UAE removed from FATF ‘grey list’ of jurisdictions subject to increased monitoring

The Financial Action Task Force (FATF), the global anti-money laundering watchdog, announced at its Plenary meeting on 23 February that the United Arab Emirates (UAE) had been removed from its ‘grey list’ of jurisdictions subject to increased monitoring due to significant progress in improving its anti-money laundering and countering the financing of terrorism (AML/CFT) regime.

Grey-listed jurisdictions have committed to implement an Action Plan to resolve swiftly the identified strategic deficiencies in their AML/CFT regimes within agreed timeframes and are subject to the FATF’s increased monitoring process.

The UAE was added to the grey list in March 2022 after it had made a high-level political commitment to work with the FATF and the Middle East & North Africa Financial Action Task Force (MENAFATF) to strengthen the effectiveness of its AML/CFT regime to address the deficiencies identified by the FATF in 2020 Mutual Evaluation.

At its October 2023 plenary, the FATF made the initial determination that the UAE had substantially completed its Action Plan and therefore warranted an on-site assessment to verify that the implementation of AML/CFT reforms had begun and was being sustained, and that the necessary political commitment remained in place to sustain implementation in the future.

As a result of this on-site assessment, the FATF concluded that the UAE had met the commitments in its Action Plan, including by:

• Increasing outbound Mutual Legal Assistance (MLA) requests to facilitate ML/TF investigations.
• Improving understanding of Money Laundering and Terrorist Financing (ML/TF) risks of Designated Non-Financial Businesses & Professions (DNFBP) supervisors, applying effective and proportionate sanctions for AML/CFT non-compliance involving Financial Institutions and DNFBPs, and increasing Suspicious Transaction Report (STR) filing for those sectors.
• Developing a better understanding of risk of abuse of legal persons and implementing risk-based mitigating measures to prevent their abuse.
• Providing additional resources to the Financial Intelligence Unit (FIU) to increase its capacity to provide financial intelligence to Law Enforcement Agencies (LEAs) and making greater use of financial intelligence, including from foreign counterparts, to pursue high-risk ML threats.
• Increasing investigations and prosecution of ML.
• Ensuring effective implementation of Targeted Financial Sanctions (TFS) through sanctioning non-compliance among reporting entities and demonstrating a better understanding of United Nations’ sanctions evasion among the private sector.

The UAE is therefore no longer subject to the FATF’s increased monitoring process but will continue to work with MENAFATF to sustain its improvements in its AML/CFT system.

“This is very good news for the UAE, which should be congratulated for taking strong and credible steps to ensure its speedy removal from the grey-list,” said Simon Gordon, Managing Director of Sovereign Corporate Services Dubai. “The most significant implication for grey-listed jurisdictions is the reputational damage to the country because its effectiveness in combatting financial crime is deemed to be below international standards. This can also lead to consequential actions in respect of cross-border transactions.

“Although the FATF does not require enhanced due diligence measures to be applied to jurisdictions that are grey listed, it does ask other countries take account of it in their risk analysis. This means that institutions based in a grey-listed country that engage in cross-border trade and other activities may be subject to higher levels of customer due diligence by foreign financial institutions in terms of vetting clients and understanding the sources of their funds.”

The FATF also removed Gibraltar, Barbados and Uganda from its grey list but, following review, it decided to add Kenya and Namibia.

Among the key outcomes of the Plenary was the issue of a new risk-based guidance for the implementation of Recommendation 25 on the beneficial ownership and transparency of legal arrangements. This completes the FATF’s body of work to enhance transparency of beneficial ownership globally and prevent criminals and terrorists from hiding their activities and funds behind complex corporate structures and legal arrangements such as trusts.

The guidance complements the existing guidance on Recommendation 24 on legal persons and aims to help stakeholders from the public and private sectors that are involved in trusts or similar legal arrangements to assess and mitigate money laundering and terrorist financing risks.