Keeping off the FATF grey list

The amount of money entering the UAE is huge. Since the Russian invasion of Ukraine in 2022, Russian investments have surged, especially in real estate. Russians are said to have invested around $6.3 billion in Dubai properties. Much of the money has been invested in both existing and under-construction properties, with many Russians viewing Dubai as a place of financial refuge. Overall, the movement of money between Russia and the UAE is projected to exceed $10 billion by the end of 2024.

It is not only Russian investors seeking to escape the bite of economic sanctions who have been investing. In recent months a group of Asian wealth managers have been assisting high net worth individuals in China to invest in the UAE.

The figures are dramatic. An estimated $1.11 trillion is reported as having been held by the UAE banks, of which $500 billion is represented by offshore wealth invested in the Emirates in total.

The concern is that some, even if not much, of this money represents the proceeds of crime. In April 2020, FATF required the UAE to take urgent action to stop the criminal financial flows it was attracting. With the UAE’s extensive financial, economic, corporate and trade activities, including as a global leader in oil, diamond and gold exports, the risks of money laundering were thought to be high.

It was against this background that the UAE was added to the grey list of countries. When FATF places a jurisdiction on the grey list for increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed time frames. It took nearly three years for the UAE to rectify the position. In February 2023, after substantially tightening its anti-money laundering procedures, the UAE was removed from the grey list.

Today, the key challenge for the UAE is to ensure there is no regulatory slippage, and the risk of increased money laundering does not develop. The UAE’s vulnerability is clear, and risk is heightened by concern that the UAE’s removal from the grey list was premature. No sooner was the UAE removed from the grey list than discussion began as to whether the FATF had acted too quickly.

The highly influential Organised Crime and Corruption Reporting Project announced that, contrary to FATF Recommendations, real estate agents were encouraging clients to pay cash when they purchased property and asking little about the source of funds. According to figures released by a leading estate agency, there were 133,300 property sales in Dubai in 2023. Only 33,700 were funded through mortgages transactions, suggesting the remainder were financed by other means such as cash transactions.

These concerns were echoed in May 2024 by a group of European Union Parliamentarians who expressed the view that Dubai remains a hub for money laundering. The concern was that alleged criminals from around the globe had been flocking to Dubai, where they could benefit from low tax rates, financial opacity, and a luxurious quality of life.