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UAE’s Battle Against Financial Crime: Trends and Challenges in 2020
The United Arab Emirates (UAE) has long been a hub for international finance and trade, but its unique cultural and legal landscape poses significant challenges for authorities seeking to combat financial crime. In March 2022, the UAE was added to an international list of jurisdictions with weaknesses in their anti-money laundering (AML) systems, known as the “grey list”. This designation comes with increased scrutiny and potential ratings adjustments, making it crucial for the country to address its vulnerabilities.
Progress Made
Despite this setback, the UAE has made significant progress in recent years, introducing new legislation and regulations aimed at tackling financial crime. The country’s National Anti-Financial Crime Strategy and Action Plan includes seven objectives, including:
- Increasing effective investigations and prosecutions of AML cases
- Enhancing regulatory oversight
- Combating sanction evasion
Recent Enforcement Activity
Recent enforcement activity demonstrates the UAE’s commitment to these goals. In August 2022, Wise, a money transfer business, was fined $360,000 by the Abu Dhabi Global Market for failing to establish adequate anti-money laundering controls. This comes on the heels of the UK’s Financial Conduct Authority launching an investigation into Wise’s billionaire co-founder and CEO.
International Cooperation
The UAE has also strengthened its collaboration with foreign law enforcement authorities and preparedness to extradite wrongdoers. The country ratified extradition treaties with South Africa in 2021 and Denmark in 2022, aimed at securing the return of high-profile individuals accused of significant financial crimes. In December 2022, the Dubai Court of Appeal ordered the extradition of a British citizen to Denmark on suspicion of a €1.7 billion dividend tax fraud.
Establishing Reciprocity
The UAE is also seeking to bolster international confidence by establishing principles of reciprocity with an increasing number of countries. The country’s Ministry of Justice has announced plans to enforce English court judgments in the UAE, following a landmark decision by the English High Court.
Cryptocurrency Regulations
The rapid growth of the UAE’s cryptocurrency market has prompted the introduction of new regulations. In February 2022, Dubai established the Virtual Assets Regulatory Authority and created a framework to protect investors and implement international standards for the virtual asset industry.
Challenges Ahead
Despite these efforts, financial crime remains a significant challenge in the UAE. The country’s unique demographic makeup, with 90% of its population consisting of expatriates, has historically made it an attractive haven for individuals seeking to avoid detection. However, the introduction of new regulations and increased enforcement activity suggest that the UAE is committed to tackling this issue head-on.
Future Outlook
In 2023, the UAE will introduce corporate income tax, which may lead to significant avoidance activity. As such, authorities, prosecutors, and courts must be prepared to address these issues and maintain the country’s momentum in combating financial crime.