Can the Middle East’s largest financial centre adapt to a world that is less globalised and less tolerant of tainted money?
One reason Dubai has got away with such foot-dragging is that it has been shrewd, for instance by paying lip service to reform at moments of international scrutiny, then doing nothing much when the pressure eases. Another reason is its strategic importance: the UAE is a key ally for Western powers. As a result, the FATF, over which those powers hold great sway, has pulled its punches.
There are signs the tide is starting to turn. The FATF issued a (by its standards) stinging report on the UAE earlier this year, and reportedly placed it under year-long observation to ensure that it implements recently passed AML laws. If it does not, it could be added to the FATF’s “grey list”, joining the likes of Syria and Zimbabwe. That is one naughty-step away from blacklisting, which would, in effect, require international banks to disengage.
It almost certainly will not come to that. Dubai’s rulers may seem impervious to international criticism, but “will act very quickly” to weed out the dodgiest business if Dubai’s financial links are threatened, says a well-connected Emirati financier.
They are, he adds, also confident they can secure new sources of revenue if cleaning up cuts off business. He also notes that, as long as the UAE remains stable and its region volatile, it will benefit from capital flight. The Arab spring was high season for Dubai’s deposit-takers. Now they are doing brisk business with clients from Lebanon.
Other new business takes more effort. The UAE’s political and business leaders have worked tirelessly over the past couple of years to strengthen links with China, signing deals in logistics, chemicals, finance and more. Not for them the moral high ground or bans on Huawei. They are beginning to reap the benefits. The DIFC is the regional headquarters for China’s four largest banks as well as several big firms. Though the UAE is not a key player in China’s Belt and Road initiative, Dubai is becoming the hub of choice for Chinese expansionism in the region. Ever ambitious, the DIFC has talked of tripling in size by 2030. Its burgeoning eastern connections make that seem a little less fanciful. ■