Casey Michel, a writer and investigative reporter who covers financial secrecy, is the author of American Kleptocracy.
عربي
Russian President Vladimir Putin's invasion of Ukraine has forced a long-overdue reckoning in some of the world's biggest money laundering havens, and beyond the usual suspects like islands in the Caribbean. The United Kingdom, the United States, Canada and the European Union have all been outed as favored hubs for oligarchs from Russia and elsewhere to hide and launder their vast wealth. In response to Russia's aggression against Ukraine, all of those jurisdictions have made notable moves to clean up their offshore finance sectors—and to prevent Russian oligarchs from moving their money throughout the West, dodging sanctions in the process.
However, there is one other country that similarly transformed into a notorious offshore haven of its own in recent years, but has refused to follow suit and clean up its reputation: the United Arab Emirates. While anti-money laundering campaigners focused on places like the Cayman Islands or Switzerland, or, more recently, the U.S. and the U.K., the UAE opened itself up to a global influx of illicit or ill-gotten wealth, mostly funneled into Dubai. Yet the UAE largely ducked international attention.
Much of the UAE's kleptocratic transformation isn't new, per se. The UAE has long been linked directly to some of the biggest money laundering scandals of the past few decades. For instance, the UAE hosted the crooked Bank of Credit and Commerce International, or BCCI, founded by a notorious Pakistani financier. Billions of dollars disappeared when the BCCI collapsed in the early 1990s, resulting in what one U.S. official described as "the largest bank fraud in world financial history." More recently, corrupt Afghan officials turned Kabul Bank, one of Afghanistan's primary financial institutions, into an effective Ponzi scheme—with much of the money flowing directly to Dubai to be washed clean.
The UAE opened itself up to a global influx of illicit or ill-gotten wealth, much of it funneled into Dubai. Yet it largely ducked international attention.
- Casey Michel
By all appearances, the UAE's shift into becoming one of the world's friendliest offshore havens has only accelerated in recent years. Numbers are difficult to come by, not least because so many of these networks rely on the kinds of anonymous financial secrecy tools the UAE freely provides. But if the response from Russian oligarchs now fleeing to places like Dubai is any indication, the UAE remains a welcome home for anyone with a bit of dirty money in their pockets.
Indeed, the inflow of questionable Russian wealth has only accelerated in recent weeks. As The New York Times reported this month, dozens of Russian businessmen or officials linked to Putin own properties throughout Dubai, per a study from the nonprofit Center for Advanced Defense Studies. These figures include those already sanctioned by the U.S. or the EU following Russia's invasion of Ukraine—sanctions that the UAE has not yet implemented. Deutsche Welle also reported on Russian oligarchs' private jets touching down in Dubai, with "several superyachts" also now moored there.
It's not hard to see why these Russian oligarchs and officials would suddenly be relocating themselves and their finances to a flashy city-state on the Persian Gulf. On the one hand, the sudden sprint toward autarky in Russia and the parallel clampdown on Russian oligarchic wealth in the West means that those funds need a new home. On the other hand, the UAE hosts all of the financial secrecy services that traditional offshore havens offered, providing the perfect vehicles to hide and protect ill-gotten gains.
For instance, identifying the owners of Emirati shell companies is wildly difficult. With dozens of different corporate registries scattered across the seven emirates that make up the country, the UAE doesn't have any kind of unified directory of company ownership that even traditional offshore havens elsewhere maintain. Toss in the fact that dozens more "free zones" exist in the UAE, where more shell companies can be formed, and efforts to create an opaque corporate network are far easier in the Emirates than practically anywhere else.
And that's only the start. Real estate, already a favorite destination for illicit, offshored wealth in cities like London and New York, is another clear, easy vector for laundering oligarchic wealth in the UAE. As Deutsche Welle noted, purchasing Emirati real estate is "comparatively frictionless," with little paperwork required and cash "king," providing anonymity to those behind the properties. After the purchase, the owners can also apply directly for a residency visa in the UAE—a key tool in a country that rarely, if ever, extradites oligarchs wanted elsewhere. As Jodi Vittori, a leading money laundering expert, said, the UAE is "a one-stop shop for illicit finance."
Among those taking full advantage of Dubai's new role as a shelter for illicit wealth are not only Russian oligarchs, but also warlords, kleptocrats and money launderers of all stripes from around the world.
- Casey Michel
And that is especially true of Dubai. As Vittori and Matthew Page wrote in a 2020 Carnegie Endowment report on Dubai's role as a money laundering haven, "part of what underpins Dubai's prosperity is a steady stream of illicit proceeds borne from corruption and crime. The wealth has helped to fuel the emirate's booming real estate market; enrich its bankers, moneychangers, and business elites; and turn Dubai into a major gold trading hub." Among those taking full advantage of Dubai's new role as a shelter for illicit wealth are not only Russian oligarchs, but also warlords, kleptocrats and money launderers of all stripes from around the world.
Nor is it difficult to see why Emirati leaders would be comfortable opening the UAE's doors to as much illicit wealth as possible. Given that total estimates of all offshored wealth run to approximately 10 percent of global GDP—or about the equivalent of China's entire GDP—trillions of dollars remain unaccounted for, looking for homes to be hidden and kept safe. And much of that has already found a safe harbor in the UAE.
That reality, though, may finally be changing. Earlier this month, the Paris-based Financial Action Task Force, or FATF—the leading watchdog organization overseeing international anti-money laundering standards—formally placed the UAE on its "grey list," alongside countries like Jordan and Yemen. The listing means that the FATF will put the UAE under increased monitoring, citing its "strategic deficiencies" to counter money laundering.
Suddenly, between the flood of Russian wealth flowing to Dubai and the FATF's decision, those "strategic deficiencies" are in the spotlight in a way they've never been. Whether that attention is enough to end the UAE's role as the favored offshore haven for Russian (and other) oligarchs remains to be seen. But until that day comes, expect much more illicit and suspect wealth to race to the Emirates, to be washed clean with no questions asked.
