By Rachna Uppal and Hadeel Al Sayegh

DUBAI/PARIS (Reuters) – The United Arab Emirates, home to the financial hub of Dubai, has been dropped from a global watchdog’s list of countries at risk of illicit money flows, a win for the nation that could bolster its international standing.

The Financial Action Task Force (FATF), a body that groups countries from the United States to China to tackle financial crime, on Friday dropped the UAE from its ‘grey list’ of around two-dozen nations considered risky.

The Gulf country, a magnet for millionaires, bankers and hedge funds, was placed under closer scrutiny in 2022, when the FATF highlighted the risk of money laundering and terrorist financing involving banks, precious metals and stones as well as property.

The delisting is a coup for the one-time regional pearl and fish trading hub which is now one of the world’s wealthiest nations after the discovery of oil in Abu Dhabi in the late 1950s.

It had made getting off the list a priority, bolstering its anti-money-laundering efforts in a drive spearheaded by the minister of foreign affairs and brother of President Mohamed bin Zayed Al Nahyan.John Kartonchik, a director at UAE think tank Re/think, said the move could boost confidence in the country and attract more money from overseas.

“Investors … may feel more secure,” he said.

Banks would also be able to cut the cost of dealing with wealthy clients in the country, said a senior banker, who asked not to be named.

Despite being grey-listed, the UAE continued to attract the globe’s wealthy and it is an increasingly popular destination for cryptocurrency firms and Russians in the wake of war with Ukraine.

Dubai’s luxury property market trailed only New York, Los Angeles and London in 2022, according to property consultant Knight Frank, while the UAE last year overtook Belgium to become the world’s trading hub for rough diamonds.

Nonetheless, the delisting jars with the assessment of European officials.

The European Union lists the UAE as a high-risk country for money laundering and terrorist financing, alongside more than two dozen other states such as South Africa, North Korea and Afghanistan.

The bloc’s financial markets watchdog ESMA last year barred European banks and others from clearing trades with the Dubai Commodities Clearing Corporation.

Markus Meinzer, director of policy at the Tax Justice Network, which campaigns for financial transparency, said the removal of the UAE showed the FATF list was ineffective.

“There is room for interpretation of the rules,” he said. “It’s easy to comply without changing much. Understanding how decisions are taken is impossible because they happen behind closed doors.”

Jonny Bell, director of financial crime compliance and payments at LexisNexis Risk Solutions, said the UAE would likely continue strengthening its anti-money laundering and counter-terrorism financing measures.

There is increasing competition among Gulf states to develop non oil sectors such as financial services, trade and logistics, and tourism. Attracting money from abroad is a central part of that effort.

Measures taken by the UAE include increasing financial investigations and prosecutions, boosting international cooperation, and aligning virtual asset regulation with international standards.

(Additional reporting by Sudip Kar-Gupta in Paris and Lisa Barrington in Seoul; editing by John O’Donnell, Kirsten Donovan)

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