On February 23, 2024, the Financial Action Task Force (“FATF”) removed the United Arab Emirates (“UAE”) from its list of jurisdictions under increased monitoring (the “Grey List”). As noted in our previous article (see here), FATF had intimated at its October 2023 Plenary that the UAE may be next off the Grey List as it had undertaken multiple key reforms to improve its overall anti-money laundering and combating the financing of terrorism (“AML/CFT”) compliance framework.

As set out in our previous article, the UAE had been on FATF’s Grey List since March 4, 2022 due to “strategic deficiencies” identified in the country’s efforts to counter money laundering and terrorist financing. FATF’s conditions to remove the UAE from the Grey List required the UAE to fully implement the recommendations set out in its action plan and the recent delisting represents a significant and well-deserved achievement for the UAE.

The Process for Additions To and Removals From the Grey List

FATF conducts Mutual Evaluations (“MEs”), which are peer reviews conducted with reference to the FATF Methodology. MEs assess the following:

1. An assessment of “effectiveness” by reference to 11 “Immediate Outcomes”, which include understanding risk (Outcome 1), international cooperation (Outcome 2), appropriate supervision (Outcome 3), deployment by financial institutions (“FIs”), Designated Non-Financial Businesses and Professions (“DNFBPs”) and Virtual Asset Service Providers (“VASPs”) of preventative measures that are commensurate with their risks (Outcome 4), availability to competent authorities of ultimate beneficial ownership information (Outcome 5), use of financial intelligence by authorities to investigate financial crimes (Outcome 6), proportionate and dissuasive prosecution of money launderers and terrorist financiers (Outcomes 7 and 9), confiscation of proceeds of crime (Outcome 8), and preclusion of raising, moving or using funds to further terrorism or proliferation of weapons of mass destruction (Outcomes 10 and 11).
2. An assessment of “technical compliance” with the Recommendations in the members’ relevant laws, regulations, and other legal instruments.[1]

Should a jurisdiction perform poorly during its ME, that jurisdiction will enter a review process and be afforded a one-year “Observation Period” to address deficiencies promptly and effectively and avoid a Greylisting. Should a jurisdiction be Greylisted, that jurisdiction must meet the commitments in its action plan sufficient that a majority of FATF’s membership (which, at the time of writing, comprises 40 members)[2] vote in favor of the delisting.

Key Reforms Undertaken by the UAE

On a regulatory level, the UAE undertook the following proactive initiatives to ensure the effectiveness of its AML/CFT framework:

1. In 2018, the UAE introduced Federal Decree Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations (the “AML Law”).[3] The AML Law was introduced to enhance the efficiency of legal and institutional frameworks in the UAE for combatting AML/CFT. Its application was notably broad as it extended to acts committed inside or outside of the UAE, and it ratified the creation of an independent Financial Information Unit (“FIU”) to coordinate suspicious activity and transaction reporting (“SARs/STRs”) within the UAE and with comparable units in other countries. The AML Law was later amended by Federal Decree Law No.26 of 2021.[4]
2. In 2020, Sultan bin Saeed Al Badi Al Dhaheri, UAE Minister of Justice, established specialized courts within the framework of the federal judiciary to hear money laundering and other financial crimes-related cases in Ajman, Fujairah, Sharjah, and Umm Al Quwain.[5]
3. In 2021, the UAE Cabinet approved the establishment of the Executive Office of the Anti-Money Laundering and Countering the Financing of Terrorism (“Executive Office”), which was intended to “oversee implementation of the UAE’s National AML/CFT Strategy and National Action Plan”.[6] At the same time, Abu Dhabi and Dubai rolled out their own specialized courts to hear money laundering cases. We previously wrote on the launch of the Executive Office and the specialized courts here.
4. Federal Law No. 31 of 2021 promulgating the Crimes and Penalty Law (the “Penal Code”) came into force in January 2022 and strengthened the UAE’s existing laws on AML, breach of trust, bribery, and fraud.
5. Financial services regulators have also published extensive guidance to FIs, DNFPBs and VASPs on AML/CFT best practices, such as, for example, the Central Bank of the UAE’s Guidance to licenced FIs on the risks associated with politically exposed persons (“PEPs”).[7]

Practical Effect of the UAE’s AML/CFT Initiatives

At the time of the UAE’s ME in 2020, the resultant Mutual Evaluation Report (“MER”) noted that “the elements of an effective AML/CFT system are in place but the required framework is relatively new and therefore it has not been possible to demonstrate the overall effectiveness of the system”.[8]

Since the MER, the above initiatives have translated into material improvements with respect to enforcement and compliance. For instance, in the first quarter of 2023, the UAE issued fines of more than AED 115 million (USD ~31 million) for AML/CFT violations, representing an increase of Dh39 million (USD ~10.5 million) from the previous year.[9] At the October Plenary, FATF recognized that the “UAE [had] substantially completed its action plan and [warranted] an on-site assessment to verify that the implementation of AML/CFT reforms”.

The outcomes of the FATF Plenary session can be found here, but in short, FATF praised the UAE for addressing its strategic deficiencies by:

1. Facilitating investigations through increased outbound mutual legal assistance (“MLA”) requests.
2. Developing the understanding of the AML/CFT risks associated with DNFPBs, leading to effective supervision, increased use of SARs/STRs, and proportionate sanctions for noncompliance.
3. Improving the understanding of the risk of abuse of legal persons and implementing risk-based mitigating measures.
4. Better resourcing the FIU to increase its capacity to provide and utilize financial intelligence.
5. Increasing AML enforcement.
6. Refining implementation of targeted financial sanctions by sanctioning reporting entities and developing understanding of UN sanctions evasion within the private sector.

Expected Positive Impact of the UAE’s Removal from the Grey List

An IMF Working Paper has concluded that the average negative impact of a Greylisting on a country’s capital flows is 7.6% of Gross domestic product (“GDP”).[10] 

It is, therefore, significant that the UAE has been able to achieve a delisting less than 24 months. The delisting is expected to have several positive impacts on investor confidence and the UAE’s economy overall. It signifies the UAE’s commitment to a best-in-class AML/CFT framework, addressing any previous concerns about financial transparency and bolstering the country’s reputation in the international marketplace, which is crucial for attracting foreign investment and fostering economic activity.

Other positives include the likelihood that international banks and other financial institutions will be more willing than before to engage in transactions with UAE counterparties. This should reduce transactional delays, alleviate some of the compliance costs to international actors of undertaking enhanced due diligence on UAE parties, and increase liquidity for UAE businesses by making borrowing more affordable.

Additional FATF Developments

Barbados, Gibraltar, and Uganda were also removed from the Grey List, having committed to implementing their action plans and to resolving their strategic deficiencies within agreed timeframes. Just like the UAE, these countries will no longer be subject to FATF’s increased monitoring process.

FATF also appointed Mexico’s Elisa de Anda Madrazo as its next President. Her tenure is scheduled to begin on July 1, 2024. She was previously the Attaché to the Mexican Embassy in Washington, D.C. and FATF Vice President.

Finally, FATF commented on its concern about the growing financial connectivity of Russia and countries subject to FATF countermeasures (Iran, Myanmar, and North Korea, which are all on FATF’s Black List) and cautioned all jurisdictions to remain vigilant to the associated risks posed to the global financial system, including the risks of proliferation financing, malicious cyber activities, and ransomware attacks.[11]

[1] FATF, Methodology for assessing compliance with the FATF Recommendations and the effectiveness of AML/CFT systems (June 2023), FATF Methodology 22 Feb 2013.pdf.coredownload.pdf (fatf-gafi.org).

[2] FATF, FATF Members, Who we are (fatf-gafi.org).

[3] United Arab Emirates Ministry of Foreign Affairs, MoE’s Laws and Regulations, Federal Decree Law No (20) of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organisations | Ministry of Economy – UAE (moec.gov.ae).

[4] United Arab Emirates Ministry of Foreign Affairs, Anti Money Laundering and Terrorist Financing (accessed on February 20, 2024), Anti Money Laundering and Terrorist Financing | Laws & Legislation | Ministry of Justice, UAE (moj.gov.ae).

[5] United Arab Emirates’ Government Portal, Combatting Money Laundering, Combatting money laundering | The Official Portal of the UAE Government.

[6] United Arab Emirates Ministry of Foreign Affairs, UAE Establishes Executive Office to Combat Money Laundering and Terrorist Financing (February 24, 2021), UAE Establishes Executive Office to Combat Money Laundering and Terrorist Financing (mofa.gov.ae).

[7] Central Bank of the UAE, BBUAE issues new guidance for licensed financial institutions on risks related to politically exposed persons (August 2, 2022), cbuae-issues-new-guidance-on-anti-money-laundering-and-combatting-the-financing-of-terrorism-for-licensed-financial-institutions-on-risks-related-to-politically-exposed-persons-en.pdf (centralbank.ae).

[8] FATF, Executive Summary Mutual Evaluation Report (2020), MUTUAL EVALUATION REPORT OF THE UNITED ARAB EMIRATES (fatf-gafi.org).

[9] The National, UAE issues more than Dh115 million in fines in Q1 of 2023 to combat money laundering (April 27, 2023), UAE issues more than Dh115 million in fines in Q1 of 2023 to combat money laundering (thenationalnews.com).

[10] The Impact of Gray-Listing on Capital Flows: An Analysis Using Machine Learning by Mizuho Kida and Simon Paetzold; WP/21/153 (https://www.imf.org/-/media/Files/Publications/WP/2021/English/wpiea2021153-print-pdf.ashx)

[11] FATF, Statement on the Russian Federation (February 23, 2023), https://www.fatf-gafi.org/en/publications/Fatfgeneral/fatf-statement-russian-federation-feb-2024.html.

The authors wish to thank Molly McKenna for her contributions to this post.