UAE: Dirty Money a Worry

By IPS Correspondents Reprint | | Print |

Meena Janardhan

DUBAI, Mar 19 2007 (IPS) - As the United Arab Emirates and other Persian Gulf countries move ahead with economic diversification and development supported by high oil prices, there are apprehensions about slack auditing controls and inadequate systems to check money-laundering.

As the United Arab Emirates (UAE) and other Persian Gulf countries move ahead with economic diversification and development supported by high oil prices, there are apprehensions about slack auditing controls and inadequate systems to check money-laundering.

The Gulf region has been fighting money-laundering since the 9/11 attacks on the United States. In 2002 the UAE passed an anti-money laundering law, imposed restrictions on transfers and made the maximum penalty for money-laundering in this country at seven years in jail and a 10 million dirham (2.72 million US dollars) fine.

In major follow up action, during the first week of March, the government ordered local banks to freeze the accounts of 21 individuals and nine businesses suspected of involvement in money-laundering and dealing in suspect money.

The governor of the UAE Central Bank, Sultan Nasser Al-Suweidi, told the press that the money involved came from drug sales in Western countries. ‘‘Money was pushed into European banks and came here through front companies,” he added.

A police statement said a group involving Asian, European and American citizens misused financial institutions, ‘‘assisted by some staff to conceal such crimes, against commissions.”

According to Eckart Woertz, a UAE-based economist, the initial thirst for development gave countries in the region little time to verify all the capital inflow, which encouraged money-laundering. ‘‘But, after achieving remarkable success in a short period of time, they are now realising the need to adopt corrective steps,” he told IPS in an interview.

‘‘International pressure and the need to maintain a clean reputation in a highly competitive market is forcing the countries in the region to crack down on dirty money. The reigning trend is towards more compliance with international standards,” Woertz added.

Dubai, one of the seven emirates in the UAE, has for long been used by currency traders from the Indian subcontinent, among others, as a transit point. While some move currency to legalise their clients’ unaccounted money, others use the money for trading, letters of credit and money-laundering. Millions of dollars are known to be transferred electronically among operators in Singapore, Dubai and Hong Kong for these purposes.

This multi-purpose system, popularly referred to as hawala (or ‘in possession’ in the Urdu language), leaves no paper trail because there are no accounts, cheques, signatures or ATMs involved. Because hawala works faster and cheaper than conventional systems and reaches places where even post offices do not exist, many low-income workers in the Gulf use it to make their remittances.

However, since this informal system assures anonymity, it is often misused by deceitful businessmen who wish to evade taxes, engage in money-laundering or hide the details regarding source of funds or their owners.

The system attracted attention when the United States pointed out that chief terror suspect Osama bin Laden’s al-Qaeda network transferred funds through hawala and cited the UAE as a transit point from where most of the money spent by terrorists for the 9/11 operations was reportedly transferred.

A report in the ‘‘The Washington Post” in November 2001, just as the U.S. and its allies began the invasion of Afghanistan, said Taliban and al-Qaeda networks had sent couriers with bars of gold and bundles of dollars into Pakistan. A large part of this money was then transferred from Pakistan to the Gulf through hawala and subsequently found its way to other parts of the world.

Dubai’s reputation as a “free zone” also encouraged the father of Pakistan’s nuclear programme, Abdul Qadeer Khan, to supply Pakistani nuclear technology to Iran, Libya and North Korea with the help of a Dubai registered company.

Presently, money launderers are said to be focusing on gold, diamond and property trade – all booming sectors in Dubai. Hence, apart from the banks, the Dubai Multi-Commodities Centre (DMCC) has announced that it will step up its fight against money-laundering by ensuring transparent business in gems and other precious metals. DMCC is expected to soon start training programmes for its staff on the ‘‘identification, verification and know-your-customer” measures.

But, the UAE Central Bank is aware of the futility of banning the hawala system. ‘‘The system can be used by those who have legitimate reasons for doing so and those who seek to abuse the system for illegal transactions will be identified and stopped by the authorities,” the bank said.

The efforts to crack down on hawala operators alone will not help, Woertz said. ‘‘Today’s banking system has enough loopholes for manipulators to channel unaccounted money and indulge in money-laundering activities,” he added, implying that the practice cannot be rooted out completely.

In a volatile region, keeping a tab on who is coming into the country is one of the greatest challenges facing the UAE today, former president of Interpol, Norman Inkster, told the UAE-based English language newspaper ‘Gulf News’ on Mar. 7.

‘‘When you look out at this sea of construction, you would like to know who owns it all à Right now is the best time to boost levels of preparedness for combating security risks,” he was quoted as saying by the newspaper. ‘’Money launderers are no longer the criminals they used to be – today they are astute business people and use the banking system as a way of moving money.”