DUBAI, June 30 (Reuters) - More than 500,000 firms in the United Arab Emirates (UAE) must disclose their ultimate owners from Wednesday or face penalties, as the Middle East financial hub tries to avoid inclusion on a dirty money watchlist. However, under legislation passed last year beneficial and legal ownership data will only be disclosed to the government and not publicly accessible. Financial transparency advocates say having that data available to all is the gold standard, although so far only a handful of countries do so. The Financial Action Task Force (FATF), an intergovernmental anti-money laundering monitor, declined to comment on the UAE law but directed Reuters to a 2020 report which said "fundamental and major improvements" were needed to avoid it placing the UAE on its "grey list" of countries under increased monitoring. Countries on this list risk reputational damage, trouble accessing global finance and increased transaction costs. The UAE has tightened up over the last few years to overcome a perception it is a hot spot for illicit money and in February the government created an Executive Office for Anti-Money Laundering and Counter Terrorism Financing. The Middle East and North Africa Financial Action Task Force (MENAFATF) recently re-rated the UAE"s level of transparency and beneficial ownership from "partially compliant" to "largely compliant", Amna Fikri, the foreign ministry"s economic and trade director, said in response to questions about what will happen to the information once it is collected and who will be able to search it. The UAE"s economy ministry has said that 513,000 companies across 38 licensing authorities must have submitted registers on their beneficial owners and shareholders by Wednesday or face penalties. These include a written warning, a 100,000 dirham fine, license suspension or restrictions on the powers of the board. "The risk of criminals being able to misuse legal persons in the UAE for money laundering/terrorist financing remains high, particularly through concealment of beneficial ownership information via complex structures or the use of informal nominees," the FATF"s 2020 report said. "CONFIDENTIALITY" The past decade has seen a global shift towards ownership transparency to discourage tax evasion, money laundering and terrorist financing. A Reuters report in December showed the UAE was being used as a hub for companies helping Venezuela avoid United States oil sanctions. read more The UAE government said in response to the Reuters report that it "takes its role in protecting the integrity of the global financial system extremely seriously. This means actively administering and enforcing economic and trade sanctions." And sources told Reuters last year that an initiative involving 11 countries by the London Bullion Market Association (LBMA) to improve regulation had been driven by concerns over the UAE"s gold industry in particular. The UAE"s Ministry of Foreign Affairs and International Cooperation said in response to that report that it recognised the importance "of developing increasingly robust mechanisms to address the challenges brought about by financial crime". Different levels of accessibility and information verification can make jurisdictions more or less discouraging to companies wishing to hide ownership structures, campaigners say. "Centralised beneficial ownership registers open to the public are preferred, to preserve trust in the integrity of business transactions and the financial system," Maíra Martini, an expert on corrupt money flows at Transparency International. More than 80 countries have so far adopted beneficial ownership registry legislation, but not all are operational and only a few are public. UAE ownership data will be collected by each licensing authority and ultimately held in the National Economic Register by the Ministry of Economy, which said last month it would be handled with confidentiality and not for commercial purposes. "Even the employees of these government entities do not have free access to this data except in cases of investigation and the required disclosure to specific official entities, according to strict internal policies and regulations," it said. Martini said it was important to follow up on how the registry measures are implemented. "For the UAE it is important to create a centralised register that brings together information from all the different registers, making sure those registers are collecting the same type of data and using the same system so there is no arbitrage."