This article is from MoneyLaundering.com. It tends to overplay the amount of cooperation that the US is getting from the UAE in our opinion, but it also contains some good information. These particular lines are revealing of Dubai’s status as a financial rogue nation:
“…every major” Dubai real estate project “has been, in part, financed with laundered cash.” “They don’t want to cut off the people with the cash,” said Davidson. “Anything to jeopardize that in a serious fashion ruins what Dubai is about.”
“Whatever new rules are issued, the emirate is likely to ultimately maintain the laissez-faire approach that prompted its rise, despite troubles. That’s why it’s a handy place for al-Qaida and that’s why it’s a handy place for Citibank.”
Dubai, While Enforcing Sanctions on Iran, Finds Less Reason to Push Anti-Money Laundering Crackdown
By Brian Orsak
Dubai’s economic downturn has made the emirate more cooperative in enforcing international sanctions but has also given the emirate less incentive to crack down hard on regional money laundering, say analysts.
Faced with sour economic numbers, the financial hub solicited a nearly $10 billion bailout in November and December 2009 from neighboring Abu Dhabi, Dubai’s oil-rich neighboring emirate in the United Arab Emirates. The money was used to help Dubai repay loans used to spur its decade-long commercial boom.
The bailout has made it easier for Abu Dhabi’s government to “rein in” the semi-autonomous Dubai, including likely forcing it to cooperate more with U.S. and U.N. Iran sanctions, according to Christopher M. Davidson, a senior lecturer at U.K.-based Durham University and the author of Dubai: The Vulnerability of Success.
Unlike Dubai, Abu Dhabi has relatively few financial ties to the UAE’s large Iranian expatriate community and would like greater cooperation with Europe and the United States, said Davidson. The two emirates are the wealthiest of seven sheikdoms in the federation.
Dubai’s government has already ramped up its pressure in the past year on financial institutions with ties to Iran and is working closely with the United States on monitoring for terrorist financing, according to Jim Krane, author of City of Gold: Dubai and the Dream of Capitalism.
At the behest of the United States, the Dubai’s financial regulators have pushed banks to drop their Iranian corporate and wealth management clients, stirring anger among the city’s large Iranian community, he said.
“It’s been pretty tough for Iranian services,” said Krane, adding that the crackdown has also targeted legitimate investors not tied to Iran’s alleged pursuit of nuclear weapons.
But Dubai is likely to do little to get financial institutions to start asking harder questions about the source of investments in its real estate market, said Davidson, adding that “every major” Dubai real estate project “has been, in part, financed with laundered cash.”
“They don’t want to cut off the people with the cash,” said Davidson. “Anything to jeopardize that in a serious fashion ruins what Dubai is about.”
Over the past decade, the city has seen an influx of money from criminal organizations, including funds from Dubai’s prevalent prostitution rings and profits from opium sales in Afghanistan and Iran, according to Krane, who said he has spoken with U.S. Drug Enforcement Administration officials about the financial flows.
“It’s sort of like Miami in a lot of ways-maybe a little seamier-but it’s similar in that you’ve got a lot of characters who might be a little too hot for their homelands so they buy apartments and this kind of stuff fuels the economy,” said Krane.
For bank officials, to speak up about potential corruption and anti-money laundering (AML) compliance troubles can be to invite trouble, according to one Dubai-based anti-money laundering consultant who asked not to be named. Frank comments at conferences can mean phone calls from UAE officials or, in some cases, canceled working visas, said the person.
Issues with regional corruptions have not gone unnoticed, however. In November 2008, the Paris-based Financial Action Task Force (FATF) said that better enforcement of AML laws was “urgently required” in the country and that the government should address large gaps in its customer due diligence requirements.
In September 2008, the International Monetary Fund said that the UAE had yet to assess its vulnerabilities to terrorist financing and money laundering. The intergovernmental organization also called on the UAE to require banks to obtain beneficial ownership data of major corporate clients.
The UAE has since made efforts to better monitor for financial crime, according to Hossam El-Rahman, founder of Dubai-based Allied Compliance Consultants, who believes that Dubai’s troubles are to be expected for any quickly growing financial center.
Signs of this include an increase in the number of suspicious transaction reports filed by UAE financial institutions and the decision of the government to issue national ID cards to the country’s sizable expatriate community, he said. “The efforts are really great and things are moving toward the stricter side,” he said.
The country is also planning to strengthen its AML rules, according to Hany Abou-el-Fotouh, director of policy and corporate affairs at CI Capital Holding in Cairo and a former compliance officer. The central bank of the UAE has contracted New York-based consultancy Oliver Wyman to help “restructure its key operations,” including AML policies.
“The main issue is not the laws and regulations but has to do with other areas, such as encouraging law enforcement and customs officials to proactively recognize money laundering activity rather than wait for case referrals” from the UAE’s financial intelligence unit, said Abou-el-Fotouh, who believes that portrayals of Dubai as a hub for money launderers are unfair.
While Dubai currently has “adequate” AML rules, the government might seek to better trace cash flows in the country, where large transactions are routinely done in cash, said Abou-el-Fotouh. Specifically, the government may limit the amount of cash that can be imported into or exported from the country, and impose requirements for cash exports, he said.
A spokesperson for Oliver Wyman declined to confirm the deal or comment on when new AML regulations might be issued.
Whatever new rules are issued, the emirate is likely to ultimately maintain the laissez-faire approach that prompted its rise, despite troubles, according to Krane. “That’s why it’s a handy place for al-Qaida and that’s why it’s a handy place for Citibank,” he said.