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An influential international financial crime body has added the United Arab Emirates (UAE) to its greylist of high-risk jurisdictions, though the country’s authorities tout significant improvements in the fight against illicit finance. 

The Financial Action Task Force (FATF) – a standard-setting organisation focused on illicit financial flows – announced last week that the Middle Eastern trade hub would join 22 other nations subject to increased monitoring following historic weaknesses. 

The task force says the UAE has made “significant progress” after a damning review of its efforts to fight money laundering, terrorist financing and sanctions evasion in May 2020, but is still expected to make improvements in several areas. 

It is now expected to demonstrate a sustained increase in financial crime investigations, as well as growth in the number and quality of suspicious activity reports submitted by regulated financial institutions. 

It is also expected to increase the effectiveness of investigations and prosecutions in keeping with the country’s money laundering risk profile. 

Transactions linked to greylisted jurisdictions are not formally subject to enhanced due diligence requirements, but the task force says businesses should take their status into account as part of any risk analysis. 

Given the UAE’s status as both a financial centre and a trade hub, the listing will come as a blow to the country’s authorities. 

“The UAE takes its role in protecting the integrity of the global financial system extremely seriously and will work closely with the FATF to quickly remedy the areas of improvement identified,” its Executive Office of Anti-Money Laundering and Countering the Financing of Terrorism says in a statement released following the task force’s decision. 

“On this basis, the UAE will continue its ongoing efforts to identify, disrupt and punish criminals and illicit financial networks in line with FATF’s findings.” 

The executive office adds that it has already made “positive progress” in addressing the task force’s criticisms.  

In a report published last month, it says the value of confiscated assets linked to money laundering, including in high-risk sectors such as gold and precious metals, was US$625mn. 

Authorities have also issued a total of US$64mn in fines for non-compliance with anti-money laundering laws. This includes enforcement action taken against 11 banks in February last year, the first such regulatory intervention since the FATF review. 

The report adds that supervisory inspections more than doubled between 2019 and 2021, totalling more than 6,300 last year. 

Many of the criticisms in the 2020 FATF evaluation centred on the UAE’s unique geographical and jurisdictional circumstances. Its location between continents, proximity to conflict zones and network of financial and commercial free zones made it attractive to funds “with links to crime and terror”, it said. 

Researchers have also warned that the rapid expansion of Dubai’s gold market since the 1990s has partly relied on finding untapped markets and cutting regulatory corners, resulting in metals of potentially questionable origin passing through its souks.