Money laundering threatens the UAE with the risks of being included in the FATF’s gray list | Economy

The UAE has been suffering from money laundering practices for years, which has led international organizations to closely monitor the situation, due to the risks that threaten the global financial situation, especially since the UAE is a regional financial center and a more open economic system in many activities, leaving the door wide open for illegal activities, including money laundering.

But in the coming hours, the UAE will be on a date with the international FATF report, which focuses on the extent of efforts made by Abu Dhabi to combat money laundering, as the UAE has a suspect record in the area of money laundering has liberalized through its market for gold, diamonds and stones, as well as other activities.

It is worth noting that there are a set of characteristics that have characterized the economies of the Gulf region, including heavy dependence on oil, or the recruitment of expatriate workers, but the UAE, among the Gulf countries, has long been classified as one of the areas where money laundering activity is practiced.

What is FATF?

In 1989, the FATF was established, and it is concerned with establishing the necessary standards for combating money laundering activities, the financing of terrorism and the financing of proliferation, and includes its membership of countries and regional organizations, and it cooperates with international organizations to strengthen control over these activities, for the sake of the integrity of the global financial system.

The organization has 35 countries and two regional organizations, namely the European Committee and the Gulf Cooperation Council, and the organization mainly works to set the necessary standards for combating money laundering, financing terrorism and the proliferation of weapons, and also monitors the application its standards and agreements in this area.

The organization issues more than one list, including the black list, which includes countries that are definitely involved in money laundering and terrorist financing, and there is the gray list, which includes countries that are unable to confront money laundering and terrorist financing, to despite their efforts to prevent these activities through laws and regulations that help to confront the phenomenon, and to classify the gray list countries as having strategic deficiencies in combating money laundering.

What are the consequences of money laundering in the UAE in 2021?

On February 21, the UAE Ministry of Foreign Affairs and International Cooperation published a statement explaining some numbers from its efforts to combat money laundering, which is important information that shows that the country is a center for money laundering crime, which the country’s financial situation.

The statement showed that supervisory inspections to combat money laundering in the UAE in 2021, with 6,300 visits, compared to 2,812 visits in 2019. As a result of these visits, assets of about 625 million dollars were confiscated, and fines of about 64 million dollars were imposed for non-compliance of entities or individuals. To combat money laundering and terrorist financing.

As for those found guilty of money laundering crimes, the statement from the UAE Ministry of Foreign Affairs indicates that there are penalties imposed on individuals worth $10.8 million, and $5.3 million in fines imposed on institutions. The conviction rate included 98.3% of those charged with money laundering. There are preventive measures taken by the UAE against the crime of financing terrorism which is represented in the confiscation of 109 million dollars.

The gold and diamond trading activity in the UAE is one of the biggest activities that enjoys money laundering, as large amounts of African countries come illegally and settle in Dubai, where many reports have monitored this phenomenon, including the annual report of the Committee of Experts of the UN Security Council, which Monitoring the smuggling of amounts of gold from the Republic of Congo in 2020, and the UAE has a part of that money for smuggled gold.

What are the risks of being blacklisted?

The UAE is counting heavily on being a front for foreign investment, as well as repeatedly announcing the adoption of a strategy for economic diversification, and this will only be through greater openness to the global economy and qualitative shifts in its economic structure.

However, the inclusion of the UAE on the gray list of the FATF presents a set of challenges, in addition to the precautionary measure of many banks and financial institutions with strict scrutiny of all financial transactions with the UAE, by its banks, companies and various other economic activities, of a financial nature, whose activities extend abroad.

The inclusion of the UAE on the FATF gray list is also expected to affect the flow of foreign direct investment, in which the UAE achieved $19.8 billion in 2020, and the cumulative foreign direct investment in the UAE at the end of 2020 was approximately $174 amounted to billion. What sets foreign direct investment in the UAE apart is that most of that investment comes from the Kingdom of Saudi Arabia.

The inclusion of the UAE on the gray list exposes it to the possibility of downgrading its credit rating, as well as the rest of its financial institutions, and at the top of these institutions are banks operating in the country. It is worth noting that the UAE has up to received a high credit rating so far. In May 2021 Moody’s rating agency The UAE is at AA2 (AA2) with a stable outlook.

The UAE banks saw flight operations from foreign investors, which shook the image painted by the credit rating agencies for these banks, which were at the “AAA” rating (AAA), and the most prominent of these operations was that by the Indian investor Raghuram Shetty, involving about 12 people. An Emirati bank of about $6.6 billion. As well as the activities of the company “Capital Tower”, whose financial irregularities were revealed by many accounting and auditing offices in Britain and America.

The negative effects are not limited to banks, companies and other institutions, but could affect the stock exchange and the capital market in the Emirates, a point where Abu Dhabi is keen to stand out among the rest of the region’s countries. Trading in the Emirates Stock Exchange by foreign investors is risky and unwelcome.

wait and wait

We are in a state of anticipation and anticipation, for the outcome of the FATF report, and there are two possibilities; The first is that the UAE is included in the gray list, and we have mentioned the challenges that this may pose for a country that is still very dependent on oil revenue, and hope to achieve a state of success in the process of economic diversification, which was announced decades ago, has not yet been achieved.

The second possibility is that the UAE will survive the inclusion on the gray list, but this does not mean that money laundering activities are not practiced there. For decades, the country has been classified as one of the money laundering havens in the region, and even in the world, despite the efforts made by the government, even though The case came that this file is one of the files related to the Ministry of Foreign Affairs.

The inability of the UAE to confront money laundering activities, to the extent that it exposes it to the possibilities of classification for the FATF gray list, makes us pause a lot to evaluate the competitiveness indicators announced by the UAE, as well as e-government verify , and other indicators intended to show a state of progress in the country.

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