The United Arab Emirates is set for inclusion on a global watchdog’s “gray list” after some of its members indicated that the Gulf nation hadn’t made enough progress in tackling illicit financial flows, according to people familiar with the matter, says a report published in Bloomberg.
At least three members of the Paris-based Financial Action Task Force have expressed the view that the UAE hasn’t done enough to exit the review process and therefore will likely get put on the group’s list of countries subject to more oversight, said the people, who requested anonymity as the matter is private.
A gray-list classification isn’t as punitive as the group’s highest-risk “black list,” and it suggests that UAE officials are taking steps to address the country’s current deficiencies, the people said.
Still, the decision is potentially the most significant step to be taken by the FATF in its three-decade history, given the UAE’s position as a regional financial center. FATF, set up by the Group of Seven major economies, has some two dozen nations — including Turkey, Zimbabwe and Albania — on its gray list, with Iran and North Korea on the black list.
The UAE government said it will release an official response once the decision is out. A spokesperson for FATF said its internal deliberations are confidential.
For the UAE, being gray-listed would be a setback at a time when it faces greater competition from neighboring Saudi Arabia, which is growing its financial markets and taking steps to lure more investment.
In practical terms, a gray-listing would force Wall Street banks, which use Dubai as their regional headquarters, to dedicate additional resources to compliance in order to avoid future penalties from international regulators. The decision could also have an impact on Abu Dhabi, the nation’s capital and home to sovereign wealth funds with more than $1 trillion of assets.
A report by the International Monetary Fund last year found that gray-listed countries experienced “a large and statistically significant reduction in capital inflows.”
The potential fallout in the UAE could be difficult to quantify, though, as financial firms may already approach the country as a higher-risk area, Katherine Bauer, a former Treasury Department official who led the U.S. delegation to FATF’s regional partner in the Middle East and North Africa, told Bloomberg in January.
Significant Steps
Since warnings by the FATF in 2020 as part of the group’s mutual-evaluation report, the UAE government has stepped up efforts to better align with global standards on anti-money laundering and countering terrorist financing.
Emirati officials set up an Executive Office led by Hamid Al Zaabi to combat illicit flows, working in partnership with other FATF members. Al Zaabi has said previously that the UAE is fully committed to upholding the integrity of the international financial system.
The UAE collected over $1 billion in anti-money laundering and terrorist financing penalties last year, state-run WAM news agency reported Thursday. “Several major legal amendments were recently adopted, including the anti-money laundering law that includes wider powers related to confiscations, as well as controlling virtual assets,” WAM reported, citing Al Zaabi.
