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After spending two years under increased monitoring by the Financial Action Task Force (FATF), the United Arab Emirates (UAE) is aiming to ensure that it does not return to the greylist by establishing two new authorities.
Lawmakers in the UAE have introduced legislation that will lead to the creation of two new agencies to combat money laundering.
On Sunday (August 11), the UAE government issued a federal decree that will amend certain provisions of the 2018 law on Anti-Money Laundering and Combating the Financing of Terrorism.
It promises the creation of a National Committee for Combating the Financing of Terrorism and Financing of Illegal Organisations, and a Supreme Committee for the Oversight of the National Strategy for Anti-Money Laundering and Combating the Financing of Terrorism.
The national committee will have a general secretariat, whose secretary-general will serve as the vice-chair of the national committee and a member of the supreme committee.
Through the secretary-general, the work of both committees aims to be mutually reinforcing.
As outlined by the UAE government media office, the supreme committee will have several key mandates that will aim to strengthen the country’s anti-money laundering (AML) regime.
The supreme committee will study, monitor and evaluate the effectiveness of strategies and measures implemented by the national committee and other relevant agencies.
It will use this supervisory role to determine future measures and requirements that should be met by the national committee.
It will also oversee the development of a mutual evaluation report assessing the country's compliance with international AML and counter-terrorism financing (CTF) standards, and will follow up on the implementation of measures to align with these standards.
UAE resurgent after FATF greylist removal
The federal decree and the creation of the two committees signals the UAE’s desire to stay off the FATF greylist and pursue its aim to become a global financial hub.
In March 2022, FATF placed the UAE on its list of jurisdictions under increased monitoring due to “strategic deficiencies” in its AML regime.
To resolve these deficiencies, the UAE government agreed to implement a FATF action plan based on seven key targets.
The UAE was required to demonstrate a “sustained increase” in the number of outbound mutual legal assistance (MLA) requests to other jurisdictions, facilitating the investigation of money laundering, terrorist financing and other high-risk predicate crimes.
It also had to show an increase in the number and quality of suspicious transactions reports (STRs) filed by financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs).
In February 2024, FATF announced that the UAE had made “significant progress” in improving its AML/CTF regime and was no longer under increased monitoring.
UAE agencies had built up a track record of “effective and proportionate” sanctions for non-compliance with AML/CTF laws by FIs and DNFBPs, FATF said.
They had also ensured “effective implementation” of targeted financial solutions (TFS) to monitor private-sector reporting entities and promote greater compliance with the UN sanctions programme.
As seen in Australia, another jurisdiction that is under threat of increased monitoring, a FATF greylisting can seriously impact a nation’s economy due to its effect on capital flows.
According to a 2021 study by the International Monetary Fund (IMF), when a country is greylisted its capital inflows decline by an average of 7.6 percent.
It also found that foreign direct investment (FDI) inflows decline on average by 3 percent and portfolio inflows decline on average by 2.9 percent.
So far, however, the UAE appears to have escaped a similar downturn. In 2022, according to the Ministry of Economy, the UAE received $22.7bn in FDI inflows, a 10 percent increase over the previous year.
However, from 2022 to 2023, according to World Bank data, UAE’s GDP fell from $507bn to $504bn, a decline of 0.6 percent.
UAE’s ambitions still intact
In the UAE’s case, two years of greylisting appears to have done little to derail the country’s aspirations to become a global financial hub.
In 2020, the Central Bank of the UAE (CBUAE) opened a FinTech Office, whose aim is to establish the UAE as the foremost fintech hub regionally and globally.
In 2023, the CBUAE followed up by launching the Financial Infrastructure Transformation (FIT) programme to accelerate the digitalisation of the country’s financial services sector.
The first stage of the FIT programme included the launch of a domestic card scheme, an instant payments platform, and will include a forthcoming launch of a central bank digital currency (CBDC) for domestic and cross-border use.
Also in 2023, the Abu Dhabi Global Market (ADGM) announced that assets under management by funds operating in Abu Dhabi had grown by 35 percent.
“ADGM has declared 2023 as a year of success for the international financial centre of the UAE’s capital,” the regulator said, “highlighting its performance as the fastest-growing financial centre in the region for two consecutive years, as well as Abu Dhabi’s rise as a globally recognised financial hub.”
