48 Middle East & Africa The Economist February 26th 2022
Money-launderingCleaning up the laundromat
D
irtymoneyhaslongbeenanopense-
cret in the United Arab Emirates (uae).
Oligarchs and foreign officials would fly in
with stacks of cash, buy houses under their
own names and showcase their lives of
luxury on social media. Guests at a hotel in
downtown Dubai last year might have
shared a lift with a Turkish mob boss who
had moved in for a while. With its beach-
front villas, luxury hotels and fine dining,
the uae’s glitzy business hub is a magnet
for money, licit and otherwise.
Two years ago the Financial Action Task
Force (fatf), the world’s main anti-money-
laundering body, urged the uaeto make
“fundamental and major reforms” to crack
down on financial crime. In the coming
days it will decide whether the country has
made enough progress. If not, it may be
added to a “grey list” of problematic ones. A
decision is expected by March 4th.
The list currently includes 23 countries.
Being on it carries no penalties, but would
probably mean extra paperwork and costs
for banks. It would also dent the uae’s rep-
utation as a well-run financial hub.
Emirati officials acknowledge the pro-
blem. They scored well on what the fatf
calls “technical compliance”: the country
has plenty of relevant laws and regulators.
But these are rarely used. From 2013 to 2018
there were just 50 prosecutions and 33 con-
victions for money-laundering.
Part of the problem is the uae’s tangled
web of jurisdictions. A federation of seven
emirates, it also has dozens of free zonesthatallowforeignerstohold full owner-
ship of companies (until last year locals
had to own a majority of firms incorporat-
ed elsewhere in the uae). The fatfcounted
39 different corporate registries in 2020.
Some did only cursory checks on firms un-
der their jurisdiction. At the federal level,
agencies did not work closely with each
other or their foreign counterparts. “We
needed a platform to integrate everything
in the country,” says Khaled Balama, the
governor of the central bank.
The government has made progress to-
wards building one. A federal corporate
registrynow collects data across emirates
and free zones. Ahmed al-Sayegh, a minis-
ter of state at the foreign ministry, says
92% of firms have declared information
about beneficial ownership.
Enforcement is up: from 2019 to 2021
the uaeprosecuted 254 money-laundering
cases, with 220 convictions (another 15 are
still pending). The government confiscat-
ed assets worth $625m last year. Staffing at
the central bank’s financial-crimes divi-
sion has more than doubled. Officials
point to some recent high-profile arrests,
such as that of an Emirati man detained in
London in December on charges of moving
£100m ($136m) between Britain and Dubai.
The deeper problem, though, is the
country’s business model. With little oil,
Dubai (one of the seven emirates) was
forced to diversify its economy decades be-
fore its neighbours did. It happened to fo-
cus on industries that attract dirty money,such as construction and property, which
account for 15-20% of gdp. Core, a research
firm, estimates that Dubai alone added
251,000 homes from 2011 to 2021, including
37,000 last year. The pace of new construc-
tion far exceeds population growth.
For criminals, this is a convenient way
to launder money. High-end brokers all
have stories of clients like the Afghan offi-
cials who bought $2m villas on Palm Ju-
meirah, an artificial island in Dubai.
Leaked property records released in 2018 by
c 4 ads, a British ngo, featured a host of un-
savoury characters, including a former Ni-
gerian oil minister convicted of corruption
in Franceand several war profiteers close
to Bashar al-Assad, Syria’s dictator. At least
seven people under sanctions by Western
countries for drug-trafficking, financing
terrorism and the like owned homes in the
emirate.
Another risky industry is gold. In 2019
the glittery stuff was the uae’s largest im-
port and its largest export bar oil. Much of
it is hand-carried on commercial flights
and sold in Dubai’s gold souk. So-called
“artisanal” gold is often smuggled out of
foreign countries, depriving governments
of royalties; sometimes it is linked to con-
flict or child labour. Once sold in Dubai, it
can be re-exported as Emirati gold.
Again, the government has adopted
some meaningful reforms. Until recently,
only financial institutions had to report
suspicious transactions. Around 12,500
non-financial firms have now been added
to the central bank’s reporting system.
“The entire country, not just financial in-
stitutions but also real estate, the gold sec-
tor, it’s now part of the anti-money-laun-
dering system,” says Mr Sayegh. Traders in
precious metals and jewels must report
cash transactions above 55,000 dirhams
($14,974); the authorities are discussing a
similar requirement for property-brokers.
If other countries have similar pro-
blems, the uaehas some unique ones as
well. The line between the public and priv-
ate sectors is blurry. The same royal fam-
ilies that run politics and pick regulators
also control vast business holdings. State-
run banks and exchange houses have been
linked to big money-laundering schemes.
Iranian money-laundering and sanctions-
busting in Dubai is not just lucrative for the
emirate. It also serves as what one dip-
lomat calls “an insurance policy”, helping
to shield Dubai from tensions in the Gulf.
If the fatfshrugs off the reforms the
uaehas undertaken and puts the country
on its naughty list, as many expect, the im-
pact will probably be limited. The central
bank says confidence in the financial in-
dustry “remains high”. Bankers agree, call-
ing a designation more a nuisance than a
knockout blow. Dubai will remainamag-
net for money. The question iswhether
much of it will continue to be dirty.ABU DHABI
The United Arab Emirates tries to crack down on tainted money