A detailed report released by data analysis firm the Center for Advanced Defense Studies (C4ADS) demonstrates an eye-opening crack in the safeguards against criminals pouring their ill-gotten gains into legitimate business transactions in the United Arab Emirates (UAE).
The report, entitled “Sandcastles: Tracing Sanctions Evasion Through Dubai’s Luxury Real Estate Market,” reviews seven known individuals subject to sanctions by the United States who, as of May 2018, collectively owned 44 properties worth over $28.2 million, and another 37 through their networks worth $78.8 million, in Dubai, the most heavily populated emirate in the UAE.
With 35.6 percent of the entire population, this modern city is located in the desert on the coast of the Arabian Gulf. Sustained by fishing and pearl diving for a thousand years, the discovery of oil in 1966 began to dramatically transform the region into a burgeoning urban landscape of office towers, skyscrapers, and luxury hotels, with a vibrant and volatile luxury real estate market. When Dubai opened up its real estate market in 2002 to the rest of the world, a lot of foreign money rushed in.
This infusion of foreign capital fueled Dubai’s further modernization and expansion into the concrete metropolis it is today. But the attractiveness of this high-end, luxury real estate market, along with the UAE’s cultural penchant for secrecy and obscurity, as well as laxity in the UAE’s financial regulation, have created an environment conducive to criminals choosing Dubai as favored place to launder money by investing in multimillion dollar real estate.
Sanctioned Individuals Hold More Than $100 Million in Real Estate Investments
The Sandcastles report focuses on seven individuals from five countries who held property in Dubai in their own names as of May 2018. While, directly, these individuals held $28.2 million in 44 real estate properties, indirectly, they are associated with 37 other properties worth more than $78.8 million.
The individuals named in the report come from different countries and backgrounds. The thing they all share in common is that each is under a U.S. sanction or prohibition designed to block access to the international financial system. These U.S. sanctions were imposed for crimes such as terrorism or conflict financing, illicit procurement of military materials, and drug and arms smuggling.
Rami Makhlouf, one of the named individuals, is the cousin of Syria’s President Bashar Al-Assad and one of the richest men in Syria. The U.S. Treasury imposed sanctions on him in 2008, and then later in 2017 imposed sanctions on his brother Ihab Makhlouf and four others (two other brothers, his father, and a cousin) as key facilitators and enablers of the Syrian conflict and benefactors of war-fueled corruption. According to the Sandcastles report, the two Syrian brothers held four properties in the UAE worth approximately $3.17 million.
In 2014, the U.S. Treasury sanctioned Lebanese brothers Kamel and Issam Amhaz, and their electronics company, for procuring electronics used in Hezbollah military operations.
In 2014, the U.S. Treasury sanctioned Lebanese brothers Kamel and Issam Amhaz, and their electronics company, for procuring electronics used in Hezbollah military operations. In addition to a single property worth $815,102 owned by Issam, the report states that the Amhaz brothers have “served on six unsanctioned companies in Lebanon and Hong Kong.”
However, the brothers’ key corporate associates, in addition to serving on sanctioned and unsanctioned companies with the brothers, separately held $70 million worth of property in the UAE, as well as “30 properties in the U.S., five electronics companies in the UAE, and an extensive network of Lebanese companies tied to corruption and illicit finance schemes in Liberia and arms and security companies in Lebanon and the Czech Republic.”
Hailing from a different part of the world is Hassein Eduardo Figueroa Gomez. In 2012, the U.S. Treasury designated him a Specially Designated Narcotics Trafficker and sanctioned him for smuggling precursor chemicals to Mexican cartels for narcotics production. He was also indicted in 2011 for money laundering in the U.S. He is connected to three properties in the UAE worth $4.3 million, according the Sandcastles report, and seven unsanctioned companies across the UAE and Cyprus owned and directed in conjunction with two unsanctioned associates.
Perhaps most egregious in terms of magnitude is the Altaf Khanani Money Laundering Organization. In 2015, the U.S. Treasury sanctioned the group for laundering a whopping $14 to $16 billion annually for terrorist organizations, narco-traffickers, and organized crime groups. The sanctioned members of the group hold 27 properties in the UAE worth $15 million. A further 32 properties worth $6.66 million are in their expanded network. They also maintain direct ties to 12 unsanctioned companies, including active money exchanges in the US, the UK, and the UAE.
These are only four of the detailed case studies that are designed to highlight the flaws and systemic vulnerabilities of the system of financial controls in Dubai’s real estate industry. Clearly, the U.S. prohibitions have not been effective. Together these seven individuals or their networks own or control over $100 million in real estate in Dubai alone. They demonstrate that, despite sanctions, criminal actors are able to exploit the real estate markets to expand their commercial operations.
The report warns, however, that this is only the tip of the iceberg: the seven case studies likely represent only a small proportion of all of the potential illicit activity associated with the UAE property market.
UAE’s New Anti-Money Laundering & Foreign Investment Laws
In October 2018, the UAE passed an anti-money laundering law intended to combat the financing of terrorism. At the same time, the UAE also passed a foreign investment law that requires that foreign companies be treated the same as local companies.
Both measures are part of the UAE’s “fundamental pillar of anti-money laundering and countering the financing of terrorism,” according to Sheikh Hamdan bin Rashid Al Maktoum, deputy ruler of Dubai and minister of finance.
“This law aims to combat money laundering and to establish a legal framework that supports and strengthens the efforts of the relevant authorities in the nation in countering money laundering and related crimes.”
Despite the best designed laws, however, corruption perpetuates the conditions that are conducive to illicit activity like money laundering, and very little is being done to address that.
Transparency International released its 2018 Corruption Perceptions Index (CPI) on January 29, which evaluates the level of public sector corruption in 180 countries around the world, ranking them from zero (highly corrupt) to 100 (very clean). Noting that the “continued failure of most countries to significantly control corruption is contributing to a crisis of democracy around the world,” the report ranked the UAE at 70 out of 100, down one point from last year.
Surprisingly, this score puts the UAE on a par with the United States, which, at 71 (down four points from last year), has for the first time since 2011 dropped out of the top 20 countries on the CPI.
Does the New UAE Law Have Legs?
It is far from clear that the new anti-money laundering law will be effective.
“The Dubai luxury real estate market is still a ‘safe place’ to put your illicit currency,” according to Dr. Theodore Karasik, a senior political analyst and former adjunct lecturer at the Dubai School of Government who lived in Dubai for a decade.
“The UAE real estate market remains subject to poor supervision and a lack of transparency.”
“The UAE real estate market remains subject to poor supervision and a lack of transparency,” he said. “While the UAE Central Bank claims that it is implementing all of the legal codes, it is typical for some banks and real estate companies to look the other way.”
Dr. Karasik predicts that with the Dubai real estate market currently in decline, and with capital flight from all corners of the globe increasing, Dubai real estate “will likely see an upswing in turnover.” He said that this had been “the pattern in the past” when he lived in Dubai and witnessed firsthand the effects of “a market price dip.”
A key question is whether there will be transparency in transactions going forward and whether information is made available publicly. The Sandcastles report relied on leaked information contained in a database of property and residency data that had been compiled by realtors because there is currently no public reporting mechanism for real estate transactions in the UAE as there is in some other countries.
Thus while the UAE’s stated goals are laudable, whether these new laws will be effective is likely to depend on how serious the emirates are about implementing the mechanisms needed to monitor transactions, enforcing the laws, and eliminating corruption.
Lawyer and founder of Detained in Dubai Radha Stirling suggests that “the steps taken by the UAE are largely a public relations effort.” While corruption is still “commonplace” within the administration and judiciary, she says “one cannot expect that anti-money laundering protocols or laws will be effective” due to the impact on the economy of the emirates.
“With another financial crisis underway, banks merging, and real estate prices decreasing,” she argues, “the UAE will not want to support any further disruption to their bottom line.”
The European Union (EU) seems unconvinced as well. On March 13, it added the UAE and nine others to its “blacklist” of tax havens. The additions triple the number of listed jurisdictions that are on the dirty money list because of “strategic deficiencies in their anti-money laundering and countering the financing of terrorism regimes,” as defined in the EU’s Commission Staff Working Document. The EU had added Saudi Arabia to the list in February.
Despite ongoing cooperation between the EU and the UAE banking sector, the chairman of the UAE Banks Federation, Abdulaziz al-Ghurair, claimed that the addition of the UAE was the result of a “lack of communication.” This is perhaps not surprising, given that the UAE has 50 commercial banks, considered too many for a country of only 9.5 million people.
The UAE’s undersecretary of the Ministry of Finance, Younis Haji Al Khoori, said he is “confident” that the EU will take the UAE off the list.
Global Ramifications and Lessons
That Dubai is currently a “haven for illicit capital” has “far-reaching implications for global stability and security, enabling and facilitating global purveyors of corruption, crime, extremism, and terror,” according to the report.
More troubling, the report suggests that there is a much larger, more diffuse set of criminal and illicit actors manipulating real estate assets across other jurisdictions such as the United Kingdom, Australia, Qatar, and even the United States. It asserts that the same indicators identified in Dubai are “likely also applicable across high-risk property markets around the world.”
A poorly regulated real estate sector and banking system have implications far beyond mere illicit investment, facilitating global threats ranging from terrorism and organized crime to corruption and conflict financing. Disrupting such threats will require substantial improvements in the policing and monitoring of the international financial system, particularly through the closing of information gaps in luxury real estate markets—not just in Dubai, but around the world.