Money laundering has for some time been highlighted as a critical global challenge that requires law enforcement. The Financial Action Task Force (FATF) is an international terrorist and money laundering regulator. FATF was formed as an independent inter-governmental agency developing and promoting policies that safeguard international monetary systems against laundering money, financing terrorism, and proliferation of mass destruction weapons. More so, the task force was given the core role of reviewing all actions that are taken at both the national and international level. It measures threats and activities related to money laundering. The task force acknowledges various threats that are faced by the banking system, especially regarding terrorism activities. To accomplish its roles, the FATF set recommendations or standards that ensure there is synchronized global terrorism, crime, and corruption prevention response. The United Arab Emirates (UAE) is one of the countries that have embraced anti-money laundering as well as counter-terrorist financing (AML/CFT) strides.
In July 2019, the UAE started on the FATF observation period whereby its level of compliance with the FATF recommendation and AML/CFT system effectiveness was examined. The FATF (2020) report revealed the achievements and how much the UAE has moved regarding the fight against money laundering and terrorism financing (TF), and also highlighted the risks that the country stands if it does not implement strong policies and legal standards for fighting financial crime and corruption. There was high tension in the UAE during the FATF observation period because of the fear of the consequences of the process in case of high non-compliance to the 40 recommendations. Two extremes were expected in this exercise whereby the UAE could benefit through various opportunities if they won the period or face challenges if they fail to pass this observation period.
The subsequent sections present the opportunities embedded in passing, challenges resulting from failing, and policy recommendations for the UAE that could improve the country’s performance on AML/CFT system measures.
- The UAE can develop the extensive capacity to trace terrorism money and fight terrorism. UAE follows a strict peaceful policy that it maintains on all levels. Mostly, this is done at both the national and international. Even its current engagement to retain official government in various countries such as Yemen is driven by its call for peace in the region and the world. The position and nature of business in the UAE pose the risk of harboring terrorist funding. FATF is essential for creating the capacity to trace such money using government terrorism prevention tools.
- The country would secure a more stable and transparent financial system that attracts more foreign investment. Corrupt financial systems are often unstable. FATF adherence includes fighting money laundering (ML) which has the potential to increase the volatility of global capital flows and exchange rates and reduce investment and trade flows.
- UAE’s financial institutions will cease being vulnerable to attacks and infiltration by organized criminal groupings. These financial organizations cannot be exploited by criminals and thus have the chance to uphold their reputation at a global level, enjoy financial stability, gain public confidence, and avoid direct losses.
- Winning the FATF observation comes with the obvious depiction that the UAE meets any binding international obligations. UAE continues to educate its people on issues regarding security. After 9/11, the UAE reviewed and immediately changed all of its awareness programs to limit certain ideologies driven by selfish interests. These actions are considered to be opportunities for the UAE to avoid risks of international sanctions or economic action. The international community endorsed the 40 FATF recommendations to become a yardstick for identifying countries that are worth or not worth dealing with high political or economic levels. Winning would imply the country is practicing healthy AML/CFT systems.
- Passing comes with the increased ability to guard against becoming a harbor for criminals. Criminals love taking advantage of weak AML/CFT systems for these offer enabling environments that help criminals to enjoy their criminal acts and finance criminal activity without restraint. UAE will have standards and punishment that threaten criminal activity.
- The UAE would face several international sanctions if it fails to pass the FATF period. The geographical location of the country which is near the states battling with terrorism and conflict and those that have been subjected to UN sanctions poses the threat of sanctions. In other words, there are more complex logical reasons that play a role as well, like the size of the country, and the space government allows for change through peaceful means.
- Besides, UAE risks ML and TF issues, and proliferation financing. The fact that the country is a money-intensive economy, comes with the challenge of possible ML/TF risks. The openness and huge financial sector, with large remittances and cash flow, large foreign resident numbers, and more dealings in gold and precious stones, without compliance to FATF is a great challenge to AML/CFT. These uncontrollable financial transactions cannot miss being abused by criminals.
- Failing to pass the observation period includes the challenge of failing to monitor and supervise the existing free zones in the UAE. In the UAE are two financial-free zones, seven Emirates, and 29 commercial-free zones. Legal arrangements and persons in these states can easily be abused for terrorist financing or money laundering. This could happen through the concealment of essential ownership information using the complex AML/CFT structures.
- TL and various ML activities such as professional 3rd party ML abuse of legal persons, cash and trade-based ML, among others from organized criminal groups will be a huge challenge.
- UAE should implement effective approaches for seizing, freezing and confiscating the assets of criminals. The UAE leaders are open to discuss this change with the public. This will deprive them of any profits and proceeds as well as resources required to finance their fraudulent or ML/TF activities.
- The UAE government should set mechanisms for the successful investigation and prosecution of ML and TL criminals. The criminalizing of ML and TF through proper training of prosecutorial and law enforcement authorities as well as equipping them with resources and powers to handle criminals will help.
- The country should ensure to implement policies that encourage coordination and cooperation of AML/CFT strides at both local and global levels. The collaboration between international and domestic authority efforts would frustrate criminal group formation and activity.
- The UAE should ensure and promote compliance with AML/CFT requirements by financial institutions, businesses, and professionals. The country may implement strict supervision and monitoring approaches such as levying sanctions on any institution or body or person that fails to comply with the AML/CFT requirements and FATF recommendations.