UAE is off FATF’s grey list: What that means for trade, investment

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The Financial Action Task Force (FATF) has officially removed the UAE from its grey list, recognising the government’s enhanced measures against money laundering, financial crime, and the funding of terrorism.

The FATF is an inter-governmental body that, in its own words, ‘sets international standards to ensure national authorities can effectively go after illicit funds linked to drugs trafficking, the illicit arms trade, cyber fraud, and other serious crimes’.

The organisation defines some countries as being subject to the process of ‘increased monitoring’ by the FATF. These countries are often said to be on the organisation’s grey list.

On February 23,  the FATF noted that the UAE had taken steps to address six deficiencies in its anti-money laundering and countering the finance of terrorism regime that had been identified two years previously. Accordingly, the UAE is no longer on the FATF’s grey list.

The removal of the UAE from the FATF’s grey list is a significant development for its standing as a global trade, business, and investment center.

Boosting international capital inflows

With the removal of the country from the grey list, inflows of international capital to the region are likely to increase.

The financial system of the UAE already boasts of leading international financial centers, such as the Dubai International Financial Center (DIFC) and the Abu Dhabi Global Market (ADGM).

The recent move by the FATF bolsters its financial system’s credibility and makes it a prime regional hub for investors seeking to allocate some of their mandates to the Middle East. One such sector that could begin to reap the benefits of this move, could be the UAE’s startup and venture ecosystem.

The country’s improved regulatory standing will also make it easier for UAE investors to access international banks and financial services. Cross-border payments should become quicker and easier. Further, this should also promote trade and investment within the broader Gulf Cooperation Council (GCC) region.

So much for the theory: what about the practice?

The impact of UAE’s removal from the grey list will be most notable between the UAE and countries it has strong links with, which includes, key economic partners such as India and Singapore.

The UAE and India have previously signed several treaties and memoranda of understanding to promote bilateral trade and investment with each other. One such example is the India-UAE comprehensive economic partnership agreement. While it is expected to increase the total value of bilateral trade in goods to over $100bn and trade in services to over $15bn within five years, the announcement may just see these figures being achieved in a shorter period.

India is also one of many countries that have imposed certain investment-related restrictions on jurisdictions that are not fully compliant with the requirements of the FATF. These restrictions included limits on investments in investee entities and voting rights in such entities. Such restrictions no longer apply to inflows from the UAE.

Interestingly, the UAE also ranks as the top destination for investment from Singapore into the GCC region.

As such, it is a reasonable bet that wealth managers and other investment companies whose footprints include all three countries, i.e., the UAE, India, and Singapore, will be actively pursuing new opportunities for their clients.

Fortifying the UAE’s financial standing

The UAE’s exit from the FATF‘s grey list can be seen as a crucial step, albeit not the sole factor, for fostering robust growth in trade and investment.

It adds yet another accolade to the list of strengths that position the country as a pivotal trade and business hub in the region. These include sound money, a stable government, and an effective approach to property rights.

The DIFC and ADGM have their legal systems, which guarantee the rule of law and provide that companies that operate therein are doing so within a familiar common law environment. Along with other free zones in the UAE, the DIFC and ADGM provide an infrastructure that makes it easier for all to do business efficaciously.

Further, the UAE’s new corporate tax regime is also in line with global standards and best practices. At 9 per cent, the corporate tax rate is still the lowest corporate tax rate in the GCC region. Crucially, it is significantly lower than the corporate tax rate in Singapore and India.

The UAE’s removal from the FATF’s grey list can be seen as the final piece of a jigsaw, that shows a flourishing of trade and investment.

Prashant Tandon is MD and CEO for the UAE at Lighthouse Canton and Varun Kalsi is director and global head of Legal & Business Solutions at Lighthouse Canton.