UAE Faces Risk of Inclusion on FATF grey list

• United Arab Emirates is at increased risk of being placed on a global watchdog’s list of countries.
• It subject to more oversight for shortcomings in combating money laundering and terrorist financing.

About the context

• The Financial Action Task Force is leaning toward adding the UAE to its “gray list”.
• The FATF currently puts 21 countries in the Grey list - including Pakistan,Albania, Syria, South Sudan etc. and 2 countries in Black list namely Iran & North Korea.
• UAE submitted a report to the FATF in November but hasn’t reached many of the thresholds needed to stay off the gray list.
• A gray-listing applies to countries that have “strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing”.

Why add UAE to Grey list

• According to 2020 report by the Carnegie Endowment for International Peace, illicit transactions are “a feature, not a bug” of Dubai’s financial system.
• Some data to give light to this issue -
• $625 million - Approximate amount of money confiscated by the UAE in 2021 as part of anti-money laundering and combating the financing of terrorism procedures.
• 90% of incoming extradition requests executed by the UAE’s authorities from 2019 to 2021.
• 7,300 Approximate number of supervisory inspections for anti-money laundering and combating the financing of terrorism undertaken by the UAE in 2021 compared with 2,812 in 2019.
• 94% Conviction rate for money-laundering cases in the UAE from 2019 to 2021.

Potential Setback for UAE

• A large and statistically significant reduction in capital inflows.
• Fallout for the UAE would be difficult to quantify, partly because foreign financial firms and investors may already approach it as a high-risk area.
• A gray-list designation would be a setback at a time when the oil-rich nation faces greater competition from neighboring Saudi Arabia, which is growing its financial markets and taking steps to lure more investment.
• Dubai and Abu Dhabi are also seeking to raise billions of dollars by listing state firms, listing in Grey list would affect it the most.
• Whenever a country is listed in Grey list, it is estimated that on average foreign direct investment and portfolio inflows each declined by around 3% of gross domestic product.
• Same could happen to UAE, as it mostly depends on its financial institutions for revenue.