The UAE’s recent removal from the Financial Action Task Force’s (FATF) grey list has sparked widespread jubilation in the country’s business community, with experts lauding the move as a significant milestone that will bolster the UAE’s financial reputation and attract more foreign investment.

“To be removed from the grey list in as little as two years demonstrates the level of commitment from the UAE government in the implementation of stringent regulations to curb illicit financial flows. For the regional business community, the benefits are significant,” said Hazem Mulhim, CEO of Dubai-based compliance firm Eastnets.

The FATF, an intergovernmental body, establishes global standards to combat money laundering and terrorist financing. It convenes its key decision-making body, the plenary, twice a year to address evolving issues in these areas and make strategic decisions where it assesses the progress of countries on the grey list, which denotes nations with significant anti-money laundering (AML) and counter-terrorism financing (CFT) shortcomings.

Nations aspire to secure a position on the FATF’s white list as it signifies the presence of robust financial controls and can enhance a country’s appeal to foreign investors.

The UAE was placed on the FATF’s grey list in June 2022. Since then, it has been working closely with the task force to address deficiencies.

FATF grey list removal a ‘game changer’ for UAE business community

“The UAE’s removal from the grey list is a game changer,” said Kevin Kilty, founder and CEO of global payments firm Hubpay.

Echoing his sentiment was Michael Carbonara, CEO of Ibanera, who believes the move was a “watershed moment” for the business community. “This serves as a catalyst for bolstering the region’s reputation as a beacon of economic resilience and regulatory excellence.”

Currently, there are around 21 countries on the grey list as of 23 February. Some of these include Bulgaria, Syria, Turkey and Yemen.

“It was enormously unfortunate that the UAE was placed on the grey list two years ago. It meant the country was deemed a high risk by many international financial institutions, restricting financial partnerships and subjecting transactions to higher levels of scrutiny. Removal from this list has meant that the velocity of financial transactions has increased, and UAE financial institutions’ connectivity to the global FX and trade network will only become broader and more galvanised,” he added.

The UAE’s inclusion on the FATF grey list almost two years ago was a wake-up call for the country to address strategic deficiencies in its AML/CFT systems. Concerns were raised about the UAE’s ability to track and prevent illegal financial activities, as well as its potential use as a conduit for sanctioned entities.

However, the Gulf country swiftly implemented a series of reforms to address these issues, including strengthening AML/CFT regulations and enforcement mechanisms, improving transparency around company ownership, and enhancing cooperation with international law enforcement agencies.

Coming off the grey list will likely lead to improved access to international financial services and markets and result in “easier access to capital investment and banking services,” said Mulhim. He expects this to boost investor confidence in the UAE’s regulatory environment to attract greater foreign direct investment, an impact which will be directly felt by businesses across all sectors.

According to Vishal Sharma, Managing Director and UAE Tax Practice Leader at Alvarez & Marsal Middle East, this step is a “significant milestone” for the UAE and “demonstrates its continued commitment to maintaining a robust and transparent financial system.”

Two weeks on from the FATF decision, the UAE business community is already feeling the positive impact this has had.

The international compliance community’s view of the UAE as a higher-risk jurisdiction “has changed markedly,” said Kilty.

“Clear evidence has been provided to FATF that the UAE Central Bank’s enforcement of their regulatory regime, this provides international financial and business organisations clear evidence of a safer trading environment, specifically relating to AML,” he added, suggesting that regional banks and financial institutions must continue to take responsibility in being proactive and developing sophisticated checks and balances to maintain a stellar reputation globally.

Hubpay, Kilty said, has already seen the benefits of the UAE’s grey list exit. “Hubpay was struggling with integrating to international financial organisations and gaining access to USD client money accounts. Within one week of the UAE being removed from the grey list, we had three USD client money providers live and completed onboarded with one of the largest US payment companies.”

Dubai’s real estate sector, previously impacted by grey list sanctions, is poised to benefit immensely from the decision. “Exiting the grey list will open up significant opportunities for major institutions and large-scale investors to invest in Dubai’s real estate sector. With increased liquidity flowing into the market, Dubai developers will be able to accelerate the pace of large-scale infrastructure projects and commercial, large-scale residential communities and building developments,” said Lewis Allsopp, Chairman of Allsopp & Allsopp Group.

“With all eyes on Dubai, increased confidence in investors is coming from a number of areas and we expect this to continue to accelerate into 2024.”

According to Eastnets’ Mulhim, the international compliance community “should be confident that the UAE is doing all it can to strengthen its regulations and measures to combat financial terrorism and money laundering.” In the long-run, this could include the adoption of the latest compliance tech, world-class standards through international cooperation and collaboration, and sustained action against those who breach regulations.

For now, the removal “further elevates its status as a burgeoning investment and financial hub of global significance,” Mulhim said. “Compliance with FATF standards will likely lead to streamlined compliance processes for business, reducing administrative friction and operating costs associated with implementing AML/CFT measures.”

UAE exit from grey list boosts regional prospects

The UAE’s successful exit from the grey list is not only a victory for the country itself but also sets a positive precedent for the wider Middle East region. Experts believe that other nations in the region, such as Saudi Arabia, which have been working towards meeting FATF recommendations, may be inspired by the UAE’s progress and redouble their efforts to enhance their own AML/CFT frameworks.

Sharma believes that this move will attract further international business into the country and improve international relations.

“The UAE’s removal from the grey list is not just a win for the UAE’s financial system, but also sets a positive precedent for the wider Middle East region,” Sharma added. This has led neighbouring Saudi Arabia to beef up its legal and regulatory framework, improve its financial intelligence unit, and strengthen its supervision and enforcement mechanisms.

“The continued cooperation between Saudi Arabia and FATF through the presence of AML/CFT experts from the country suggest that it is committed to working towards meeting the FATF recommendations. This is evidenced by the FATF downgrading a few recommendations since the 2018 mutual evaluation.”

While the removal from the grey list is a significant achievement, experts emphasise the importance of continued vigilance and proactive measures to maintain the UAE’s newfound status as a trusted financial hub. Regional banks and financial institutions must remain committed to developing sophisticated checks and balances, fostering public-private partnerships, and promoting cultural understanding in implementing effective compliance strategies.

“The removal bolsters the GCC’s reputation as a highly favourable and resilient business environment that offers safe and secure investment opportunities,” said Mulhim.

With the global economy projected to experience a slowdown, the World Bank estimated that the Gulf Cooperation Council (GCC) region would witness a modest growth rate of 1 percent in 2023, before rebounding strongly to 3.7 percent by 2025, underscoring the region’s resilient investment climate.

“The UAE’s exit from the grey list could set a positive precedent for neighbouring countries,” said Bundeep Singh Rangar, CEO of Fineqia.

“It sends a signal that concerted efforts to strengthen anti-money laundering and counter-terrorism financing measures can lead to international recognition and a subsequent boost in economic prospects. This could encourage other Gulf states to follow suit and intensify their efforts to develop non-oil sectors, attracting foreign investment and fostering economic growth.”

FATF and EU need to adopt a more ‘standarised’ approach

To change the mindset of the international compliance community, “there is a pressing need for” a multifaceted approach involving enhanced transparency in decision-making processes, global collaboration between entities like FATF and the European Union for harmonised standards, and promoting education and awareness within the community are essential, Rangar advised, adding that regular evaluations and criteria updates are necessary to ensure adaptability to evolving financial landscape.

“The contrasting assessments of the UAE’s financial compliance status by the FATF and the EU highlight the need for a more standardised and collaborative approach to evaluating countries. While the UAE’s removal from the grey list is a positive step, it also underscores the complexity and subjectivity of international financial compliance assessments,” the Fineqia CEO explained.

“As global economic landscapes continue to evolve, ongoing efforts to enhance transparency, collaboration, and education within the international compliance community are crucial. These endeavours contribute to fostering a more accurate and fair evaluation of nations’ financial systems, ultimately cultivating trust and confidence among investors and businesses worldwide.”

As the UAE celebrates this milestone, the business community looks forward to a future of increased international cooperation, easier access to global financial markets, and a strengthened reputation as a leading regional financial centre.