1. Introduction
In the past few years, the UAE has made very significant improvements in its AML/CFT response, following its relatively poor FATF Mutual Evaluation Report (FATF MER 2020) published in 2020 and its inclusion on the so called FATF “grey-list” in 2021, followed by the EU “grey-list” soon thereafter. Whilst a number of ratings for FATF Recommendations have been improved, and FATF itself has provided positive updates on the direction of travel for the UAE, whether UAE will come off these “grey-lists” in 2024 is of interest to many. Whilst this will be a matter for the FATF, and by extension the EU, real progress has undoubtedly been made, but will it be enough?
In this article Financial Crime News considers some of the areas where improvements have been made and where more can be expected, and a forecast to where the UAE may be in relation to effectiveness at the end of 2023 and 2024.
First it’s important to highlight the baseline from which UAE had been assessed by FATF in 2020, and then consider the improvements.
2. FATF Findings – Technical Compliance
In July 2023, the FATF reported that the UAE had made “significant progress” since the FATF MER 2020 on issues around terrorism financing, money laundering, confiscating criminal proceeds and engaging in international cooperation. It had addressed, or largely addressed, more than half of the key recommended actions from the FATF MER 2020. However, the FATF advised that the UAE must demonstrate progress on facilitating international AML investigations, on managing risks in certain industries including real estate agents and precious stones and metal dealers, and on identifying suspicious transactions. Other areas for improvement included using financial intelligence against money laundering, increasing investigations and prosecutions of money laundering cases “consistent with the UAE’s risk profile”, and proactively identifying and combatting sanctions’ evasion.
In 2020, the UAE had 8 “Partially Compliant” ratings out of 40 Recommendations. These were for R1: Assessing Risks & Applying a Risk Based Approach; R2: National Cooperation & Coordination; R6: Targeted Financial Sanctions related to TF; R7: Targeted Financial Sanctions related to PF; R15: New Technologies; R19: Higher Risk Countries; R25: Transparency of BOs of Legal Arrangements; and R29: FIU. These ratings fed into 4 “Low” & 6 “Moderate” Effectiveness ratings out of 11, with IO2: International Cooperation; IO5: Transparency of BO; 107: ML Investigations & Prosecutions; and IO11 Prevention of WMD Proliferation being rated as “Low”; and IO1: Assessment of the Risk, Coordination & Policy Setting; IO3: Supervision; IO4: Preventative Measures; IO6 Financial Intelligence; IO8: Confiscations; & IO10: Prevention of Terrorism & TF rated as “Moderate”, with only IO9: TF Investigations & Prosecutions rated at “Substantial”.
Since then, FATF have accepted improvements from “Partially Compliant” to “Largely Compliant” for R1, R2 & R25 and from “Partially Compliant” to “Compliant” for R6, R7 & R29, with just R15 (New Technologies) remaining at “Partially Compliant”.
This raises the UAE’s overall technical compliance performance against the FATF’s 40 Recommendations to 15 “Compliant” & 24 “Largely Compliant” with just 1 “Partially Compliant” remaining (R15 New Technologies).
This compares well to other leading countries, including those that fared best in their own technical compliance ratings, such as the UK, Spain, Singapore & Italy, as well as France, USA, Australia, Canada & Japan.
3. FATF Findings – Effectiveness
Whilst the FATF has carried out a number of formal follow-up reports which have led to upgrades to technical compliance ratings (see above), the FATF does not re-rate “effectiveness” ratings. The 2020 ratings show the main reasons why the UAE probably ended up on the FATF & EU “grey lists” with very low scores compared to other leading countries, such as the UK, Spain, Singapore, Italy, France, USA, Australia, Canada & Japan.
Nevertheless, demonstrating that the improvements in technical compliance are feeding through into better and more effective outcomes will be a necessary requirement to enable the UAE to be taken off the FATF and EU “grey lists”, and to further improve scoring against leading countries (including major FATF members) when comparisons can be made.
Conclusion
Based on the evidence set out in the attachment, it’s reasonable to suggest that improvements already made, and more is expected still in 2023 which could lead to a significant re-rating of effectiveness criteria, if an assessment was made which could double overall assessment ratings made in 2020 and be comparable to countries such as Canada, Singapore & Japan (as at the time of their FATF MER 2020 publication dates). Looking further ahead based on the journey so far, and provided progress continues at a similar pace, levels of effectiveness could potentially almost triple from the ratings made in 2020, and be even more than comparable to countries such as Australia & Italy, and at or about the effectiveness ratings for the USA and Spain (as at the time of their FATF MER 2020 publication dates).
For an illustration see below.
For all the evidence to support the premise of this article please see the full 28 page report HERE: UAE FC:AML:CTF Progress Oct:23 by FCN incluidng Key performance Indicators see below:
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