Russian firms based in the United Arab Emirates are coming under greater scrutiny from local banks as the Gulf state faces increased US pressure to tackle sanctions evasion and ramps up efforts to get off a global organization’s watch list.
The UAE attracted a flood of Russian money in the first year after President Vladimir Putin ordered troops into Ukraine, with firms finding banking quick and easy to navigate. That process has gradually grown more arduous, with rejections increasingly common, because the UAE is showing less appetite for sanctions-related risk and pushing to get off the so-called gray list, according to more than half a dozen business owners and consultants interviewed by Bloomberg, who asked not to be identified as such information isn’t public.
Money transfers — whether for companies repatriating funds to Russia or moving cash to a third country — have also been subject to greater oversight and now take more time, the people said. Some banks are demanding more documentation, and at times blocking funds, while seeking justification for the transfer or questioning the origin of the money, they said.
In the initial aftermath of Russia’s invasion of Ukraine, UAE officials hewed to policies that attracted a surge of inflows from high net worth individuals. In recent months, officials have looked to close perceived gaps in sanctions compliance, the people said, as the UAE seeks to be removed from a list of jurisdictions subject to more oversight maintained by the Financial Action Task Force, a group that aims to combat global money laundering.
In the meantime, the US, UK and European Union have ramped up pressure on Emirati officials to tackle illicit flows and close channels used by Moscow to skirt trade sanctions and finance the Kremlin’s war machine. This month, the Biden administration targeted several UAE-based shipping firms, part of a crackdown on non-compliance with its oil price cap.
“In terms of financial compliance, it has become much more difficult to be Russian in the UAE, and the situation is getting tougher,” said Daria Nevskaya, a Dubai-based lawyer who consults with clients on cross-border deals and bank accounts. “Some banks that previously had been accepting payments from Russia have put a stop to such transactions now.”
In response to questions from Bloomberg, a UAE official said the country takes it role in protecting the integrity of the global financial system extremely seriously. “The increased resources and expertise we have put in place underpin the UAE’s continued commitment to combating economic crime and disrupting illicit networks, both at home and abroad,” the official said.
Read more: EU Says UAE to Curb Key Exports to Russia Used in War in Ukraine
As part of the FATF proceedings, UAE banks are requesting more information from current and prospective clients, including specific checks related to sanctions lists, Thani Al Zeyoudi, the country’s minister of state for foreign trade, told Bloomberg on Tuesday.
While that’s true for clients of every nationality, the situation can be particularly acute for Russians because of the volume of country-specific sanctions, according to people familiar with the matter.
“The UAE has been very good at usually doing just about enough to escape serious censure while also being as open to business from all sides as they can,” said Steffen Hertog, an associate professor at the London School of Economics and Political Science. “More due diligence and cutting links with clear sanctions evaders will be enough to avoid any escalation with the US.”
The policy shift has hit smaller businesses particularly hard because of lenders’ risk-reward calculations, according to Michael Malinovskiy, a partner at Lecap law firm.
Some larger businesses are now weighing alternatives.
The UAE’s crackdown on illicit activities in its bullion market and US measures against Russia’s top gold miners led to a shift in trading from Dubai to Hong Kong since April, two people involved in the industry said. More rigorous oversight of bank transfers and a mandatory government database for monitoring cash payments have increased hurdles for Russian exporters in the UAE, people familiar with the matter said.
Another of Russia’s biggest mining companies, which has sanctioned shareholders, has been struggling to open a bank account for months, two people familiar with the situation said.
Gazprombank, which has escaped the strictest restrictions due to its role in commodities trading, had one of its correspondent accounts closed by Dubai-based bank Mashreq, a person with direct knowledge of the situation said, declining to be identified as the information isn’t public. The lender has accounts at two other UAE banks for now, the person said, adding that he thinks Dubai banks are closing for Russian money.
Gazprombank’s media relations staff and Mashreq didn’t reply to requests for comment.
To be sure, the UAE is still a favored hub for many of Russia’s biggest unsanctioned companies. United Co. Rusal International PJSC is shifting its global aluminum trading headquarters to Dubai from Switzerland, while EuroChem Group AG, one of the country’s biggest fertilizer producers, has run its trading operations through Dubai for more than a year. The Uralchem-Uralkali fertilizer group has had its international trading unit based in Dubai’s DMCC free trade zone since 2021.
Still, closer scrutiny from UAE authorities is pushing some mid-size businesses to move to neighboring Gulf countries, such as Oman or Bahrain, which aren’t under the US government’s spotlight, the people said.
“The UAE still is a very useful hub to have for Russia, notably the rich elites around Putin,” Hertog said. “Russia probably needs the UAE more than the other way around at this point, but there is still need for Russian cooperation vis-a-vis Iran, Syria, Libya and other regional hot spots.”
--With assistance from Abeer Abu Omar.