An analysis of the UAE's removal from the FATF grey list

The United Arab Emirates (UAE) has been removed from the Financial Action Task Force grey list after two years of work to address the gaps in its approach to preventing financial crime.

The Financial Action Task Force (FATF) maintains a list known as “Jurisdictions under Increased Monitoring”, also referred to as the grey list. The list identifies countries or jurisdictions with weaknesses in their anti-money laundering and countering the financing of terrorism (AML/CFT) regimes. Those weaknesses include a lack of laws, regulations or enforcement mechanisms to combat financial crime. The grey list serves as a warning to these countries, encouraging them to take immediate and effective action to address the identified deficiencies and to improve their AML/CFT frameworks so as to meet international standards and expectations.

The UAE's removal from the FATF list demonstrates its commitment to strengthening its financial regulatory framework and is an important step towards restoring global confidence in its ability to counter money laundering.

To understand the implications behind the UAE's removal from the grey list, we interviewed three financial experts working in the Middle East. Our discussion covered how the UAE's delisting may affect existing entity owners, regulatory complexity, compliance obligations and more.

What led the Financial Action Task Force to remove the UAE from the grey list?

Assam: The FATF added the UAE to the grey list in March 2022 and issued recommendations to help the country return to good standing and secure delisting. Key UAE government offices and regulators then engaged actively with the UAE business community to implement the FATF's recommendations effectively.

While maintaining its core legal requirements, the UAE updated its guidance for financial institutions (FIs) and designated non-financial businesses and professions, demonstrating its commitment to strengthening the country's financial regulatory framework in key areas.

In addition, the UAE authorities engaged in an ongoing legal and regulatory communications campaign highlighting the new and updated requirements. The communications included training workshops, followed by guidance materials and questionnaires. A key element of these efforts was that the UAE regulators increased the frequency of their assessments. Where they identified serious failings in mandatory regulatory controls, they pursued remedial measures and heavy fines. For example, in March 2023 the Ministry of Economy (MOE) imposed fines worth AED 22.6 million on 29 companies operating in the DNFBP sector for failing to comply with the AML-CFT law.

What are some of the specific positive effects of these initiatives and enforcement efforts?

Assam: They have helped the commercial landscape to thrive while ensuring higher standards of AML due diligence in both the public and private sectors. They are an important part of the explanation of why the UAE continues to grow as a significant player in the global economy.

To take a specific example, in January the UAE and the UK strengthened their economic ties. His Excellency Abdulla bin Touq Al Marri, Minister of Economy, met Rt Hon Greg Hands, UK Minister for Business, Energy and Industrial Strategy. They discussed new opportunities for economic and investment cooperation, as well as ways to enhance cooperation at the private sector level. I do not think that would have happened without the UAE's recent regulatory initiatives and tighter enforcement.

Will the UAE's strengthened controls affect existing UAE entity owners?

Rensche: When establishing and incorporating an entity in the UAE, it is mandatory to identify the ultimate beneficial owner. Owners of existing entities must amend their records in order to renew their licences and maintain active status.

What new anti-money laundering rules, key amendments or other rules do those operating in the UAE need to be aware of?

Assam: As I mentioned, there have been a number of significant changes to the UAE's legal landscape over the past few years. For example, in 2021 a dedicated court was introduced to deal with financial crime cases. The UAE's AML-CFT law (Federal Decree – Law No. 26 of 2021) and the regulatory framework for virtual assets (Law No. 4 of 2022 Regulating Virtual Assets) were also changed, in part to mitigate risks for the supervisory authorities of financial institutions, DNFBPs and virtual asset service providers.

Another important development was the adoption of the new Penal Code (Federal Decree-Law No. 31 of 2021) in January 2022 to complement the existing AML rules. And in December 2023, the Financial Services Regulatory Authority of the Abu Dhabi Global Market (ADGM) published amendments to its AML and sanctions rules and guidance.

It is worth noting that the UAE has now fully established an anti-money laundering reporting platform known as goAML, which allows FIs and DNFBPs to file suspicious activity reports when they suspect they are handling funds linked to crime.

Finally, the DFSA has published its business plan for 2023 to 2024. The plan focuses on supervising firms' compliance systems and controls, assessing financial crime risk in digital assets, and pursuing firm but fair enforcement in order to maintain market integrity.

How do you think these developments affect investment in the UAE?

Heba: As Assam has made clear, the UAE has prioritised the review of its compliance framework and has taken steps to ensure a more robust regulatory environment over the past two years. The UAE's removal from the grey list demonstrates its commitment to countering money laundering and terrorist financing, which should increase investor confidence. We anticipate greater inflows of foreign capital and lower long-term compliance costs.

How will the changes affect maintaining an entity in the UAE?

Rensche: We anticipate that companies operating in the UAE will place greater emphasis on ongoing regulatory compliance. Initially, this may lead to an increase in costs and in the legal burden. In the long run, however, those efforts can deliver considerable benefits for organisations by reducing local risk and compliance costs, while also putting them in a good position to operate effectively across different regions.

Are the changes being made the same across the UAE?

Heba: The UAE has implemented these changes across its main jurisdictions, including the DIFC (Dubai International Financial Centre) and the ADGM.

These jurisdictions have taken a variety of measures, such as the establishment of the Executive Office of Anti-Money Laundering and Countering the Financing of Terrorism, which is responsible for improving the UAE's AML legal and regulatory framework.

In addition, new AML guidance for FIs and DNFBPs has been introduced to raise awareness of the importance of complying with anti-money laundering regulations and of the related penalties for breaches. The FATF has acknowledged that the UAE has made significant progress in strengthening and maintaining a common standard on money laundering and terrorist financing risk across the various sectors and institutions of its economy.

How do AML requirements in the UAE differ from those in other jurisdictions, and who are the main regulators?

Assam: It is perhaps worth repeating that, by being removed from the FATF grey list, the UAE has demonstrated that its core AML requirements are aligned with international standards. The FATF's requirements play an important role in ensuring that all jurisdictions maintain robust compliance frameworks, covering the core AML principles as well as the more recent proliferation financing and virtual asset requirements.

The UAE has federal-level regulations governing the country, with guidance implemented through federal laws setting out the measures that regulated entities must take to counter money laundering and terrorist financing.

What may differ between the UAE and other jurisdictions, however, is that different competent authorities govern different free zones, along with their specific regulatory requirements. As Heba mentioned, two important free zones in the UAE are the DIFC and the ADGM, both of which have their own regulator with specific regulations. Needless to say, companies operating in the UAE will want to seek local guidance to ensure they understand the requirements and mitigate risk on the basis of their current and planned activities.

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