In a surprising turn of events, the United Arab Emirates (UAE) remains on the Financial Action Task Force's (FATF) 'grey list' despite having met all the requirements for removal. This decision has raised eyebrows and questions about the rationale behind it, especially when it comes to evaluating the global impact of money laundering.
The FATF's grey list is typically reserved for countries with deficiencies in their anti-money laundering (AML) and countering the financing of terrorism (CFT) regimes, where commitments for improvement have been made. However, the decision to keep the UAE on this list, despite meeting the requirements, has left many perplexed.
To shed light on this matter, an informal survey was conducted among professionals in Europe and the Gulf Cooperation Council (GCC) countries, including managing directors, lawyers, and senior professionals in banking and financial institutions. When asked about the countries with the largest money laundering operations globally in terms of total amounts, many respondents pointed to the UAE as a top contender.
This perception led to a deeper investigation, seeking concrete data on money laundering across the world. Surprisingly, such data proved elusive, raising questions about how international organizations, like the FATF, determine grey list placements without transparently estimating the money laundering amounts contributed by these countries.
To address this gap, several research papers were consulted, including "Estimating money laundering flows with a gravity model based simulation" and "A Comparative Analysis of the Extent of Money Laundering in Australia, UAE, UK, and the USA." These studies, along with research from the Peterson Institute of International Economics, highlighted a noteworthy finding: the largest contributors to global money laundering in total value are the top OECD countries.
This data suggests that a shift in perspective is needed when assessing the impact of money laundering. Instead of focusing solely on per capita or GDP-based measures, examining the total value of money laundering in each country would provide a more accurate picture of the issue's global footprint. By targeting the biggest contributors, many smaller countries, with limited resources to combat financial crime, could see a significant reduction in illicit funds passing through their systems.
Interestingly, the top OECD countries, despite having robust regulations and sophisticated risk management, are the primary contributors to the global money laundering footprint. This paradox raises the possibility of adopting a risk-based approach to address money laundering more effectively.
Risk management, involving the identification, assessment, and control of financial risks, can be adapted to combat money laundering. This approach is particularly relevant because money laundering often occurs in response to events, such as the surge witnessed during the COVID-19 pandemic. The adaptability and weighted nature of risk management make it a promising solution.
However, the success of risk management hinges on collaboration and innovation. National and supranational collaboration is essential to create a holistic, effective anti-money laundering strategy. Establishing communication channels and providing training are vital steps in this direction.
In terms of innovation, the use of deep learning models can aid in identifying complex money laundering patterns. Financial criminals often exploit regulatory weaknesses, making adaptability crucial in combating illicit activities. Deep learning, a subset of machine learning, offers the capability to evolve and adapt to new tactics used by criminals.
Turning our attention back to the UAE, it's essential to recognize the substantial efforts made by the country in combating money laundering. Regulators in the UAE have already embraced a risk-based approach, ensuring that client assets are protected, and sanctioned clients are identified and monitored regularly.
Moreover, the UAE has established a collaborative framework through the National Anti-Money Laundering and Combating Financing of Terrorism and Financing of Illegal Organizations Committee (NAMLCFTC). This consortium brings together financial and banking regulators, as well as ministries, to tackle financial crime collectively.
The UAE's commitment to public-private partnerships further strengthens its anti-money laundering efforts. The Public Private Partnership Sub-Committee (PPPSC), led by the Executive Office (EO), promotes collaboration between governmental agencies and the private sector. This collaboration ensures the development of best practices and the sharing of intelligence in the fight against money laundering, terrorism financing, and proliferation financing.
Additionally, the UAE's stringent regulations make it nearly impossible to conceal ultimate beneficiary owners (UBOs), a fundamental aspect of combating financial crime.
In conclusion, the decision to keep the UAE on FATF's grey list seems questionable when considering the global landscape of money laundering. A shift toward assessing the total value of money laundering in each country, rather than relying on per capita or GDP-based measures, could lead to more effective anti-money laundering strategies. The UAE's proactive approach, combining risk-based methods, collaboration, and innovative technologies, serves as a model for tackling financial crime and reducing money laundering on its territory and globally.
By fLEXI tEAM