DUBAI: Rich Russians are trying to shift some of their wealth from Europe to Dubai to shield assets from a tightening wave of Western sanctions on Russia over its invasion of Ukraine, financial and legal sources said.
Dubai, the Gulf’s freewheeling financial and business hub, has long been a magnet for the globe’s ultra-rich and the United Arab Emirates’ refusal to take sides between Western allies and Moscow has signalled to Russians that their money is safe there.
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The UAE, which over the years has deepened its ties with Russia, has not matched sanctions imposed by Western nations and its central bank has so far not issued guidance regarding Western sanctions.
In many cases, wealthy Russians are seeking to shift funds to Dubai that are now in Switzerland or London - which have both sanctioned Russian individuals and organisations, a senior banker at a large Swiss private bank and a lawyer familiar with the matter said.
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The lawyer, who is based in Dubai, said his firm had received inquiries from Russian entities on how quickly they could move “very significant funds” worth hundreds of millions of dollars to the Gulf Arab state.
“The UAE is a nice medium - a few hours away by flight and doesn’t have a regulator completely in cahoots with Western regulators,” an investment management professional said.
The Dubai Media Office, UAE foreign ministry and central bank did not immediately respond to a query about the scale of Russian funds flowing into Dubai.
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The senior private banker said in some cases, Russian clients with accounts at private banks were opening accounts with that same bank’s UAE branch. Others were opening accounts with local banks, the banker added.
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Russians, facing a crumbling economy at home, are also looking to put their money in investments including real estate and buying into funds which do not disclose ownership information, another financial source said.
Dubai, a global tourism destination, has long been popular with Russians, who were among the top visitors to the emirate and purchasers of real estate even before the war and ensuing sanctions threw its economy into turmoil and its currency tumbled to record lows.
The UAE in 2018 introduced a “golden” visa program - which grants 10-year residency - to investors and other professionals.
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Banks cautious
The UAE’s decision to abstain in a United Nations Security Council vote condemning the invasion, coupled with Gulf sovereign wealth funds maintaining their exposure to Russia, was taken as reassurance to wealthy Russians, the sources said.
There is no indication that the Russian wealth flowing to Dubai is subject to Western sanctions. However, bankers said there was a risk of reputational harm to institutions receiving Russian funds as multinationals around the world cut ties with Moscow.
Some major UAE banks are taking a cautious approach.
Banks operating in the Gulf state have in the past been penalised for non-compliance with sanctions on countries including Iran and Sudan.
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And global financial crime watchdog The Financial Action Task Force (FATF) last week put the UAE on a “grey list” of jurisdictions subject to increased monitoring.
“Being on the grey list, they (UAE) probably have to be more careful than normal. Now, the last thing they want is for Europe to use this as a further reason to keep them on this list,” the lawyer said.
The Dubai Media Office, UAE foreign ministry and central bank did not immediately respond to questions regarding guidance to banks and businesses on how to comply with sanctions on Russia, or on what protocols are in place should other countries request the seizure of any sanctioned assets, should they be in the UAE.
Two sources familiar with the matter said businesses in the UAE would spend more time looking into the origins of their funds through a so-called Know-Your-Customer process.
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Wealth management
A source at a Dubai bank said that funds from Russians are not being accepted for wealth management, though they could set up deposit accounts.
“In principle, they can do it,” but the bank has high compliance hurdles to clear internally to accept Russian money, including evidence of where it came from, the source said.
The UAE’s nascent private wealth industry has not yet reached the scale or sophistication to fully absorb wealth stored in Switzerland and other traditional money shelters, sources said.
“They might take some, but I find it hard to imagine that they would take it all,” the investment management professional said. “It’s not just the servicing element, but the investment management which most of these banks lack.