FATF announces decision to remove the United Arab Emirates from its grey list

Commentary by Mohamed Daoud, Industry Practice Lead, Moody’s Analytics.

It was announced at the Financial Action Task Force’s (FATF) plenary meeting in February this year that the United Arab Emirates (UAE) has successfully exited the watchdog’s grey list. The country has been working diligently over the last two years to strengthen its Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) legal and regulatory framework to address deficiencies identified by the FATF and implement recommended additional measures.

In a significant push against financial crime, the UAE has implemented key reforms including: strengthening its legal and regulatory framework in revising existing laws and enacting new legislation to comply with the FATF standards; boosting international cooperation for the exchange of information; enhancing the risk-based approach (RBA) analysis and identifying and prioritizing high-risk areas; addressing risks related to shell companies and proliferation financing; ensuring effective implementation of targeted financial sanctions; developing strategies to prevent the misuse of legal entities; and empowering the Financial Intelligence Unit in stepping up investigations and legal prosecutions. These advancements demonstrate the UAE's commitment to combating money laundering and terrorist financing. 

The FATF’s grey list is a list of jurisdictions that have been placed under increased monitoring for having strategic deficiencies in a country’s respective AML/CFT framework. For a country to exit the list, its financial services and non-financial services sectors would have to work in tandem with the government, regulators, and international community to effectively mitigate weaknesses and gaps within an agreed timeline. The FATF will conduct reviews to assess a country’s progress in implementing any additional AML/CFT recommendations or measures.

Following the announcement that the UAE is no longer under increased monitoring by FATF, we can expect to see some shifts in various areas:

• The removal sends a clear signal that the UAE is committed to tackling money laundering and terrorist financing, which could ease the foreign currency transactions from redundant due diligences.
  
  
• Exiting the FATF grey list could lead to significant benefits for the UAE.
  
  
  • Firstly, it would enhance trust in the country's financial system, potentially lowering fees for international inter-banking transactions.
    
    
  • Secondly, it could stimulate trade and investment by alleviating concerns about potential sanctions evasion risks. For example: Fearing the misuse of shell companies as a way for entities or individuals to evade sanctions restrictions, financial institutions may find it challenging to justify large transactions for companies formed within the past two years to their USD correspondent banks. UAE’s removal from the FATF grey list would demonstrate that UAE financial institutions have shown improvements in monitoring the beneficial owners and enhanced scrutiny of company profiles at onboarding, mitigating these concerns and enabling smoother facilitation of legitimate trade and investment.
     
• While the decision to rate entities as high-risk could stem from intangible factors like subjective assessments, misinterpreted recommendations, and unclear sanctions, removal should not guarantee complete normalization. Some counterparties might continue imposing enhanced due diligence due to lingering concerns about AML/CFT risks.
  
  
• The UAE's removal from FATF’s grey list is positive news, however immediate changes in the international compliance community's approach may not be apparent. Adjustments are likely to be gradual. Implementing updated revised AML/CFT measures within individual counterparties naturally takes time, so some benefits might lag behind the official announcement.

The news of the UAE’s removal from the list carries promising possibilities, but its true impact hinges on various factors: Specific actions taken by the UAE, reactions from other countries and financial institutions, and even the global geopolitical situation will all play a role in shaping the outcome. While potential consequences exist, it's crucial to remember that the actual impact remains nuanced and multifaceted.

Finally, even though the UAE has left the grey list, its fight against financial crime is far from over. The looming fifth round of FATF evaluations in 2026 – requiring year-long preparations – will ensure continued scrutiny and compliance demands. Despite the challenge, the UAE should remain committed to upholding its strong AML/CFT regime, ensuring long-term progress beyond leaving the grey list.

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