UAE and the Grey List: Brief Update

In March 2023, in the build up to the one year anniversary of the UAE’s inclusion on the Financial Action Task Force’s (FATF) “Grey List”, we took stock of the approach taken by the UAE’s main enforcement bodies towards money laundering related breaches in the intervening period.

Fast forward a few months and in June 2023, FATF issued its third Enhanced Follow Up Report (June 2023 EFUR) on the UAE, examining measures the UAE has introduced to comply with some of FATF’s more technical recommendations.

FATF. Grey List. Sounds familiar.

FATF is an intergovernmental organisation established to set recommendations and monitor global standards in respect of anti-money laundering (AML) and counter-terrorist financing (CFT). FATF as an organisation has formulated a framework of measures which countries should implement in order to combat money laundering. That framework is made up of 40 different “Recommendations” that member countries compliance are assessed against.

In April 2020, following an on-site visit in the UAE, FATF published a Mutual Evaluation Report (MER) in which it outlined its assessment of the UAE’s approach to combatting AML and CFT as against the FATF Recommendations.

The UAE devised a strategic National Action Plan to address FATF’s assessment and, in June 2021 and May 2022, FATF published EFURs grading the steps the UAE had taken to rectify FATF’s concerns. In between these reports, in March 2022, the UAE was placed by FAFT on its “Grey List” of countries under enhanced monitoring by FATF.

What was the focus of the June EFUR 2023?

Over the last two years the UAE has been implementing legislative and regulatory changes and developing leadership infrastructure in relevant areas in order to push forward and implement measures in  accordance with the National Action Plan.

Earlier this year, the UAE authorities submitted a request for FATF to reassess three Recommendations assessed as “Partially Compliant” in the MER and EFUR (see below). FATF reviewers analysed the information provided by the UAE authorities for technical compliance (not effectiveness, and the June EFUR 2023 sets out their assessment and conclusions.

The outcome of the June EFUR 2023

The UAE was upgraded to “Compliant” for Recommendations 19 and 29, and to Largely Compliant for Recommendation 1.

A snapshot of this assessment:

• Appropriate Risk Assessments and the Implementation of a Risk Based Approach to money laundering and terrorist financing (Recommendation 1)
  FATF observed that the UAE had addressed nearly all of the issues identified in this criterion, including distinguishing different risk factors for AML and CFT, as well as conducting complementary assessments on risks in the most relevant topics and sectors, strengthening the legal framework for virtual assets and staffing relevant organisations combatting money laundering and TF effectively. There remains only minor shortcomings in addressing the specific risks presented by trade based financing and organised criminal groups.
  
  
• Dealing with Higher Risk countries (Recommendation 19)
  FATF welcomed the UAE’s imposition of an obligation on Financial Institutions (FIs) to check updates of high-risk countries on FATF’s Grey and Black Lists, which include assessments of weaknesses in AML/CFT systems, as well as an electronic mechanism that ensures FI’s are informed of any weaknesses and follow the updates on an on-going basis.
  
  
• Utilising the Financial Intelligence Unit (FIU) (Recommendation 29)
  The UAE’s apparatus for collating and reviewing suspicious transaction reports (STRs) from FI’s is handled by the Financial Intelligence Unit (FIU). The MER and earlier EFUR’s had noted operational-centric approach of the FIU. The June EFUR acknowledges the significant development of the UAE’s strategic approach in utilising data obtained from STRs to help identify, target and analyse sectors at risk of money laundering and terrorist financing.

So, has the UAE been removed from the Grey List?

Not yet, but it is moving in the right direction. The UAE is now considered fully Compliant in 15 recommendations, Largely Compliant in 24, and Partially Compliant in 1. Ahead of the next FATF plenary meeting scheduled for April/May 2024, the UAE will need to continue to build on the good work it has done so far in implementing FATF’s technical recommendations, alongside the increased enforcement action in the country. As the UAE continues to introduce further enhancements to its AML/CFT capabilities (including the introduction of specialist prosecution units for economic crime), there is no reason to doubt that this will be done.