Money laundering is flourishing in the United Arab Emirates where fraudsters can pull off complex tax scams or buy speed boats with paper bags of cash with relative ease, officials say.
The Gulf Arab state, which has no income tax, is now a hub for so-called missing trader fraud that robs European Union governments of billions of euros in value-added tax revenue, diplomats told a money laundering conference on December 28 .
Some of that money has trickled through to networks of Islamic militants, they said.
The UAE has been cracking down on money laundering, particularly since the September 11 attacks on the United States, but dirty money is still around, especially in Dubai, booming financial hub of the world's top oil exporting region.
"Partly this is a problem of success... Although Dubai is a fantastic place for legitimate businesses to work, it is also a fantastic place for criminals to work," said Robert Deane, deputy head of the British embassy in the UAE capital Abu Dhabi.
Businessmen say less sophisticated money laundering has long thrived in a country that is now trying to position itself as an offshore tax-haven to rival the Bahamas or Switzerland.
"When your customer's 'accountant' turns up to pay for a new boat with a patch over his eye, a Russian accent and brown-paper envelopes stuffed with cash, you know something's up," an executive in the leisure boat business told Reuters in Dubai.
The West has been piling pressure on the Arab world to crack down on money laundering since the September 11 attacks, fearing that groups such as al Qaeda could tap into these funds.
US authorities fined Dutch bank ABN AMRO $80 million earlier this month for failing to comply with US anti-money laundering laws, including through its operations in Dubai.
"I would like to emphasise that the UAE always seeks to be one of the co-operative countries with the international community and supportive of international efforts to counter money laundering and combat terrorist financing," central bank governor Sultan Nasser al-Suweidi said.
Now European governments have set their sights on tax dodgers and British embassy officials told the conference in the emirate of Fujairah that much of this cash was being laundered through the UAE.
One fast growing scam is missing trader fraud in which firms import goods free of value-added tax, which they then charge on the sale, pocket the difference and disappear without a trace.
The scheme needs easy-to-transport, high value items like mobile telephones which are exported from the European Union and then rapidly re-imported, often from industrial free-zones such as those in the UAE.
Although neither country is a major handset maker, mobile phone trade between the UAE and the UK hit 1.66 billion pounds ($2.88 billion) in the first nine months of 2005, over half the total bilateral trade, said Cameron Walker of the British Embassy in Dubai.
Officials in both countries estimate that 88 percent of that figure was linked to missing trader fraud, he said, adding that a joint UAE-UK team investigated 18 phone consignments and found only one to be legitimate. Walker said he knew of at least one case in which funds from missing trader fraud via the UAE was channelled to Islamic militants.
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