Blacklist the United Arab Emirates
by Avi Jorisch
The security of many countries is being endangered by the United Arab Emirates, a confederation of seven small states located in the Arabian Peninsula. Usually considered a Western ally, this false friend also serves as a regional financial hub for mob figures, arms dealers, drug traffickers, jihadis and rogue regimes. The White House and the Financial Action Task Force—set up by the G7 to combat money laundering and terrorism financing (ML/TF) —have so far failed to take action to stop this emerging threat.
The UAE possesses an advanced, regulated, but lightly enforced financial services sector. It is a cash-based society and a heavy trader of precious metals, especially gold and diamonds. This, combined with the widespread use of hawala, an informal banking system often abused by rogue actors, makes the Emirates a cesspool of illicit activity. The country is also home to several banks blacklisted by the United States and UN for aiding terrorism and the spread of weapons of mass destruction. Rogue actors exploit these traits to move their money around the world, virtually without obstacles.
While gold and diamond smuggling has been somewhat curbed in certain regions of the world, it is still rampant in the Emirates. Dubai, the emirate that was the world's fifth-largest diamond center in 2007, maintains a reputation as a diamond and gold smuggling center. Its trade zones and tax-free status make it a convenient center for diamond dealers to launder profits and avoid taxes in their home markets.
The UAE's waterways are also abused. Dubai's port has been aptly dubbed "Smugglers Creek" because of its multitude of rarely inspected dhows—wooden boats used to transport goods—which ply the Arabian Sea, Indian Ocean and eastern Africa.
The UAE continues to host Iranian financial institutions complicit in supporting terrorism and spreading nuclear weapons. Iranian banks blacklisted by the UN andU.S., including Sepah, Melli and Saderat, have branches in the UAE, which use apparently legitimate trade with the Emirates to circumvent sanctions and controls on currency and the export of capital. It is worth nothing that several hundred thousand Iranians reside in Dubai, and that, as of 2008, more than 10,000 Iranian-run businesses operated there.
In its final report, the 9/11 Commission identified the UAE as an important node in financing the September 11th attacks. Before the attacks, al-Qaeda had moved money around the world using the UAE-based al-Barakat hawala network. Moreover, a UAE money changer transferred funds to hijacker Marwan al-Shehhi. Two of Osama bin Laden's sisters also reportedly used the UAE to smuggle cash to him in Afghanistan, while one of his financial chiefs, Shaykh Said, lived in Dubai and wired money to three of the terrorists before the attack.
Before his arrest in 2008, notorious arms dealer Victor Bout also operated out of the UAE, delivering cargos ranging from surface-to air missiles to fresh-cut flowers to clients like the Taliban, Muammar al-Qaddafi, Hizbollah, and various UN humanitarian missions.
While the Emirates has taken steps to enhance its efforts to counter ML/TF, its ability—and desire—is still limited. The UAE recently signed agreements with 40 countries to facilitate cooperation and information sharing, and the Dubai Financial Services Authority (DFSA) released lengthy guidance on how firms can become fully compliant with the UN's Iran sanctions. But the country as a whole still provides the Islamic Republic with a critical gateway to hard currency, goods and services, and free use of many of its shipping ports.
What can be done? To start, the UAE should increase the resources devoted to ML/TF investigations. The Emirates' Anti-Money-Laundering Suspicious Cases Unit must improve its financial-information-sharing capability to conform to international standards. Furthermore, the law enforcement community is notorious for simply looking the other way. Policymakers should make it a priority to address this issue.
One international organization that can play a helpful role is the Financial Action Task Force. The FATF's official policy is to blacklist countries that pose a significant risk to the international financial system. Historically, once a country or jurisdiction has been blacklisted, financial institutions and good corporate citizens have been reluctant to do business with, or in, these locations. Blacklisted countries that refuse remedial action have at times lost significant international investment as a result. Blacklisting the UAE could very well force it to change its policies and procedures and implement more robust controls.
The White House and Treasury Department have warned foreign jurisdictions, banks and companies that if they help money launders and terrorism financiers that they could lose access to U.S. markets. Washington could consider using a special provision of the Patriot Act—Section 311—to designate the UAE a "Primary Money-Laundering Concern." At a minimum, the Treasury should issue a financial advisory underscoring its role in providing illicit actors access to the international financial market.
Money laundering and terrorism financing transcend borders. Those involved in them constantly adapt their techniques, while law enforcement and intelligence agencies struggle to keep pace. In this equation, the Emirates for too long has been part of the problem, not the solution.
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