UAE's Exit from FATF Grey List to Boost Business and Investment

The Financial Action Task Force (FATF) is an intergovernmental organisation that combats financial crimes such as money laundering and terrorism financing. FATF held its recent plenary meetings in Paris from February 21 to 23, 2024, and updated its "Grey List" or “Jurisdictions under Increased Monitoring.” Being placed on the Grey List indicates that a country has committed to resolving the identified strategic deficiencies in its AML/CFT framework and has agreed to address them within stipulated timeframes. In their 2024 Plenary meetings, Kenya and Namibia were added to the Grey List, while Barbados, Gibraltar, Uganda, and the United Arab Emirates were removed from it. Presently, there are 21 countries in the Grey List.

A publication by IMF? found that being put on the Grey List negatively impacts the total capital inflow into the country to the tune of -7.6% of the country’s total GDP. Even though FATF emphasises that placing a country on the Grey List isn’t punitive, the economic impact of being on the list can be damaging. Unlike most countries on the list, the UAE is a global business hub, so the impact of grey-listing the country might have been different from what many other countries on the Grey List have experienced. In fact, contrary to the findings of the IMF’s publication, in 2022, the FDI inflows to the UAE stood at $22.737 billion, up by almost 10% from 2021. The businesses operating in the UAE should see even more increased FDI inflows in the coming years.

Although FATF doesn’t recommend conducting enhanced due diligence simply for being on the Grey List, the reality can be different. The EU has issued directives asking banks “to carefully consider business relationships and transactions involving high-risk third countries through increased checks and control measures.” ?The European Union defines a third country as a “country that is not a member of the European Union as well as a country or territory whose citizens do not enjoy the European Union right to free movement.” Reserve Bank of India (RBI) has also notified entities authorised to operate Payment Systems in India that, “Investments in PSOs (Payment Systems Operators) from FATF non-compliant jurisdictions shall not be treated at par with those from compliant jurisdictions.” In both these cases, FATF’s grey-listed countries impact the definitions of “high-risk third countries” and “non-compliant jurisdictions.” UAE exiting the Grey List may eventually lead to a higher willingness among international financial institutions operating in different countries to engage in transactions with UAE businesses, further facilitating international trade and commerce.?

The UAE exiting the Grey List within a span of just two years is an extraordinary achievement for the country, the regulators, and the public and private enterprises operating within its borders. This may also strengthen market confidence and further enhance domestic investments. UAE businesses should prepare for an increased flow of capital in the coming years. Gulf News recently reported that Sheikh Abdullah bin Zayed Al Nahyan, the UAE’s Minister of Foreign Affairs, has reaffirmed the UAE’s commitment to fighting financial crimes. This commitment strengthens the international reputation of businesses operating in the UAE and enhances their attractiveness to global investors and institutions seeking compliance and stability. UAE businesses should continue to follow the regulatory measures and grow in the process.

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