Analysing the UAE’s removal from the FATF’s grey list

The Financial Action Task Force (FATF) maintains a list called "jurisdictions under increased monitoring," also known as the grey list. This list identifies countries or jurisdictions with weaknesses in their anti-money laundering and counter-terrorism financing (AML/CFT) regimes. Such weaknesses include insufficient laws, regulations or enforcement mechanisms to combat financial crimes. The grey list serves as a warning to these countries, encouraging them to take immediate and effective actions to address the identified deficiencies and improve their AML/CFT frameworks to meet international standards and expectations.

The UAE’s removal from the FATF’s list demonstrates its commitment to strengthening its financial regulatory framework and is a significant step towards restoring global confidence in its ability to combat money laundering.

To understand the potential impact of the UAE's removal from the grey list, we interviewed three financial professionals based in the Middle East. Our discussion covered how the UAE’s removal could affect existing entity owners, regulatory complexities, compliance obligations and more.

What led to the Financial Action Task Force dropping the UAE from its grey list?

Assam: The FATF added the UAE to its grey list in March 2022 and provided recommendations to help the country get back in good standing and removed from the list. Key UAE government offices and regulatory authorities then actively engaged with the UAE business community to implement the FATF’s recommendations effectively.

While maintaining core regulatory requirements, the UAE updated guidelines for financial institutions and designated non-financial businesses or professions [DNFBPs], demonstrating their commitment to enhancing the country’s commercial regulatory framework across key sectors.

Additionally, UAE authorities have engaged in an ongoing legal and regulatory communications campaign, highlighting new and updated requirements. Communications have included training seminars, followed by guidance documents and questionnaires. A key element of these efforts has been UAE regulators increasing the frequency of their assessments. When they’ve uncovered significant failures in required regulatory controls, remediation actions and hefty fines have followed. In March 2023, for example, the MOE [Ministry of Economy] imposed fines worth 22.6 million AED on 29 companies operating in the DNFBP sector for failing to comply with AML-CFT legislation.

What are some specific positive effects of these initiatives and enforcement efforts?

Assam: They helped the commercial landscape to thrive while ensuring a higher standard of AML due diligence in both the public and private sectors. They are a big factor in why the UAE continues to evolve and grow as a major player in the global economy.

To give a specific example, in January the UAE and the United Kingdom strengthened their economic ties. H.E. Abdulla bin Touq Al Marri, the Minister of Economy, had a meeting with H.E. Greg Hands, the British Minister of State for the Department of Business, Energy, and Industrial Strategy. They discussed new opportunities for economic and investment cooperation, as well as ways to deepen collaboration at the private-sector level. I don’t think that would have happened without the UAE’s recent regulatory initiatives and stricter enforcement.

Will the UAE’s strengthening of its controls affect existing UAE entity owners?

Rensche: When establishing and incorporating an entity in the UAE, it is mandatory to identify the ultimate beneficial owner [UBO]. Owners of existing entities must have already revised their records to renew licenses and maintain operational status.

What are the key new or revised anti-money laundering rules or other rules that those operating in the UAE need to be aware of?

Assam: As I mentioned, there have been several significant changes to the UAE’s regulatory landscape in the last few years. In 2021, for example, a dedicated court was implemented specifically to address financial crime cases. The UAE’s AML-CFT Law [Federal Decree-Law No. 26 of 2021] and its legal framework for virtual assets [Law No. 4 of 2022 Regulating Virtual Assets] were also changed, in part to mitigate risks for supervisory authorities of financial institutions, DNFBPs and virtual assets service providers.

Another significant development was the adoption of a new penal code [Federal Decree-Law No. 31 of 2021] in January 2022 to complement existing AML rules. And in December 2023, the Financial Services Regulatory Authority of the Abu Dhabi Global Market [ADGM] announced revisions to its AML sanctions rules and guidance.

It’s also worth mentioning that the UAE has now fully established an anti-money laundering reporting platform known as goAML, which allows financial institutions and DNFBPs to file suspicious activity reports [SARs] when they suspect they’re dealing with funds related to crime.

Finally, the DFSA published its business plan for 2023 to 2024. The plan focuses on monitoring companies’ compliance systems and controls, assessing financial crime risks in digital assets, and pursuing firm-but-fair enforcement to uphold market integrity.

How do you think these developments affect investment in the UAE?

Heba: As Assam made clear, the UAE has prioritised reviewing its compliance framework and taken steps to ensure a more robust regulatory environment in the last two years. The UAE's removal from the grey list signifies its commitment to combatting money laundering and terrorist financing, which will increase investor confidence. We anticipate that there will be greater foreign capital inflows and reduced long-term compliance costs.

How will the changes affect maintaining an entity in the UAE?

Rensche: We anticipate that firms operating within the UAE will place a greater emphasis on ongoing regulatory adherence. Initially, this might lead to a rise in regulatory costs and burdens. In the long term, however, those efforts could greatly benefit organisations by lowering their local compliance risks and costs and putting them in a good position to operate effectively across different regions.

Are the changes that are being put in place the same across the UAE?

Heba: The UAE has implemented these changes across its primary jurisdictions, including the DIFC [Dubai International Financial Centre] and ADGM.

These jurisdictions have taken various measures, such as forming the Executive Office to Combat Money Laundering and Terrorist Financing, which is responsible for improving the UAE's AML legislation and regulatory framework.

Additionally, new AML guidelines for financial institutions and designated non-financial businesses and professions have been introduced to raise awareness about the significance of adhering to anti-money laundering regulations and the associated penalties for violations. FATF has acknowledged that the UAE has made significant progress in enhancing and maintaining a shared standard of the money laundering and terrorist financing risks across various sectors and institutions in the economy.

How do AML requirements differ in the UAE compared to other jurisdictions, and who are the key regulatory authorities?

Assam: It’s probably worth repeating that by being removed from the FATF’s grey list, the UAE has demonstrated that its core AML requirements are in line with international standards. The FATF requirements play a crucial role that ensures all jurisdictions maintain a robust compliance framework, which encompasses core AML principles, as well as proliferation financing requirements and the recent virtual asset additions.

The UAE has federal-level regulations that govern the country, with guidelines implemented through federal law that outline the measures regulated entities must take to combat money laundering and terrorism financing.

However, what can differ between the UAE and other jurisdictions are the various authorities that manage the different free zones, along with their specific regulatory requirements. As Heba mentioned, the two key free zones in the UAE are the DIFC and the ADGM, both of which have their own regulators with specific rules. Needless to say, firms operating in the UAE will want to seek local guidance to ensure they understand requirements and minimise risk based on their existing and planned activities.