US warns UAE banks to swerve Russian deposits

Reuters/Johanna Geron

The US has warned UAE banks to be more proactive and take extra care when dealing with Russian clients, or the emirates may face stateside sanctions.

Addressing a roundtable of the United Arab Emirates Banks Federation during a two-day visit to the country, Wally Adeyemo, deputy secretary of the US Treasury, commended UAE-based financial institutions for their efforts in preventing money laundering and illicit financing but urged local banks to perform extra due diligence when assessing Russian clients, especially in light of the sanctions imposed by the US and more than 30 countries around the world since President Putin launched the Ukraine invasion. 

Fresh sanctions could be meted out to any nations that are found to have offered any “material support” to those close to the Kremlin’s leaders.

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“I’m here today to thank those who have cooperated in this effort and to underscore the need for your vigilance and proactive action in combatting Russian sanctions evasion, including in the UAE,” Adeyemo said during his speech on Tuesday, a copy of which was released by the US Treasury yesterday.

“We know that Russian banks have employed deceptive payment practices and used shell companies and other means to hide the true nature of their transactions.

“Financial institutions must be exceedingly cautious in handling any Russia-related businesses and in managing the risks associated with financial institutions that have exposure to the Russian financial system.”

In a warning to the umbrella group representing UAE banks, Adeyemo said “failing to do the sufficient due diligence needed to know your customers is not a defence”. 

He also pointed out that non-US entities may be subject to sanctions themselves by the US Office of Foreign Assets Control (OFAC) if they provide any assistance or support to Russian clients attempting to circumvent the sanctions in place since the start of the Ukraine war.

“Foreign financial institutions should also be mindful of OFAC’s authority to target foreign persons for providing ‘material support’ to a sanctioned entity.

“This can occur even if none of the entities touch the US financial system and are located outside the US,” he said. 

The UAE has remained neutral in the Ukraine war but the warning by the US Treasury is likely to cause complications for UAE financial institutions and the wider business community.

Earlier this month it was reported that investors from Russia and the 11 other Commonwealth of Independent States (CIS) countries now represent more than 20 percent of potential homebuyers in Dubai. 

“The real estate investor pool in Dubai is shifting to a Russian-speaking set,” said Tamara Getigezheva, CEO and partner of Dubai-based real estate firm Mira Estate. 

“We were able to quantify this shift and measure it by looking at the number of real estate leads we generate, as individuals registered their interest in our property offerings across the city over the past four months.

“Eastern Europe is witnessing an unprecedented level of geo-political instability, which has led to an influx of investors and families entering Dubai, not only from Russia, but more so from other CIS countries.” 

Mira Research’s latest data is backed up by other Dubai-based property experts. 

In early May, AGBI reported that data released in April from real estate brokerage Better Homes showed that property purchases by Russians in Dubai surged 67 percent in the first quarter of 2022.

Dubai has also remained a strong draw for tourists from Russia, according to the emirate’s tourism officials.

“For us Russia, Ukraine, CIS in general, are very important,” Issam Kazim, CEO of Dubai Corporation for Tourism and Commerce Marketing, told delegates during the opening session of the first day of the Arabian Travel Market in Dubai last month.

“Russia has always been in the top 10 markets for sure, in the top six I would say.

“Even now, when we look at the Q1 latest [visitor data] for 2022 they are still within those numbers. They are still strong.”

According to data from the Dubai Tourism website, the emirate welcomed 2.19 million overnight visitors in January and February, with the highest number of international guests coming from Saudi Arabia, with 194,000.

Russia, CIS and Eastern Europe accounted for 15 percent of all overnight visitors over the period.