Unfinished business: Despite FATF money laundering list exit, UAE has much to prove

From the Pandora Papers to Dubai Uncovered to the Gold Mafia investigations, the United Arab Emirates (UAE) has often grabbed headlines for allowing corrupt elites and money launderers safe haven. Earlier this month, an investigation by the International Consortium of Investigative Journalists (ICIJ) once again implicated Dubai as a key destination for smuggled gold from Africa and illicit funds.

The UAE’s susceptibility to financial crime hasn’t gone unnoticed by the international community. In March 2022, the Financial Action Task Force (FATF) put the Emirates on its so-called grey list due to major weaknesses in their anti-money laundering framework. In step with FATF, the European Union (EU) added the UAE to its own list of high-risk countries with strategic anti-money laundering deficiencies.

Fast-forward only two years, and the UAE is back in FATF’s good books. In February, the country was commended for making significant progress in addressing money laundering issues – enough to warrant its removal from FATF's grey list. Almost immediately, the European Commission proposed removing the country from the EU list, too. However, the European Parliament blocked this move yesterday, in welcome recognition that the country has much more work to do.

FATF’s decision to delist the UAE was controversial, to say the least. Indeed, in the past two years, the UAE government took some steps in the right direction. But are these enough, and is the country now well-equipped to deal with its serious dirty money problem?

Political elites have long flocked to the Emirates’ opulent cities to flaunt their wealth and buy up expensive property. As previous exposés have shown, this was often done with money of suspicious origin.

In 2018, a major leak of property data in the UAE revealed numerous politically exposed persons (PEPs), sanctioned individuals and criminals from around the world who owned real estate in Dubai. The data included information about at least 800 properties which were linked to 334 Nigerian PEPs. Among them was Abubakar Atiku Bagudu, a controversial figure implicated in the laundering of money embezzled by Sani Abacha, Nigeria’s former military ruler. He was revealed as the owner of eight properties across Dubai, with a combined worth of US$4.8 million.

The same leaked data contained the names of several Armenian PEPs, including Gagik Beglaryan. He is a former mayor of Yerevan and transportation minister, who appeared to own an apartment in Dubai, purchased sometime between 2008 and 2018. In 2020, Armenian authorities announced they were investigating him for money laundering and separately for his failure to declare the Dubai property. What’s more, in 2023, Beglaryan was charged by Armenian authorities for embezzlement and money laundering in 27 cases.

And then in 2022, an analysis of a further leak of property data revealed that Russian political elites and convicted European white-collar criminals, among others, owned real estate in Dubai as of 2020. This is likely to be just the tip of the iceberg, considering that real estate ownership is frequently disguised with the help of anonymous companies. There could still be a significant number of properties owned through opaque corporate vehicles, whose real owners remain unknown.

In most of the reported cases, however, identified individuals had purchased properties in their own names. Yet, there is no evidence that the UAE authorities have targeted these suspicious assets, despite concerns regarding the source of wealth. From a sample of 100 PEPs of interest named in the 2018 leak, Transparency International has found that at least 58 still hold properties, according to the Dubai Land Department’s website.

Not only is the UAE a known destination for illicit funds, but it has also served as an important intermediary jurisdiction for those wishing to clean their money. Previous investigations have implicated UAE-based individuals in providing what seems to be professional money laundering services with apparent impunity. What’s more, the corrupt and criminals have used a whole range of UAE professionals to offshore their wealth and invest suspicious funds around the world.

For decades, lax anti-money laundering regulations and supervision – coupled with high level of financial secrecy – have served as a fertile ground for professionals in the non-financial sector to enable cross-border corruption. Transparency International’s recent investigation examining the role of such “enablers” in facilitating cross-border corruption schemes originating from Africa identified the UAE as one of the key intermediary jurisdictions.

Enablers from the UAE were involved in at least nine out of 78 analysed cases. Several cases featured the Dubai-based SFM Corporate Services (SFM), a corporate service provider which gained notoriety in 2021 as one of the firms at the heart of the Pandora Papers investigations. Journalists were able to identify the owners of 2,977 companies established by SFM between 2000 and 2019, which included PEPs and a number of other individuals accused of various financial offences across the world.

One of these was former Zambian civil servant Charles Sipanje, who relied on SFM’s services to establish a company in the UAE in 2018 – the same year he publicly apologised for a fraud scheme that happened under his watch in Zambia. The circumstances raise questions regarding the extent of SFM's due diligence checks. Sipanje has claimed that the UAE company was never operational, while SFM has denied accusations of wrongdoing. He was subsequently charged for the abuse of office and arrested in May 2023.

It is unclear if the UAE authorities ever looked into this or other cases, and if SFM faced any investigations and/or sanctions. According to the UAE National Economic Register, SFM still owns a legal business license to provide corporate services.

^{Source: Transparency International, Loophole Masters: How Enablers Facilitate Illicit Financial Flows from Africa (December 2023)}

So, what exactly were FATF’s issues and to what extent have they been resolved?

The decision to place the UAE under enhanced monitoring was accompanied by a specific action plan outlining the strategic deficiencies identified and the need for the country to act. Among other things, the UAE urgently needed to increase investigations and prosecutions of corruption, enhance international cooperation, improve non-financial gatekeepers’ understanding of risks and increase the filing of suspicious transactions reports (STRs) by these actors, and improve financial intelligence.

Considering the UAE’s role, the fact that law enforcement authorities were not investigating money laundering cases in line with the UAE’s risk profile, with a meagre number of cases being prosecuted – especially in Dubai, was of serious concern. According to FATF, the UAE has – as of 2024 – increased the number of prosecutions. There is no publicly available data to independently verify this, but the finding is surprising considering the short time span as well as the apparent lack of action on potential money laundering through real estate.

For other areas of concern, which relate to the number of STRs and improvements in intelligence sharing and prosecution, available information points to limited progress.

In 2022, the UAE’s financial intelligence unit produced only 200 intelligence reports. Of those, only 12 cases related to the laundering of proceeds from foreign predicate offences were referred to the law enforcement.

STRs from professionals in the non-financial sector – such as accountants, corporate service providers and real estate agents – rose from a low 366 in 2021 to 1,076 in 2022. However, this is hardly impressive considering that real estate transactions alone nearly doubled during this time period, and their total value increased by 77 per cent. Despite a growth in reports, non-financial gatekeepers’ reports account for only 3 per cent of suspicious activity and transaction reports in the UAE.

Not cooperating with other jurisdictions on major money laundering cases was another bone of contention for FATF. While there seem to be some indications that the UAE cooperated with foreign counterparts more frequently in 2021 and 2022, when it comes to high-profile corruption cases, issues remain.

The infamous Gupta brothers, who were at the centre of widespread corruption in South Africa under former president Jacob Zuma, are accused by South Africa of paying bribes in exchange for lucrative state contracts and influence over ministerial appointments. Not only may some of the money derived from corruption have ended up in Dubai real estate, but the Guptas also reportedly live in the UAE. The brothers were apprehended in Dubai in June 2022 after Interpol issued red notices for their arrest, following a request from the South African government. However, in February 2023, the UAE released the brothers, cancelled their arrest warrants and refused to extradite them, much to the South African government’s ire.

South Africa isn’t the only country frustrated by the UAE’s refusal to cooperate on major corruption cases. Angola also hasn't been able to convince the UAE to extradite former president’s daughter Isabel dos Santos, who owns property in Dubai, and has been charged by the African nation for allegedly defrauding the country of US$219 million.

Being put on the FATF grey list can negatively impact a country’s reputation and economy, and no doubt the UAE government had prioritised getting removed from the list. The country has passed new legislation, directed more resources to fighting financial crime and signed cooperation agreements with authorities abroad.

The recent reforms that the UAE government began to roll out in response to FATF’s designation are welcome. However, meaningful implementation and political will to tackle financial crime have been historically lacking in the UAE, which could ultimately make these efforts futile. In fact, in its 2020 evaluation report on the UAE, FATF had already identified some prior legislative advances, but noted that it was too early to assess their impact.

Additional circumstances raise questions about whether the country may have gotten off too lightly. Last year, reports began to emerge that geopolitical considerations were playing a role in decision-making concerning UAE’s removal from FATF's grey list, and that the UAE representatives were lobbying FATF members.

With numerous PEPs and people on the run from authorities still appearing to own property in the UAE unencumbered and uninvestigated, and complicit enablers helping ill-gotten gains slush in and out of the country, the UAE still has a lot more to prove. Given the limited availability of information, and the restricted space for activists and independent journalists to operate in the UAE, the international community is the main source of pressure to ensure that the country addresses remaining deficiencies, protects the global financial system and stops facilitating cross-border corruption.