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Dirty money? UAE may be added to financial ‘gray list’



The United Arab Emirates is set for inclusion on a global watchdog’s “gray list” after some of its members indicated that the Gulf nation hadn’t made enough progress in tackling illicit financial flows, according to people familiar with the matter.

At least three members of the Paris-based Financial Action Task Force have expressed the view that the UAE hasn’t done enough to exit the review process and therefore will likely get put on the group’s list of countries subject to more oversight, said the people, who requested anonymity as the matter is private.

The organization is currently holding its plenary, where members are discussing the UAE government’s efforts to combat dirty money, and a decision is expected to be announced as early as Friday.

To avoid the designation, a significant majority of the FATF’s 39 members must vote that a country has made sufficient progress since the evaluation period began. Just a few votes to the contrary can result in a jurisdiction getting added to the list of nations under increased monitoring, the people said.

A gray-list classification isn’t as punitive as the group’s highest-risk “black list,” and it suggests that UAE officials are taking steps to address the country’s current deficiencies, the people said.

Still, the decision is potentially the most significant step to be taken by the FATF in its three-decade history, given the UAE’s position as a regional financial center. FATF, set up by the Group of Seven major economies, has some two dozen nations — including Turkey, Zimbabwe and Albania — on its gray list, with Iran and North Korea on the black list.

The UAE government said it will release an official response once the decision is out. A spokesperson for FATF said its internal deliberations are confidential.

For the UAE, being gray-listed would be a setback at a time when it faces greater competition from neighboring Saudi Arabia, which is growing its financial markets and taking steps to lure more investment.

In practical terms, a gray-listing would force Wall Street banks, which use Dubai as their regional headquarters, to dedicate additional resources to compliance in order to avoid future penalties from international regulators. The decision could also have an impact on Abu Dhabi, the nation’s capital and home to sovereign wealth funds with more than $1 trillion of assets.

A report by the International Monetary Fund last year found that gray-listed countries experienced “a large and statistically significant reduction in capital inflows.”

The potential fallout in the UAE could be difficult to quantify, though, as financial firms may already approach the country as a higher-risk area, Katherine Bauer, a former Treasury Department official who led the U.S. delegation to FATF’s regional partner in the Middle East and North Africa, told Bloomberg in January.

Significant Steps
Since warnings by the FATF in 2020 as part of the group’s mutual-evaluation report, the UAE government has stepped up efforts to better align with global standards on anti-money laundering and countering terrorist financing.

Emirati officials set up an Executive Office led by Hamid Al Zaabi to combat illicit flows, working in partnership with other FATF members. Al Zaabi has said previously that the UAE is fully committed to upholding the integrity of the international financial system.

The country has introduced courts focused on financial crimes, established new beneficial ownership rules and even announced a 9% corporate tax starting in 2023. The central bank recently imposed penalties on some lenders for breaching anti-money laundering regulations and regulated new rules on hawalas, charities often alleged to enable terrorism-related money flows.

The UAE collected over $1 billion in anti-money laundering and terrorist financing penalties last year, state-run WAM news agency reported Thursday. “Several major legal amendments were recently adopted, including the anti-money laundering law that includes wider powers related to confiscations, as well as controlling virtual assets,” WAM reported, citing Al Zaabi.

The FATF’s mutual-evaluation report published in April 2020 also highlighted how the UAE has taken significant steps to tackle terrorist financing, yet requests for information on money laundering often got met with delays. Since then, the illicit flows into the country have attracted greater scrutiny.

As the evaluation period proceeded, it became clear that the UAE faced a challenging hurdle to avoid a gray-listing, the people said. Yet ongoing progress toward combating illicit financial flows could allow the Gulf state to get off the list in a shorter span than other jurisdictions, they added.


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US stocks suffer biggest daily drop in almost two years



US stocks posted the biggest daily drop in almost two years as investors assess the impact of higher prices on earnings and prospects for monetary policy tightening on economic growth. The dollar and Treasuries gained amid a pickup in haven bids.

The selloff sent the S&P 500 down 4%, with the plunge in consumer shares surpassing 6%. Target Corp. tumbled more than 20% in its worst rout since 1987, after trimming its profit forecast due to a surge in costs. Shares of retailers from Walmart Inc. to Macy’s Inc. were caught in the downdraft. The Nasdaq 100 fell the most among major benchmarks, dropping more than 5% as growth-related tech stocks sank. Megacaps Apple Inc. and Inc. slid at least 5%.

Treasuries rose across the board, sending the 10- and 30-year Treasury yields down as much as 11 basis points. The dollar rose against all of its Group-of-10 counterparts, except the yen and Swiss franc. Gold caught bids in the move into havens.

The benchmark S&P 500 is emerging from the longest weekly slump since 2011, but any rebounds in risk sentiment are proving fragile amid tightening monetary settings, Russia’s war in Ukraine and China’s Covid lockdowns.

In some of his most hawkish remarks to date, Federal Reserve Chair Jerome Powell said Tuesday that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. Chicago Fed President Charles Evans said Wednesday he sees a half-point rate increase at next month’s meeting and “probably thereafter.”

In Europe, new-vehicle sales shrank for a 10th month in a row as the industry remains mired in supply-chain crises, while euro-area inflation plateaued at a record high. Meanwhile, UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank.

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Netflix lays off 150 employees due to slow revenue growth and business needs



Netflix is reportedly laying off nearly 150 employees in the coming days due to disappointing earnings and slow revenue growth.

According to a Variety report, the Amazon Prime Video rival might also terminate its contract with contractual contributors.

The layoffs are about 2 per cent of Netflix’s US workforce. “As we explained [in reporting Q1] earnings, our slowing revenue growth means we are also having to slow our cost growth as a company. So sadly, we are letting around 150 employees go today, mostly U.S.-based,” a Netflix spokesperson said.

The statement further revealed that the decision was primarily driven by business needs rather than individual performance. Netflix reported $7.87 billion in Q1, which was short of Wall Street’s estimates of $7.93 billion.

The report further reveals that nearly 70 part-time employees in Netflix’s animation studio will have to pack up and leave. A report by The Verge stated that about 26 contractors working on Netflix’s fan-focused Tudum website might see a termination.

“A number of agency contractors have also been impacted by the news announced this morning. We are grateful for their contributions to Netflix,” the company said.

Netflix, in its recent earnings call, revealed that it lost thousands of subscribers, which is a first for the company in over a decade.

The company expects to lose an additional 2 million in the next quarter due to the ongoing war between Russia and Ukraine. Netflix has shut shop in Russia following the country’s invasion of Ukraine.

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Dollar breaks N600/$ ceiling ahead of party’s presidential primaries



Less than two weeks to the presidential primaries of the political parties ahead of the 2023 elections, the US dollar has broken the N600/$ mark at the parallel market and set the tone for a possible uptick in the coming days.

The black market rate had traded between N570/$ and N590/$ since the beginning of the year while the Central bank of Nigeria (CBN)’s intervention at the Nigerian Autonomous Foreign Exchange (NAFEX) has kept its rate under N420/$.

With the latest slump of the naira, the arbitrage between the parallel and NAFEX, which is regarded as the official window, is now inching close to N200/$. The spread measures the deviation of the controlled official rate from the real rate of exchange, with experts calling for liberalisation of the market to enable naira to find its true value.

The World Bank and the International Monetary Fund (IMF) have also warned of the repercussions of sustaining an artificially high naira while calling on the CBN to embark on market reform.

But the CBN has maintained that Nigeria, with the current high level of importation and underperformance of the industrial sector, cannot afford to float the naira completely as the exchange rate could spill out of control.

At the Lagos street market, yesterday, naira traded between N595/$ and N600/$ band. With the presidential primaries of the two leading political parties scheduled for Abuja next weekend, there is an expectation the demand pressure has not peaked, suggesting that naira is in for a protracted pressure.

At peer-to-peer (P2P) trading platforms, the dollar has been trading above N600 in the past three weeks, which had signaled that the black market rate could break through the psychological ceiling.

With that eventually happening, naira could be on a renewed free fall.

But there is also hope that it is a season to offload warehoused hard currencies for political campaigns to possibly shore up supply.

Experts are not sure where rising demand and supply of foreign exchange would lead the naira to, but the interplay between the movements of the two variables is a key factor in predicting the value of the naira in the tense political season. Godwin Owoh, a professor of applied economics, advised Nigerians to prepare for a steeper fall of the local currency, saying partisan politics and intra-party meetings, which are highly dollarised would bring much pressure to bear.

The CBN has promised to continue to protect the naira but its ability could be constrained by the equally falling reserve. For the first time in eight months, the gross reserves dropped below N39 billion on Monday, when CBN data put the figures at N38.92 billion. Effectively, the country’s reserves have depleted by $160 billion year-to-date.

Bismarck Rewane, an economist, had projected the reserve to collapse to $32 billion in the year as he expected the CBN to spend $8 to $10 billion defending the naira, which is taking much pressure from excessive importation.

The value of Nigeria’s imports increased by 64 per cent last year to N20.84 trillion. Sadly, the value of exports increased at a slower rate – 51 per cent – to N18. 91 trillion in the same period. The falling reserves and rising imports have put the apex bank in dire straits in its efforts to continue to defend the naira.

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