In October 2023, it was reported that the United Arab Emirates (UAE) was set to be removed from the “grey list” maintained by the Financial Action Task Force (FATF), as the country had “substantially” moved towards implementing compliance reforms.
Countries on the grey list – officially known as Jurisdictions under Increased Monitoring – are those that are actively working with the FATF to improve weaknesses identified in their anti-money laundering (AML), counter-terrorist financing (CTF) and anti-proliferation financing regimes. When a jurisdiction is grey listed, it signals that country’s commitment to resolve the issues highlighted and agreement to come under increased monitoring.
What is the Impact of Being on The FATF Grey List?
The FATF is the intergovernmental organization established to combat money laundering and terrorist financing (ML/TF).
The FATF mutual evaluation process is a key mechanism through which the organization assesses its member countries' compliance with its recommendations. It involves peer reviews where countries evaluate each other's AML/CTF frameworks. The process begins with the country under review submitting a self-assessment report, followed by an onsite visit by a team of evaluators from other member countries or regional bodies. These evaluators assess the country's legal and regulatory framework, enforcement efforts, and overall effectiveness in combating financial crime.
The evaluation results in a report highlighting areas of strength and weakness, along with recommendations for improvement. Countries deemed non-compliant or deficient risk being subjected to FATF's public identification and potentially face consequences such as increased monitoring or sanctions.
Why Is the UAE on the FATF Grey List?
In April 2020, the FATF released the Mutual Evaluation Report (MER) for the UAE, conducted after an on-site visit in July 2019. Despite acknowledging the UAE's strengthened legal framework, the MER highlighted the imperative for the UAE, as a significant global financial center and trading hub, to urgently address the issue of the criminal financial flows it attracts.
Consequently, on March 4, 2022, the UAE was added to the list of jurisdictions under increased monitoring (also known as the “grey list").
Since then, the UAE has demonstrated concerted efforts to enhance its AML/CFT compliance. By July 6, 2023, as indicated in the Third Enhanced Follow-Up Report, FATF recognized notable progress, deeming the UAE "compliant" with 15 FATF Recommendations, "largely compliant" with 24 others, and "partially compliant" with one.
FATF's announcement during the October 2023 Plenary highlighted several key reforms implemented by the UAE, including:
- Enhancing its understanding of money laundering ML/TF risks
- Developing a more detailed understanding of the risk of misuse of legal entities and implementing risk-based measures to mitigate their misuse
- Increasing outbound Mutual Legal Assistance (MLA) requests to aid ML/TF investigations
- Allocating additional resources to the UAE Finance Intelligence Unit (FIU) to bolster its capacity in providing financial intelligence to law enforcement and leveraging financial intelligence, including from foreign counterparts, to combat high-risk ML threats
- Stepping up investigations and prosecutions of ML aligned with the country's risk profile
- Ensuring effective enforcement of targeted financial sanctions by penalizing noncompliance among reporting entities and enhancing private sector awareness of sanctions evasion
FATF's announcement at the October Plenary also indicated that an initial determination has been made that the UAE has substantially fulfilled its action plan, warranting an on-site assessment to confirm the initiation and sustainability of AML/CFT reforms' implementation. Furthermore, it underscores the importance of maintaining the requisite political commitment to sustain implementation in the future.
Why is Exiting the Grey List Significant for The UAE?
FATF “greylisting” can adversely affect a jurisdiction’s economy in various ways. It can lead to restrictions on cross-border transactions, hinder foreign investment, reduce market liquidity, pose challenges in accessing credit, and potentially elevate government borrowing.
The UAE has made commendable progress in enhancing its AML/CFT framework, as acknowledged by FATF's assessments and recent announcements. The ongoing commitment to implementing and sustaining reforms is crucial not only for maintaining compliance but also for safeguarding the UAE's financial integrity and economic stability in the global arena.
This being the case, the UAE is expected to be delisted at the next FATF Plenary (February 2024).