January 12, 2023

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IntelBrief: Russia Using the United Arab Emirates as a Sanctions Evasion Hub

Russian Foreign Ministry Press Service via AP

More than 50 years after its formation, the UAE, a federation of seven emirates (principalities), has become an important crossroads for many nationalities and cultures. The country’s welcome for foreign investors and expatriates has – along with its ample reserves of crude oil – helped the country become a haven for global wealth and finance, a major regional economic power, and a significant U.S. trading partner. At the same time, there are those who exploit these same opportunities and openness to conduct illicit activities, including smuggling and trafficking in persons. Illicit activity might sometimes occur with the complicity of UAE government officials or members of its ruling families, acting consistently with what they perceive as deliberate government policy. In March 2022, the Financial Action Task Force (FATF) – a global coordinating body to combat money laundering and terrorist financing – added the UAE to its “grey list.” The designation subjects the UAE to greater FATF oversight until at least April 2023 and required the country to implement a strategy to demonstrate sustained actions against money laundering. One element of the UAE action plan has been a pledge to proactively identify and combat sanctions evasion, presumably including a close examination of the trading in gold - a key economic activity in the country.

After the Ukraine invasion, Russian leaders and oligarchs – many of whom have been sanctioned – appeared to believe that UAE President Sheikh Mohammad bin Zayid al-Nahyan’s (MBZ) longstanding engagement with Moscow would foster a permissive UAE environment for evading Russia sanctions. In the wake of strong pressure from the United States and like-minded members of the UN Security Council, the UAE, serving a two-year term in 2021-2022, nonetheless refrained from supporting Western states against Russia. Despite widespread condemnation of Russia’s invasion in February 2022, the UAE and Russia have exchanged high-level visits, including meetings between MBZ and President Vladimir Putin in Moscow, most recently in October. The outreach forms part of MBZ’s strategy of building relationships with a diverse range of global powers and increasing his leverage with Washington. MBZ’s outreach to Putin also reflects his assessment that Russia, which is a partner of Tehran and extensively backs the Assad regime in Syria, is a major player in the region and pivotal to Middle East stability.

Immediately after the United States and European Union (EU) imposed sanctions on Russia for the Ukraine invasion, wealthy Russians and their assets – including several superyachts and private jets – flocked to the UAE, particularly Dubai emirate, the federation’s commercial center. In mid-2022, the Madame Gu superyacht, owned by Russian steel magnate and parliamentarian Andrei Skoch, who is under sanctions, was observed berthed at Dubai’s Port Rashid terminal. According to UAE-based property brokers, Russians were the largest single group of nonresident buyers in the UAE from July to September of 2022 and as the war continues into 2023 many expect this trend to continue.

Well before the Ukraine war, global experts assessed that Moscow was using the UAE to circumvent U.S. efforts to sanction Moscow’s allies and partners. Gold is a global hard currency that can be exchanged for dollars or other cash assets, and the UAE has long been a vibrant hub for the gold market. A decade ago, gold trade through the UAE served as a vehicle for Turkey and Iran to avoid energy sanctions on Iran. Russia has supported the heavily-sanctioned Venezuelan regime of President Nicolas Maduro - a U.S. adversary - by flying tons of Venezuelan gold to various foreign markets, including the UAE, where the gold was exchanged for U.S. dollars and euros. Moscow has also apparently involved the UAE in gold-related transactions involving several African countries. In 2017, the Kremlin-linked private military company, the Wagner Group, was deployed in Sudan to quash local uprisings against the government of Sudan’s dictator, Omar al-Bashir. As payment, a Russia-based entity owned by Yevgeniy Prigozhin, financier of the Wagner Group and an ally of President Vladimir Putin, received exclusive gold mining rights in Sudan. The UAE declared $1.77 billion worth of gold imports from Sudan in 2020. According to some reports, as much as 90% of Sudan's gold is smuggled out of the country, often routed through UAE, where it is laundered. In December 2021, the Wagner Group reportedly entered Mali following the country’s request for private military support. Mali is another major African gold producer, with the UAE importing $2.9 billion worth of gold and Switzerland importing $1.5 billion worth of gold from Mali in 2020. As has the UAE, Indian leaders have sought to preserve ties to Russia despite the invasion of Ukraine, and experts assess that many actors are able to use the gold trade in both the UAE and India to evade various sanctions regimes. India has not undergone a FATF evaluation since 2010.

UAE leaders have taken umbrage at U.S. and international criticism that they are enabling Russian sanctions evasion, while also taking steps to avoid U.S.-led punishments. In June 2022, Wally Adeyemo, deputy treasury secretary, welcomed UAE institutions’ commitment to preventing money laundering, but said the Gulf state — like other global financial hubs — faces the “threat of illicit financial flows.” He underscored the need “for vigilance and proactive action in combating Russian sanctions evasion”. That same month, U.S. Assistant Secretary of State for Near Eastern Affairs Barbara Leaf told Congress that Washington was unhappy about reports of Putin-linked oligarchs and businessmen sheltering assets in the UAE. In response, in July 2022, Anwar Gargash, a former top foreign policy official and now a diplomatic advisor to MBZ, stated: "There are many Russians who are not sanctioned and are interested in safer havens…These non-sanctioned individuals have nothing to do with the war and trying to lump them together with bigger issues is problematic." Referring to U.S. criticism and the ability of any U.S. sanctions against the UAE to harm the UAE economy, Gargash added: "We are having intensive consultations with the U.S. government on [Russian] individuals. We are a dollar-denominated economy so for us it's important we have these conversations."

As part of their defense, UAE officials highlight significant activities they and private sector UAE firms have undertaken against Russian sanctions evaders. Emirati authorities responsible for countering illegal financial activities have told U.S. journalists that the country: “has a stringent framework in place to counter illicit finance and implement targeted financial sanctions. Effective measures are targeting a range of financial crime risks and typologies, including in the real estate sector.” Dubai’s Mashreqbank stopped lending to Russian banks and is reviewing its existing exposure to the country, one of the first reported instances of a bank in the Middle East suspending ties with Russia. Russia's large lender Sberbank has wound down its UAE operations and will close its UAE office entirely in early 2023 due to sanctions pressure. Yet, even though the UAE record in enforcing sanctions is, at best, mixed, there is little appetite in Washington to do more than warn the UAE about Russia sanctions evasion as long as the Emirates remains a significant strategic partner of the United States.