On 4th March 2022, the United Arab Emirates (UAE) was added to the list of jurisdictions under increased monitoring (Grey List) by the Financial Action Task Force (FATF).
Grey Listing is typically applied to countries with gaps in their anti-money laundering (AML)/countering the financing of terrorism (CFT) regimes, but where commitments have been made for swift resolution of these gaps.
It should be noted that from 2020 onwards, the UAE demonstrated significant progress and commitment at the highest level in its fight against money laundering (ML)/the financing of terrorism (FT). Most of the key recommended action points from the previous Mutual Evaluation Report (MER) were addressed; however, demonstrating effectiveness requires time for the structural and policy changes to bear fruit.
What is the impact of Grey Listing on the UAE?
The critical impact is likely to be increased compliance costs for some financial institutions as correspondent banks increase their levels of due diligence and monitoring.
Grey Listing is typically viewed as impacting countries adversely. Some studies, including a recent IMF Working Paper, cite the impact of capital inflows as investors may use the Grey Listing to measure risk. However, the effect on the UAE is likely to be limited based on the UAE’s relative economic strength and stability compared to previously Grey Listed countries.
Businesses with high exposure and reliance on foreign investment and trade may experience increased compliance costs. Regulated financial institutions and designated non-financial businesses and professions (particularly in the real estate sector) should anticipate increased scrutiny from regulatory authorities.
The UAE has committed to implementing the recommendations of the International Cooperation Review Group’s (ICRG) Action Plan to remove itself from the Grey List swiftly. This includes seven key steps: a sustained increase in effective investigations and prosecutions of various money laundering cases consistent with UAE’s risk profile.
As the regulatory scrutiny increases, companies in the UAE should revisit their ML/FT risk assessments, understand gaps and work to address them as soon as possible.
For any support required, please get in touch with KPMG’s team of dedicated subject matter experts who will be able to provide you with detailed guidance and insight.