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Wally Adeyemo, deputy secretary of the Treasury, reminded its Gulf ally that financial institutions must be exceedingly cautious in handling Russian businesses as concerns grow that the United Arab Emirates (UAE) may be supporting sanctions evasion.
Adeyemo warned UAE banks that the US can target foreign persons in certain cases even if none of the entities touches the US financial system and it is located outside the US.
“We know that Russian banks have employed deceptive payment practices and used shell companies and other means to hide the true nature of their transactions,” Adeyemo said.
Hence, financial institutions “must be exceedingly cautious in handling any Russia-related businesses and in managing the risks associated with financial institutions that have exposure to the Russian financial system”, he added.
The deputy secretary made the remarks during a roundtable talk with financial institutions from the UAE Banks Federation where they discussed compliance and market issues.
Since the start of the Russian invasion of Ukraine, the US, UK, EU and a coalition of more than 30 countries have imposed a series of far-reaching sanctions on Russia.
The Treasury official warned UAE banks that the Treasury can enforce the US sanctions against non-US persons if a transaction involves a US person or has a US nexus.
In addition, foreign financial institutions may be a target of a US enforcement action if they provide material support to a sanctioned entity regardless of whether the transaction goes through the US financial system and where the parties are located.
“Failing to do the sufficient due diligence needed to know your customers is not a defence,” Adeyemo stressed.
The warnings came amid Washington’s concern that Russian oligarchs are fleeing to the emirates to hide their wealth.
The country is an international financial hub in the Middle Eastern region and offers around 40 free trade zones for foreign investors to set up their businesses in various sectors.
While Western countries have been active in issuing wide-ranging sanctions against Russia, the UAE has chosen not to take sides in the matter.
The emirates has not imposed sanctions on Russia, and, in February, the Gulf country along with China and India abstained from a UN vote condemning the invasion of Ukraine.
In addition, the UAE has not yet frozen any assets of wealthy Russians, allowing the richest to find a safe haven there.
According to the latest reports, luxury superyachts belonging to sanctioned oligarchs Andrei Skoch and Andrey Melnichenko have been seen at the ports of Dubai and other parts of the UAE, while the US Department of Justice is seeking to confiscate a $350m Boeing 787-8 aircraft owned by Russian oligarch Roman Abramovich, also stationed in Dubai.
Meanwhile, Dubai has remained one of the few places where Russians can still take a direct flight and the country offers visas to those investing in real estate. For instance, a home worth $272,000 enables the owner to obtain a three-year visa, which could be affordable for upper-middle-class Russians seeking to find a new home for their savings.
Property purchases in Dubai by Russians have surged by 67 percent in the first three months of 2022, according to the BBC.
Earlier in March, the UAE was added to the greylist of the Financial Action Task Force (FATF), meaning that it is subject to heightened anti-money laundering scrutiny.
The UAE said at the time it will work to implement the FATF action plan, which includes efforts to proactively identify and combat sanctions evasion.
Separately, on Tuesday (June 28), the Treasury's Financial Crimes Enforcement Network (FinCEN) issued an alert to financial institutions, advising them to be vigilant against efforts to evade export controls.
The alert details current export restrictions, a list of commodities of concern for possible export control evasion and provides red flags to help financial institutions in identifying suspicious transactions relating to possible export control evasion.
