| Skyline of Dubai, United Arab Emirates. |
The United Arab Emirates' reputation as a destination for money laundering gives rise to risks for banks despite them taking significant steps to enhance anti-money laundering (AML) procedures.
In February the Financial Action Task Force (FATF) removed the UAE from its so-called gray list for increased monitoring after the country upgraded its processes around AML and combating the financing of terrorism. The UAE's improvements included carrying out more money laundering prosecutions, FATF said.
The UAE central bank has also cut the time limit for banks to submit suspicious activity reports to 35 working days from 90 days previously; in the US, this time limit is 30 days. Private banks including First Abu Dhabi Bank PJSC and Emirates NBD Bank PJSC have improved their in-house AML training, among other actions.
Yet FATF's decision surprised many observers. UAE authorities have failed to scrutinize some assets that were acquired by individuals accused by other jurisdictions of money laundering, nonprofit anti-corruption organization Transparency International wrote in response to FATF's decision, citing investigations by data-focused nonprofit C4ADS and nonprofit investigative reporting platform the Organized Crime and Corruption Reporting Project.
In May, the OCCRP published a report that cited documents, mostly leaked from the Dubai Land Department, showing that alleged drug traffickers, fraudsters, and money launderers own Dubai property.
"Banks in the UAE have invested huge amounts of money, time and intellectual capital in upgrading their anti-financial crime capabilities and there's no doubt that banks are taking financial crime seriously," Andrew Cunningham, managing director of London's Darien Analytics and an expert in governance and banking risk, told S&P Global Market Intelligence. But AML noncompliance for UAE banks "remains a huge risk," he said.
"Dubai, rightly or wrongly, has a reputation as a place where a lot of illegal financial and sanctions-breaking activity occurs," Cunningham said.
At the end of 2023, UAE banks had 4.075 trillion dirhams, or roughly $1.11 trillion, in assets, central bank data shows. The largest bank is First Abu Dhabi Bank, with total assets of $336 billion, followed by Emirates NBD, Abu Dhabi Commercial Bank PJSC and Dubai Islamic Bank PJSC, according to Market Intelligence data.
None of the four banks responded to requests for comment. The UAE Banks Federation did not respond to repeated requests for comment.
The problem may lie less with the banks themselves and more with non-bank institutions such as real estate agents, lawyers and trust service providers, which are the weaker links in the chain of financial transactions, Cunningham said.
"To get a pile of cash into the UAE banking system, you'd likely buy property first rather than try opening an account and depositing the cash directly," he said. "That's the area the UAE should focus on: the weak links that undermine the rest of the AML system."
There were 133,300 property sales worth 412 billion dirhams in Dubai in 2023, according to real estate services firm DXB Interact. Only 33,700 were funded through mortgages transactions, with a total value of 125 billion dirhams, suggesting that 287 billion dirhams worth of sales were carried out by other means such as cash transactions.
A spokesperson for the Dubai government told Market Intelligence that "this matter is governed by federal regulations," and declined to comment further. The UAE federal government did not respond to requests for comment. UAE-based The Real Estate Association did not respond to a request for comment.
Gray list
FATF originally added UAE to the gray list in 2022. In removing it, FATF said the country had strengthened its anti-money laundering regime by increasing outbound mutual legal assistance requests, providing extra resources to its financial intelligence units and conducting more investigations and prosecutions relating to money laundering. But the UAE should do further work to "sustain its improvements" in AML and combating the financing of terrorism (CFT), FATF said.
There is no publicly available data to independently verify FATF's claim that the UAE had increased the number of prosecutions relating to money laundering, according to Transparency International.
"The finding is surprising considering the short time span as well as the apparent lack of action on potential money laundering through real estate," Transparency International wrote in an April report. "For other areas of concern, which relate to the number of suspicious transactions reports and improvements in intelligence sharing and prosecution, available information points to limited progress."
FATF was "premature" in removing the UAE from its gray list, Moran Harari, deputy director of policy at the Tax Justice Network, told Market Intelligence.
The UAE demonstrates a lack of transparency in trust and foundation registrations, legal entity identification and company and other wealth ownership, according to a 2022 analysis by the Tax Justice Network, a UK-based nonprofit advocacy group seeking to expose tax abuses.
There are "significant loopholes" in the UAE's beneficial ownership rules, Harari said. Her organization recommends the UAE establish national registries for real estate and high-value assets held in free zones, which must identify the ultimate beneficial owner.
A FATF spokesperson told Market Intelligence that the UAE's removal "is not an indication that the country's AML/CFT regime is without its flaws, but that the building blocks are in place and being implemented to continue to improve the effectiveness of its regime." The UAE has given FATF its strong commitment to continue implementing reforms, the spokesperson said.
Inconsistent responses
Alleged criminals have bought Dubai property due to various factors including the emirate's "inconsistent responses" to requests from foreign authorities to arrest and extradite suspects, according to the OCCRP report. At least four alleged members of the "Aussie Cartel" network of drug traffickers, their associates or family members have or had luxury property in Dubai, the OCCRP said.
"It's incredible the number of criminals who bought UAE property in their own names — it implies they believe they have an astounding level of impunity," according to Jodi Vittori, a professor at Georgetown University whose studies focus on corruption and illicit finance.
"If you could establish who owned which front companies there would likely be many more criminals exposed, but generally it seems this hasn't been necessary," Vittori said. "It's what people didn't do that's almost more interesting than what they did do."
Normally, a state found to be allowing alleged heads of drug cartels to buy property in the same complex, for example, would lead to it being put on FATF's blacklist and its banks banned from correspondence accounts, Vittori said.
"That would make it extremely tough to move money, but the country's geostrategic position — its hosting of Western military forces, the use of UAE-hired mercenaries and the hope that the UAE will help fund the rebuilding of Gaza — makes it difficult to take such action," Vittori said.
FATF did not offer a response to this point when contacted by Market Intelligence.
Banks have been tightening their AML processes. Emirates NBD last year enhanced the "effectiveness and efficiency" of its compliance systems, improved staff training, and revised its policies relating to anti-money laundering, sanctions and conflicts of interest, according to its annual report.
FAB has hired "subject matter experts" to enhance its abilities to detect and prevent criminal activity including money laundering, bribery and corruption and terrorist financing, and has improved its training. Abu Dhabi Commercial Bank
None of the banks revealed the costs incurred from these various initiatives. The four big banks' cost-to-income ratios ranged from 24% to 31% as of the first quarter.
As of July 23, US$1 was equivalent to 3.67 United Arab Emirates dirhams.
Ben Meggeson contributed to this story.