U.A.E. Placed on Global Watch List for Money Laundering, Terrorism Financing

DUBAI—A global watchdog censured the United Arab Emirates for not doing enough in confronting money laundering and terrorism financing activities, adding it to a list of countries requiring increased monitoring, in a blow to the Middle East nation’s image as a safe business and investment hub.

The Financial Action Task Force, a Paris-based intergovernmental body that audits the ability of nations to detect and disrupt illicit finance, on Friday clubbed the U.A.E. with 22 other countries, including Pakistan, Syria and Nicaragua, in a so-called gray list of jurisdictions that are deemed deficient but working with the FATF to improve. Zimbabwe was removed from the list.

FATF said the U.A.E. has committed to combating sanctions evasion, increasing resources to use financial intelligence to pursue money laundering, demonstrating a sustained increase in investigations and prosecutions of such activities.

The U.A.E. has “made a high-level political commitment” to strengthen the effectiveness of its regime, and over the past two years “has made significant progress…to improve its system,” the FATF said in a statement.

Following the announcement, the U.A.E. said it would work closely with the FATF to remedy the identified areas of improvement. “On this basis, the U.A.E. will continue its ongoing efforts to identify, disrupt and punish criminals and illicit financial networks in line with FATF’s findings,” the U.A.E.’s Executive Office of Anti-Money Laundering and Countering the Financing of Terrorism said.

FATF’s decision comes after years of pressure on the U.A.E. from Western governments and transparency advocates to limit its heavy reliance on cash transactions and crack down on illicit finance flows, particularly through Dubai, which has become a hub for foreign investment into real estate and the trade of gold and precious metals. The country’s role as a safe haven for wealthy individuals facing Western sanctions is also facing greater scrutiny amid U.S. efforts to counter Russia’s invasion of Ukraine and pressure Iran to abandon its nuclear program.

The U.A.E., a federation of seven emirates in the Persian Gulf, introduced a series of measures during the Covid-19 pandemic to make it and its major cities, Dubai and Abu Dhabi, more attractive to investment and foreigners, who make up roughly 90% of the country’s nearly 10 million residents.

In the past two years, the country has introduced a visa for freelancer workers, decriminalized cohabitation for unmarried couples and allowed alcohol consumption without a license. In January, it shifted its workweek to match much of the rest of the world. Dubai has attracted thousands of millionaires, drawn by zero income tax and relatively relaxed pandemic restrictions.

The U.A.E. is also using its economic prowess to build up foreign relations with Israel and rivals like Turkey and Iran.

Ahmed Al Sayegh,

U.A.E. Minister of State, said the country had already made significant progress in addressing FATF’s concerns by investing in regulators, law enforcement and financial intelligence, and is committed to ensuring those changes are sustained.

“This journey has begun, it’s taking off,” he said in an interview this week. “Its costs are beginning in some cases to mature, even, so we’re not going to start from scratch and scrambling.”

While the designation is a blow to its image as a secure financial hub, bankers in the U.A.E. said it would have little material impact in the short term on foreign investment or confidence in the country’s financial system.

Mohamed Damak, senior director at S&P Global Ratings, didn’t want to comment directly on the U.A.E., but said that when a country is on the gray list, the cost of cross-border funding and transacting with banks there may be higher, due to additional checks and compliance requirements. But most banks in the U.A.E. have already improved compliance and checks related to illicit finance in recent years, bankers said.

Mr. Sayegh said the listing wouldn’t negatively impact the U.A.E.’s economic growth: “Our economy is diverse, and the impacts of being in an increased monitoring situation are important, but they are not going to affect us.”

Should the U.A.E. fail to deliver on its FATF-monitored commitments, it risks even more damaging censure by the organization, a move that bankers said would be significant for investment and the country’s role as the region’s finance and business hub.

Iran’s failure to comply in 2020 made it subject to the FATF’s “high risk jurisdiction” blacklist, which brought with it FATF-encouraged sanctions that restricted Tehran’s access to the global financial system. That list also includes North Korea.

Write to Stephen Kalin at [email protected] and Rory Jones at [email protected]

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