Insight & Analysis

Questions remain over UAE’s regulatory status

Published: Mar 2024

The removal of the UAE from the Financial Action Task Force’s ‘grey list’ should boost investment in the nation, as well as reduce compliance costs for financial institutions and companies that do business there. There are, however, questions that remain over the UAE’s ability to tackle financial crime.

Blocks with questions marks

The United Arab Emirates (UAE) has been given a boost with its removal from the ‘grey list’ of countries under scrutiny for money laundering and the financing of terrorism. While many observers point to the actions the nation has taken to improve its regulatory regime, there are others for whom concerns remain.

At the end of February, the Financial Action Task Force (FATF) – the global body that tackles the flow of illicit money – announced the UAE no longer needed increased monitoring for ‘strategic deficiencies’.

Although the FATF does not issue penalties or punishment for being on the ‘grey list’, other countries use the FATF’s judgment as a benchmark and sign of confidence. As a result, the UAE has taken action to get back in the league of nations that have the FATF stamp of approval.

The UAE was put on the ‘grey list’ in February 2022, and since then has bolstered its defences. The FATF is now satisfied the nation has strengthened the effectiveness of its regulatory regime to combat money laundering and terrorism financing.

The law firm Herbert Smith Freehills, in an article on its website, comments that since the initial FATF action, the UAE has prioritised overhauling its compliance framework. Its actions include creating an executive office to counter money laundering and terrorist financing and establishing a court that focuses on financial crimes, for example.

The removal from the ‘grey list’, say Herbert Smith Freehills, “is likely to increase investor confidence in the UAE’s regulatory framework. With this, it is anticipated there will be greater foreign capital inflows and reduced compliance costs and costs of borrowing.”

Overall, it is expected there will be more trust and confidence in the UAE – which includes Dubai and Abu Dhabi – and its standing will increase in the international community. Interestingly, fDi Intelligence notes that foreign direct investment was not impacted by the FATF action in 2022. In fact, investment in the UAE has steadily increased since 2020.

Despite this enthusiasm for doing business in the UAE, in some quarters there are still concerns. Transparency International, for example, in a letter to the FATF said the UAE had more to do, and cited allegations related to sanctioned individuals. “Transparency International was able to determine that at least three individuals who have been collectively designated by Australia, France, Switzerland and New Zealand in connection to Russia’s invasion in Ukraine still own properties in Dubai,” the letter stated.

There are concerns that the removal from the FATF’s ‘grey list’ could also be sending a misleading message to investors. Ben Keith, Barrister at 5 St Andrew’s Hill, raises concerns over the UAE’s lack of independent judiciary and limited transparency of business ownership, for example. He told Treasury Today: “The removal of the UAE from the FATF ‘grey list’ is extraordinary. The UAE has become a hub for dirty money, it is a high-risk business environment without proper regulation or adherence to the rule of law. The UAE has become a hub for the sheltering and laundering of Russian assets sanctioned as a result of the Ukraine war. This policy is completely at odds with the FATF deciding to remove the UAE from the ‘grey list’. The overwhelming evidence is that any business which comes into conflict with Royal and state interests is at risk of detention, torture and unfair trial.

Meanwhile, in February 2024, the European Securities and Markets Authority (ESMA) – the financial markets regulator for the EU – put the Dubai Commodities Clearing Corporation (DCCC) on its blacklist because of concerns about money laundering, effectively banning European banks from clearing trades on its infrastructure.

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