The UAE’s continued acceptance of Russian cash is par for the course
As Western countries queue up to impose hefty financial sanctions on Russia and its oligarchs following the Kremlin’s invasion of Ukraine, the UAE is shaping up to be one of the most conspicuous places still welcoming Russian rubles without asking uncomfortable questions about their provenance. In the words of KCL Professor Andreas Krieg, “the UAE is not a country that is following a liberal, Western rules-based system”.
Indeed, the Emirates have a long history of playing fast and loose with international financial norms, and as a result have been entangled in many of the biggest financial scandals of the last decade, from the collapse of private equity firm Abraaj on home soil to major money-laundering and corruption cases from Angola to Iceland. The UAE has loudly trumpeted recent reforms in an effort to court international investment, but the country’s willingness to continue to accept Russian cash underlines all too clearly that such gestures are mere window dressing for a government that prioritizes profit above all else.
Abu Dhabi open for business
Not only has the UAE government brushed off entreaties from the USA to ramp up oil production so as to lessen reliance on Russian supplies and abstained from endorsing a Washington-backed condemnation of the war, but Emirati officials have reportedly informed Russians that they will not enforce any sanctions against Moscow unless mandated to do so by the UN. Given that Russia can and would veto that decision, there’s no danger of such an eventuality coming to pass.
On a recent visit to Abu Dhabi, German Economy Minister Robert Habeck raised the issue of the UAE and other Gulf states continuing to welcome Russian cash. “I’m not asking that they join the sanctions”, Habeck emphasized, “but I ask [them] not to be a profiteer of European and U.S. sanctions”. It’s highly questionable whether the Emirates will heed Habeck’s request—a recent exposé shed light on the fact that businessmen and officials with close ties to Putin hold some $314 million of assets in Dubai. It seems probable that the UAE will offer Russia a safe haven and alternative economic opportunities, just as it has done previously for sanctions-targeted nations like Iran, North Korea and Venezuela.
A torrid track record, from Abraaj to Angola
The UAE’s apparent willingness to undermine Western sanctions on Russia fits into a broader pattern of eschewing international business norms and practices. This has landed the country in hot water numerous times, as the Emirates have played a starring role in titanic financial sector scandals such as the 2018 collapse of Dubai-based private equity vehicle Abraaj.
Once in command of some $14 billion in assets, Abraaj founder Ariq Naqvi now stands accused of embezzlement and misappropriation of private equity. The Dubai Financial Services Authority (DFSA) has faced criticism for their initially lethargic reaction to the large-scale financial crime, belatedly slapping Abraaj with a $315 million penalty months after the scandal broke and only fining Naqvi in January 2022 for his role in the apparent fraud.
Four years after Abraaj’s implosion, Emirati authorities also have yet to mete out decisive consequences to the Dubai-based subsidiary of auditors KPMG, whose failure to spot irregularities in Abraaj’s accounting is just one of many allegations of sloppy auditing levelled at the multinational Big Four firm. KPMG is currently being sued in Dubai courts for $600 million over its role in the Abraaj affair, with claimants arguing that the auditor “failed to maintain independence” and breached its duty of care.
Ensuring that all of the players in the Abraaj scandal face accountability will be instrumental in reinstating damaged faith in the UAE’s financial sector, particularly since Abraaj is far from the only instance in which the Emirates’ financial institutions have been exploited for fiscal malfeasance. Take Isabel dos Santos, for example; the daughter of the former Angolan president and Africa’s richest woman, dos Santos allegedly offloaded almost $200 million of public funds to a shell company in Dubai.
Similar entities in the Emirates have served as facilitators for bribes between Icelandic fishing outfits plundering Namibian waters, as well as intermediaries in the expropriation of an estimated $7 billion of South African taxpayers’ money by the Gupta family. Three of the disgraced family’s brothers are still on the lam in Dubai, where the authorities have yet to turn them over despite an extradition agreement with South Africa.
Deeds at odds with words
Taken cumulatively, this laundry list of misdemeanors makes it abundantly clear why the Financial Action Task Force (FATF) recently greylisted the UAE as a jurisdiction at high risk for money laundering and other financial crimes. That embarrassing designation comes as the UAE is trying to boost its profile as a regional financial hub, including by making amendments to more than 40 business laws in order to attract FDI.
The Emirates have seen some success in becoming an international financial nexus. The Dubai International Financial Center (DIFC) reported superlative results last year, achieving its aims for 2024 three years ahead of schedule. Not only did it enjoy a 36% bump in new company registrations in 2021, but it also experienced a 16% revenue growth and boosted profits of 26% from the year prior. All three tallies were the highest on record. The FATF ruling and the UAE’s acceptance of funds from an increasingly-isolated Russia, however, may threaten to undo this remarkable progress, indicating that—reforms and flashy business forums notwithstanding—the UAE would still rather turn a blind eye to problematic financial flows than play by a rules-based system.