Analysis: Can the UAE be a safe haven for Russian oligarchs?

The UAE has toed a middle line over Ukraine, but can the Biden administration put the pressure on it to change?

Burj Khalifa
Dubai has become a hub for Russians fleeing economic sanctions on their country [File: Mohammed Salem/Reuters]

The United Arab Emirates (UAE), and in particular, the emirate of Dubai, has a reputation for being a playground for the rich, and one that does not ask too many questions about how wealth has been obtained. That looks likely to continue, despite increasing Western pressure to squeeze Russia financially, turning the UAE into an even more attractive proposition for rich Russians seeking a safe haven for their wealth, and undermining the effort to force Russia to pull back from its invasion of Ukraine.

Abu Dhabi has signalled that it is trying to pursue a balancing act between the United States and its European partners on one side, and Russia on the other.

The UAE, which was already home to 40,000 Russian nationals before the outbreak of war, abstained from a US-drafted United Nations Security Council resolution condemning Russia’s actions in Ukraine, an indication that the UAE is prioritising good ties with Vladimir Putin’s government above catering to Western interests in Ukraine. It has also reportedly assured Russia that it will not enforce sanctions against it unless required to do so by the UN, a scenario that is unlikely considering Russia’s veto on the Security Council.

As financial warfare against Russia intensifies, Putin’s administration has articulated its stance that the sanctions against it are tantamount to declaring war”. Moscow is taking note of which countries are backing the West’s financial fight against Russia, and which countries have not.

Ultimately, the UAE and some other Arab states do not want to burn bridges with Moscow in response to the war in Ukraine. These countries see their national interests best served by maintaining close partnerships with Russia long after the war ends.

Decision for Biden

If Washington becomes increasingly convinced that the UAE is an enabler of Moscow’s foreign policy agenda, helping Russia to bypass sanctions, the Biden administration will consider what actions it can take.

To pressure the UAE into sanctioning those in Putin’s circle, the US could warn banks and other financial institutions in the Gulf country that they might face sanctions or penalties if they continue doing business with them. Yet with the White House seeking Emirati cooperation in terms of oil production and other areas, it is not clear that the Biden administration would do so at this delicate time.

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(Al Jazeera)

“The Emirati government has gotten away with quite a few things, such as serious human rights abuses, atrocities in Yemen, and dubious financial activities, which have apparently not phased successive US administrations,” Stephen Zunes, a professor of politics and international studies at the University of San Francisco, told Al Jazeera.

“However, UAE relations with the [US amid Biden’s presidency] are not as cozy as they were during the Trump years,” said Zunes. “Countering Russian aggression has become the top foreign policy issue for the US government, so it could indeed lead to some unprecedented tensions.”

Not lost in the equation are the deep economic ties between the UAE and the US, which go beyond oil.

“In addition to the close relationship between the US and Emirati armed forces, the UAE has played an important role in helping the United States trade balance, providing lucrative contracts with American arms manufacturers and other investors,” added Zunes.

“As a result, if Biden was inclined to put pressure on the UAE, he could be faced with strong resistance from both the Pentagon and powerful corporate interests [in the US].”

The UAE may already be paying a price for not aligning with the West against Moscow vis-à-vis Ukraine.

The Financial Action Task Force (FATF)’s decision earlier in March to add the UAE to a global watch list for money laundering and terrorism financing has forced foreign banks to contend with heavier compliance burdens, which threatens to undermine the UAE’s reputation as a regional financial centre and investment haven. To some extent, this might also weaken the country’s ability to compete with Saudi Arabia for foreign investment and regional trade.

There is good reason to believe that the designation was at least partly connected to Abu Dhabi’s “neutrality” in the Russia-Ukraine war. Following the March 4 meeting when the FATF added the UAE to the list, the Paris-based intergovernmental organisation warned jurisdictions of the need to remain vigilant in the face of money laundering associated with Russia’s invasion of Ukraine.

In response to the FATF’s designation, Emirati state media stressed the UAE’s commitment to combatting money laundering and terrorist financing.

Ultimately, it is safe to bet that the UAE will remain a country that Russian oligarchs can count on to keep their bank accounts unfrozen, and their assets in their hands.

Pressure from the US and other Western governments will not necessarily be enough to fundamentally change how the UAE deals with sanctions-hit Russians and the money that they are parking in Dubai and Abu Dhabi. Put simply, the UAE will likely feel that it can carry on with its current policies, notwithstanding pressure that might come from Western powers should the war continue.

Pivot to the east

It is important to remember that, in an increasingly multipolar world, the UAE has weakened its reliance on the West, underscored by growing economic ties between Asian countries and the UAE.

The UAE is China’s largest Arab trade partner and accounts for 28 percent of China’s total non-oil trade with the region. Two years ago, China surpassed the European Union as the GCC’s top trading partner with the UAE serving as a focal point for the re-export of Chinese goods to the wider Middle East and Africa. China’s trade with Dubai alone rose 30.7 percent year-on-year in the first half of 2021.

“In the greater scheme of things, the UAE is not a country that is following a liberal, Western rules-based system,” Andreas Krieg, an assistant professor at the Defence Studies Department of King’s College London, told Al Jazeera. “They are operating outside it. They are more aligned towards the east. Their business future, also the future of financial networks … is not in the West, but in the east.”

The UAE’s soft power throughout the east and the global south has in no small part relied on money streams—including illicit ones, or at least ones in the grey zone – going into the Gulf country. There is ample documentation of entities and individuals from countries such as Iran, North Korea, Syria, and Venezuela using the UAE as a hub for sanctions evasion. This has enabled the UAE to gain influence in these non-Western states and build networks with them.

“There is an alternative system being built as we speak, and that alternative financial system is one where [the FATF’s] greylisting doesn’t matter much,” said Krieg. “I think that’s where the UAE is pivoting towards – their pivot to the east is also pivoting away from the rules-based system.”

Source: Al Jazeera