The UAE’s central bank has fined 11 banks a combined total of US$12.5mn for anti-money laundering (AML) failings, following warnings that the Middle Eastern state was looking to shed its reputation as a financial crime hotspot.

The central bank announced on January 31 that enforcement action had been taken against the 11 banks, which are not named but are accused of having inadequate AML and sanctions controls at the end of 2019.

“All banks operating in the UAE have been allowed ample time by the [central bank] to remedy any shortcomings and were instructed in the middle of 2019 to ensure compliance by the end of that year,” the authority says.

It adds that the institutions were warned “that further shortcomings would result in penalties”.

The central bank says it “will continue to impose further administrative and/or financial sanctions, as per the law, in cases of non-compliance”.

Though the fines handed out are relatively small, the announcement marks the first enforcement action taken in the UAE since a damning review of the country’s efforts to fight financial crime, published last year by the Financial Action Task Force (FATF).

The FATF, a highly influential standards-setting body that operates a blacklist of high-risk countries, strongly criticised Emirati authorities for “minimal” implementation of UN sanctions and lacklustre efforts to tackle trade-based money laundering.

The UAE’s effectiveness in penalising firms for facilitating financial crime, as well as investigating and prosecuting money laundering, were deemed “low” – the task force’s lowest score.

Given the UAE’s large financial services industry, as well as its controversial role in global oil, diamond and gold trading, the FATF report said authorities “must take urgent action to effectively stop the criminal financial flows that it attracts”.

Ami Daniel, co-founder and chief executive of Windward – a Tel Aviv-based maritime analytics firm specialising in sanctions compliance – says the recent fines applied by the UAE central bank “are the tell-tales of a bigger story”.

“The rise of the UAE as a trade and finance hub, stemmed by the push for more efficient supply, makes the UAE a more dominant player,” he tells GTR. “That comes side-by-side with requirements for more robust AML, financial crime and sanctions standards.”

Daniel cites the recent case of Muhit Maritime FZE, one of three UAE-based entities accused of facilitating shipments of sanctioned Venezuelan oil in a Reuters special report, published in December.

Based on shipping documentation from Petroleos de Venezuela, the South American country’s state-owned oil company, as well as from vessel tracking data, that report found tankers managed by Muhit transported millions of barrels of oil in the second half of last year.

Financial institutions are increasingly expected to analyse ship behaviour as part of their compliance operations, and such cases “create ever more pressure on the local ecosystem to innovate quickly and adopt AI for fighting AML, financial crime and sanctions compliance”, Daniel says.

“We are seeing the beginning of a trend that will likely keep strengthening over the course of 2021.”

However, the enforcement action itself is being seen by financial crime experts as relatively tame, with the average fine handed to each bank totalling little more than US$1mn.

“I think it’s a good sign that they are beginning to take enforcement action,” says Lakshmi Kumar, policy director at Global Financial Integrity (GFI) – a non-profit research organisation that advises governments on illicit fund flows.

“One thing I would be concerned about is the deterrence value of these fines. When the US fined HSBC, it was less than 5% of their pre-tax profit in 2012.”

To act as a deterrent for violations of international sanctions, fines should reflect the size of transactions that occurred, Kumar suggests.

“It is safe to say that fines of [a few] million are meaningless given the size and scale of operations of these financial institutions,” she adds.