Not long ago, the United Arab Emirates made a borderline escape from the European Union’s financial blacklist and skipped inclusion on the Financial Action Task Force (FATF). However, the threat is looming over the emirate yet again with the FATF considering to put the Gulf nation on its grey list for failing to meeting required standard of measures in preventing money laundering and terrorism funding.
Despite increasing the amount of parameters to crackdown on illicit flow of dirty money into the nation, the UAE is on a slippery road to battle its inclusion on global money-laundering watchlist.
Back in April 2020, the Paris-based intergovernmental organization, combatting financial wrongdoings and crime issued a warning to the UAE, which has been long known for its illicit funding channels. It warned the emirate that it needed to work more intensely and closely with its international counterparts in tightening compliance in the sectors most susceptible to financial abuse, with special emphasis given to gold trading and luxury realty.
Nevertheless, the narrative is still against the UAE, which is likely to fall on the list of FATF’s global watchlist namely, “grey list”. The list includes 23 countries including, Panama, Zimbabwe, Yemen and Syria, whereas, as far as the black list is concerned, only North Korea and Iran have made it in so far.
Even though the inclusion on FATF’s list would not make any difference to financial institutions planning on setting up in the United Arab Emirates, as per bankers. Yet, the reputational damage that comes with the naming and shaming of the country could cost its local banks in generating business ties with its international counterparts, complicating compliance problems with international lenders.
In 2020, a Washington-based think tank, The Carnegie Endowment for International Peace published a detailed report on UAE’s role in financial corruption and illicit financial flows. Known as a hub for money laundering, the narrative around it sheltering world internationally wanted criminals of the likes of gold smugglers from East Africa, money launderers from Europe, Afghan warlords, mobsters from Russia, was cited as one of the major areas of concern.
Nevertheless, fast forward to two years later and UAE money laundering network is very much active so much so that the lack of measures to curb activities in such sectors caught the eye of the FATF.
The emirate has started assessing the risks around funding banned weaponry that might possibly pass through its trading hub and calculated measures it would take in order to prevent any such occurrence. However, the FATF was clear in its approach, the UAE needs “fundamental and major improvements” to prevent getting listed.
Among the measures taken by the UAE in the past years to bring Middle East’s financial capital and leading gold trading hub back on track were passing an anti-money laundering and terrorist funding law in the year 2018 and strengthening the regulatory framework as its national priority.
The UAE has adopted similar measures in the past to combat money laundering and terror funding, but according to a 2020 report by the FATF the very problem lied within the emirate’s system. Instead of having a central register, the seven Emirates had 39 different registries, which made it tricky for even the law enforcement to identify the entity operating behind a suspicious company registered in the UAE.
Apparently, the UAE is headed for a troubled escape, if it succeeds in making one this time. The FATF is yet to hold meetings with the UAE in Paris in the end of February 2022 to assess the progress report it submitted in late 2021, for the world to find out whether UAE dirty money manage to escape the list again or not.
