As a federation of seven emirates, each with different leadership, economic circumstances and priorities as well as different (at least in part) legal and regulatory systems, the UAE presents significant complexity for government authorities and regulators when combatting money laundering (‘AML’) and other financial crime. In March 2022, the UAE was added by the Financial Action Task Force to an international list of jurisdictions which are considered to have weaknesses in their systems for combatting terrorism funding and money laundering (the ‘grey list’).
Not only does this listing come with increased monitoring and scrutiny, but the possibility of ratings adjustments, challenges to obtaining global finance and higher transaction costs. Businesses with a need to access international financial and other markets may also experience indirect effects of the‘grey listing’, such as changes to the lending appetite of (or pricing offered by) their overseas counterparts.
The grey listing comes despite the UAE’s new legislation designed to tackle financial crime in recent years. Whilst disappointing, the impact of the listing for the UAE is likely to be limited because of its relative strength and economic stability compared with other grey listed countries. In order to be removed from the grey list, the UAE has pledged to implement the recommendations of an action plan that includes seven specific objectives to enhance its regulatory oversight (the ‘action plan’). These include:
- demonstrating a sustained increase in effective investigations and prosecutions of various types of AML cases;
- showcasing an increase in the number and quality of suspicious transaction reports submitted by financial institutions and other entities; and
- proactively identifying and combating sanction evasion.
In order to better coordinate its AML and counter terrorist finance (‘CTF’) initiatives, the UAE established a new Executive Office to function as the primary body responsible for the implementation of the UAE’s National CTF/AML Strategy and National Action Plan (‘NAP’) – the programme of reforms designed to strengthen the UAE’s anti-financial crimes framework.
Recent enforcement activity has shown the UAE’s commitment to the action plan objectives. In August 2022, a subsidiary of Wise, the listed money transfer business, was fined USD$360,000 by the financial services regulatory authority of the Abu Dhabi Global Market (‘ADGM’) after a finding that Wise ‘did not establish and maintain adequate systems and controls to ensure full compliance’ with anti-money laundering requirements. This sanction comes after Wise’s billionaire co-founder and chief executive was put on a list of ‘deliberate tax defaulters’ and is being investigated by the UK’s Financial Conduct Authority.
In December 2022, the Financial Markets Tribunal upheld the Dubai Financial Services Authority’s (‘DFSA’) imposition of fines against the founder and former CEO of Abraaj Group, the largest private equity firm in the region. Mr Arif Naqvi had been fined USD$135m (AED 497m) and prohibited from performing any function in or from the Dubai International Financial Centre (‘DIFC’) after it was found that he was knowingly involved in misleading and deceiving investors over the misuse of their funds. This is the largest fine ever imposed on an individual by the DFSA.
In a country whose population is 90% expatriates, the UAE’s collaboration with foreign law enforcement authorities and preparedness to extradite wrongdoers has historically been perceived to be limited. This in turn has encouraged individuals who have committed crimes overseas to view the UAE as a safe haven, whether for themselves or their assets. This perception is now changing, with the UAE ratifying extradition treaties with South Africa in 2021 and Denmark in 2022. Both treaties were ratified with the intention of securing the extradition of high-profile individuals accused of significant financial crimes. In December 2022, the Dubai Court of Appeal ordered the extradition of British citizen, Sanjay Shah, to Denmark following accusations by the Danish authorities of a suspected €1.7bn dividend tax fraud.
The treaty between the UAE and South Africa was aimed at securing the return of three brothers accused of leveraging connections with Jacob Zuma, former president of South Africa, to secure contracts, misappropriate state assets, influence cabinet appointments and embezzle billions in South African state funds. Two of the brothers have since been detained by UAE authorities.
The UAE is also seeking to bolster international confidence by establishing principles of reciprocity with an increasing number of countries. On 13 September 2022, the UAE Ministry of Justice (‘MOJ’) called upon the Dubai Courts to enforce judgments of the English Courts in the UAE going forward, a step which follows the English High Court’s decision in Lenkor Energy Trading DMCC v Puri (2020) EWHC 75. For decades, the English Courts had been reluctant to enforce UAE-issued judgments and the UAE Courts had in turn used the lack of reciprocity as a bar to the enforcement of English judgments. In Lenkor, both the High Court and Court of Appeal ruled that a ‘bounced cheque’ judgment of the Dubai Court of Cassation was a final and conclusive judgment of a court of competent jurisdiction, which did not offend English public policy. Decisions like Lenkor and the MoJ’s recent announcement should reassure creditors looking to enforce UAE Court judgments in England and Wales, and vice versa.
The rapid growth of the UAE’s cryptocurrency market, with its overall transaction value increasing 500% between July 2020 and June 2021 to around USD$25bn, has prompted the introduction of new regulations. In February 2022, Law no. (4) of 2022 ‘Regulating Virtual Assets in the Emirate of Dubai’ (the ‘virtual assets law’) established Dubai’s Virtual Assets Regulatory Authority (‘VARA’) and created a framework to protect investors and implement international standards to govern the virtual asset industry in the Emirate. VARA has since passed administrative orders which regulate the marketing of virtual assets and outline the fines and penalties which will apply in the event of non-compliance. This new framework is expected to support the mainstream adoption of blockchain applications for economic growth in the region and it is thought that the UAE will follow the example of the United Kingdom, who recently announced plans to make stablecoins a recognised form of payment. Nevertheless, the increased use of crypto currency may heighten financial crime risk in the UAE.
Last year, a new decree introduced significant amendments to the existing commercial transactions law, particularly in relation to bounced cheques. From 2 January 2022, barring a few noted exceptions, most cases of bounced cheques were decriminalised in the UAE. The beneficiary of a bounced cheque retains the right to pursue a civil claim, including the right to seize assets in the name of the drawer.
Also during 2022 the DFSA in Dubai and the Abu Dhabi Accountability Authority introduced laws to protect whistleblowers. These changes should lead to an increased level of reporting and therefore enforcement against perpetrators of white-collar crime.
A notable development in 2023 will be the introduction of corporate income tax in the UAE. As a new tax we anticipate that there will be significant avoidance activity which the tax authorities, prosecutors and courts will need to be prepared to address.
A relatively high risk of white-collar crime therefore continues to persist in the UAE, not least due to the unique challenges presented by the geographical, legal and demographic make-up of the country. However, the UAE is demonstrating greater commitment to tackling financial crime than ever before.