https://www.dentons.com/en/insights/alerts/2023/august/31/fatf-improves-uaes-rating-uae-makes-progress-in-strengthening-measures-to-tackle-money-laundering

Summary

On 6 July 2023, the Financial Action Task Force (FATF) released a report addressing the UAE’s progress in improving its compliance with the FATF Standards (the Report). In the Report, FATF improved the UAE’s ratings and acknowledged the country’s commitment in tackling money laundering and terrorist financing.

Although the UAE remains on FATF’s grey list (which is the organisation’s list of jurisdictions under increased monitoring), the Report indicates that various enhancements to the UAE’s anti-money laundering (AML) and counter-terrorist financing (CTF) regulatory regime and related enforcement actions since 2022 are bringing it closer in line with international expectations and standards.

FATF’s next review is due to be held in April/May 2024 and the UAE is expected to increase AML and CTF efforts with the aim of being removed from the grey list.

Background

FATF issues a set of international standards to promote effective implementation of legal, regulatory and operational measures for combatting money laundering and terrorist financing. These are known as the FATF Standards, which comprise 40 recommendations for countries to implement to demonstrate an effective AML and CTF regime.

In March 2022, FATF placed the UAE on a list of jurisdictions subject to increased monitoring, known as its “grey” list, due to “strategic deficiencies” in the country’s efforts to counter money laundering and terrorist financing. That designation requires UAE financial institutions to increase their monitoring, due diligence and compliance procedures, as well as financial institutions around the world to subject UAE’s financial system to greater scrutiny (both causing added costs and delays in processing transactions).

In reaction to FATF’s findings, the UAE announced its commitment to take robust action to tackle AML and CTF weaknesses within the country and rigorously implement FATF’s 40 recommendations to be removed from the grey list.

UAE enhanced AML and CTF regulations and enforcement actions

The UAE has enhanced its AML and CTF regulatory regime and increased enforcement actions across its main jurisdictions, including the DIFC and ADGM.

On a regulatory level, UAE’s main jurisdictions recently took various actions, including:

establishment of the Executive Office to Combat Money Laundering and Terrorist Financing charged with enhancing the UAE’s AML/CTF legislation and regulatory framework;

creation of new specialised AML/CTF courts that have unique jurisdiction over cases that involve money laundering and other financial crimes;

adoption of new AML/CTF guidelines for financial institutions and designated non-financial businesses and professions (DNFBPs) intended to raise awareness on the importance of adhering to anti-money laundering and financial crime legislation and highlighting the risks and penalties associated with violations;

creation of an anti-money laundering reporting platform under the name “goAML” where financial institutions must file Suspicious Activity Reports when they have reasonable suspicion that funds may be related to crime;

amendment of AML/CTF Law (Federal Decree Law No. 26 of 2021) and its implementing regulations (Cabinet Decision No. 24 of 2022) and enhancement of the legal framework for virtual assets (Law No. 4 of 2022 Regulating Virtual Assets), with updated measures to mitigate risks by supervisory authorities of financial institutions, DNFBPs and virtual assets service providers;

adoption of a new Penal Code (Federal Decree Law No. 31 of 2021) that came into force in January 2022, adding to the existing anti-money laundering, bribery and corruption regulations in the country; and

the DFSA published its Business Plan for 2023-2024, which focuses on monitoring companies’ compliance systems and controls, assessing financial crime risks in digital assets and pursuing “firm but fair” enforcement to encourage market integrity.

Since late 2022, jurisdictions across the UAE also took rigorous enforcement actions, including:

the UAE issued fines of more than AED 115 million in relation to money laundering;

the UAE Central Bank conducted more than 600 off/onsite inspections, issuing fines worth nearly AED 70 million;

the UAE Ministry of Economy conducted more than 8,000 off/onsite inspections and issued fines amounting to AED 16.5 million;

the UAE seized assets of more than AED 925 million in relation to breaches of AML practices and procedures;

the DFSA (DIFC) imposed substantial fines on regulated financial institutions for breach of DFSA Rulebook (AML) requirements, including a financial penalty of US$1.12 million on the DIFC branch of an international financial institution for weaknesses in its AML systems and controls; and

the FSRA (ADGM) took a rigorous approach and issued various penalty notices against regulated financial institutions and firms that have submitted late annual AML returns or failed to conduct required due diligence and compliance procedures in accordance with ADGM’s Anti-Money Laundering and Sanctions Rules and Guidance, including a financial penalty of US$360,000 against Wise Nuqud Limited for not establishing and maintaining adequate AML systems and controls.

FATF’s findings

In its Report, FATF recognised that the UAE has demonstrated significant progress, including enhancing and maintaining a shared understanding of the money laundering and terrorist financing risks between the economy’s various sectors and institutions.

Specifically, FATF updated the UAE’s ratings and noted that the country is now “Compliant” with 15 of the 40 FATF Recommendations, “Largely Compliant” with a further 24 Recommendations, and “Partially Compliant” with one Recommendation, without any “Non-Compliant” rating.

Looking ahead

According to FATF, to satisfy FATF’s Standards and ultimately achieve removal from the grey list, the UAE should continue to work on implementing its FATF action plan by:

ensuring that regulated entities are conducting risk-based due diligence and promptly raising suspicious activity reports to the relevant authorities;

increasing investigations and prosecutions of different types of AML violations; and

imposing effective, proportionate and dissuasive sanctions on financial institutions and DNFBPs for non-compliance with AML/CTF requirements.

As a result, we expect the UAE, DFSA and FSRA to increase regulatory and enforcement actions to ensure that regulated entities establish and maintain effective policies, procedures, systems and controls to prevent and report opportunities for money laundering. Identified weaknesses in compliance systems and controls are expected to expose regulated entities to significant fines and enforceable undertakings (through external auditors) to remedy the deficiencies.