We, the Tactics Institute for Security and Counter-Terrorism, in collaboration with Bruges Group, has recently published a report titled “Why the UAE is Becoming a Liability: The Case of Russian Sanctions Evasion”. The authors of the report include Dr. Frank Millard, Dr. Jonathan Swift, and Dr. Niall McCrae. The report critically evaluates how Russia is evading sanctions with the help of the United Arab Emirates.
Since sanctions were inflicted by the West following Vladimir Putin’s territorial aggression in Ukraine, the UAE has evolved into a highly appealing investment option for Russians. Dubai’s financial centre has drafted Russian bankers for certain units to handle money-rich Russians and their Rubles. Thousands of accounts have been extended for sanctions evaders since Russia overran Ukraine.
Trade, Investment and Relocation: Sanctions and Russian Involvement in the UAE
Russian Oligarchs’ Influx into Dubai
On 26th March 2022, shortly after the sanctions on Russia were inflicted, The Guardian informed an inflow of Russian oligarchs into Dubai: “Possibly more than anywhere else in the world, the oligarchs and other cashed-up Russians are welcome in Dubai, along with their riches, which are overflowing to the United Arab Emirates in outstanding amounts – often via discreet standards.” By then, at least 38 influential Russians connected to Vladimir Putin possessed dozens of possessions in Dubai collectively valued at more than $314 million.
UAE’s Gold and Oil Imports from Russia
It has come to light that during 2022 UAE imported 96.4 tons of gold from Russia. Moreover, Russian customs records informed that there had been almost a thousand gold freight between 24th February 2022 and 3rd March 2023. In 2023, the Kremlin has become the world’s second-largest producer of gold and is anticipated to boost production by 4% a year until 2026. Trading in gold has become the Kremlin’s not-so-secret instrument in sanctions evasion and its Golf trades with the UAE look significant in that approach.
The trade relation has not been limited to Gold, on 6th March 2023 It was reported that vessel tracking data and trading sources indicated that the UAE had been accepting delivery of growing amounts of Russian crude oil. The sources revealed that approximately 1.5 million barrels of Russian crude had reached the UAE since the previous November, with volumes rising since early 2022.
Increasing Trade Relations Between UAE and Russia
Similarly, between 2017-2022, the trade volume between the UAE and Russia has increased by almost six times. In 2022 the overall trade grew by almost 68% adding up to $9 billion. The number of exports from Russia to the UAE acquired $8.5 billion, an addition of 71%. The UAE is also Russia’s biggest trading ally among the Gulf States. The UAE is Russia’s largest trading ally in the Gulf Region, adding up to 55% of Russia’s total business with the Persian Gulf.
Foreign Direct Investment and High-Level Visits
Other than Trade, the Gulf state accounts for more than 42% of the collected foreign direct investment (FDI) from Russia into the UAE. By early 2023, the UAE was the top Arab country in terms of investment (44%) in the Russian economy. Furthermore, on the 6th of December 2023, Vladimir Putin journeyed to Abu Dhabi and held discussions with the President of the United Arab Emirates, Sheikh Mohammed bin Zayed Al Nahyan.
Methods of Sanctions Evasion by Russians
It has revealed that a typical way that sanctions are avoided is by ownership Obfuscation whereby ownership of investments is hidden using shell companies, family members and intermediaries. Another is through neutral jurisdictions where Russian oligarchs harbour their assets. Russians are looking to unique venues to protect their assets to substitute traditional locations like the UK and EU.
Dubai as a Safe Haven for Russian Wealth
The latest country of choice is the United Arab Emirates (UAE) where at least 38 businessmen or officeholders connected to Russian President Vladimir Putin possess dozens of properties in Dubai that collectively cost more than $314 million.
Dubai has been a desired destination for rich Russians since the late Nineties, but this tendency has grown since Moscow invaded Ukraine, as indicated by the many private jets and yachts. The Emirati federation did not execute sanctions against Moscow and presented Russians with easy visa requirements. In 2022, the Russian Business Council calculated that 3,000 Emiratibased companies were held by Russians, and the arrival of Russians has assisted in a successful real estate sector in the UAE.
Other bypassing methods include the usage of convertible virtual currency(CVC) utilising cryptocurrencies as an alternative payment procedure and trade-based evasion strategies. A recent Treasury report notes several methods in which Russians are recreating the system such as by documenting a freight forwarding business usually found in a third-party jurisdiction and the final destination when the goods are planned for shipping to Russia. Russia’s bilateral business with the UAE increased by 68% in 2022 to $9 billion, of which Russian exports added up to $8.5 billion: a 71% growth.
Role of UAE-Based Entities in Sanctions Evasion
On 2nd November 2023, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) reported measures to disrupt the Russian supply chain, concentrating on individuals and entities helping Russia’s war in Ukraine by supplying Russia with technology and equipment from third countries. UAE-based players sanctioned by the USA for trading with Russia include 365 Days, Alcotech, Alfa Logistics, Flavic, Golovtchenko, Globe Trekkers, Hyperel, Kobolt, SM Distribution, and TCH Consultancy.
OFAC asserted that UAE-based financial engineering firm, ARX Financial Engineering Limited, had proposed investment services to Russian investors, including the capacity to transfer Russian financial support into house brokerage and bank accounts in the UAE to facilitate their access to the global financial system.
Since the attack on Ukraine, a growing portion of Russian oil has been bought by businesses registered in the UAE and traverses through the Fujairah oil terminal for re-export; moreover, while Western countries are attempting to convince the Emirati government to control the export of “dual-use” products to Moscow, Russia has become the biggest source of gold import for the UAE. In January-April 2023, about 39 million tonnes of Russian oil were purchased by companies reported in the UAE, for a payment of 17 billion dollars.
Most of the Russian oil purchased by these companies reportedly crosses the UAE to be re-exported towards Asia, Africa and South America. Fujairah is the main point, with a height of Russian oil reaching the Fujairah Oil Industry Zone (FOIZ) and departing through its terminal.
Recommendations for Stronger Regulatory Frameworks
The UAE’s role in fostering Russian sanctions evasion highlights the challenges in implementing international sanctions. The methods utilised are sophisticated and exploit lawful, financial, and geopolitical holes, making it hard for Western nations to fully contain Russian economic activities. The situation mirrors the more general dynamics of global finance and politics, where economic interests and strategic alliances constantly outweigh regulatory standards. Effective enforcement of sanctions demands coordinated international efforts. It also needs the willingness to inflict consequences on states that allow unethical trade and investment practices.
The report emphasises the need for more robust regulatory frameworks. It demands enhanced collaboration among nations to manage the loopholes manipulated for sanctions evasion. It also calls for improved scrutiny of financial and real estate transactions in jurisdictions known for promoting such activities.
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