The tightening of anti–money laundering and terrorism finance regulations across the formal international financial sector has pushed illicit actors to invest or launder their earnings in other lucrative sectors such as luxury real estate. Nowhere is this trend more visible than in some of the world’s premier commercial and financial centers, including Dubai, New York, and Vancouver, among others.
Money laundering through real estate takes place during three stages: placement, layering, and integration. During placement, the launderer invests illegally garnered funds in real estate through the construction or purchase of properties. During layering, the launderer mixes illicit and licit real estate transactions as part of a series of financial transactions that move funds across numerous jurisdictions and economic sectors, obscuring their origin. During integration, the generated paperwork supporting these transactions provides a plausible explanation for the source of funds, such as from property purchases or rent payments, allowing laundered money to appear clean.1 This is especially true when real estate purchases are associated with anonymous shell companies, trusts, or foundations or when nominee directors are used to obscure ownership.
Kleptocrats, criminal actors, and other money launderers are able to purchase and hold properties anonymously or through other indirect ownership vehicles.
Because, as noted in Chapter 5, international standards for anti–money laundering and terrorism finance have generally focused on banks and other financial institutions, money laundering practices associated with real estate have garnered less scrutiny by anti–money laundering institutions. Even the United States has significant legal loopholes, and for that reason, it is a haven for real estate–related money laundering. Especially in the absence of enforceable beneficial ownership standards and requirements, kleptocrats, criminal actors, and other money launderers are able to purchase and hold properties anonymously or through other indirect ownership vehicles. This ultimately shields their illicit investments from public discovery. A 2016 Transparency International report found that in Canada, anonymous companies and trusts were used to funnel illicit finances into Vancouver’s property market, making beneficial owners invisible to financial regulators and law enforcement agencies.2 The report found that in the absence of beneficial ownership and other strict customer due diligence requirements, illicit actors purchased and profited from luxury real estate holdings without the fear of public disclosure, seizure, or penalty.3
Real estate–related money laundering has particular advantages for the beneficiary and the host government. Foremost, the beneficiaries or their associates, such as family members, can reside in the properties. The beneficiaries can also use the properties to conduct further criminal activities. For example, properties purchased with the proceeds of narcotics crimes can be used to conduct drug processing or sales. Real estate purchases are also fairly liquid investments; a property can be sold relatively quickly, especially if the seller is willing to sell at a loss. Further, properties in other countries can become a potential safe haven for criminals or corrupt actors to flee to if required. Finally, should the beneficiary be interested in conspicuous consumption, ownership of, or residence in, luxury properties can signify “having made it” in much the same way that expensive clothing, watches, or jewelry can.4
For the host governments, real estate investments provide capital for urban redevelopment, additional real estate–associated tax revenue, and local jobs in construction. The capital can then be disbursed as a form of patronage. For example, favored banks can be given special privileges to profit from the investments, construction firms close to a regime can receive priority for contracts, or powerbrokers can expropriate or buy land at below market rate and resell it at higher prices.
It [real estate–related money laundering] can lead to housing bubbles, unfair land expropriation, and unaffordable prices for ordinary citizens.
Money laundering through real estate can have uniquely destabilizing effects, however. Due to revelations of incredible opulence, it can help ignite popular grievances against regimes. It can lead to housing bubbles, unfair land expropriation, and unaffordable prices for ordinary citizens. In particular, the mass purchasing of properties bought for money laundering purposes rather than residency can create a glut of empty or near-empty buildings, thereby making affordable, good quality housing even scarcer.5 Moreover, when housing bubbles propped up by money laundering burst, they can take substantial parts of the economy with it. Environmental degradation or the expropriation of public spaces can also excite populations.6 For example, expropriation of Istanbul’s Taksim Gezi park for urban redevelopment helped spark the social unrest in Turkey in 2013. Finally, the capital flight associated with overseas real estate purchases can help drain treasuries, forcing budget cuts that hurt social and other programs that support the citizenry.
For all of these reasons, tours of former corrupt leaders’ opulent palaces and other properties are common pastimes immediately after the overthrow of a regime—such tours were done of properties owned by former Ukrainian president Petro Poroshenko after the Maidan Revolution and those owned by the family of former president Zine el-Abidine Ben Ali in Tunisia. Corruption and crony capitalism allegations in the commercial and real estate sectors in Lebanon are one of many driving forces behind political unrest there today.7
Dubai’s Magnetic Real Estate Market
Chapter 2 highlighted the role that real estate played in the development of Dubai and also how the 2008 financial crash decimated its real estate market. Historically, some funds flowing through the market have come from illicit activities, such as the Kabul Bank Ponzi scheme noted in Chapter 9 or those described in the introductory chapter.
Sanctioned Individuals With Links to Dubai Properties
In 2018, the Center for Advanced Defense Studies (C4ADS), a Washington, DC–based nonprofit research organization, identified—in a leaked Dubai property registry covering 2014 to 2016—forty-four luxury properties directly associated with seven individuals sanctioned by the United States and/or European countries (see Table 7).8 These properties were valued at approximately $28.2 million in total. The report also identified twenty-seven additional properties worth an estimated $78.8 million within the expanded commercial networks of the seven sanctioned individuals.9 The report revealed that despite existing sanctions restrictions, several of these individuals operated in broad unsanctioned commercial networks that extended from Dubai and the UAE to multiple international jurisdictions, including the British Virgin Islands, Cyprus, Hong Kong, Lebanon, Liberia, Mexico, Romania, Syria, and the United States.10 The report also found extensive use of family and third-party networks, including various designated nonfinancial business professions (DNFBPssuch as lawyers, to obscure beneficial ownership of both sanctioned and unsanctioned commercial entities.11
|Table 7. Seven Sanctioned Individuals With Links to Dubai Properties|
|Case Study||Criminal Activity||Country|
|Wael Abdulkarim and Ahmad Barqawi||Conflict finance||Syria|
|Hassain Eduardo Figueroa Gomez||Narcotics Trafficking||Mexico|
|Kambiz Mahmoud Rostamian||Nuclear Proliferation||Iran|
|The Altaf Khamani MLO||Terror Finance||Pakistan|
|Hossein Pournaghshband||Nuclear Proliferation||Iran|
|Kamel and Issam Amhaz||Terror Finance||Lebanon|
|Rami Makhlouf||Grand Corruption||Syria|
|Source: Sandcastles: Tracing Sanctions Evasion Through Dubai’s Luxury Real Estate Market (Washington, DC: Center for Advanced Defense Studies, 2018).|
Throughout 2018, the Organized Crime and Corruption Reporting Project (OCCRP) identified multiple luxury property holdings in Dubai held by former public officials—from Armenia, Nigeria, Pakistan, Russia, South Africa, and Thailand—as well as by their family members and business associates.12 OCCRP investigators found that, in some cases, the individuals were linked to illicit or allegedly illicit dealings, as in the case of former Nigerian petroleum minister Dan Etete (highlighted in Chapter 1) who had previously faced corruption allegations based on prior dealings with international oil companies.13 OCCRP investigators also found that, in some cases, offshore ownership vehicles, including shell companies based in the British Virgin Islands, were used to manage properties in Dubai.14 Altogether, both reports identified the lack of mandatory beneficial ownership reporting in property purchases to be a significant vulnerability easily exploited by both criminals and other illicit actors seeking to hide their money in Dubai’s luxury real estate market.
In some cases, real estate purchases have been associated with conflict finance. For instance, according to the C4ADS report, Syrian nationals Wael Abdulkarim and Ahmad Barqawi, who allegedly helped President Bashar al-Assad’s regime avoid sanctions on aviation fuel and oil, ran at least four companies from Dubai and held three properties there worth a total of over $850,000.15 Both individuals remain sanctioned by the U.S. Department of Treasury.16
Likewise, according to the report, Rami Makhlouf, Assad’s cousin and a key smuggling facilitator, also owned property in Dubai. The United States sanctioned Makhlouf for his role in corruption perpetrated by the Syrian regime as early as 2008, and the European Union sanctioned him for his role in human rights abuses and corruption in 2011. Makhlouf and his family ran at least two Dubai-based businesses and had five properties worth a total of $3.9 million.17
According to media reports and the U.S. Department of Treasury, Samer Foz, a Syrian trader close to the Assad regime and linked to importing food and oil-related goods despite sanctions, also has substantial business assets in Dubai and travels there (and who, since 2018, co-owns the former Four Seasons Hotel in Damascus).18 Muhammad Hamsho, sanctioned by the Treasury Department, is a front man, business associate, and money launderer to Assad’s brother Mahir al-Asad, who is also sanctioned by the Treasury Department and accused of looting building materials from areas recaptured by the regime. Muhammad led a Syrian trade delegation to a trade forum in Abu Dhabi in 2019 despite U.S. and European Union sanctions. According to the Panama Papers, his son Ahmad Hamsho sits on the board of at least one of Muhammad’s companies linked to sanctions busting; Ahmad is based out of Dubai.19
PEPs With Links to Dubai Properties
In other cases, real estate purchases were associated with politically exposed persons (PEPs)—individuals entrusted with a prominent public function, as well as their families and associates. PEPs from countries that perform poorly on corruption-related assessments should raise red flags, especially when they purchase a large number of properties or when the properties are of high value. While none of the individuals mentioned below have been arrested or convicted of an illegal activity, the fact that so many PEPs originating from highly corrupt countries purchase properties in Dubai raises concerns.
For example, Azerbaijan’s president, Ilham Aliyev, has owned extensive properties in Dubai. The leaked Dubai property registry used by both C4ADS and OCCRP documented that Aliyev’s daughters own the Sofitel hotel on Dubai’s Palm Jumeirah island as well as sixteen other villas in the development.20 In 2010, the then eleven-year-old son of former president Heydar Aliyev bought $44 million worth of Dubai real estate in just two weeks.21 Kleptocrats all around the world commonly use family members—especially young children—as proxy owners in order to conceal properties and other proceeds of corruption.
Rajesh “Tony” Gupta, who the United States sanctioned in October 2019 for his role in the well-documented corruption schemes conducted during South African president Jacob Zuma’s tenure, purchased a ten-bedroom, thirteen-bathroom villa for Zuma in the Emirates Hills development in 2015. The villa was supposed to be a second home for the Zuma family.22 Zuma and Rajesh Gupta have denied all corruption allegations made against them.23 According to testimony in a 2017 court case, Grace Mugabe, wife of the now-deceased former president of Zimbabwe, also had rented a villa in the same development.24
An assessment of the leaked Dubai property registry by Matthew T. Page identified thirty-four Nigerian governors who owned seventy-one properties, seven senators who owned thirty-three properties, and thirteen ministers who owned twenty-six properties.25 A separate 2014 report claimed that 60 percent of all serviced apartments in Dubai were sold to Nigerians, while a 2012 report stated that Nigerians had invested $6 billion in real estate in Dubai over three years, including whole floors of apartment blocks.26 As a sales manager at a Dubai-based property development company noted in a 2012 article, “There are not the same checks on the sources of money coming into Dubai as there are in London and elsewhere.”27 While there is nothing illegal about Nigerians purchasing real estate in Dubai, the high number of purchases by senior Nigerian politicians, many of which seem to exceed what their official salaries should permit, raises concerns that such purchases may be associated with corruption and capital flight.28
Anti–Money Laundering and Counterterrorism Finance Reforms
As noted in Chapter 5, until 2018, real estate brokers and other DNFBPs outside Dubai’s oldest financial free zone—the Dubai International Financial Center—were only subject to a relatively weak 2002 anti–money laundering and counterterrorism finance law, which fell short of the intergovernmental Financial Action Task Force’s recommendations on requirements for determining and recording the ultimate beneficial owners and associated enforcement measures.29 Companies purchasing real estate—especially shell companies—therefore operated under a lower compliance threshold than those within the DIFC.30 The lack of standardization of beneficial ownership requirements and lack of due diligence related to the source of funds for purchases therefore enabled criminals and corrupt actors to purchase property.
The lack of standardization of beneficial ownership requirements and lack of due diligence related to the source of funds for purchases therefore enabled criminals and corrupt actors to purchase property.
While this mismatch was reportedly addressed by the 2018 anti–money laundering and counterterrorism finance law, in the intervening period, the real estate sector was potentially vulnerable to illicit financial infiltration, especially through luxury real estate.31 In 2018, OCCRP investigators visited a variety of real estate agencies in Dubai, posing as potential clients, and found that real estate agents often preferred cash transactions and “showed little interest in where the money might have come from.”32 The 2008 and 2020 Financial Action Task Force (FATF) evaluation similarly cited the heavy use of cash in the UAE generally as a money laundering and terrorism finance risk.33
The 2008 and 2020 Financial Action Task Force (FATF) evaluation similarly cited the heavy use of cash in the UAE generally as a money laundering and terrorism finance risk.
Despite the new legislation, plenty of vulnerabilities remain. The 2020 FATF mutual evaluation report summed up real estate issues as follows:
The construction and real estate sectors in the UAE contributed 20 percent to GDP as of 2016. Dubai’s high-end luxury real estate market has been exposed to transactions in cash, has a highly internationalized client base, and is therefore attractive to [money laundering]. People from 217 nationalities invested a total of AED 151 billion [37 billion euros] through 71,000 transactions in Dubai’s real estate market in the 18 months up to the end of June 2017. Third parties can be used to conduct the transactions and there remains a vulnerability where complex ownership structures can be used to obscure the beneficial owner and source of funds used for purchase.34
Thus, the real estate sector was rated by FATF as a medium-high risk, regardless of whether real estate transactions took place on the mainland or in a free zone.35
The Dubai luxury real estate sector has proven vulnerable to illicit investments by global kleptocrats, weapons proliferators, and narcotics traffickers. And while recent anti–money laundering and counterterrorism finance reforms reduce the risk of future illicit infiltration by establishing a national baseline for beneficial ownership and customer due diligence requirements, complete deterrence will require their strict enforcement. By aligning the country’s compliance standards with those of the FATF, UAE authorities have telegraphed their willingness to confront the many challenges posed by the free movement of illicit capital through the country’s real estate sector. Recent high-profile scandals—such as the one involving 2019 real estate purchases in Dubai by Isabel dos Santos, daughter of the former Angolan president José Eduardo dos Santos—will provide important test cases for whether Dubai will now cooperate with international law enforcement, as well as investigate and prosecute the use of its real estate market for money laundering.
1 Louise Shelley, “Money Laundering Into Real Estate,” in Convergence: Ilicit Networks and National Security in the Age of Globalization (Washington, DC: National Defense University Press, 2013), 131–32.
2 “No Reason to Hide.”
4 Ibid., 134–35.
5 Ibid., 134–36.
6 Ibid., 135.
7 Hicham Safieddine, “Lebanon Protests: The People Want the Downfall of the Banks,” Middle East Eye, November 7, 2019, http://www.middleeasteye.net/opinion/lebanon-protests-people-want-downfall-bank; and “Beirut Is Still Arguing Over Its Post-War Reconstruction,” Economist, June 11, 2019, https://www.economist.com/middle-east-and-africa/2019/07/11/beirut-is-still-arguing-over-its-post-war-reconstruction.
8 Sandcastles: Tracing Sanctions Evasion Through Dubai’s Luxury Real Estate Market, 3.
12 Margot Gibbs, “How to Inherit a Villa, Kremlin Style,” OCCRP, December 13, 2018, https://www.occrp.org/en/goldensands/how-to-inherit-a-villa-kremlin-style; Vahe Sarukhanyan, “Wealthy Armenians Join the Dubai Land Rush,” OCCRP, March 22, 2019, https://www.occrp.org/en/goldensands/wealthy-armenians-join-the-dubai-land-rush; Shedrofsky, “Dubai’s Golden Sands”; Gibbs and Faull, “The Klepto Hills.”
13 Gibbs, Jeory, and Faull, “Nigerian Oil and Dubai Land.”
15 Sandcastles: Tracing Sanctions Evasion Through Dubai’s Luxury Real Estate Market, 11–15.
16 U.S. Department of Treasury, Office of Foreign Assets Control, “Specially Designated Nationals and Blocked Persons List,” https://www.treasury.gov/ofac/downloads/sdnlist.pdf, accessed February 24, 2020.
17 Sandcastles: Tracing Sanctions Evasion Through Dubai’s Luxury Real Estate Market, 39–43.
18 Chloe Cornish, “The Men Making a Fortune From Syria’s War,” Financial Times, October 3, 2019, https://www.ft.com/content/525ec4e4-e4a3-11e9-9743-db5a370481bc; Sunniva Rose, “Four Seasons Cuts Ties With Damascus Branch Following Samer Foz Sanctions,” National (UAE), June 20, 2019, https://www.thenational.ae/world/four-seasons-cuts-ties-with-damascus-branch-following-samer-foz-sanctions-1.877089; and “Treasury Designates Syrian Oligarch Samer Foz and His Luxury Reconstruction Business Empire,” U.S. Department of Treasury, June 11, 2019, https://home.treasury.gov/news/press-releases/sm704.
19 Chloe Cornish, “The Men Making a Fortune From Syria’s War,” Financial Times, October 3, 2019, https://www.ft.com/content/525ec4e4-e4a3-11e9-9743-db5a370481bc; Nizar al-Ghazali, “All the Dictator’s Men: Who Runs Assad’s Sanctions-Busting Network?” The New Arab, April 5, 2016, https://english.alaraby.co.uk/english/indepth/2016/4/5/all-the-dictators-men-who-runs-assads-sanctions-busting-network; Areeb Ullah, “US-Blacklisted Syrian Businessman Leads UAE-Syria Investment Forum,” Middle East Eye, January 21, 2019, http://www.middleeasteye.net/news/us-blacklisted-syrian-businessman-leads-uae-syria-investment-forum; and “Treasury Sanctions Prominent Syrian Businessman,” U.S. Department of Treasury, August 4, 2011, https://www.treasury.gov/press-center/press-releases/Pages/tg1269.aspx.
20 Juliette Garside, “The Azerbaijani President’s Children and the Dubai Property Empire,” Guardian, April 23, 2018, https://www.theguardian.com/world/2018/apr/23/azerbaijan-children-of-president-linked-to-dubai-property-empire.
21 Andrew Higgins, “Pricey Real Estate Deals in Dubai Raise Questions About Azerbaijan’s President,” Washington Post, March 5, 2010, http://www.washingtonpost.com/wp-dyn/content/article/2010/03/04/AR2010030405390.html.
22 Gibbs and Faull, “The Klepto Hills.”
23 Nqobile Dludla, “U.S. Sanctions Brothers at Center of South African Graft Scandal,” Reuters, October 10, 2019, https://www.reuters.com/article/us-safrica-corruption-guptas-idUSKBN1WP2DO.
25 Matthew T. Page, “Dubai Property: An Oasis for Nigeria’s Corrupt Political Elites,” Carnegie Endowment for International Peace, March 19, 2020, https://carnegieendowment.org/files/20203-Page-Nigeria%20Dubai%20Property.pdf.
26 Ikenna Obi and Chuka Oroko, “Nigerians Account for 60% Dubai Apartment Sales,” Business Day, October 31, 2014, https://businessday.ng/exclusives/article/nigerians-account-for-60-dubai-apartment-sales/.
27 Tom Arnold, “Dubai Property Draws Nigerians,” National (UAE), July 16, 2012, https://www.thenational.ae/business/property/dubai-property-draws-nigerians-1.394019.
28 Matthew Page, “Dubai Property: An Oasis for Nigeria’s Corrupt Political Elites,” Carnegie Endowment for International Peace, April 11, 2020, https://carnegieendowment.org/2020/03/19/dubai-property-oasis-for-nigeria-s-corrupt-political-elites-pub-81306.
29 “Cabinet Resolution No. 38 of 2014 Concerning the Executive Regulation of Federal Law No.4 of 2002 Concerning Anti-Money Laundering and Combating Terrorism Financing.”
30 FATF evaluators reported that “AML/CFT regulation or guidance had been issued for DNFBPs operating in the commercial FTZs [outside the DIFC] at the time of the evaluation mission. See “Mutual Evaluation Report: Anti-Money Laundering and Combating the Financing of Terrorism—United Arab Emirates,” paragraph 514.
31 “Federal Decree-law No. (20) of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations.”
32 Shedrofsky, “Real Estate.”
33 “Mutual Evaluation Report: Anti-Money Laundering and Combating the Financing of Terrorism—United Arab Emirates,” paragraph 47; and “Anti-Money Laundering and Counter-Terrorist Financing Measures: United Arab Emirates Mutual Evaluation Report,” 6.
34 “Anti-Money Laundering and Counter-Terrorist Financing Measures: United Arab Emirates Mutual Evaluation Report,” 28.
35 Ibid., 28.