By Ben Bartenstein
(Bloomberg) —The Gupta brothers stand accused of pillaging billions of dollars from South Africa. Isabel dos Santos is sought by Angolan authorities on suspicion of embezzling state funds. Bulgarian prosecutors say gambling tycoon Vasil Bozhkov is the leader of an organised crime group.
All of them are wanted at home to face allegations they deny, and all have something else in common: In recent years, they found sanctuary in Dubai, a destination for some of the world’s wealthiest exiles.
The Gulf emirate catapulted itself from sleepy trade backwater to glitzy playground for the rich over the past 40 years. But Dubai’s status as a global financial hub also has a darker side, and one that is coming under increasing scrutiny just as international allies sanction some Russian assets after the invasion of Ukraine.
While the United Arab Emirates has long been an investment destination for wealthy Russians, it’s now more appealing because it’s one of the countries that’s maintaining relations with their country. The flow of Russian money into the UAE through cash transfers and crypto wallets picked up as tension between Russia and Ukraine escalated, people with direct knowledge of the matter said. That has accelerated over the past two weeks, according to the people, who asked not to be identified discussing private transactions.
That comes as the UAE is under pressure to do more about tracking the money that enters the country. The Financial Action Task Force, a Paris-based organization set up by the G7 countries to combat money laundering, on March 4 put the UAE on its “gray list” of jurisdictions that don’t do enough to uncover illicit funds. The FATF warned two years ago it may take action, yet the decision resonates even more now.
Officials were expecting the FATF demotion and were already desperate to reverse the decision, fearful that it could frighten off foreign investors, people familiar with the situation said. A UAE body called the Executive Office of Anti-Money Laundering and Countering the Financing of Terrorism has been staffed up over the past year with top local talent to push new measures, including financial crime courts, ultimate ownership rules and intelligence-sharing partnerships.
Interviews in recent weeks with dozens of diplomats, bankers, lawyers and illicit-finance experts suggest such efforts are unlikely to change Dubai’s reputation as a place where one can do business with minimal interference. The tracking of Russian money — across the world, not specifically the UAE — was a major concern raised by member states at the FATF’s plenary last week, people familiar with the matter said.
“What separates Dubai from other traditional havens for dirty money is the amazing secrecy,” said Jodi Vittori, who co-authored a study of Dubai’s financial flows in 2020. “As a fugitive in Dubai, you can snatch up property, stash your yachts and set up bank accounts with very few obstacles. It’s also one of the few autocracies that’s a destination — rather than a transit location — for illicit flows.”
Following the Money
In response to questions from Bloomberg, a spokesperson at the Executive Office of AML/CFT said the UAE Ministry of Justice has made “significant strides” in cooperation with judicial counterparts, including recent extradition agreements with the Netherlands and Belgium.
The spokesperson highlighted the successful adoption of new measures around beneficial ownership as well as a strategic partnership with the U.K. on illicit finance. Meantime, industries like gold trading and real estate that are prone to financial abuse were brought into the country’s federally managed anti-money laundering reporting system last year.
While declining to comment on specific cases, the UAE spokesperson said the country will continue to pursue deeper collaboration with international partners to further increase the success rate in unraveling high-profile international threats and apprehending criminals and their illicit proceeds.
The dilemma facing local authorities is whether to clamp down and risk losing a flow of money that’s helped underpin the economy or maintain the confidentiality that havens like Switzerland could no longer sustain, the people interviewed said.
Dubai will still allow most wealthy exiles to live without fear of extradition — as long as they don’t run afoul of the local law — because they form an important pillar of the economy, according to Vittori, a professor at Georgetown University.
Atul and Rajesh “Tony” Gupta are a case in point. The brothers are alleged to have used shell companies and property purchases to move large sums of money to the UAE, some of it creamed off the proceeds of supply contracts with South Africa’s rail and port company, according to a South African judicial commission that was set up to investigate graft.
Interpol placed Atul and Rajesh on its most-wanted list, the head of South Africa’s Investigating Directorate said on Feb. 28. South Africa said it first sought mutual legal assistance from the Emiratis in the Gupta case in 2018 and officials from the U.S., U.K. and EU have since lobbied for their extradition. South African President Cyril Ramaphosa plans to raise these concerns on his visit to Dubai’s Expo 2020 in late March, people familiar with the matter said. The Gupta brothers have fought the move, saying they’re victims of a political witch hunt.
At private gatherings in Dubai, family offices that help manage the wealth of Emirati sheikhs have courted the Guptas for business, as they have several other sanctioned individuals in recent months, according to people with direct knowledge of the matter. The Guptas, along with another brother, Ajay, are sanctioned by the U.S. and U.K. Rudi Krause, director of a law firm in South Africa representing the brothers, did not respond to emailed questions seeking comment for this story.
Broadly speaking, much of the money gets funnelled into property, according to bankers and illicit finance experts who monitor the market. Some two-thirds of Dubai’s US$35 billion of home purchases were bought with cash in the latest one-year period, according to researcher Reidin.com. Buyers from Russia to Iran, the U.K. and India have snapped up everything from beachside villas to entire blocks of luxury apartments.
The UAE ranked in the top 10 for financial secrecy in the latest annual assessment conducted by the London-based Tax Justice Network. That put the country among the likes of Bolivia and Liberia and above Switzerland, the Cayman Islands and Cyprus.
“In recent years, we have seen a partial shift in the international centers facilitating illicit financial flows,” said Tena Prelec, a research fellow at the University of Oxford who studies illicit financial flows from Russia. “The UAE — and Dubai in particular — has risen as a key destination. Oligarchs or kleptocrats from a number of countries have sought refuge there.”
New so-called beneficial ownership rules have consolidated dozens of databases into a single National Economic Registrar. Local lawyers who study financial crime, though, say loopholes can still allow individuals to conceal their identities by registering under unrelated managing directors.
Luxury villas on the waterside of the Palm Jumeirah in Dubai on Feb. 24. Photographer: Christopher Pike/Bloomberg
Who Benefits From Dubai?
Wealthy fugitives are also increasingly using aliases and investor passports to circumvent know-your-customer checks, according to Mohammed Alzouebi, a former anti-money laundering officer at Standard Chartered Bank who now handles compliance for Alpha Management Limited in Dubai. Individuals will still move large sums of cash in suitcases and if they hit roadblocks, many local ATMs will allow more than 50,000 dirhams (US13,600) in withdrawals per day, he said.
The UAE may be reluctant to take a sterner approach because looser regulations help attract foreign firms, said Marcena Hunter, an analyst at The Global Initiative Against Transnational Organized Crime. But this brings “dirty money” as well, she said. “The country wants to be seen as a more legitimate place, but that will depend on whether Dubai truly cracks down on money laundering,” said Hunter.
The FATF’s gray list is for countries that are cooperating with the organization. A mutual evaluation report published by the FATF in April 2020 and with the support of the UAE laid out the concerns over the country’s approach to international cases. While the country has tackled terrorism financing, requests for information on money laundering often get met with delays, producing little information, it found.
People familiar with the FATF consultations said gold and crypto are also among the areas of concern. Government officials across Africa say tons of precious metal from at least nine countries get smuggled to Dubai each year. A U.S. indictment against Istanbul-based Halkbank in 2019 described how Iranian funds were converted to gold, exported to Dubai and then sold for cash. The UAE vehemently denies any involvement in illegal practices.
One of the FATF’s “priority actions” for the country is to make greater use of extraditions, asset freezes and confiscations, particularly in Dubai. But since the FATF report, the UAE has shown holes in enforcing even existing extradition treaties, according to Maira Martini, an expert in corrupt money flows at Transparency International in Berlin.
“The U.S. and the U.K. have taken measures to sanction involved individuals or seize assets,” she said. “The UAE, on the other hand, seems to be hindering rather than helping.”
Bozhkov, nicknamed “The Skull,” is sought by the Bulgarian authorities. A U.S. Treasury Department memo last June to sanction him noted that he was in Dubai, “where he successfully evaded Bulgarian extradition on a number of charges,” including leading an organized crime group, coercion, attempted bribery of an official and tax evasion.
The 65-year-old denies any wrongdoing and says he’s the victim of a political vendetta in Bulgaria. What’s more, he’s already been cleared in Dubai, he said. “There’s a decision of the High Court that extradition is rejected due to the lack of evidence for any crime,” he said in a statement to Bloomberg. “It’s final and can’t be appealed.”
Bulgarian prosecutors, meanwhile, said they’ve submitted 19 volumes of documents in Arabic to the UAE to speed up his extradition. Hristo Krastev, spokesman for the Special Prosecutor’s Office in Sofia, said authorities provided further information after the initial extradition request in 2020. “Since then, we haven’t gotten an answer from the UAE,” he said last month. A spokesperson for the UAE Ministry of Foreign Affairs, which is involved in mutual legal assistance requests, said they couldn’t comment on a specific case.
As for Isabel dos Santos, the daughter of Angola’s former leader, the State Department in Washington imposed visa restrictions on her in December. It cited her “involvement in significant corruption by misappropriating public funds for her personal benefit.”
Angolan authorities accuse dos Santos, who spent time in self-imposed exile on an island off the coast of Dubai, of causing more than US$5 billion of economic losses during her father’s 38-year rule. A spokesperson for dos Santos said all allegations are preliminary inquiries and there are no charges against her, no court proceedings and no extradition requests. Dos Santos is currently living in Europe and runs her business in Angola from there, the person said.
The Executive Office of AML/CFT said the average time to execute incoming requests for international judicial cooperation has shrunk to 37 days from 139 in 2019. The UAE has signed at least 33 mutual legal assistance and extradition agreements, including with the U.K., France, Italy, India and China.
Complicating Relations With Allies
Indeed, the Emiratis have shown a desire to cooperate, especially given the potential reputational damage to Dubai. In June 2020, Dubai police raided the penthouse apartment of the Nigerian influencer Ramon Olorunwa Abbas, known as “Hushpuppi.” A month later, he was brought to the U.S. on fraud charges. He has since pleaded guilty, according to a court filing.
Yet the pressure to do more has only intensified in recent months. Senior executives at several large international banks said they told the UAE government that the country was headed for the FATF’s gray list. Their firms are now bearing the cost, having to spend more time and money on compliance while under greater threat of fines by regulators in Washington, they said.
There’s also the risk of complicating relationships with long-time allies. Support for U.S. and European counter-terrorism operations in the Middle East historically afforded the Emirati leadership leeway when it came to cracking down on money laundering in Dubai, according to current and former diplomats familiar with the matter. That’s now changing.
The U.S. Treasury Department sent two senior delegations to the UAE late last year to deliver a warning to the country, saying it weakened Washington’s sanctions programs. The country’s supporters argue that if Dubai fully clamped down, another jurisdiction that’s less aligned with Western interests would take its place.
And it’s tough to hone in on the right money, said Bryan Stirewalt, the former chief executive officer of the Dubai Financial Services Authority, who has been an active participant in FATF discussions over the past decade: “Proceeds from corruption or tax evasion are much, much more difficult than other types of predicate crime.”
—With assistance from Nicolas Parasie, Andreina Itriago Acosta, S’thembile Cele, Slav Okov, Jorge Valero, Emily Ashton, Candido Mendes, William Clowes and Archana Narayanan.
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