Despite U.S. Sanctions, How Did the UAE Become a Safe Haven for Russian Money?

a year ago




The United States is trying to fill more trade gaps exploited by the UAE to support Russia in supplying goods through Dubai ports in light of Western sanctions imposed on Moscow.

Since the Russian invasion of Ukraine started on February 24, 2022, the UAE has constituted a safe haven for Russian businessmen and funds, giving Moscow an additional lung to breathe from.

However, Abu Dhabi kept the door open for Moscow to beat the European countries’ sanctions, even if this fuels the United States’ anger, which has a strong relationship with the UAE.

However, Washington seems to be no longer able to turn a blind eye to the UAE’s economic policy, which gives Russia a commercial outlet to meet its needs.

The UAE’s position, calling for ending the war on Ukraine without criticizing Russia, attracted a large number of wealthy Russians fleeing the sanctions imposed on their country.

The UAE also abstained from voting on a draft resolution drafted by the United States and Albania condemning the Russian invasion of Ukraine on February 25, 2022.


American Anger

According to Intelligence Online’s report on February 21, 2023, the U.S. Treasury expressed its concern over the increasing number of private sector traders in Dubai who sell goods to Russia from the free zone in Jebel Ali.

The magazine confirmed that the U.S. delegation, headed by Undersecretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson and Deputy Director of the Office of Foreign Assets Control Bradley Smith, sought, after arriving in Dubai in early February 2023, to obtain a commitment from Dubai Customs to stop issuing export approvals.

Merchants from different countries buy and import goods from all over the world, ship them to Dubai, and then sell and export them to Russian buyers through Jebel Ali Port.

DP World, owned by the Emirati national company, Dubai World, oversees the operation of this free zone.

The U.S. Financial Crimes Unit noted that once a shipping company is present, Dubai Customs allows checks to be carried publicly.

Most of the goods are shipped before they reach Russia, while the Saudi port of Jeddah is one of the ports used for these operations.

All kinds of goods, whether food supplies not included in the European Union’s list of products prohibited from being exported to Russia or luxury goods included in the list, pass through these ports.

The American delegation verified the acquisition of real estate in Dubai by Russian citizens, as well as oil exports.

In July 2022, the Sovcomflot oil shipping company—in which the Russian state owns 82.8 percent of its shares—transferred its business to Dubai, as its subsidiary, SCF Management Services in Dubai, contributed to the completion of this process through its relations with the Emirati Sharaf Group company.

The European Union is about to issue its tenth list of economic sanctions against Russia since February 24, 2022, and is now showing interest in SUN Ship Management.


Haven of the Russians

Headquartered in Dubai’s financial free zone, SUN Ship Management says on its website that it was set up in 2012 by Russian and Emirati citizens.

While the EU suspects it is a second copy of SCF, it could face sanctions over its alleged role in the sea-shipping of Russian oil and gas via a fleet of 92 tankers formerly belonging to Sovcomflot.

Despite the UAE’s attempt to prove to the Financial Action Task Force that it is working to improve anti-money laundering measures, it shows no intention of closing its free trade zones, of which there are more than 50 across the country, most of them in Dubai, according to Intelligence Online.

Many of the companies located in these areas enjoy official approval from the UAE authorities, such as the STREIT Group company for the manufacture of armored vehicles, which is based in the Ras al-Khaimah Economic Zone.

In 2016, the UAE Ministries of Interior and Foreign Affairs allowed the founder of the German STREIT Group, Guerman Goutorov, to export armored vehicles to countries subject to a United Nations embargo.

In February 2023, Russian products became visible on the shelves of one of the largest retail chains in the Emirates, thanks to the companies’ participation in the program to promote Russian agricultural products in the exhibition pavilions as part of the support for Russian agricultural products.

Dubai, the financial and commercial center of the Gulf, emerged as a haven for Russian wealth after the Ukraine war.

Buying the luxury yachts, which are the most visible signs of the wealth of the Russian oligarchs, which were spotted in the UAE, has become the front for Western sanctions imposed on Russian billionaires known for their closeness to the Kremlin.

Dubai has witnessed a real estate boom since the end of the Corona pandemic, fueled by the influx of investors, especially Russians, which caused a significant increase in rents.

Dubai attracts investors because of its developed infrastructure, business-friendly environment, tax policy, and various services provided by hundreds of thousands of workers from Asia.

While the authorities do not publish data by nationalities, Dubai’s leading real estate agency Betterhomes says that Russians were at the forefront of international buyers in 2022 and in third place among residents.

“We've seen a huge growth in the Russian market since…the tensions between Ukraine and Russia" started a year ago, Dubai Airports CEO Paul Griffiths told AFP on February 21, 2023.

About 1.9 million Russian travelers came via Dubai, which is "more than double" the number in 2021, according to Griffiths.

Emirati President Mohammed bin Zayed visited Moscow on November 11, 2022, and met Russian President Vladimir Putin, becoming one of the few state leaders to have made a similar visit since the invasion of Ukraine.

The UAE Central Bank announced on February 24, 2023, that it is studying “available options” after the Russian bank MTS, which was granted a license to open a branch in the capital Abu Dhabi in 2022, was listed on a new U.S. sanctions list.

According to a statement by the UAE bank published by Emirates News Agency, the Russian bank obtained a license "according to the licensing procedures approved, after the bank met the criteria for licensing foreign bank branches," noting that the bank "contributed to supporting legitimate trade between the two countries and serving the Russian community in the UAE."

Many Russians left their country to escape being forced into military service, but many of them complained about the difficulty of opening bank accounts in the countries they went to, while the Russians were the largest buyers of real estate in Dubai in 2022.

MTS Bank, which is affiliated with Russia's largest mobile operator, was the first foreign bank to obtain a license in the UAE several years ago.

The United States announced, in conjunction with the first anniversary of the war on Ukraine, the imposition of sanctions against 22 Russian personalities and 83 entities, including the Russian MTS bank in Abu Dhabi.

Reuters quoted sources it described as well-informed on February 4, 2023, as saying that Indian refining companies have begun to pay the price of most of the Russian oil that they buy through trading companies based in Dubai, in Emirati dirhams instead of U.S. dollars.

While India does not recognize Western sanctions imposed on Moscow, and its purchases of Russian oil may not violate them anyway, banks and financial institutions are careful about settling payments so as not to inadvertently fall under the many measures imposed on Russia for its war in Ukraine.

In December 2022, UAE Minister of Commerce Thani bin Ahmed al-Zeyoudi pledged to push trade to higher levels.

The UAE port of Fujairah is crowded with products as a result of Russian imports, and Kpler, the company that tracks oil shipments, expects that the UAE will import 3 million barrels of Russian fuel oil in February 2023 and 4.34 million in March 2023, up from 750 thousand barrels in February 2022.

The United States announced a new package of sanctions against Russia exactly a year after the start of the invasion of Ukraine, noting that it also targeted European mediators, especially in Switzerland.


Pressure on the UAE

The U.S. Treasury Undersecretary for Terrorism and Financial Intelligence, Brian E. Nelson, raised the issue of licensing the Russian bank during his visit to Abu Dhabi in February 2023.

He conveyed widespread concerns about financial linkage with Russia, even via non-sanctioned banks.

Nelson met with his government counterparts and financial institutions to express the U.S.'s determination to enforce its sanctions, according to the Treasury Department statement.

The statement added that lax jurisdictions risk losing access to developed markets by doing business with sanctioned entities or failing to implement effective due diligence.

In contrast, officials in Abu Dhabi dismissed these concerns, saying that the UAE seeks to stem financial flows from sanctioned Russian entities while refusing to discriminate against non-sanctioned companies and individuals.

All of this comes amid Washington intensifying its pressure on the UAE.

U.S. officials issued a series of warnings to Abu Dhabi to ensure that the restrictions are applied to Russia, with the possibility of taking new measures against Emirati companies and institutions that help Moscow evade Western sanctions.

According to Bloomberg, U.S. Treasury Undersecretary Nelson discussed in the UAE, in early February 2023, steps to clamp down on evading sanctions, as the United States informed officials in Abu Dhabi that the UAE's deep financial relations with Moscow were hindering its efforts to isolate Russia.

Switzerland had recorded a significant increase in gold imports from the UAE since the imposition of sanctions on Russia, and the non-governmental Swiss Foundation for Development Cooperation called for more transparency to determine whether this gold was originally coming from Russia.

The Foundation said, according to Reuters in May 2022, that this raises questions about whether Russian gold was entering Switzerland through Dubai, and thus the sanctions imposed on Russia are circumvented.

China and Dubai are among the most important gold export destinations from Russia, which is the second largest gold producer in the world.