UAE on track to exit FATF grey list

dubai – The UAE has made significant progress in implementing a suitable legal framework and creating a governing and reporting mechanism for anti-money laundering and combating the financing of terrorism laws, which will help the emirate to exit a grey list during the next reassessment by the Financial Action Task Force (FATF).

Analysts said moving the UAE into the FATF white list will place the nation along with the likes of Singapore in terms of compliance and enhance its profile. This will result in direct and indirect benefit to companies in sectors such as finance, real estate, gold, diamonds and other commodities.

The Paris-based FATF has recently issued its Mutual Evaluation Report, which took 14 months to complete and involved a visit to the UAE in July last year.

In October 2018, the President, His Highness Sheikh Khalifa bin Zayed Al Nahyan, ordered the creation of a financial information unit and a national committee to combat money laundering, the financing of terrorism and other illegal organisations. Both the information arm and the committee would be set up within the Central Bank of the UAE.

Nimish Makvana, senior partner at Crowe MAK and past chairman of the Institute of Chartered Accountants of India – Dubai Chapter, said the way the UAE’s progress is very good as regulatory framework has improved and strengthened.

“It is encouraging to read key findings which highlight that UAE has made significant improvements to its AML/ CFT system including developing the National Risk Assessment (NRA), addressing technical deficiencies in legislation and regulation, strengthening co-ordination mechanisms across the emirates, strengthening the Financial Intelligence Unit (FIU) and assigning supervisors for previously non-covered sectors in the past few years,” said Makvana.

In the last few years, the UAE has significantly strengthened relevant laws and regulations and has put in place strong mechanism, which is evident with the FATF’s 40 Recommendations of Technical Compliance Ratings where majority rating is compliant or largely compliant, as per the current Mutual Evaluation Report of FATF published in April 2020.

“The effective implementation of relevant laws and regulations resulted in strong compliance and we do not have any non-compliant Technical Compliance ratings unlike 2008 report which had non- compliant ratings in some of the aspects,” said Makvana.

Nirav Shah, director of Fame Advisory, said over last 5 years, all free zones are aware of money laundering but smaller free zones are not up to the mark.

“We have the framework in place but the only challenge is implementation and proper reporting. When FATF does the next review, they can consider the UAE for upgrade.”

Out of 40 technical compliance recommendation, Shah said the UAE is fully compliant on 11, largely compliant on 23 and partially compliant on six sections.

He said these six recommendations are to be acted upon in effective implementation to go towards white list.

“However, the UAE needs to ensure that same is followed is depth by each economic department and free zone licensing authorities in ensuring ultimate beneficial owner details and carrying out basic verification and records. Furthermore, since there are 39 licensing authorities across the UAE, the approach at each one is not consistent, hence, there is a need to further strengthen these practices,” said Shah.

He added that the UAE has created National Economic Register and this needs strong implementation to store centrally all basic information.

“National committee and NRA subcommittee need to use evolving risk analysis to identify and report transactions much earlier. We should encourage suspicious transaction reporting (STR) by precious metal and real estate sector which are seen as more vulnerable from ML and TF perspective,” he added.

“Thus, we have made strong progress in creating legal framework and monitoring authorities our implementation of these regulations effectively is awaited. It’s expected that with effective implementation by 2021, we should be complying with all necessary recommendations,” said Nirav Shah.