The AML Watchdog recently added UAE (The United Arab Emirates) to the FATF grey list after it deemed that it had ‘strategic deficiencies in combating money laundering. The UAE is one of the most important centers for trade and commerce in the world. A lot of money flows through its economy every day, most of it from trade with other countries.
What is the FATF?
The G7 countries created the FATF, an intergovernmental body, in 1989. The purpose of the FATF is to keep a close eye on any cross-border money laundering activities taking place. Its duties have since expanded to creating policies to deter terror funding and money laundering in any country. There are 39 member countries in the FATF. The FATF currently has two lists- the grey list and the Black list- which it uses to classify countries of concern.
Countries on the FATF grey list do not suffer as severe repercussions as those on the Black List. Countries turning a blind eye toward the spread of blatant money laundering and terror funding are placed on the black list. The FATF has likely observed the beginnings of such activities in grey-listed countries. Placing a country on the FATF grey list serves as a sort of warning for them. If they do not take any action against the spread of such activities, the FATF will most likely move them to the Black List. The black list was formerly known as the “Call for action” list and the FATF Grey List “Other monitored jurisdictions”.
What happens to FATF grey-listed countries?
Though being on the FATF Grey List does not seem as severe as being on the Black List, these countries may still face some repercussions. Being placed on the FATF grey list comes with the stigma of being an unreliable trade partner. Many countries may reduce their trading channels to and from the affected country. They may also stop imports and exports to and from the Grey-listed country entirely. This can severely affect the country’s economy and international trade.
International bodies like the IMF and World Bank may also put financial and economic sanctions on the Grey-listed country. They may refuse to provide them with any loans until they start making serious efforts to combat these issues. The FATF may even blacklist the country if the government is not able to suppress the financial crimes taking place.
If a country doesn’t cooperate with the FATF, it blacklists them. They may either legally be unequipped, or unwilling to provide foreign law officials with any information regarding the current matters in their country. A country must also be willing to cooperate will all other member countries to help combat cross-border money laundering.
Why is UAE on the FATF grey list?
The FATF has recently placed UAE on its grey list. This is because of rampant money laundering taking place in the country, which is spiraling.
Excessive money laundering may actually drain the country of the funds obtained in trade. Criminals then use the laundered money to fund anti-social activities like drug trafficking, gang activities, and even terrorist activities. This decreases the confidence of the country’s partners in trade, who then refuse to further associate with it.
The UAE has an unfortunate geographical position. It is in close proximity to conflict and terror zones. The financial and commercial-free network of funds is also quite complex, which makes it an easy target for money-launderer. Unfortunately, many terrorist groups are raising funds from various sources- both legal and illegal- in the UAE.
Many wealthy businesses set in the UAE have been caught supporting and quietly funding Al-Qaeda, Haqqani, and Taliban activities. Though there is rare active terrorism in the UAE, it has still been cited as a place where money is quietly collected for militants. Just like the terrorist states like Afghanistan and Pakistan. Links to money laundering in the UAE and the tragic 9/11 attacks have also been found. This is the primary reason for UAE to be added to the FATF grey list.
To prevent any such anti-social activities from mushrooming, the UAE implemented a zero-tolerance terror funding policy. However, hidden dealings have still been taking place in the country, which ultimately led to their placement on the FATF grey list.
The UAE also holds a temporary seat on the Security Council, and in light of recent news, it abstained to vote on whether to take action against Russia or not for its transgressions. This act seems to have rubbed the FATF the wrong way. The FATF may have interpreted this as UAE choosing to keep good relations with Russia. In this case, funds laundered from Russia would have an accessible chancel through Dubai.
Measures were taken by UAE to reverse the ruling
The UAE initially filed a report to the FATF in November 2020. UAE plead to remove its name from the FATF grey list. Since then, the country has been taking various measures to more closely conform to the global mandates on anti-terror funding and money laundering. The Central Bank has tightened the reins, by placing fines on non-complying parties. They have also made their AML regulations stricter and placed more limitations on suspicious organizations.
The UAE has also pledged to look into suspicious activity more diligently, and report any such cases immediately. In a statement released by the UAE’s Executive Office of Anti-Money Laundering and Countering the Financing of Terrorism, the country declared that “The UAE takes its role in protecting the integrity of the global financial system extremely seriously and will work closely with the FATF to quickly remedy the areas of improvement identified,”
According to the executive office, these measures are having positive impacts and both the quality and quantity of investigations in money-laundering cases. The value of assets seized in relation to money-laundering so far has amounted to $65 million. This is including precious materials like gemstones and gold, which are easily available in the UAE. In fact, the gold market is regarded as the most exploited sector of money laundering. This is due to its rapid expansion in the 1990s, which led to the skimping of regulations, allowing criminals to take advantage of holes in the system.
Conclusion
All in all, UAE’s presence on the FATF grey list may in fact demotivate foreign investments. This status comes with the label of added surveillance and scrutiny. This in turn increases the costs of banks, which increases the cost of foreign transactions.
Though the UAE is currently on the FATF grey list, it is taking measures to rectify the situation at all costs. Spending a prolonged period of time may hurt its business hub image, which will affect international trade and its relations with other countries and intergovernmental bodies.
We will have to watch and see if the UAE manages to get itself out of this predicament. Will its measures be successful, or will the FATF eventually move it to the black list?
