’s “gray list” after some of its members indicated that the Gulf nation hadn’t made enough progress in tackling illicit financial flows, according to people familiar with the matter.

At least three members of the Paris-based Financial Action Task Force have expressed the view that the UAE hasn’t done enough to exit the review process and therefore will likely get put on the group’s list of countries subject to more oversight, said the people, who requested anonymity as the matter is private.

The organization is currently holding its plenary, where members are discussing the UAE government’s efforts to combat dirty money, and a decision is expected to be announced as early as Friday.

To avoid the designation, a significant majority of the FATF’s 39 members must vote that a country has made sufficient progress since the evaluation period began. Just a few votes to the contrary can result in a jurisdiction getting added to the list of nations under increased monitoring, the people said.

A gray-list classification isn’t as punitive as the group’s highest-risk “black list,” and it suggests that UAE officials are taking steps to address the country’s current deficiencies, the people said.

Still, the decision is potentially the most significant step to be taken by the FATF in its three-decade history, given the UAE’s position as a regional financial center. FATF, set up by the Group of Seven major economies, has some two dozen nations -- including Turkey, Zimbabwe and Albania -- on its gray list, with Iran and North Korea on the black list.

The UAE government said it will release an official response once the decision is out. A spokesperson for FATF said its internal deliberations are confidential.

For the UAE, being gray-listed would be a setback at a time when it faces greater competition from neighboring Saudi Arabia, which is growing its financial markets and taking steps to lure more investment.

In practical terms, a gray-listing would force Wall Street banks, which use Dubai as their regional headquarters, to dedicate additional resources to compliance in order to avoid future penalties from international regulators. The decision could also have an impact on Abu Dhabi, the nation’s capital and home to sovereign wealth funds with more than $1 trillion of assets.

A report by the International Monetary Fund last year found that gray-listed countries experienced “a large and statistically significant reduction in capital inflows.”

The potential fallout in the UAE could be difficult to quantify, though, as financial firms may already approach the country as a higher-risk area, Katherine Bauer, a former Treasury Department official who led the U.S. delegation to FATF’s regional partner in the Middle East and North Africa, told Bloomberg in January.

Since warnings by the FATF in 2020 as part of the group’s mutual-evaluation report, the UAE government has stepped up efforts to better align with global standards on anti-money laundering and countering terrorist financing.

Emirati officials set up an Executive Office led by Hamid Al Zaabi to combat illicit flows, working in partnership with other FATF members. Al Zaabi has said previously that the UAE is fully committed to upholding the integrity of the international financial system.

The country has introduced courts focused on financial crimes, established new beneficial ownership rules and even announced a 9% corporate tax starting in 2023. The central bank recently imposed penalties on some lenders for breaching anti-money laundering regulations and regulated new rules on hawalas, charities often alleged to enable terrorism-related money flows.

The UAE collected over $1 billion in anti-money laundering and terrorist financing penalties last year, state-run WAM news agency reported Thursday. “Several major legal amendments were recently adopted, including the anti-money laundering law that includes wider powers related to confiscations, as well as controlling virtual assets,” WAM reported, citing Al Zaabi.

The FATF’s mutual-evaluation report published in April 2020 also highlighted how the UAE has taken significant steps to tackle terrorist financing, yet requests for information on money laundering often got met with delays. Since then, the illicit flows into the country have attracted greater scrutiny.

As the evaluation period proceeded, it became clear that the UAE faced a challenging hurdle to avoid a gray-listing, the people said. Yet ongoing progress toward combating illicit financial flows could allow the Gulf state to get off the list in a shorter span than other jurisdictions, they added.