UAE: Placement in FATF’s “Grey-list” and UK high risk third countries list

By Christina Poursanidou, EU Qualified Lawyer and FCC Officer
As presented by FATF’s Mutual Evaluation Report[1] in early 2020, the UAE is exposed to significant ML and TF risks, due to its cash intensive economy, the large size of its financial sector, the expansion of the FFZs and the big volume of trade in gold and precious stones. Despite the significant improvements made by the UAE, there are still significant deficiencies and fundamental improvements are needed, in order to demonstrate that the system cannot be used for illegal purposes. Last month, UAE made a high-level political commitment to strengthen the effectiveness of its AML/CFT regime. Although, during March 2022 the seat of UAE in AML Compliance map was going to change significantly.

The starting point was when FATF, on 4th of March, placed UAE into its list of countries subject to increased monitoring, the so-called “grey list”. Greylisted jurisdictions are under increased monitoring by FATF, while they are actively working to address strategic deficiencies in their regimes to counter ML/TF, within agreed timeframes. Despite the fact that being placed in FATF’s “grey list” has negative impact on a UAE’s economy, i.e  reduce of capital inflow, lower of foreign direct investment and portfolio flow[2], as well as on the reputation of the country, being greylisted does not mean that UAE is subject to enhanced due diligence measures. It is just a warning given to the country, due to its doubtful position towards ML/TF and other threats that may pose risk to the integrity of the global financial system.

Two weeks later, on 17th of March 2022, the bad news for UAE was yet to come from the UK HM Treasury, which mirroring the FATF’s decision, added the UAE in the list of high risk third countries. This listing, on contrary with the FATF’s “grey list”, has direct effect on the UAE companies, individuals and any other entities transacting with UAE. In detail, this means that all UK regulated entities, as of 29th of March 2022, have to apply enhanced customer due diligence measures and enhanced ongoing monitoring in any business relationships with a person established in the UAE or in relation to any relevant transaction where either of the parties to the transaction is established in the UAE[3].  The regulated entities shall act promptly, adjust the HM Treasury’s advice in their policies and procedures, reassess their existing UAE clients, and apply enhanced due diligence to all the new UAE customers.

The impact of the placement in the FATF’s “grey list” and UK high risk third countries list to the UAE’s economy will be immediate and decisive.  The most interesting point of these listings is their timing.  While the US, UK and EU have imposed unprecedented sanctions on Russia, in response to the invasion of Ukraine, UAE has become a hotspot for Russians avoiding sanctions, with the incorporation of companies, purchase of property and applications for UAE passports/visas in “sanction - free” UAE being significantly increased during the last weeks. Clearly, the timing of FATF’s decision is perfect, since the need to apply enhanced due diligence to UAE is greater than ever.

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