The global watchdog is considering whether to add the UAE, a major financial hub, to its list of countries under increased scrutiny.
Discussions are underway that could result in the United Arab Emirates being placed on a "gray" list of countries subject to increased scrutiny for failures to combat money laundering and terrorist financing, despite recent efforts by the government to stem criminal financial flows, a report said.
The Financial Action Task Force is considering adding the country to one of two classifications used by the global watchdog for nations determined to have “strategic deficiencies,” Bloomberg reported.
Such a move could hurt the UAE because it has built its reputation as a regional and international financial hub. To avoid falling foul of regulatory problems, the UAE has taken steps such as setting up a joint operations room as recently as December. (Editor's note: Much depends on how long a jurisdiction is on such a list and the prospects of it getting off it.)
At the time, Ahmed Ali Al Sayegh, Minister of State, said that the UAE continued to exert great efforts to combat money laundering, as part of which all concerned government agencies have joined forces to consolidate their capabilities to combat financial crimes around the clock.
“There are undoubtedly costs associated with being gray-listed,” Katherine Bauer, a former Treasury Department official who led the US delegation to the Middle East and North Africa Financial Action Task Force, a regional body modelled after the FATF, was quoted by the news service as saying.
“Many global regulators require that banks and financial institutions review, if not revise, their risk ratings and associated due diligence measures for counterparties in countries on the FATF list,” Bauer said.
If the FATF approved the designation, it would rank among the most significant moves in its 30-year history, the report said.
The UAE submitted a report to the regulator in November but did not attain many of the thresholds needed to stay off the gray list. The watchdog is expected to make a decision at a plenary meeting set for late February.
UAE officials plan to make their case to the FATF, including during a planned trip to Paris in upcoming weeks, the report said.
Some 23 countries are under closer scrutiny by the FATF, with only Iran and North Korea on its highest-risk "black" list. A "gray" listing applies to countries that have “strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing” but which are committed to address the issues “swiftly,” according to its website.
The UAE government has reportedly hired consultants including K2 Integrity, the New York-based firm whose leaders include Juan Zarate, who led efforts against terrorist financing and financial crimes at the US Treasury during George W Bush’s presidency. The UAE has also hired Vienna-based Financial Transparency Advisors, run by former FATF assessors Gabriele Dunker and Michael Stellini, and Richard Gould, formerly of the UK’s National Crime Agency, sources said.
A report by the International Monetary Fund last year found that gray-listing by the FATF leads to “a large and statistically significant reduction in capital inflows.”
US think tank the Carnegie Endowment described the UAE’s unwillingness to tackle corruption and money laundering as a global challenge needing addressing in a July 2020 report which stated that the wealth underpinning “Dubai’s prosperity is a steady stream of illicit proceeds borne from corruption and crime.”
Dubai, an emirate of the UAE, has become a major financial and wealth management hub now hosting a number of Western private banks and wealth managers, serving domestic high net worth and ultra-HNW clients as well as expats and those with cross-border interests. The UAE has enjoyed an upswing in its fortunes over recent years. Its relative success in managing COVID-19, and problems in places such as Hong Kong because of Beijing's security crackdown, have boosted the attractions of Dubai and the UAE.