UAE must take increased measures to stamp out money laundering, the world’s main dirty money monitoring group has warned, or it risks inclusion on an international watch list.
The Financial Action Task Force on Thursday urged the Gulf state to prioritise the pursuit of international laundering networks, close loopholes in gold and property markets and work with international partners to tackle illegal financial flows.
If the UAE fails to take action in these areas within one year, the country could be placed on FAFT’s so-called “grey list” of 18 states that includes Yemen, Syria and Zimbabwe, in what would be a major blow to the country’s reputation as the Middle East’s main financial hub.
“Generally, fundamental and major improvements are needed across the UAE in order to demonstrate that the system cannot be used for money laundering and terrorist financing,” the Paris-based group said.
The multilateral body noted in its report that the Gulf state had performed better on preventing terrorist financing but said law enforcement agencies do not pursue significant laundering cases, especially in the country’s commercial hub of Dubai, where the risks are the greatest. The UAE’s finance ministry did not respond to a request for comment.
Dubai has successfully diversified its economy away from oil thanks to its openness and connectivity, but a buccaneering attitude to investment in property and commodities has also exposed the emirate to criminality.
Real estate is a safe haven for ill-gotten gains from across the globe, said Matthew Page, a scholar with the Carnegie Endowment for International Peace. “Kleptocrats, criminals and sanctioned individuals from around the world own Dubai property,” he said. “In practice, these buyers can stash or launder cash in the UAE property market, no questions asked.”
Last month, a former partner at international accountancy firm EY won $11m in damages in the UK after accusing his former employer of helping to cover up alleged gold smuggling and large-scale money laundering by a Dubai gold refiner, Kaloti Jewellery International. EY and Kaloti denied any wrongdoing.
The country’s international financial centres in Dubai and Abu Dhabi have developed a detailed understanding of money laundering and terrorist financing risks, the FATF’s report said. But there is less effective supervision of activity across the rest of the country, including in around 30 commercial free zones that allow foreign corporate ownership to boost investment.
The UAE also has a “fragmented system” of 39 separate corporate registries with varying requirements on the disclosure of beneficial ownership, leading to a high risk of criminals misusing entities for money laundering or terrorist financing, the report said.
“It will be challenging to bring all parties together to work towards fighting financial crime,” said Bhavin Shah, who leads the financial services division for global consulting firm Roland Berger in Dubai. “It is not just the banks and the regulators, we need customs, judiciary, prosecution, and even private sector working together — this needs to become a national priority. I believe this is do-able.”
While the UAE has taken significant steps to strengthen regulations against money laundering and terrorist financing with the enactment of new legislation in 2018 and 2019, the report questioned the effectiveness of the new regime, particularly with respect to anti-money laundering.
In contrast, the Gulf state’s actions against terrorist financing has been effective, according to the task force.
The UAE increased oversight of its remittance system after it was used by al-Qaeda to help finance the September 11 attacks in 2001. The country is still exposed to terrorist financing risks because of regional political turmoil and the large presence of foreign nationals from countries with active terrorist organisations, the report said, but the authorities have made significant steps in pursuing such activity.
“Terrorist financing offences and activities are investigated and prosecuted to a large extent, and the role of the terrorist financier is generally identified,” it said.
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