U.S. Undersecretary of the Treasury Wally Adeyemo has visited the United Arab Emirates (UAE) to discuss compliance with sanctions against Russia. Since Moscow’s military invasion of Ukraine, most countries of the world have refused to work with Russian investors, but the UAE has remained a safe haven. The Emirates criticizes the Kremlin’s actions but is loyal to the inflow of Russian money, even if it is of dubious origin. Will the U.S. be able to persuade the UAE to take a tougher stance?
Wally Adeyemo visited the cities of Abu Dhabi and Dubai last week. From June 19-22, he met with the heads of UAE government agencies and financial companies to discuss sanctions against Russia, as was stated in a press release issued by the U.S. Treasury Department. The West has made no secret of its irritation that the Emirates is likely to provide a safe haven for the Russian elite’s capital.
The U.S. Federal Bureau of Investigation (FBI) recommends that supervisory authorities look inside the UAE for traces of investments made by persons caught under sanctions after February 2022. The International Financial Action Task Force (FATF) placed the Emirates on a so-called “gray list” back in March due to money laundering activities.
The Mira Estate agency estimates that from March-May 2022, 20% of property buyers in Dubai were from Russia. They usually choose real estate in the most prestigious areas with a view of the Persian Gulf, which is exactly what Russian billionaire Roman Abramovich did. Russians also hide their yachts from Western sanctions in the UAEl, as was the case with another Russian oligarch, Andrey Melnichenko. His $300 million Motor Yacht A was discovered in the port of Ras al-Khaimah, The Financial Times reported.
Russian billionaires are not the only ones moving to the Emirates. Some top managers and companies are also making the move because Western sanctions have made it virtually impossible to work in Russia by limiting access to modern technology.This trend was set by “Russia’s Mark Zuckerberg,” the creator of social network VK and messenger application Telegram, Pavel Durov, who fled to the UAE in 2014. His office is located on the 23rd floor of one of the Dubai Media City towers in Dubai.
Now, the Emirates is also home to financiers close to the Kremlin. For example, Tim Dimchenko, the head of private equity at the state-owned VTB Capital bank, is a frequent visitor to Dubai. This bank was one of the first to fall under the harsh U.S. sanctions, which effectively paralyzed its work outside of Russia. In the UAE, Dimchenko sits on the board of Micropolis Robotics, a small company founded in 2014 as a startup to develop drones for city services. However, it has built only one prototype in eight years.
The Dimchenko team includes Russians Yegor Romanyuk and Alexander Rugaev. Formally, they are not connected to state structures, but through Dimchenko, they may have carried out delicate financial assignments in the interests of Russian officials. Romaniuk specialized in activist stock operations and was the owner of two Cypriot companies–Barna Capital Group and Axima Funds Ltd. The latter had its license revoked in 2019. Rugaev has also long worked in Cyprus, the main offshore location for many wealthy Russians, through which they withdraw funds from Russia.
The UAE will soon consider the presence of such persons undesirable, and reinforce controls over their work. Bloomberg reports that the UAE is expanding extradition agreements in an effort to combat dirty money, highlighting a desire to clean up the country’s image after being placed on the “gray list”.
The UAE has 37 mutual legal assistance and extradition agreements, including pacts with Britain, France, Italy, India and China, said a spokesman for the executive office of AML/CFT, the government agency responsible for dealing with illicit financing. “We expect seven additional agreements this year,” said the spokesman, without naming the countries. “Negotiations and discussions are ongoing with a number of other UAE partners around the world.”
These statements followed a string of high-profile arrests in Dubai in early June. The UAE is currently negotiating the extradition of two Gupta family members accused of stealing billions from South Africa. Hedge fund trader Sanjay Shah was also arrested.
Wally Adeyemo welcomed Abu Dhabi’s commitment to preventing money laundering, warning of the “threat of illicit financial flows.” The U.S. Treasury Department underscored the need for “vigilance and proactive action” against the evasion of sanctions on Russian.
The influx into the country of Russian money with a dubious origin following the invasion of Ukraine is not likely to go unnoticed by supervisory authorities. The FATF insists that the UAE step up its effective prosecution of various types of money laundering cases in order to be removed from the “gray list.” The AML/CFT’s executive office has said that the UAE is committed to working closely with the FATF.
This clearly indicates that the Arabian state is ready to at least partially reckon with the requirements of the U.S. to implement sanctions against Russia. How dangerous could this be for shadow Russian investors? The outcome will depend on the political arrangements between the U.S. and the UAE. It is possible that the Emirates could demand that Washington toughen its stance on Iran, which threatens regional stability with its nuclear program.
U.S. President Joe Biden is planning his first visit to the Middle East from July 13-16. The UAE could sacrifice its loyalty to the Russian capital if it benefits in the regional political game. Back in March, it was clear from Abu Dhabi’s statements that the refusal to support Western sanctions was not related to support for Russia, but to long-standing grievances against Washington. If they can be resolved diplomatically, the UAE might be able to sync with the Western sanctions regime.
