Analysis of the UAE’s Removal from the FATF Grey List

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

The Financial Action Task Force (FATF) maintains a list of "jurisdictions under increased monitoring", also known as the grey list. This list identifies countries or jurisdictions with weaknesses in their anti-money laundering and countering the financing of terrorism (AML/CFT) regimes. Such 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 improve their AML/CFT frameworks in order 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 combat money laundering.

To understand the implications of 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 de-listing could 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 regain good standing and be removed from the list. Key UAE government offices and regulators then actively engaged with the UAE business community to implement the FATF recommendations effectively.

While maintaining the 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  communication campaign highlighting new and updated requirements. The communications included training workshops, followed by guidance documents and questionnaires. A key element of these efforts was that UAE regulators increased the frequency of their assessments. Where they found serious failings in mandatory regulatory controls, they imposed remedial measures and heavy fines. For example, in March 2023 the Ministry of Economy (MOE) imposed fines totalling AED 22.6 million on 29 companies operating in the DNFBP sector for non-compliance with AML-CFT laws.

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

Assam: They have helped the business landscape to flourish while ensuring higher standards of AML due diligence in both the public and private sectors. They are a key factor in explaining why the UAE continues to grow as an important player in the global economy.

To take a concrete example, in January the UAE and the United Kingdom strengthened their economic ties. H.E. Abdulla bin Touq Al Marri, Minister of Economy, held a meeting with the Rt Hon Greg Hands, UK Minister for Business, Energy and Industrial Strategy. They discussed new opportunities for economic and investment cooperation and ways to strengthen 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 tighter 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, significant 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 regulatory landscape over the past few years. For example, in 2021 a specialised 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) have also been amended, 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 supplement the existing AML rules. And in December 2023, the Financial Services Regulatory Authority of Abu Dhabi Global Market (ADGM) announced amendments to its AML rules and sanctions 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 dealing with 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 risks relating to digital assets and pursuing firm but fair enforcement to maintain market integrity.

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

Heba: As Assam has made clear, over the past two years the UAE has prioritised reviewing its compliance framework and taken steps to ensure a more robust regulatory environment. The UAE’s removal from the grey list demonstrates the country’s commitment to combating money laundering and terrorist financing, which will boost 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 increased costs and regulatory burden. In the long term, however, these efforts could bring considerable benefits to organisations by reducing local compliance risks and costs, while placing them in a good position to operate effectively in other regions.

Are the changes being implemented uniformly across the UAE?

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

These jurisdictions have implemented various measures, such as establishing the Executive Office for Anti-Money Laundering and Counter Terrorism Financing, 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 penalties for violations. The FATF acknowledged that the UAE has made significant progress in strengthening and maintaining a common standard on money laundering and terrorist financing risks across a wide range of sectors and institutions in the 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 reiterating that by exiting the FATF grey list, the UAE has demonstrated that its core AML requirements are in line with international standards. FATF requirements play an important role in ensuring that all jurisdictions maintain robust compliance frameworks, covering core AML principles as well as proliferation financing requirements and the recent addition of virtual assets.

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 combat money laundering and terrorist financing.

What may differ between the UAE and other jurisdictions, however, is that different competent authorities regulate the various free zones, each with its own specific regulatory requirements. As Heba mentioned, the two major free zones in the UAE are the DIFC and ADGM, both of which have their own regulators with specific rules. Needless to say, companies operating in the UAE will want to seek local guidance to ensure they understand the requirements and mitigate risks based on their current and planned activities.

Translated by Vu Thu Ha – Centre 81, based on vistra.com