FATF’s Damning Mutual Evaluation of UAE

Dirhams UAE

FATF produced a highly critical Mutual Evaluation Report of the United Arab Emirates, noting that urgent action is need to combat money laundering terrorist financing proliferation financing in the UAE – which continues to attract financial flows with links to crime and terrorism.

As numerous US sanctions fines and penalties will attest, the UAE may well have become one of the newer financial hubs of the world, but its proximity to highly problematic neighbouring jurisdictions where crime and terrorism – particularly from a US sanctions and Western perspective – proliferate – still prove to be major challenges.

FATF’s report also revealed that the UAE’s regulators are averse to taking direct action to curb illicit practices, and that many of the predicate offences relating to money laundering and associated illicit actions that are covered in FATF’s own 2012 List or under United Nations Security Council Resolutions – are not as well understood as they should be.

For would-be global investors, these findings are far from surprising, but nor are they particularly welcome. With the US dollar the pre-eminent global currency, the no.1 reserve, commodities and foreign exchange medium, the spectre of poor governance in a hub like the UAE does not augur well. Investors must be reassured that jurisdictions have adequate capability and know-how to deal with global issues such as money laundering and sanctions breaches, and without this confidence, global investors (who will almost certainly have a US dollar or US presence) will think again before investing in jurisdictions with poor money laundering, terror financing, sanctions awareness and controls.

Although FATF does not relate specifically to US sanctions, as it operates under a different set of criteria – there is a common thread in terms of the United Nations Security Council Resolutions which underpin so much of the US sanctions policy and FATF’s own List of Recommendations from 2012. As the US is the key sanctions and money laundering (in the broadest sense of the term) enforcer around the world, it is as well for jurisdictions such as the UAE (as well as the wider GCC) to consider how attractive they truly are after a highly critical FATF Mutual Evaluation Report such as this.

In one sense one could argue that the current push against money laundering, terrorist financing and illicit financing and proliferation of banned weaponry is very Western-centric. And therefore that this does not take into account the very clearly ethical, transparent and responsible transaction and investment objectives that are akin to fundamental culture of the UAE and the wider GCC. Yet it is those very standards which are currently the focus of global investors and inward potential investment into this and any global region.

As a result this FATF Mutual Evaluation Report should be of concern to leaders in the UAE and the wider GCC from a pure reputation perspective, as the UAE is often touted as a leading financial and investment hub in the region.