From skyscrapers rising in the desert to free-trade zones hawking gold and diamonds, the UAE is open for business. Sometimes that business involves shadowy companies and international crimes.
DUBAI, United Arab Emirates — The glass-and-steel office towers and luxury hotels along Sheikh Zayed Road are glittering reminders of Dubai’s rise from a cluster of settlements to what’s been called “one of the urban miracles of the modern world” — “a futuristic city rising in the middle of a desert.”
Today, this major traffic artery, named after the United Arab Emirates’ first president, is home to the regional headquarters of General Motors, Shell and other global giants attracted by the Persian Gulf nation’s reputation for stability and its open-for-business attitude.
At the prestigious address of 1 Sheikh Zayed Road, on the 16th floor of the H Hotel Office Tower, is an office that was the birthplace of a constellation of lesser-known firms — scores of offshore companies sold to clients who prefer to keep their identities under cover.
The Pandora Papers, a trove of secret records obtained by the International Consortium of Investigative Journalists, reveal that the real owners of these companies include a raft of shady players in the offshore world.
Among them: A Belgian tycoon accused of profiting from the smuggling of “conflict gold” ripped from violence-torn regions of the Democratic Republic of Congo. An internet mogul from Quebec convicted in the United States of money laundering that authorities said shifted $250 million for fraudsters, child porn traffickers and other criminals. A 26-year-old crime kingpin whose “dark web” internet site peddled guns, stolen financial information, counterfeit documents, toxic chemicals and huge quantities of illegal drugs — including heroin and fentanyl linked to overdose deaths across the U.S.
The story of the offshore companies created within Dubai’s corporate enclave casts fresh light on Dubai’s rise as one of the world’s financial capitals— and on the UAE’s role as a nexus for money laundering and other financial crimes.
The UAE is home to a thriving trade in financial secrecy. It offers shell companies that mask their real owners’ identities; dozens of internal free-trade zones that provide even more shadows for them to hide in; and a regulatory system known for what anti-corruption advocates call its “ask-no-questions, see-no-evil approach” to dealing with money tied to gold smuggling, arms trafficking and other crimes.
“The UAE provides secrecy, complexity and control,” Graham Barrow, a money laundering expert and co-host of The Dark Money Files podcast, told ICIJ. “It’s a perfect storm. An invitation to criminals to make the most of it.”
The UAE is a confederation of seven sheikdoms — emirates — that gained independence from Britain and joined together half a century ago under the leadership of its first president and the namesake of Sheikh Zayed Road, the late Sheikh Zayed bin Sultan Al Nahyan.
Members of the six royal families that govern the seven emirates have a hand in almost every business activity in the UAE — as landlords of office towers and other properties, as owners of major corporations, as silent partners who take a share of the profits in other enterprises and as public officials overseeing sovereign funds and government-owned businesses. And, in turn, the emirates’ rulers decide who will serve as regulators overseeing businesses that they and their families may profit from.
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Offshore sheikhs
The more than 11.9 million files in the Pandora Papers include some 190,000 confidential files from SFM Corporate Services, a UAE-based firm that has billed itself as “the World’s #1 Offshore Company Formation Provider.” SFM is one of thousands of firms in the Emirates that help clients incorporate companies, including hard-to-track companies for people living and doing business outside of the UAE. These company formation providers are part of a global web of lawyers, accountants and other operatives who make the offshore financial system possible.
ICIJ’s review identified the owners of at least 2,977 companies in the UAE, the British Virgin Islands and other offshore financial centers that were incorporated with SFM’s help or received other services from SFM. The owners of these companies include the Belgian gold tycoon, the internet mogul, the dark web impressario and more than 20 other people accused of financial crimes and other wrongdoing around the world, ICIJ research found.
SFM said in a statement that it operates in a manner that is “absolutely legal in every aspect. SFM abides by the applicable laws and regulations in every jurisdiction it operates in.”
For several years, SFM operated out of an office on 16th floor of the H Hotel tower at 1 Sheikh Zayed Road, a building that ICIJ research indicates is owned by Sheikh Hazza bin Zayed Al Nahyan, the UAE’s former national security adviser and brother of Sheikh Mohammed bin Zayed, the crown prince of the emirate of Abu Dhabi and next in line to become UAE president.
Sheikh Hazza did not reply to questions that ICIJ sent to him via the UAE Embassy in Washington and the Abu Dhabi Executive Council media office.
Along with internal records from SFM, the Pandora Papers include tens of thousands of additional files related to the UAE, including documents from Seychelles and other jurisdictions that reveal offshore holdings of at least 35 members of the UAE’s ruling families.
Heavyweight Emirati royals with offshore holdings revealed in the data include Sheikh Hazza; his successor as national security adviser, his brother Sheikh Tahnoon bin Zayed; and the UAE’s prime minister and ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum.
In September, three former senior managers at Dark Matter, all former American military and intelligence personnel, admitted in a deferred-prosecution agreement with U.S. authorities that they had helped hack mobile phones and computers around the world. Dark Matter has not been charged. It has acknowledged working closely with the UAE government but denies it has engaged in hacking.
The leaked records also show that Sheikh Tahnoon, the UAE security adviser, owned a British Virgin Islands company using unregistered “bearer shares,” which provide deep levels of secrecy because they are owned by whoever physically holds the share certificates. Long associated with financial misconduct, bearer shares have been banned in many jurisdictions.
Sheikh Tahnoon became embroiled this year in a U.S. political scandal involving the chairman of President Donald Trump’s 2016 inaugural committee, the American billionaire Thomas Barrack. A U.S. indictment charges that Barrack acted as an unregistered agent for the UAE by providing help to high-level Emiratis — including an Emirati official widely understood to be Sheikh Tahnoon — as they sought to covertly sway Trump administration policies. Barrack has pleaded not guilty.
Sheikh Mohammed and Sheikh Tahnoon did not respond to questions for this story. Other Emirati royals, the UAE embassy in Washington and media offices for the Dubai and Abu Dhabi governments also did not respond to ICIJ’s questions.
The Emirati government has previously said: “The UAE takes its role in protecting the integrity of the global financial system extremely seriously.”
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A critical ally
Concerns about the UAE’s role as a center for financial crime have been around for decades. In the 1990s, the Bank of Credit and Commerce International — a global institution that was majority owned by the Abu Dhabi royal family and the Abu Dhabi government — was implicated in bribery, money laundering, sex trafficking and terrorism financing, earning it the derisive moniker “Bank of Crooks and Criminals International.”
The UAE’s status within the world’s offshore financial secrecy system has grown markedly over the past decade. In 2009, Tax Justice Network, an anti-corruption research and advocacy group, listed Dubai at No. 31 in its ranking of the most important offshore jurisdictions — based on their levels of financial secrecy and the scale of their offshore financial activities. By 2020, the UAE ranked No. 10 on the group’s Financial Secrecy Index.
One thing that sets the Emirates apart from other secrecy havens is that the U.S considers the UAE a critical military ally and a bulwark against terrorism in the Middle East.
Because of the role the UAE plays in American national security and economic interests in the region, the U.S. hasn’t put the kind of pressure on the Emirates that it has on Switzerland, the British Virgin Islands and other offshore havens, according to Jodi Vittori, an expert on terrorism financing and a nonresident fellow with the Carnegie Endowment for International Peace.
Vittori said the U.S. has at times, such as after the 9/11 attacks, pressed the Emirates to work harder to stem the flow of money that finances terrorism. But, she said, “by and large, the U.S. seems to have turned a blind eye to their role in the facilitation of illicit finance, conflict minerals and organized crime.”
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Illegal enterprises
Firoz Patel, the internet mogul from Quebec accused of laundering $250 million for child porn traffickers and other criminals, told an American judge last year that he was “humbled and ashamed” by what he’d done.
“Somewhere along the way,” he said, “I lost myself. … I started to cut corners.”
But the judge said Patel hadn’t operated his online money-transfer empire as if he were an innocent in over his head. For years, the judge said, Patel had aggressively solicited transfers of money from “known illegal enterprises” — all the while “actively sanitizing client lists and other records” to conceal his crimes and the crimes of his clients.
And back in 2017, as U.S. authorities began to close in on him and his web of money-transfer businesses, he went looking to set himself up in an offshore company, the Pandora Papers show.
SFM, the Dubai-based company formation provider, was there to help.
The leaked documents show that, in April 2017, SFM supplied Patel with a company created in the emirate of Ras Al Khaimah, a jurisdiction that offshore industry professionals tout as providing one of the highest levels of anonymity available.
A year later, the documents show, SFM resigned as registered agent for Patel, citing “compliance reasons.” International standards promoted by the U.S. and other world powers require providers like SFM to turn away potential clients who may be engaged in money laundering and other crimes or trying to evade government sanctions.
In 2020, Patel pleaded guilty in federal court in Washington, D.C., to money laundering. The judge sentenced him to three years in prison.
Patel is one of at least 24 SFM clients who have been accused — in criminal cases, lawsuits, regulatory actions or United Nations reports — of financial crimes or other wrongdoing, an ICIJ review of the Pandora Papers documents found. At least 12 of them have been convicted and sentenced in criminal proceedings.
Through his attorney, Patel said the UAE company had nothing to do with the U.S. allegations and ceased operation a year and a half after its inception. He said that the businesses he was involved with were “not inherently illegal” and that his legal problems were caused by “a few bad employees and bad partners who brought us untold amounts of damage.”
Responding to questions from ICIJ, an attorney for SFM declined to address specific cases, saying that to do so would be “a serious breach of client confidentiality.”
When SFM takes on clients, the attorney said, it “actively uses industry standard compliance monitoring tools.” He said the firm “routinely refuses to work with clients” when it finds negative information about their backgrounds.
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High risk
SFM was founded in 2006 by a former banker, Reza Afshar. Its headquarters, at first, were in Switzerland. It later moved its main offices to Dubai, while keeping a presence in Switzerland.
SFM markets itself robustly: A financial plan obtained by ICIJ noted that SFM was “one of Google’s biggest clients in Switzerland, spending more than two million dollars per year on pay per click” and other campaigns.
In 2013, a French legislative commission probing the role of banks and other financial actors in tax evasion highlighted some of the services SFM advertised online. Those services included the practice — common in the offshore industry — of supplying a stand-in director or shareholder “whose function is explicitly to conceal the true manager or owner of the company.”
The French commission called SFM’s online promotions an “incitement to evade taxes and commit tax fraud.”
The attorney for SFM, when asked about the commission’s allegation, said the firm “does not believe that the statement is the least bit accurate,” adding that there is “nothing inherently wrong with the goal of minimizing taxes.”
Offshore services firms like SFM are supposed to check not only their clients’ backgrounds, but also the sources of their money.
A check of publicly available information in 2017, when SFM set up a company for Firoz Patel, would have indicated that he was a high-risk client.
In 2012, federal authorities in Tennessee unsealed an indictment charging him with two counts of money laundering. The next year, Kentucky financial regulators accused Payza, one of the payment-processing firms that Patel ran, of “making fraudulent statements and misrepresentations” and engaging in “unlicensed money transmission activities.”
And in 2016, Payza was publicly linked to ZeekRewards, a fraudulent online business, run out of a small town in North Carolina, that promised big returns to small investors around the world. Attorneys appointed by a bankruptcy judge to probe the ZeekRewards scam reported that Payza had lined its pockets by enabling a $900 million Ponzi scheme. News articles reporting the allegation were available on the internet more than a year before SFM set up the UAE company for Patel.
SFM’s attorney said the firm conducts “the required due diligence” when it incorporates a new company for clients, but is “naturally not in a position to scour worldwide news.”
Five former SFM employees in Dubai and Europe told ICIJ that the firm’s drive to grow its business led it to ignore red flags and take on clients with questionable backgrounds.
Even if workers sensed something suspicious, one ex-employee said, they’d usually take the clients’ word about the clients’ backgrounds and financial activities.
“The client can say anything about their business,” the ex-employee said. “It’s easy to play dumb and say, ‘This is what the client told us.’ ”
The former employees spoke on the condition of anonymity because of legal concerns.
Two of the former employees said SFM took on clients from Iran and other countries that had been put under economic sanctions by the U.S. or other Western powers, despite the risk that those clients might be connected to people or companies on sanctions lists.
ICIJ’s review of SFM’s internal records found that the firm incorporated two companies for an Iranian-born citizen of Germany named Abdolhadi Tabibi. One of them was a UAE company called Mehr Trade Ltd. Public records show that Tabibi is the director of GIC International, listed by Iran’s national corporate registry as a subsidiary of Ghadir Investment, which in turn is part of a multibillion-dollar foundation under the direct control of Ayatollah Ali Khamenei, Iran’s supreme spiritual and political leader, who steers the country’s national and foreign policies.
Both Khamenei’s foundation and its investment arm are under U.S. sanctions. The sanctions — which have been lifted and reimposed over the years — have targeted Iran’s ability to develop nuclear weapons. Iran has used long-standing economic ties to the UAE to get access to international markets.
Tabibi and his company didn’t respond to questions from ICIJ about the purpose of the companies set up by SFM and whether they are linked to Iran’s supreme leader.
Other SFM clients identified by ICIJ through the Pandora Papers include Samir Traboulsi, a Lebanese financier who was convicted and fined in 1993 for his participation in what at the time was called the largest insider-trading scandal ever in France. They also include Ajaz Saddique, who was barred in 2014 from acting as a company director in the United Kingdom for 15 years after an investigation into what authorities said was a multimillion-dollar tax fraud.
Another SFM client was Alexandre Cazes, who, like Patel, was an internet entrepreneur from Quebec, although the pair do not appear to have been connected. U.S. authorities described Cazes as the young mastermind behind AlphaBay, the largest “dark web” marketplace in the world. An indictment in federal court in California alleged that the shadowy website was used by thousands of vendors to peddle illegal goods and services and to launder hundreds of millions of dollars from the illicit transactions.
U.S. authorities developed a case against Cazes after making numerous undercover buys of heroin, methamphetamine and other street drugs and then connecting him to an email address, [email protected], that was used in AlphaBay’s welcome and password-recovery emails.
Cazes was arrested in Thailand in 2017. He was found dead in a Thai jail a week later, an apparent suicide.
SFM’s Dubai office provided Cazes with at least five offshore companies, the Pandora Papers show. SFM continued to send invoices to Cazes after his death.
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Royal privileges
The UAE has two faces: an open economy and a police state.
The Emirates, like other tax havens and secrecy jurisdictions, offers people ways to protect their wealth and keep their business dealings discreet. The UAE has limited corporate taxes and provides tight secrecy masking the ownership of many companies registered there.
Mass surveillance and the monarchy’s firm grip on the courts and media make it difficult to challenge the system or expose suspect business dealings — especially when royals are involved.
The UAE, a mostly desert land that borders Oman and Saudi Arabia, has a population of roughly 10 million. Nearly 90 percent of the people there are expatriates, many of them guest workers from India and Pakistan who do the low-wage jobs that most Emiratis don’t want.
The UAE promotes itself as a stable, forward-looking ally of the West in a dangerous region. It has hosted the filming of desert scenes for “Star Wars: The Force Awakens”; donated money to hurricane relief in the U.S. and — through sponsorships of professional soccer teams by the government-owned Emirates airline — made the “Fly Emirates” jersey one of the most popular soccer jerseys in the world.
The UAE has purchased huge amounts of American-made weapons and deployed F-16 fighter jets to support U.S. operations in Afghanistan. U.S. generals nicknamed the country “Little Sparta.”
The country has also buttressed its image by hosting international events — such as a 2019 United Nations anti-corruption conference — that are at odds with its record as an autocracy that jails critics and serves as an offshore secrecy hub.
Most of all, the UAE’s leaders have marketed their nation as a place that’s open to all kinds of business, including the world’s biggest corporations.
When the economy does well, the ruling families do very well.
Many members of Emirati royal families open doors and sponsor many businesses, in return for commissions that can equal as much as 25% of the profits, 10 people familiar with the UAE royal families’ business interests told ICIJ. They include seven individuals who worked for royal family members, two former government officials and an investor who worked closely with prominent sheikhs.
Influential royals manage their businesses through their private offices, which provide services to businesses and expats heavy with cash. Private offices can help investors open accounts in UAE banks and provide access to senior bankers who, in turn, can greenlight credit lines, a former private office consultant said.
“The more senior the sheikh, the more profitable the business, the less questions asked in banks, the more access businessmen get, the better cover and incentives they get in return for a commission or a share or a percentage,” a former UAE official said in an interview with ICIJ.
In a video posted on the webpage for the private office of Sheikh Saeed bin Ahmed Al Maktoum, a member of Dubai’s royal family, the office’s business development director says people come to the office because it offers them connections and “the family name that we represent.”
“With our name and our reputation, there isn’t any contact that we can’t really reach,” she said.
One corporate lawyer who works for a company formation provider in the UAE told ICIJ that having a royal address for your business is important because “it gives protection.”
The more senior the sheikh, the more profitable the business, the less questions asked in banks, the more access businessmen get, the better cover and incentives they get.— former UAE official
ICIJ’s research indicates that Sheikh Hazza, the former national security adviser, owns the H Hotel Office Tower at 1 Sheikh Zayed Road, where the offshore services provider SFM had its Dubai offices until at least 2017. Two former managers of the tower building said Sheikh Hazza has been the building’s owner since at least 2012. According to a ruling in an appeals court in Dubai, the tower is owned by Capital Investment International, which is run by Sheikh Hazza and his children.
ICIJ’s research indicates that SFM is one of at least four firms that had offices in the building that provided financial or company formation services to offshore clients.
In addition, documents in the Pandora Papers relating to nearly 150 offshore companies that SFM set up for clients include this reference in the companies’ incorporation address: “Office No-1602, owned by Sheikh Hazza Bin Zayed Al Nahyan.”
Companies whose incorporation documents refer to Sheikh Hazza include firms established for Patel, the SFM client later convicted of money laundering, and for Tabibi, the businessman with ties to the financial empire of Iran’s top leader.
In response to ICIJ’s questions, SFM’s attorney said that its clients’ companies often used SFM’s office as their official address, and that “it is absolute standard practice in the UAE to mention the name of the owner of the building in the registered address of all companies having their address in that building.”
The attorney said there are “absolutely no business relationships” between SFM and “any Sheikhs, or any private office of the ruling family in UAE.”
The Pandora Papers show that, along with his links, as a landlord, to the country’s offshore financial industry, Sheikh Hazza has offshore companies of his own outside the UAE, incorporated with the help of a UAE law firm.
The firm, Hadef & Partners, was founded by a former UAE minister of justice and has incorporated offshore companies for several prominent Emirati royals, the leaked documents show.
In 2016, Hadef & Partners, which has offices in Abu Dhabi and Dubai, helped Sheikh Hazza incorporate a UAE company named Loomington Investments Ltd. The records show that Sheikh Hazza also owned two other companies using the same name in the British Virgin Islands and Seychelles, and that he transferred shares from the Seychelles company to the UAE company. The records said the purpose of the offshore companies is to own “immovable properties” in Seychelles. Hazza has another offshore company in the BVI, WestShore Finance Limited, in which his mother, Sheikha Fatima bint Mubarak Al Ketbi, is also a shareholder, the records show.
In an email response to ICIJ, an attorney with Hadef & Partners said the firm “complies with applicable laws and regulations” and declined to comment further, citing client confidentiality.
The Pandora Papers also show that Sheikh Khaled — the son of the UAE’s most powerful royal, Mohammed bin Zayed — is a business partner in an offshore investment deal with Singapore billionaire Ong Beng Seng and UAE billionaire Ali Saeed Juma Albwardy.
Sheikh Khaled, a high-ranking security official, became the sole shareholder of Desroches Island Ltd. in Abu Dhabi with the help of Hadef & Partners.
That company is a shareholder in a BVI company with a nearly identical name, Desroches Island Holdings Ltd., along with Ong and a company owned by Albwardy.
In a diplomatic cable revealed by WikiLeaks, a former U.S. ambassador to Tanzania alleged in 2006 that Albwardy bribed Tanzania’s president while negotiating with the government about the expansion of a hotel chain in Tanzania. The former ambassador, Michael Retzer, said Albwardy donated $1 million to then-President Jakaya Kikwete’s political party and bought him designer suits. Albwardy and Kikwete denied the allegations.
In 2018, an ICIJ media partner, the Organized Crime and Corruption Reporting Project, reported that leaked documents showed that Ong had apparently treated top officials in the Maldives to luxury hotel stays around the time that his resort company secured a no-bid contract from the Maldivian government to lease a dazzling barrier reef island. Ong did not respond to ICIJ’s request for comment.
Documents show that in 2016 the partners in Desroches Island Holdings, the BVI company, sought a $40 million line of credit from HSBC Bank’s Dubai office. By 2017, the documents show, the company’s assets were valued at $50 million.
The documents said the funds would be used to operate the Four Seasons resort on Desroches Island, which promotes itself as a “private paradise on a lush coral island” that will “make you feel like a castaway who has struck gold.”
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City of gold
One of the key drivers of the UAE’s economy — and one of the drivers of money laundering in the country — is gold.
Dubai turned to the gold trade to make up for the dwindling of its oil reserves. The UAE now ranks among the world’s leading importers of gold. In 2020, the UAE imported gold worth $37 billion and exported bullion worth $29 billion, U.N. figures show.
A 2016 analysis found that nearly half of the gold imported by the UAEoriginated in countries where militias and other armed factions extort money from miners and use the proceeds to finance their campaigns of bloodshed.
Conflict gold originating from countries like Congo is smuggled to neighboring countries, then to Dubai through airports. Traders and refiners obscure its origin before exporting the gold to Europe and the U.S.
“Dubai is … a place to launder artisanally mined gold, especially from conflict-prone parts of East and Central Africa,” a report from the Carnegie Endowment for International Peace said last year. “Opaque business practices and regulatory loopholes allow this laundered gold to enter world markets on a massive scale.”
The Pandora Papers show that SFM set up two companies for Belgian gold trader Alain Goetz in 2016, both with the same name: Al Jur investment Ltd. One was incorporated in the UAE, the other in Seychelles.
A 2009 U.N. report revealed links between Goetz and a major gold dealer believed to have obtained gold from areas of the Congo controlled by a militia accused of killing and maiming civilians. The report said Goetz denied having an “ongoing business relationship” with the dealer.
In 2018, a nonprofit investigative and policy group, The Sentry, reported that smugglers and traders had claimed Goetz’s corporate network had purchased conflict gold trafficked from eastern Congo. The organization also said his network’s practices raised red flags about potential money laundering.
The Pandora Papers show that Goetz remained an SFM client until at least April 2019.
A representative for Goetz said that “claims and accusations contained in different media articles related to the involvement of Mr. Goetz in conflict gold from the Democratic Republic of Congo are either biased or false.” The representative said Goetz sold his shares in the offshore companies in 2019.
In February 2020, a Belgian court convicted Goetz of fraud and money laundering and gave him an 18-month suspended sentence. The court found that Goetz had helped create a black market operation that allowed customers to sell gold anonymously to his family’s refinery in Belgium, Reuters reported.
Last year, ICIJ revealed that the U.S. Treasury Department had declined to take action against one of Goetz’s competitors, Kaloti Jewellery Group, despite U.S. investigators’ finding that Kaloti was buying gold from sellers suspected of laundering money for drug traffickers and other criminals. Kaloti, which refines nearly half of Dubai’s gold imports, told ICIJ that it “vehemently denies any allegations of misconduct.”
Former Treasury officials told ICIJ that the U.S. pulled back out of fear of damaging its relationship with the UAE.
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Tightrope
In April 2020, the UAE came under international pressure when it faced, for the first time, the risk of being added to the “gray list” of countries targeted for extra scrutiny by the world’s main anti-money-laundering watchdog, the Paris-based Financial Action Task Force.
The task force said the UAE needs to make major improvements to ensure that it has effective systems to fight money laundering and terrorism financing. How much the UAE improves will be a test of whether the U.S., the U.K. and other powerful task members have the political will to push their Persian Gulf ally to embrace real reform, anti-corruption advocates say.
One issue that concerns anti-corruption groups is the UAE’s proliferation of “free zones” — special territories within the country that offer businesses a place where there are no taxes and regulation is minimal. In many UAE free zones, you can incorporate a company with few questions asked.
These zones, which are supposed to boost trade and other business activities, are excused from many of the laws of the UAE and the emirates where they are located. Free zones have their own governing bodies and regulators, although members of royal families generally maintain control by appointing free zone officials or serving on their governing boards.
It’s an act of legal acrobatics … On paper there are all these things they’re trying to do. But the reality remains very much business as usual.— Lakshmi Kumar, Global Financial Integrity
There are free zones in the UAE to facilitate trade in gold and diamonds and even for flowers, carpets and used cars. Nobody seems to be able to agree on how many there are. The Carnegie Endowment report last year estimated that the UAE has 47 free zones, including about 30 in Dubai.
Lakshmi Kumar, policy director at Global Financial Integrity, a nonprofit anti-corruption group, says it’s hard to figure out what’s going on within the UAE’s maze of free zones. Some don’t have websites. Some free zones operate within other free zones.
All this, Kumar says, creates a “bewildering patchwork” that makes it easy for money launderers, gold smugglers and other criminals to set themselves up in shadowy companies that obscure their identities and allow dirty money to flow.
Emirati officials say they have taken concrete steps to clamp down on money laundering, including requiring many companies to reveal to UAE authorities their true owners. In August, at the direction of Sheikh Mohammed, the UAE prime minister, Dubai officials announced the creation of a specialized court that will focus on cases involving money laundering.
As the Emirati officials have begun policing tighter rules for banks and companies, regulators “are walking on a tightrope,” according to Saboor Siddiqui, a member of the UAE Central Bank’s financial intelligence unit.
“There is a lot of resistance from financial institutions, and to address that we are cooperating with them and we are checking they don’t take the regulators for granted,” he told ICIJ.
In January, UAE banking authorities revealed that they had fined 11 banks a total of $12.5 million for failing to maintain adequate defenses against money laundering.
Kumar, the corruption policy expert, argues that the UAE’s recent moves are more window dressing than an all-out push to clean up the country’s problems with money laundering and other financial crimes.
Authorities didn’t identify the banks that were penalized and the fines were so small that banks could earn it back “in two weeks,” Kumar said.
And the new transparency requirements on company ownership? That comes with loopholes.
The information won’t be publicly available — it will be held by government authorities. And the identities of the real owners generally only have to be reported if they own 25% percent or more of the company — leaving an opening for shady actors to spread ownership among family or associates in a way that keeps their role secret.
In the U.S., ownership information is being collected in a national database maintained by the Treasury Department and available to law enforcement and regulatory authorities. In the Emirates, that information will be spread across a tangle of nearly 40 different company registries maintained by free zones and other political subdivisions.
Transparency advocates said this raises the risk that free zones and other licensing authorities will compete with each other for business by offering the least rigorous procedures for verifying ownership and catching misleading information.
“If you look deeper, you see the cracks and the gaps. It’s an act of legal acrobatics,” Kumar said. “On paper there are all these things they’re trying to do. But the reality remains very much business as usual.”
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By Maggie Michael and Michael Hudson, November 16, 2021, published on ICIJ
