As this report has illustrated, Dubai’s political economy depends on illicit financial flows, organized crime, and conflict finance. Nevertheless, Dubai and the UAE are widely viewed internationally as upstanding entities. Leading companies place their regional offices there: 138 out of 500 of the world’s largest companies (by revenue) have a regional headquarters in Dubai.1 Over the last decade, the United States sold $27 billion in military equipment to the UAE, a country former U.S. secretary of state James Mattis affectionately called “Little Sparta.”2
Dubai’s ability to serve as a crossroads connecting gray networks to the international financial system is guaranteed by its idiosyncratic, complex, and symbiotic relationship with the UAE national government based in Abu Dhabi. At the international level, the UAE government appears polished, cooperative, and willing to embrace anticorruption best practices. And as a preeminent emirate of the UAE, Dubai should in theory implement these federal commitments. In practice, however, there is strong evidence that it does not.
This underlying tension between Dubai’s problematic international role and its unwillingness to acknowledge or alter its behaviors underpins three key challenges facing anticorruption practitioners and policymakers interested in reducing Dubai’s role as a hub of illicit financial and trade activities:
- Dubai’s deep economic dependence on global illicit financial flows and other problematic activities such as human trafficking.
- Dubai’s high sensitivity to international criticism and its aggressive efforts to boost its reputation.
- The gap between Dubai’s robust law enforcement capacity and its unwillingness to use it to stem illicit financial flows.
After outlining these challenges in greater detail, this chapter concludes with a set of policy recommendations to address them.
Challenge #1: Dubai’s Economic Dependence on Illicit Financial Flows
The foremost obstacle to reducing Dubai’s problematic role is its economic dependence on illicit financial flows. Indeed, the emirate’s comparative advantage as a trade and financial hub relies to a large extent on its openness to dubious characters and transactions. As the world tightens its controls on banking and beneficial ownership requirements for businesses, for instance, Dubai remains an important exception. Although the United States, Switzerland, and others have cracked down on conflict gold and minerals, Dubai barely regulates its supply chain for gold and even reexports that gold internationally, giving it a clean bill of health.
The foremost obstacle to reducing Dubai’s problematic role is its economic dependence on illicit financial flows.
Dubai’s economy remains fragile, as highlighted in Chapter 2. Dubai suffered a major financial crisis, including a drop in real estate prices, starting in 2008—and it has never completely recovered. Large loans from Abu Dhabi cushioned the blow, but there is still a substantial outlay of capital unaccounted for, and it is unclear how those loans or subsequent ones will be repaid. Dubai’s economy is based on foreign direct investment, state-owned enterprises, cheap international credit, real estate trades, financial flows, and retrade in goods—all of which can quickly shift or decline. Very little is actually manufactured in Dubai itself.3 Likewise, Dubai’s human capital is almost entirely made up of foreign workers, with many Emirati citizens choosing to work in state jobs rather than in the business sector.4 Looking ahead, a global recession triggered by the coronavirus pandemic—compounded regionally by sharp decline in crude oil prices—will greatly affect Dubai, rendering its economy even more reliant on questionable business practices and illicit financial flows.
Looking ahead, a global recession triggered by the coronavirus pandemic—compounded regionally by sharp decline in crude oil prices—will greatly affect Dubai, rendering its economy even more reliant on questionable business practices and illicit financial flows.
Challenge #2: Sensitivity to International Criticism
Dubai exercises strict control over its narrative. Leading members of Dubai’s royal family worry about their public image and are quick and savvy in defending it. Dubai and the UAE overall strategically spend large sums of money to cultivate a positive reputation. This is partly done by sponsoring leading popular brands—for example, Emirates Airlines supports the Real Madrid, Arsenal, and AC Milan football clubs.5 Sporting events like the international Dubai Tennis Championships and Dubai Desert Classic golf tournament also help.6 Dubai also provides tax breaks and other incentives for various movies to be made there, such as Star Wars: The Force Awakens and a Mission Impossible movie in which Tom Cruise scales Dubai’s Burj Khalifa building.7 Perhaps most significantly, however, Dubai will host Expo 2020—postponed one year due to the coronavirus—from October 2021 until March 2022. The Expo will feature 192 country pavilions and would make history as the first world expo held in the region.8
Dubai and the UAE overall strategically spend large sums of money to cultivate a positive reputation.
The UAE’s media savvy also stands out, especially in relation to its military operations in Yemen. As Seth Binder of the Project on Middle East Democracy has noted, the Arab coalition fighting Houthi rebels in Yemen is generally referred to in the Western press as the Saudi-led coalition, despite the fact that the UAE has been involved with most of the ground operations and has conducted a high number of airstrikes there. Its blockade of Yemeni ports is mostly blamed for the humanitarian crisis, while widespread reports of Emirati human rights abuses continue, including allegations of mercenary hit squads against foes and a secret prison system that uses torture.9
Dubai also spends considerable amounts of money on lobbying and public relations. While numbers are not broken out by emirate, the UAE spent over $20 million on U.S. lobbying firms in 2018. This encompassed 3,168 distinct “political activities” according to filings under the Foreign Agent Registration Act (FARA), including the contacting of 200 congressional offices and key congressional committees, eighteen think tanks, and many media outlets. Firms that represent the UAE also made $600,000 in campaign contributions.10 These FARA filings did not, however, encompass business- and petroleum-related transactions between the UAE and U.S. entities or Emirati donations to U.S. universities.11 In December 2019, the U.S. Department of Justice announced indictments of eight individuals associated with funneling more than $3 million in illegal campaign donations on behalf of the Emirati government to the 2016 presidential campaigns of Donald Trump and Hillary Clinton.12
The UAE spent over $20 million on U.S. lobbying firms in 2018.
Dubai also burnishes its international reputation by spending considerable sums hosting international fora. Dubai and the UAE overall are willing not only to host important international meetings but also to pay for the travel and accommodation of delegates, especially those attending from cash-strapped developing countries. For example, Abu Dhabi hosted the Conference of the State Parties to the United Nations Convention Against Corruption in December 2019.13 It also hosted the first papal visit to a Middle East country in February 2019 and the first World Tolerance Summit in November 2019.14
Positive coverage of Dubai, however, does not mean that its international image goes unchallenged, and Emirati authorities work hard to minimize information that may reflect poorly on the city. In Dubai—as in the rest of the UAE—free press, civil society, trade unions, and political parties are outlawed, limiting local investigative journalism and avenues of criticism or dissent. The UAE’s parliament is advisory only, and even then, only a selective electorate is allowed to vote for a hand-picked slate of candidates, making it one of the least democratic legislatures in the world. Dubai’s Emirati citizens—only totaling about 263,000 out of the emirate’s population of 3.4 million—are subsidized grandly in return for quiescence.15 Those who advocate change are treated harshly. For example, a petition signed by 133 Emirati individuals prompted a harsh crackdown; authorities arrested many signatories as well as lawyers who sought to defend them.16
In Dubai . . . free press, civil society, trade unions, and political parties are outlawed, limiting local investigative journalism and avenues of criticism or dissent.
This combination of aggressively telling the positive story of Dubai while suppressing negative coverage helps to maintain a strong reputation globally, especially within key supporter countries like the United States, which is both the UAE’s leading protector from external threats and the leading financial hub on which Dubai’s prosperity depends.
Challenge #3: Failure to Use Existing Law Enforcement Tools
The UAE government cannot claim that a lack of law enforcement or domestic intelligence gathering capacity precludes it from detecting and combating illicit activities or suspicious financial flows. Emirati law enforcement already selectively cooperates with the West—especially the United States—on shared issues of concern. For example, as demonstrated in this report, it has helped root out some terrorism financiers and recently strengthened its anti–money laundering and antiterrorism laws.
This cooperation developed in part following revelations that Iran used Dubai to smuggle nuclear items and otherwise evade sanctions during the 1990s. Likewise, after the September 11, 2001, terrorist attacks on the United States, Dubai was sharply criticized for its role as a terrorism financing hub and as the home of two of the nineteen hijackers. At least nine hijackers had transited through Dubai on the way to the United States with the help of two locals who arranged for plane tickets and travelers’ checks.17 Another individual allegedly involved in financing the attacks lived in Dubai and worked in one of its free trade zones.18 In the early 2000s, Dubai was also suspected as a conduit for Taliban gold smuggling following the collapse of that regime.19 As a result, Dubai has highlighted its anti–money laundering and counterterrorism finance cooperation with the United States and the Middle East and North Africa Financial Action Task Force.20 This high-profile cooperation has helped mask the fact that many transnational criminals still live and operate in Dubai.
The selective nature of Dubai’s cooperation on international crime fighting, sanctions enforcement, and counterterrorism demonstrates that its reluctance to comprehensively address its role in global illicit financial flows is a deliberate choice and not borne out of a lack of capacity.
The selective nature of Dubai’s cooperation on international crime fighting, sanctions enforcement, and counterterrorism demonstrates that its reluctance to comprehensively address its role in global illicit financial flows is a deliberate choice and not borne out of a lack of capacity. As explained in Chapter 7, Dubai has cracked down on Iranian sanction-evaders when pressured. In 2017, for instance, when the U.S. Treasury Department emphasized the importance of Dubai shutting down money and trade organizations associated with Iran’s Islamic Revolutionary Guard Corps, Dubai took steps to do so. As noted in Chapter 2, the UAE government undertook an audit of all Iranian trade in 2017, in part to be able to tackle it if needed.
Emirati law enforcement is not constrained by a lack of surveillance capacity either. Dubai and the UAE as a whole engage in robust electronic public surveillance.21 For example, the UAE purchased a technology called Evident, developed by a Danish subsidiary of BAE, that allows the government to intercept any internet traffic, pinpoint people’s locations based on their mobile phones, and break encrypted communications.22 Emirati journalists and democracy advocates have also been hacked with such tools. In 2016, the UAE government reportedly hired a firm (DarkMatter) to track, locate, and hack the phones of dissidents, human rights activists, political leaders, and individuals—including some U.S. citizens—critical of the Emirati government.23
Recognizing the three significant challenges outlined above, here are five feasible recommendations for anticorruption practitioners, policymakers, international organizations, and other nongovernmental entities seeking to deter and prevent illicit financial flows from transiting through or being absorbed by Dubai. Of course, these steps alone will not fully address the core drivers of the problem. The anticorruption community needs to convince the broader policy community, especially those responsible for redefining relations with the Gulf, that the corruption challenge is vital to address in a new “two-way street” relationship with Dubai—one that addresses the concerns of Dubai’s partners while launching a broader effort to help Dubai reinvent and reimagine its economy in a vastly transformed regional and global international landscape.
- Western governments should target UAE-based corruption facilitators with travel and financial sanctions. Western policymakers and practitioners have a range of discretionary visa and financial sanctions that they could invoke more assertively. These include the U.S. Global Magnitsky Act and Presidential Proclamation 7750, among others. If these tools were directed on a concerted and widespread basis toward individuals engaged in illicit activities—especially money laundering and gold smuggling—Dubai could become a less appealing safe haven for the world’s bad actors.
- Western governments, international organizations, and donors should cultivate, protect, and speak out on behalf of regional civil society groups. Due to the lack of journalistic and civil society freedoms in Dubai, key donors should continue to finance outside independent journalists, civil society groups, and anticorruption and human rights researchers focusing on the city state. Emirati efforts to silence, intimidate, or detain journalists, researchers, and academics should be met with more robust objections from Western governments and concrete measures aimed at disincentivizing such crackdowns and promoting press and academic freedom.
- International organizations should increase their constructive scrutiny of Dubai. The United Nations, the Organisation for Economic Co-operation and Development, and the Bretton Woods institutions should take a harder look at Dubai’s role in facilitating international financial flows, as the intergovernmental Financial Action Task Force (FATF) recently did. Should the UAE come up short after its year-long FATF-ordered observation period, for example, the international community should not hesitate to place it on gray or blacklists as required, even if pro-UAE member states exert pressure to keep it off those lists. If the country’s financial sector meets the criteria of a state of primary money laundering concern under the USA Patriot Act, then sanctions by the Society for Worldwide Interbank Financial Telecommunication (SWIFT) should also be considered.24
- International organizations, civil society groups, and Western governments should distance themselves from Dubai’s efforts to primp its reputation. While constructive engagement with Emirati officials should continue and relations should remain cordial, these entities should avoid sending counterproductive or mixed messages by participating in events that burnish the UAE’s anticorruption, human rights, civil liberties, or conflict prevention credentials. An example of such an event is the recent Eighth Session of the Conference of the States Parties to the United Nations Convention Against Corruption held in Abu Dhabi in December 2019. Absent meaningful reforms, international participation in these events only further inoculates the UAE and Dubai against legitimate critiques of their problematic behaviors.
- International companies sponsoring Expo 2020 should weigh the reputational risks that an event designed to celebrate Dubai entail and consider withdrawing their sponsorship. These high-profile international sponsors include Accenture, Cisco, Mastercard, PepsiCo, and Siemens.25
1 Anthony McAuley, “World’s Largest Companies Favour Dubai as Location for Regional Headquarters,” National (UAE), March 21, 2017, https://www.thenational.ae/business/world-s-largest-companies-favour-dubai-as-location-for-regional-headquarters-1.81332.
2 “The Ambitious United Arab Emirates—The Gulf’s ‘Little Sparta,’” Economist, April 6, 2017, https://www.economist.com/middle-east-and-africa/2017/04/06/the-ambitious-united-arab-emirates; and Ben Freeman, “The Emirati Lobby: How the UAE Wins in Washington,” Center for International Policy, October 2019, 2, https://docs.wixstatic.com/ugd/3ba8a1_cc7f1fad2f7a497ba5fb159a6756c34a.pdf?index=true.
3 Krane, City of Gold, 129–32; and Ulrichsen, The United Arab Emirates, 95–99.
4 Krane, City of Gold, 268–70.
5 David Conn, The Fall of the House of FIFA: The Multimillion-Dollar Corruption at the Heart of Global Soccer (London: Yellow Jersey Press, 2017), 295.
6 Ulrichsen, The United Arab Emirates, 167–68.
7 Ulrichsen, The United Arab Emirates, 165–67.
8 “The World’s Greatest Show | Expo 2020 Dubai,” accessed November 20, 2019, https://www.expo2020dubai.com/en.
9 “World Report 2019: Yemen—Events of 2018,” Human Rights Watch, 2019, https://www.hrw.org/world-report/2019/country-chapters/yemen; Ghaith Abdul-Ahad, “Yemen on the Brink: How the UAE Is Profiting From the Chaos of Civil War,” Guardian, December 21, 2018, https://www.theguardian.com/news/2018/dec/21/yemen-uae-united-arab-emirates-profiting-from-chaos-of-civil-war; and Nick Cumming-Bruce, “War Crimes Report on Yemen Accuses Saudi Arabia and U.A.E.,” New York Times, August 28, 2018, https://www.nytimes.com/2018/08/28/world/middleeast/un-yemen-war-crimes.html.
10 Freeman, “The Emirati Lobby,” 2–3. More than half of these political activities were explicitly related to the conflict in Yemen, according to FARA filings.
11 Ben Freeman, “US Foreign Policy Is for Sale,” Nation, February 21, 2019, https://www.thenation.com/article/us-foreign-policy-sale-think-tanks/.
12 Spencer S. Hsu and Matt Zapotosky, “Key Mueller Witness, Major Clinton and Trump Donor Charged With Funneling $3.5 Million in Illegal Contributions,” Washington Post, December 3, 2019, https://www.washingtonpost.com/local/legal-issues/key-mueller-witness-major-clinton-and-trump-donor-charged-with-funneling-35-million-in-illegal-contributions-in-2016-us-elections/2019/12/03/d1cd9166-153a-11ea-9110-3b34ce1d92b1_story.html.
13 “Media Advisory: World’s Biggest Anti-Corruption Gathering to Meet in Abu Dhabi in December,” United Nations Information Service, October 14, 2019, http://www.unis.unvienna.org/unis/en/pressrels/2019/unisma259.html.
14 Adam Rasmi, “The Pope’s Visit Is Part of a Long-Running Campaign by the UAE to Show It’s Seriously Tolerant,” Quartz, February 6, 2019, https://qz.com/1542876/the-popes-visit-is-part-of-a-long-running-campaign-by-the-uae-to-show-its-seriously-tolerant/; and David Fraser Harris, “World Tolerance Summit Announced for Dubai,” Universal Peace Federation, August 10, 2018, https://www.upf.org/conferences-2/8099-world-tolerance-summit-announced-for-dubai.
15 Government of Dubai, Dubai Statistics Center, “Number of Population Estimated by Nationality—Emirate of Dubai (2019–2017),” accessed April 20, 2020, https://www.dsc.gov.ae/Report/DSC_SYB_2019_01%20_%2003.pdf.
16 Ulrichsen, The United Arab Emirates, 190–93.
17 Krane, City of Gold, 140.
18 Ulrichsen, The United Arab Emirates, 143.
19 Ibid., 148.
20 Ibid., 144.
21 Krane, City of Gold, 278.
22 Rob Evans, “BAE ‘Secretly Sold Mass Surveillance Technology to Repressive Regimes,’” Guardian, June 14, 2017, https://www.theguardian.com/business/2017/jun/15/bae-mass-surveillance-technology-repressive-regimes.
23 Jenna McLaughlin, “Spies for Hire,” The Intercept, October 24, 2016, https://theintercept.com/2016/10/24/darkmatter-united-arab-emirates-spies-for-hire/; and Christopher Bing and Joel Schectman, “Inside the UAE’s Secret Hacking Team of American Mercenaries: Ex-NSA Operatives Reveal How They Helped Spy on Targets for the Arab Monarchy—Dissidents, Rival Leaders, and Journalists,” Reuters Investigates, January 30, 2019, https://www.reuters.com/investigates/special-report/usa-spying-raven/. DarkMatter denies that it engages in offensive cyber activities or that it works for the UAE government.
24 SWIFT is a financial messaging service that underpins the world financial system. Mark Dubowitz, “SWIFT Sanctions: Frequently Asked Questions,” Foundation for Defense of Democracies, October 10, 2018, https://www.fdd.org/analysis/2018/10/10/swift-sanctions-frequently-asked-questions/.
25 “Expo 2020 Dubai Partners,” Expo 2020 Dubai, https://www.expo2020dubai.com/en/business/partners.