Blog / / 05.14.20

New FATF Report Highlights UAE’s Anti-Money Laundering Framework Shortcomings, Including in the Gold Trade

By Megha Swamy and Sasha Lezhnev

The Financial Action Task Force (FATF) recently released its report evaluating anti-money laundering and counter-terrorist financing (AML/CFT) measures in the United Arab Emirates (UAE). The report finds that the sectors most vulnerable to money laundering and terrorist financing risks are banking, money or value transfer services (MVTS), dealers in precious metals and stones (including gold), and real estate. It urges the country’s authorities to take appropriate measures to address shortcomings in its AML/CFT framework and implementation of existing laws and policies.

The UAE is an important trading and financial hub and, as The Sentry and others have highlighted, it continues to be a destination for corrupt elites and their associates to launder the proceeds of illicit activities in East and Central Africa, including conflict gold. The real estate, banking, and gold trading and refining sectors, in particular, provide conflict-connected illicit networks with access to the international financial system and supply chains. Politically exposed persons (PEPs) from Sudan, South Sudan, and the Democratic Republic of Congo (DRC) and their associates reportedly own property and corporate entities in the UAE, PEP-owned South Sudanese banks have possible nested correspondent banking relationships in the UAE, and the UAE serves as a key transit point for conflict gold from the DRC, as highlighted in The Sentry’s report “The Golden Laundromat.” Gold is one of the main sources of funding for armed groups and criminal elements in eastern DRC, where conflict has left between three and seven million people dead.

The report highlights several shortcomings that are particularly relevant to the issue of illicit proceeds and trade from East and Central Africa:

  • Overall, there is an absence of consistent investigations and prosecutions of money laundering related to higher-risk sectors like gold. False declarations—or none at all—in cross-border cash and precious metals movements often result in penalties, but relevant authorities do not adopt formal cases.
  • There is limited financial intelligence available. Authorities underutilize customs data, despite the high risk from cross-border movements of cash and precious metals, including gold. There is also an absence of suspicious transaction reports by designated non-financial businesses and professions (DNFPBs), which include the real estate, gold, and precious stones (including diamonds) sectors.
  • The country routinely seizes and removes instrumentalities of crime but has yet to do so in cases involving proceeds from foreign predicate offences.
  • Authorities do not routinely request or provide international cooperation to address money laundering risks.
  • There are 39 different company registries with differing requirements. The fragmented nature of this system allows for a higher risk of beneficial ownership information being concealed.
  • The National Risk Assessment (NRA) and other domestic assessments do not provide adequate information on critical issues such as money laundering of foreign proceeds, trade-based money laundering, cash-based money laundering, and the abuse of corporate structures.

The FATF report lays out comprehensive and urgent steps that the authorities can pursue to improve their AML/CFT regime. As priority actions, the report urges authorities to enhance their understanding of the “immediate and pressing threats,” such as the foreign proceeds of crime, to increase the collection and use of financial intelligence, and to take steps to harmonize the country’s corporate registries. It calls for better mechanisms to allow for the investigation of cases of suspected money laundering in movement of cash or precious metals and stones. The report also recommends that authorities better educate DNFPBs on their suspicious transaction monitoring and reporting obligations.

The Sentry, through its reporting and advocacy, has also called on the UAE government to implement several AML/CFT measures, especially to address the trade in conflict gold in the UAE. These measures include banning cash transactions, requiring third-party audits for all gold refiners with a presence in the country, and requiring importers to provide evidence of how they paid for the gold and information on the intended buyer.

Global banks, gold and diamond dealers, and others with links to the country’s financial and trade sectors should evaluate their transactions in the UAE more carefully as a result of the FATF report. Crucially, the UAE government should work with the FATF, the regional FATF body Middle East and North Africa Financial Action Task Force (MENAFATF), and the relevant Gulf Cooperation Council (GCC) authorities on addressing shortfalls and improving the country’s AML/CFT regime as quickly and effectively as possible. This will help address the issue of conflict-connected illicit proceeds while also maintaining and growing financial and other sectors crucial to the UAE’s economy.