Table of Contents

Dubai’s lax regulatory climate facilitates illicit financial and commercial activity—particularly trade-based money laundering (TBML)—via the emirate’s many free trade zones. The emirate’s ambivalence toward unregulated financial dealings and illicit trade is long-standing and deeply entrenched. Unlike other sharia-based legal systems, Dubai’s civil legal frameworks provide insufficient anti–money laundering regulation and oversight—a reflection of the emirate’s long history as a freewheeling regional trading center.1 As a result, Dubai is now one of the most conducive places in the world to undertake TBML.

A Permissive Legal and Regulatory Landscape

Throughout the 1960s, Dubai fed India’s large appetite for gold; the emirate imported, at its peak in 1968, 580 tons of gold from Beirut, London, and Zurich. Also during this time, Dubai served as a commercial hub for both smuggling and reexport trade schemes—known as round-tripping—involving a range of goods.2 Further, the emirate capitalized on the regions’ conflicts, especially those in Lebanon by welcoming displaced businesses and trade flows. Dubai positioned itself to take over Lebanon as the region’s financial center and to serve as a neutral zone where Indian and Pakistani businessmen could meet.3 A. Q. Khan, the architect behind Pakistan’s nuclear program, carried out his two-decade-long proliferation financing scheme through Dubai and through an Indian contact based out of the emirate.4

The emirate’s ambivalence toward unregulated financial dealings and illicit trade is long-standing and deeply entrenched.

By the 1980s, Dubai’s laissez faire attitude to financial transparency had opened the door to some of the world’s most wanted criminals and allowed their activities and wealth to flourish unchecked. For example, Dawood Ibrahim, a Pakistan-based Indian gangster and formerly India’s most wanted man, and Viktor Bout, a notorious Russian arms dealer, were able to carry out their operations from Dubai without interference.5

In the 2000s, Dubai has been implicated in fueling conflict in the Democratic Republic of Congo through its role in international gold trade.6 It has also been involved in large-scale money laundering operations related to Azerbaijan’s oil industry and in embezzlement schemes, such as Russia’s Magnitsky scandal, named after a murdered accountant who uncovered the embezzlement of $230 million from Russian state coffers.7

When state leaders control the regulatory apparatus, this raises the risk of their being complicit in illicit financial activities and reduces the regulator’s capacity to carry out its functions without state approval.

Dubai’s governance architecture is underpinned by the deep and pervasive influence of the ruling royal family. An International Monetary Fund report from May 2011 depicted the extent of the family’s personal control over major firms and investment vehicles active in Dubai (see Figure 2).8 For instance, the family directly appoints the board members of the Dubai Financial Services Authority. This control is highly problematic, given that a well-documented risk to good governance is regulatory capture by state or private interests. When state leaders control the regulatory apparatus, this raises the risk of their being complicit in illicit financial activities and reduces the regulator’s capacity to carry out its functions without state approval.9 For example, Wall Street Exchange—one of the largest remitters in the Middle East and wholly owned by the UAE government and headquartered in Dubai—was recognized as a key conduit for the billion dollar money laundering operation run by Altaf Khanani. For over two decades, he helped the Taliban, Hezbollah, and other transnational groups move their money through Dubai and finance their operations.10

Dubai’s Free Trade Zones

What makes Dubai a particularly attractive destination for illicit financial flows are its roughly thirty free trade zones, where many of the country’s laws do not apply. These zones have separate commercial and labor laws and, in the case of the Dubai International Financial Centre (DIFC), a separate court system based on English common law.11 Dubai’s legal enclaves have since been duplicated in other parts of the UAE and in Astana, Kazakhstan.

The UAE boasts about forty-five free trade zones and two financial free zones (the DIFC and Abu Dhabi Global Market). (See the appendix for a list of the total known free zones in the UAE.) Approximately thirty of the free trade zones are located in Dubai and are vital to its economy, accounting for 41 percent of Dubai’s total trade.12 Data show that Dubai’s free trade zones generated a combined total of $118 billion in trade value in 2017.13 The Jebel Ali Free Zone (JAFZA)—established in 1985—accounts for almost 32 percent of the total foreign direct investment flowing into the UAE and for roughly 24 percent of Dubai’s annual gross domestic product.14 In 2015, JAFZA alone generated trade worth $87.6 billion.15 And these numbers have grown each year since, according to data published by the government. In 2019, JAFZA reportedly accounted for 70 percent of all trade value and 97 percent of all trade volume generated by Dubai’s free trade zones.16

To keep the juggernaut of Dubai’s economy moving forward, these zones have a unique regulatory regime that provides both an express route to trade facilitation and investment and a fertile environment for a myriad of illegal activities, including gold smuggling, arms trafficking, round-tripping, and trade misinvoicing.17 The free trade zones permit 100 percent foreign ownership and repatriation of capital and profits and have no corporate, personal, or customs tax. In addition, there are no restrictions on the recruitment of foreign national labor, all documentation can be done in English, and all regulatory and licensing needs can be fulfilled within the zone.18 Finally, all employment contracts are sponsored through the relevant free trade zone and not through the employer.19

Each free trade zone has its own separate commercial regulations, labor laws, and property laws, and each zone is supervised by an independent regulatory authority.

Most striking of all, however, is that each free trade zone has its own separate commercial regulations, labor laws, and property laws, and each zone is supervised by an independent regulatory authority.20 For instance, separate commercial laws apply to the Dubai Development Authority, DIFC, JAFZA, and Dubai International Airport Free Zone.21 UAE administrative and commercial regulations are applicable only to the Dubai Healthcare City Free Zone.22 The UAE therefore has to contend with a bewildering patchwork of forty-five different sets of laws and regulations. The UAE’s Central Bank, in particular, has to issue many similar but distinct circulars to each zone.23

This complex arrangement presents significant hurdles for international standard-setting bodies such as the Financial Action Task Force (FATF), which, during its 2008 evaluation of the UAE, could only conduct a “rudimentary sampling of their [free trade zones] laws and procedures.”24 The FATF also flagged significant difficulties in its 2020 evaluation, which noted that the complexity of different company registries and rules has led to “regulatory arbitrage.”25 Furthermore, the primary mandate of the independent authorities in the free trade zones appears to be geared more toward enhancing trade facilitation than overseeing financial flows and curbing illicit activity. With no national watchdog operating in the zones, opportunities for regulatory arbitrage abound.

Lakshmi Kumar
Lakshmi Kumar is the policy director at Global Financial Integrity (GFI), a Washington, DC–based think tank specializing in research, advocacy, and advisory services.

The laws on beneficial ownership transparency within the free trade zones illustrate another danger of this complicated and overcrowded regulatory architecture. Beneficial ownership information is the bedrock of financial transparency and is meant to deter the entry of illicit actors into the market. However, instead of adopting one definition of beneficial ownership, which would create a consolidated approach toward anti–money laundering (AML) enforcement, each free trade zone uses drastically different language to define a beneficial owner. Beyond mere definitions, the quality of guidance provided on how to meet the standards varies widely. For example, the Dubai Development Authority issued a two-page circular in June 2019 that defines an ultimate beneficial owner as “an individual who ultimately owns or controls 25% or more of a Business Partner, whether directly as a shareholder, or indirectly via control of companies, other entities or structures that control the Business Partner.”26

By contrast, the DIFC—via a lengthy 2018 regulation—provides a more exhaustive definition of the ultimate beneficial owner:

A natural person (other than a person acting solely in the capacity of a professional adviser or professional manager) who: (a) in relation to a company, owns or controls (directly or indirectly): (i) shares or other Ownership Interests in the Registered Person of at least the Relevant Percentage; (ii) voting rights in the Registered Person of at least the Relevant Percentage; or (iii) the right to appoint or remove the majority of the Directors of the Registered Person; (b) in relation to a partnership, has the legal right to exercise, or actually exercises, significant control or influence over the activities of the partnership; or (c) in relation to a foundation or a Non Profit Incorporated Organisation, has the legal right to exercise, or actually exercises, significant control or influence over the activities of the Governing Body, person or other arrangement administering the property or carrying out the objects of the foundation or the Non Profit Incorporated Organisation.27

Additionally, the DIFC regulation allows the registration of nominee directors.28 Nominee directors are individuals with no other connection to a firm who serve as professional proxies for a company’s actual controlling interests. Many grand corruption schemes involve the use of nominee directors, according to a World Bank study.29 The Dubai Development Authority’s circular is silent on whether nominee directors are permitted within the zone and requires no such disclosure of nominee arrangements.30 On JAFZA’s website, none of the forms that commercial entities must complete to be licensed or registered mention beneficial ownership.31

Having multiple definitions of beneficial ownership needlessly complicates the regulatory framework in which free trade zones operate.

Having multiple definitions of beneficial ownership needlessly complicates the regulatory framework in which free trade zones operate. Differences such as this, especially when combined with a multitude of separate, applicable laws, clearly limit the Central Bank’s ability to carry out its appointed role across Dubai’s thirty free trade zones.32 The problems the Central Bank and Dubai Customs have had in implementing anti–money laundering norms are well-documented.33 However, there does not appear to be any movement toward rationalizing the regulatory framework to ensure a more cohesive approach to oversight and supervision.34 This is unfortunate because the environment provides significant opportunities for regulatory arbitrage and for groups—including al-Qaeda, the Taliban, Lone Wolves, D-Company, Comanchero motorcycle gangs, and Mexican drug cartels—to use Dubai as a conduit for their money laundering, smuggling, and terrorism financing operations.35

In addition, there appears to be little political will to create appropriate mechanisms for customs inspections, information sharing, and anti–money laundering, and anti–terrorism financing supervision.36 Although the UAE now requires that free trade zones share information with the country’s Financial Intelligence Unit and Central Bank, the continuous stream of reporting on the scale of ongoing illicit activity indicates that this measure exists merely on paper.

The lack of regulatory and customs enforcement within free trade zones is not unique to Dubai, and interest in finding more effective ways to address the loopholes has grown over the last decade. The World Customs Organization (WCO), the FATF, and the Organisation for Economic Co-operation and Development (OECD) have all produced studies identifying the risks and have recommended necessary changes.37 Data from the most recent one—a 2019 WCO study—show that the main risk factors within free trade zones are insufficient customs controls; the ease of setting up companies, which undermines a robust compliance culture; and the insufficient integration of information technology systems by governmental agencies. OECD and FATF studies echo these same concerns. While the lack of enforcement is clearly a global issue, the misuse and weak governance of free trade zones is a particular problem in Dubai, given the outsized role the zones play in contributing to the emirate’s economy and its long-standing reputation as a refuge for illicit money.

Trade-Based Money Laundering and Dubai

The FATF defines TBML as “the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origins.”38 TBML methods include over- and under-invoicing of goods, multiple invoicing of goods, over- and under-shipments of goods, and false description of goods.39

Factors that increase the risk or likelihood of TBML include less restrictive customs environments, large amounts of paperwork, lack of data, and ports with limited regulation.40 Free trade zones, in particular, pose a high risk for TBML because they are designed to have more relaxed regulatory environments to attract businesses. Until very recently, Dubai’s free trade zones required little or no ownership information, and even with the recent changes in laws, the tangled regulatory environment leaves ample space for abuses to occur.

Free trade zones, in particular, pose a high risk for TBML because they are designed to have more relaxed regulatory environments to attract businesses.

The absence of adequate customs controls in Dubai’s free trade zones means that goods shipped there undergo “various economic operations such as transshipment, assembly, manufacturing, processing, warehousing, repackaging and re-labelling.”41 Of these operations, repackaging is a common method used by illicit actors to manipulate the country of origin or destination.42 Other tools used to mask the origin, and which have been observed in Dubai’s free trade zones, include third party payments and cash and other bearer-negotiable instruments such as a check or promissory note.43

According to documentation, illicit actors in Dubai have also created fake invoices through anonymous Dubai companies. Cash-based economies, such as Iraq, need U.S. dollars to finance imports. Once the U.S. dollars are acquired, they are used to buy smuggled goods, guns, or drugs or to facilitate money laundering and terrorist activity.44 According to the U.S. Department of State’s International Narcotics Control Strategy Report on the UAE, TBML apparently occurs through commodities that are used as collateral in transactions conducted via hawala (informal money-transferring services), or other trading companies.45

Although free trade zones are at a heightened risk for TBML, other significant avenues warrant attention as well. For example, Dubai has played a central role in helping launder the proceeds of value-added tax (VAT) carousel fraud through its banks (see Figure 3). VAT carousel fraud is also called missing trader fraud and occurs when a business imports goods VAT-free from overseas and then sells the goods to domestic buyers, charging them VAT. The sellers then disappear, taking the VAT without paying the appropriate taxes to the country of origin, such as the United Kingdom (UK).46 A major VAT scheme—active from 2005 to 2016—cost the UK government an estimated $20.6 billion in tax revenues.47 This money was routed through Dubai’s banks.

Perpetrators similarly exploited the European Union’s carbon credits system and cost the EU around $5.4 billion between 2008 and 2009. Individuals behind the carbon credits scam laundered their illicit proceeds in Dubai by purchasing luxury real estate.48

Although the FATF has acknowledged the size, scale, and importance of the problem, there has been little progress in establishing clear international standards to address TBML.49 According to the FATF, this is largely due to the complexity and varied nature of TBML, which includes:

  • The enormous volume of trade flows, which obscures individual transactions and provides abundant opportunity for criminal organizations to transfer value across borders;
  • The complexity associated with (often multiple) foreign exchange transactions and recourse to diverse financing arrangements;
  • The additional complexity that can arise from the practice of commingling illicit funds with the cash flows of legitimate businesses;
  • The limited recourse to verification procedures or programs to exchange customs data between countries; and
  • The limited resources that most customs agencies have available to detect illegal trade transactions.50

All these stumbling blocks have prevented an international consensus from emerging. Nevertheless, the Wolfsberg Group and some national governments, including in Singapore and the UK, have started issuing guidance on matters related to TBML and trade finance.51 The thrust of such regulatory approaches has been to keep the banking sector at the forefront. However, open account trades constitute 80 percent of all global trade, meaning the buyer and seller have agreed to the terms beforehand and the bank is unaware of the underlying reason for the payment.52 National customs agencies must therefore take a central role in overseeing these transactions.

In 2016, the Dubai Financial Services Authority—the DIFC’s financial services regulatory authority responsible for regulating banking and related financial services—issued trade finance guidelines. But this regulatory move is puzzling because the DIFC is a financial free zone, which is different from a free trade zone, so unless trade transactions within Dubai’s free trade zones are routed through financial institutions in the DIFC, it is unclear what impact these guidelines would have on TBML.53

Policy and Regulatory Remedies

Despite these myriad issues, several steps could help strengthen the regulatory environment to combat TBML, both globally and in Dubai in particular. To create a truly robust mechanism, UN bodies and the World Trade Organization must first agree on which agencies should take the lead in tackling TBML. They must also design a robust reporting framework that will spread out supervisory responsibilities across market participants, such as forwarding agents, shipping agents, clearing agents, importers, exporters, and other relevant actors. Doing so will help reduce the risk of TBML.

To create a truly robust mechanism, UN bodies and the World Trade Organization must first agree on which agencies should take the lead in tackling TBML.

National governments should also create more detailed and transparent centralized databases that provide beneficial ownership information—as well as financial histories of the legal entities/arrangements involved in the trade transaction—to customs agents, departments of commerce, the Financial Intelligence Unit, and the Central Bank. This will help prevent legal entities/arrangements from being used to commit contract fraud and trade misinvoicing and to establish trade channels.

Customs departments should be fully included in the FATF National Risk Assessment. Currently, customs departments partially engage in this assessment process to flush out bulk cash smuggling and other money laundering offenses identified by the FATF. This, however, does not fully address the entire gamut of money laundering risks that often vary depending on industry sector and destination. Banks also need better training to fully understand TBML- and customs-related risks. They need to know more about the products traded and shipping routes, and they need access to other detailed records that cover the commerce side of transactions.

Notes

1 Though influenced by Egyptian law, Dubai’s civil laws are underpinned by Islamic sharia tenets. Egyptian law itself was heavily influenced by the French legal system; Ahmed Aly Khedr, “Update: Overview of United Arab Emirates Legal System,” GlobaLex, January 2018, https://www.nyulawglobal.org/globalex/United_Arab_Emirates1.html; and Michael Matly and Laura Dillon, “Dubai Strategy: Past, Present, and Future,” Belfer Center for Science and International Affairs, February 27, 2007, https://www.belfercenter.org/sites/default/files/legacy/files/matly_paper1.pdf.

2 Round-tripping is a money laundering practice by which funds are deposited offshore—typically in a tax haven where few records are kept—and then shipped back as tax-exempt foreign direct investment; Tony Warwick Ching, The International Gold Trade (Cambridge: Woodhead Publishing, 1993), 42–43.

3 Oxford Analytica, “Rival Financial Centers in the Middle East,” March 14, 2005, https://www.forbes.com/2005/03/14/cz_0314oxan_gulf.html#66c233f77c6b.; and “Narrative Report of the UAE,” Financial Secrecy Index, Tax Justice Network, 2018 http://www.financialsecrecyindex.com/PDF/UnitedArabEmirates_Dubai.pdf.

4 Molly MacCalman, “A.Q. Khan Nuclear Smuggling Network,” Journal of Strategic Security 9, no. 1 (2016): 104–118.

5 Nicholas Schmidle, “Disarming Viktor Bout: The Rise and Fall of the World’s Most Notorious Weapons Trafficker,” New Yorker, August 27, 2014 https://www.newyorker.com/magazine/2012/03/05/disarming-viktor-bout; Ahmed Shabaan, “What’s an Aircraft Doing in the UAE Desert?” Khaleej Times, September 27, 2019, https://www.khaleejtimes.com/uae/umm-al-quwain/people--places-whats-an-aircraft-doing-in-the-uaq-desert-; and “Dawood Ibrahim Is 2nd Richest Gangster of All Time; 10 Things About Most Wanted Global Terrorist,” India Today, April 29, 2017, https://www.indiatoday.in/india/story/dawood-ibrahim-pakistan-karachi-974276-2017-04-29; https://www.un.org/securitycouncil/sanctions/1267/aq_sanctions_list/summaries/individual/dawood-ibrahim-kaskar.

6 Marcena Hunter, “Pulling at Golden Webs: Combating Criminal Consortia in the African Artisanal and Small-Scale Gold Mining and Trade Sector,” ENACT, April 2019, 21, https://enact-africa.s3.amazonaws.com/site/uploads/2019-04-24-pulling-the-golden-webs-research-paper.pdf.

7 David Lewis, Ryan McNeill, and Zandi Shabalala, “Gold Worth Billions Smuggled Out of Africa,” Reuters, April 24, 2019, https://www.reuters.com/investigates/special-report/gold-africa-smuggling/; Mystery Figure Behind Azerbaijan’s State Oil Company Revealed, Global Witness, December 6, 2013, https://www.globalwitness.org/en/archive/mystery-figure-behind-azerbaijans-state-oil-company-revealed/; Stella Dawson, “Corrupt Money Hides in Dubai, Officials Turn Blind Eye,” Thomson Reuters Foundation, December 13, 2013, http://news.trust.org//item/20131213143038-zrhlb/; and Alec Luhn, “Whatever Happened to the Magnitsky Money?” PRI, January 2, 2013, pri.org/stories/2013-01-02/whatever-happened-magnitsky-money.

8 “UAE: Selected Issues and Statistical Appendix,” International Monetary Fund, May 2011, https://www.imf.org/external/pubs/ft/scr/2011/cr11112.pdf, 4.

9 John A. Turner, Gerard Hughes, and Michelle Maher, “An International Comparison of Regulatory Capture and Regulatory Outcomes,” International Public Policy Association, June 2015, https://www.ippapublicpolicy.org/file/paper/1433341161.pdf; “Chapter 5: Regulatory Capture,” in The Warwick Commission on International Financial Reform: In Praise of Unlevel Playing Fields (Warwick, UK: University of Warwick, 2009), https://warwick.ac.uk/research/warwickcommission/financialreform/report/chapter_5.pdf.

10 Linton Besser, “Money Exchange With Links to Dubai Government Identified as Hub for Billion-Dollar Laundering Empire,” ABC (Australia), February 5, 2018 https://www.abc.net.au/news/2018-02-06/khanani-network-laundered-money-through-wall-street-exchange/9398148.

11 “Foundation of ADGM Courts,” Abu Dhabi Global Market Courts, https://www.adgm.com/adgm-courts/english-common-law; and “An Introduction to the Astana International Financial Court,” Astana International Financial Court, http://aifc-court.kz/an-introduction.

12 Waheed Abbas, “More Relief as UAE Free Zones Are Out of VAT Scope,” Khaleej Times, July 5, 2018, https://www.khaleejtimes.com/business/local/More-relief-as-three-UAE-free-zones-are-out-of-VAT-scope; and Sarah Townsend, “Dubai Free Zones Saw 22% Growth This Year, Government Says,” National (UAE), December 22, 2018, https://www.thenational.ae/business/economy/dubai-free-zones-saw-22-trade-growth-this-year-government-says-1.805246.

13 “How Free Zones Help Power the UAE Economy.”

14 “Jebel Ali Port and Free Zone Play Key Role in Dubai and UAE’s Economic Growth,” February 3, 2019,

https://mediaoffice.ae/en/media-center/news/3/2/2019/jebel-ali-port-and-free-zone-play-key-role-in-dubai-and-uaes-economic-growth.aspx.

15 “Jafza: At the Forefront of Innovation,” Khaleej Times, December 28, 2016, https://www.khaleejtimes.com/20161228/no-title.

16 “Jebel Ali Port and Free Zone Play Key Role in Dubai and UAE’s Economic Growth.”

17 Shedrofsky, “Dubai’s Golden Sands.”

18 Christopher Gunson, “Second Meeting of the Working Group on Investment Zones in Iraq,” Organisation for Economic Co-operation and Development, undated, https://www.oecd.org/mena/49226268.pdf.

19 Ibid.

20 “Working in Free Zones,” Government of the United Arab Emirates, August 1, 2019, https://government.ae/en/information-and-services/jobs/working-in-free-zones.

21 “Running a Business in a Free Zone,” Government of the United Arab Emirates, October 23, 2019, https://www.government.ae/en/information-and-services/business/running-your-business/running-a-business-in-a-free-zone-.

22 Ibid.

23 Ibid.

24 “United Arab Emirates: Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism,” Financial Action Task Force Evaluation Report, International Monetary Fund, June 19, 2008, https://www.imf.org/external/pubs/ft/scr/2008/cr08305.pdf, 136.

25 “Anti-Money Laundering and Counter-Terrorist Financing Measures: United Arab Emirates Mutual Evaluation Report,” 5.

26 “Circular 323: Ultimate Beneficial Ownership (‘UBO’),” Dubai Development Authority, June 16, 2019, https://dda.gov.ae/wp-content/uploads/2019/06/323.pdf.

27 “Ultimate Beneficial Owner Regulations,” Dubai International Financial Center, November 12, 2018, 4, https://www.difc.ae/files/7815/4200/4130/UBO_Regulations_2018.pdf.

28 Ibid.

29 Gerard Ryle and Stefan Candea, “Faux Corporate Directors Stand in for Fraudsters, Despots and Spies,” International Consortium of Investigative Journalists, April 7, 2013, https://www.icij.org/investigations/offshore/faux-corporate-directors-stand-fraudsters-despots-and-spies/.

30 “Circular 323: Ultimate Beneficial Ownership.”

31 Jebel Ali Free Zone, “Rules and Regulations,” http://jafza.ae/rules-regulations/.

32 U.S. Department of State, “International Narcotics Control Strategy Report: Volume II,” Bureau for International Narcotics and Law Enforcement Affairs, March 2017, 189, https://www.state.gov/wp-content/uploads/2019/04/2017-INCSR-Vol-II.pdf.

33 U.S. Department of State, “International Narcotics Control Strategy Report”; and Tom Arnold, “Free Zones in Focus of Anti-Laundering Drive,” National (UAE), October 5, 2010, https://www.thenational.ae/business/free-zones-in-focus-of-anti-laundering-drive-1.510921.

34 “Running a Business in a Free Zone.”

35 Besser, “Money Exchange With Links to Dubai Government Identified as Hub for Billion-Dollar Laundering Empire”; and Judy Pasternak and Stephen Braun, “Emirates Looked the Other Way While Al-Qaida Funds Flowed,” Chicago Tribune, January 21, 2002, https://www.chicagotribune.com/sns-worldtrade-emirates-lat-story.html.

36 Angela Shah, “Free Trade Zones Attract Criminals,” New York Times, November 10, 2010, https://www.nytimes.com/2010/11/11/world/middleeast/11iht-m11mtrade.html.

37 Kenji Oni, “‘Extraterritoriality’ of Free Zones: The Necessity for Enhanced Customs Involvement,” September 2019, http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/research/research-paper-series/47_free_zones_customs_involvement_omi_en.pdf?db=web; “Money Laundering Vulnerabilities of Free Trade Zones,” Financial Action Task Force, March 2010, https://www.fatf-gafi.org/media/fatf/documents/reports/ML%20vulnerabilities%20of%20Free%20Trade%20Zones.pdf; and “Trade in Counterfeit Goods and Free Trade Zones: Evidence From Recent Trends,” Organisation for Economic Co-operation and Development, March 15, 2018, https://www.oecd.org/gov/trade-in-counterfeit-goods-and-free-trade-zones-9789264289550-en.htm.

38 “Trade Based Money Laundering,” Financial Action Task Force, June 23, 2006, https://www.fatf-gafi.org/media/fatf/documents/reports/Trade%20Based%20Money%20Laundering.pdf.

39 Ibid., 2–4.

40 “Money Laundering Vulnerabilities of Free Trade Zones,” Financial Action Task Force, March 2010, 15–17, https://www.fatf-gafi.org/media/fatf/documents/reports/ML%20vulnerabilities%20of%20Free%20Trade%20Zones.pdf.

41 “Money Laundering Vulnerabilities of Free Trade Zones.”

42 Ibid.

43 Dominic Dudley, “Dubai Has Become a ‘Money Laundering Paradise’ Says Anti-Corruption Group,” Forbes, January 29, 2019, https://www.forbes.com/sites/dominicdudley/2019/01/29/dubai-has-become-a-money-laundering-paradise-says-anti-corruption-group/#50c7eaa0315e. On April 30, 2014, the UAE Federal National Council passed a draft law to amend Federal Law No. 4 of 2002 regarding the criminalization of money laundering and to prevent the use of bearer negotiable instruments; and Mark Brown, “Financial Institutions: Obligations Under the New AML Law,” Al Tamimi & Company, December 2014, https://www.tamimi.com/law-update-articles/financial-institutions-obligations-under-the-new-aml-law/.

44 Karina Shedrofsky, “Remittances and Trade-Based Money Laundering,” OCCRP, June 12, 2018, https://www.occrp.org/en/goldensands/remittances-and-trade-based-money-laundering.

45 U.S. Department of State, “International Narcotics Control Strategy Report: Volume II,” 182.

46 “‘Reasonable Grounds for Knowing or Suspecting’: A Cautionary Tale About VAT Fraud,” RiskScreen KYC360, February 6, 2017, https://www.riskscreen.com/kyc360/article/reasonable-grounds-for-knowing-or-suspecting-vat-fraud-and-the-solicitor-jailed-for-laundering-its-proceeds/.

47 Margot Gibbs and Jamie Doward, “Fraudsters ‘Turning Dubai Into the New Costa del Crime,’” Guardian, June 24, 2018, https://www.theguardian.com/world/2018/jun/24/fraudsters-turn-dubai-new-costa-del-crime.

48 “EU Energy Industry Calls for VAT Exemption on Trading to be Extended,” Reuters, September 4, 2018, https://www.reuters.com/article/eu-carbon-fraud/eu-energy-industry-calls-for-vat-exemption-on-trading-to-be-extended-idUSL8N1VQ23R.

49 The FATF and the Asia/Pacific Group on Money Laundering published reports in 2006 and 2012, respectively, documenting the importance of the issue.

50 “Trade Based Money Laundering,” 2.

51 U.S. Department of State, “International Narcotics Control Strategy Report: Volume II”; Bankers Association for Trade and Finance, “The Wolfsberg Group, ICC and BAFT Trade Finance Principles,” 2019, https://www.wolfsberg-principles.com/sites/default/files/wb/Trade%20Finance%20Principles%202019.pdf; “Best Practices for Countering Trade Based Money Laundering,” Monetary Authority of Singapore, May 2018, https://abs.org.sg/docs/library/best-practices-for-countering-trade-based-money-laundering.pdf; and “Banks’ Control of Financial Crime Risks in Trade Finance,” Financial Conduct Authority, July 2013, https://www.fca.org.uk/publication/thematic-reviews/tr-13-03.pdf. Of the seventeen banks surveyed, half had no clear policy or procedures for dealing with trade-based money laundering risks; “Guidelines for Prevention of Trade Based Money Laundering,” Chapter 2.4.1: Import Procedures and Avenue for TBML in Bangladesh, Bangladesh Bank, https://www.bb.org.bd/aboutus/regulationguideline/draft/24052018_tbml_draft.pdf; and “Framework for Managing Risks of Trade Based Money Laundering and Terrorist Financing,” State Bank of Pakistan, October 14, 2019, http://www.sbp.org.pk/epd/2019/FEC4_Annex.pdf.

52 Livia Benisty and John Ladany, “Trade-Based Money Laundering: Your Guide to Understanding It, Detecting It, and Preventing It,” Citibank, 2016, 4, https://www.citibank.com/tts/insights/eSource_academy/docs/thought_leadership/1461942122-Citi-Trade-Based-Money-Laundering-Whitepaper.pdf.

53 In 2016, the Dubai Financial Services Authority published a report on trade finance that stated that while overall due diligence was conducted satisfactorily, there were areas for improvement; “Trade Finance Report 2016,” DFSA, http://www.dfsa.ae/Documents/ThematicReviews/TF-Report-FINAL%20Eng%2012%20october%202016%20mid-res.pdf.