On January 22nd, the United Arab Emirates introduced a new law to combat money laundering. This came after the cabinet approved the measure in mid-October following revelations that much of the funding for the terrorist attacks in the US had passed through the UAE.
The Emirates, and especially Dubai, have long been attractive to foreign businesses due to their relaxed financial regulations, but after consistent pressure from the US and recognition of the implications of September 11th, these are to be tightened. Foreign investors are to be encouraged to come to the UAE all the same, with the Emirates Stocks and Commodities Authority (ESCA) approving on February 5th a proposal to allow foreign companies to list on the exchanges. The two UAE trading floors, the Abu Dhabi Securities Market (ADSM) and the Dubai Financial Market (DFM), have been gaining ground so far this year, but in slow trading.
Since the terrorist attacks on the US the UAE has gradually been implementing tighter restrictions on illegal financial dealings, of which the implementation of a law to combat money laundering has been the most important. After a lengthy process, requiring cabinet approval in mid-October and passage through the Federal National Council (FNC) in late-December, President Sheikh Zayed bin Sultan al-Nahyan signed the bill into law in late January. Under the terms of the law, offenders could face seven years in jail and fines of up to $270 000 for transferring or depositing money in the UAE with the intention of hiding its origin.
The importance of the introduction of the law in the UAE is that the country has gained a reputation for relaxed financial dealings which has allowed it to attract income from banking activities as well as regional small businesses and trade. The low levels of taxation and the establishment of duty free zones have added to this commercial hub, creating rapid expansion.
Unfortunately, international regulators do not believe that financial regulations have managed to keep up with developments and in 2000, the international Financial Action Task Force (FATF) group of treasury departments noted that there were essentially no measures to combat money laundering in the UAE. Reports from US media indicated as early as October last year that significant funds for the World Trade Centre and Pentagon operations had passed through the UAE- around $325 000 of the $500 000 used according to some sources- prompting action from the UAE Central Bank. US officials also claimed that a Dubai-based company of Somali origin, Al-Barakat, had been at the centre of funding operations.
The governor of the UAE Central Bank, Sultan Nasser al-Suweidi, admitted in October that four suspicious transactions had been made from the UAE to the US, totalling $100 000. On January 23rd, he said that his bank had frozen over 100 suspicious accounts since September, most of which had been investigated and released. The bank is to take legal action against the 13 remaining accounts based on the new anti-money laundering law. Coupled with further action, such as forcing visitors to declare finds of over $10 900 upon entrance to the country and investigations into money transfer houses, the UAE hopes that removal from the FATF black list will be imminent. The group had threatened to impose limited economic sanctions on the UAE's access to Western banks.
This was clearly of great concern to the UAE, which- aside from oil exports- relies on its reputation as a centre for trade and banking and is trying to encourage more foreigners to invest there. According to local media reports, the Emirates Stocks and Commodities Authority (ESCA) approved the listing of foreign-registered companies in the UAE bourses, and claimed that the law would be passed soon. The ESCA General Co-ordinator, Saif Khalifa bin Sabt, said that the foreign companies looking for a UAE listing would need to be listed in their country of origin, be at least two years old, have at least 100 shareholders, a minimum capital of Dh40m ($10.9m) and fully audited accounts.
In the meantime, UAE listed companies have been hoping to attract UAE capital back into the country. According to a recent Merrill Lynch report, Arab individuals have private assets amounting to around $1.2 trillion invested overseas, the vast majority of which would come from Gulf Arabs. Bankers have said that aside from the wish to diversify investments, many investors may be concerned that financial regulations in many Gulf countries would not properly protect their investments. The new money laundering law in the UAE may help to change that perception.
The one UAE company that will accept foreign shareholders, the real estate company Emaar, has largely led trade in the DFM in recent weeks. Analysts are still waiting for the announced share buy-back, which was due to start on February 2nd, causing a steep rise in its share price. In the week ending January 31st, trading in Emaar accounted for around 47% of the DFM turnover, although total trade on the two official floors and the unofficial over-the-counter (OTC) market fell by around 32% to $30.5m.