As the UAE was grey listed by FATF in March 2022, concerns sparkled about the impact that such a move from the international watchdog might have on the economy of the UAE, its attractiveness to FDIs and individuals and to its banking sector.
While grey listing does not get even close to the consequences of blacklisting, it increases the risk score of a country significantly, leading to a relevantly higher level of scrutiny for both existing business and new ventures, increased due diligence on every transaction and an increase is their cots.
I do agree that the UAE, given its lack of dependence from external funding and its political and economic stability, has confirmed the early opinions that it would have been impacted by the grey listing much less than what we have observed in the vast majority of the other countries once they were listed.
In my opinion, as also in other cases, the FATF listing of the UAE, more than a sanction for gross non-compliance with its recommendations on anti-money laundering and counter of financial terrorism, appeared to be more a push to finalise a process which was already in an advanced stage, with the whole financial system having implemented a much deeper scrutiny of any internal and external player engaging with the jurisdiction and on all related transactions.
Practitioners on the financial and real estate sphere know this first hand, when they face the due diligence and KYC (know-your-client) procedures with banks and other counterparties.
Still as the UAE leadership strategy is rightfully focusing on the attractiveness to FDIs, the impact of the listing should not be underestimated. As a matter of fact, the Central Bank as well as other institutions have tighten even more their requirements, especially towards corporate entities and individuals which lack significant ties with the jurisdiction itself and are proceeding to review all existing relationships to detect any sign of anomalies or irregularities, so to address them firmly.
All of this come at the cost of increased operational and financial burden for both the impacted entities and the financial institutions and government bodies, also leading to stretched timelines to finalise onboarding and approval processes.
Investors are also concerned about the increased difficulties they have in setting new relationship and sell their products and services outside the UAE, where they will have to face enhanced due diligence processes and in same cases even not being able to proceed as being based, or operating from, a FATF listed country might fall outside the risk appetite of the selected partner, or require an expensive, lengthy ad hoc procedure, involving senior management approval.
All this might lead FDIs and individuals to delay the decision to initiate the process of engaging in with the UAE as a jurisdiction and poses threats to those already operating from within the UAE, with the smaller players facing a relatively higher difficulties in facing the described situation. Such outcomes are rare though, but might become and issue if the permanence of the UAE in the grey list stretches beyond the expectations.
Besides the above, we need to consider that the UAE has attracted a very high number of expats, vital to the development of the country for its future projects, which are fully embedded in the economy and having the centre of their working, professional and personal life in the UAE, but still strongly connected to their country of origin, with which they operate frequent financial transactions.
Such transactions, as well as those initiated by corporate entities, are now being more expensive and are exposed to the risk of relevant delays in their execution. As an example, an international remittance can be delayed as the receiving bank might request more information than those required as a standard to complete the transaction or, and that would lead to even longer delays, it gets stopped for further scrutiny at correspondent bank level, especially if the amount involved is relevant. Such an issue can occur both in sending assets from the UAE abroad and the other way around.
When it comes to expectations, analysing the latest trends in the FATF action, it is my option that, considering the actions taken and the upcoming implementation of the corporate tax regime, the UAE is set to be delisted by spring 2023 or closely thereafter, thus a normalisation of the situation can be expected soon enough to avoid any escalation of the issue.
To achieve such outcome, care must be taken in continuing in the path of creating a safe, compliant environment in the UAE from an AML and CFT point of view, still striking a balance between compliance with laws, rules and international bodies recommendations and the needed agility and timeliness business and individual requires, making sure that the increased geo-political tensions and related sanctioning regimes are taken into due consideration to avoid delays in being delisted from the FATF grey list.
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