Terror-funding: FATF removes the UAE from the “gray list”
Virendra Pandit
New Delhi: In a quick turnaround, the Paris-based Financial Action Task Force (FATF), the global watchdog probing money laundering and terror funding, on Friday, removed the United Arab Emirates (UAE) from its dirty money list.
India can now heave a sigh of relief because Pakistan-sponsored terror gangs were allegedly getting their dirty money routed through the UAE.
The landmark decision could lead to smoother foreign currency transactions, lower inter-bank fees, and increased trade and investment, Moody’s Analytics Industry Practice lead Mohamed Daoud was quoted in the media reports as saying.
The FATF’s decision came less than two years after the Gulf state’s demotion, capping a push by local authorities to clamp down on illicit financial flows.
The watchdog highlighted how the oil-rich country had strengthened its regime for anti-money laundering and combating terrorist financing. “The UAE is therefore no longer subject to the FATF’s increased monitoring process,” it said in a statement.
“Even so, don’t expect the international compliance community to immediately change the way it interacts with the country,” Daoud said.
“Think of it as a gradual thawing, not an instant spring,” he said. “Specific actions by the UAE, reactions from other nations and financial institutions, and even global geopolitical shifts will all influence the size of the benefits.”
Following its latest review, the FATF placed Namibia and Kenya on the gray list.
For the UAE, which was added to the list of jurisdictions under increased monitoring in March 2022, the de-listing marks a rapid turnaround. A Bloomberg investigation at the time chronicled Dubai’s status as a destination for some of the world’s wealthiest exiles.
The gray-list exit would be particularly welcomed by Wall Street banks, many of them with large operations in the UAE. They’ve grappled with increased compliance costs since the designation, forcing some to outsource more functions to India.
The move will increase the international community’s confidence in the UAE’s financial sector and enhance the flow of foreign direct investment in different sectors, UAE Banks Federation Director-General Jamal Saleh said.
Gray listings have historically led to a “statistically significant reduction in capital flows,” according to a 2021 report by the International Monetary Fund, though the wealthy UAE weathered the designation better than most countries.
Still, the UAE is keen to avoid the fate of Panama, which was removed from the gray list in 2016 only to get demoted again three years later. Kenya, too, has previously been on the gray list.
“The UAE’s fight against financial crime isn’t over with its removal from the list,” Daoud said. “It is crucial for long-term progress that it maintains its robust AML/CFT regime – especially with the next round of rigorous FATF evaluations approaching in 2026.”
The UAE also leveraged its role in hosting Expo 2020 to sign more international cooperation agreements, paving the way for high-profile extraditions of individuals accused of white-collar crimes back home.
After the initial wave of inflows, the UAE’s banks began tightening scrutiny on various nationalities, including Russians, as the government pushed to exit the list.
The government said it imposed almost 250 million dirhams (USD 68 million) in AML/CFT fines from January to October 2023, representing a more than three-fold increase from the year before.
