Financial Sanctions Evasion Methods on the Rise in United Arab Emirates
Sanctions evasion has become a growing concern globally, with various methods being used to circumvent restrictions imposed by governments and international organizations. The United Arab Emirates (UAE) has emerged as a key location for sanctions evaders seeking to hide their assets.
Sanctions Evasion Methods Used in UAE
Ownership Obfuscation
One common method used by sanctioned individuals and entities is ownership obfuscation. This involves creating complex webs of shell companies, family members, and intermediaries to conceal their assets. In May 2022, two businessmen were charged with money laundering and facilitating sanctions evasion in relation to a luxury yacht owned by a sanctioned Russian oligarch.
Transferring Funds through Sanctions-Neutral Jurisdictions
Another tactic used by evaders is to transfer funds through sanctions-neutral jurisdictions. The UAE has become a popular destination for this type of activity, with at least 38 businessmen or officials linked to Russian President Vladimir Putin owning dozens of properties in Dubai valued at over $314 million. Six of those owners are sanctioned by the US or EU.
Convertible Virtual Currency (CVC) Usage
The use of convertible virtual currency (CVC) is also becoming increasingly popular among sanctions evaders. Iran and North Korea have used CVC to evade sanctions and engage in malicious cyber activities. In October 2022, a group of Russian nationals were charged with sanctions and export controls evasion for using cryptocurrency to purchase sensitive US military technology.
Trade-Based Sanctions Evasion
Trade-based sanctions evasion is another method used by bad actors. This involves fabricating documentation about goods or shipping routes to move money or goods without raising suspicion. Countries such as Kazakhstan, Turkey, Uzbekistan, China, and India are often used as transshipment points for restricted or controlled exports destined for Russia or Belarus.
Combating Sanctions Evasion
To combat these evasive methods, regulators in the west are increasingly focused on sanctions evasion as “sanctions fatigue” sets in. Businesses are being reminded of the need to build robust due diligence processes to identify and mitigate risks related to Russian elites and their enablers.
- The Financial Crimes Enforcement Network (FinCEN) has issued a warning that sanctioned persons and their facilitators may attempt to use virtual currency and anonymizing tools to evade US sanctions.
- FinCen has identified several red flag indicators, including transactions connected to CVC addresses listed on OFAC’s Specially Designated Nationals List.
Future Expectations
As the geopolitical situation in the region continues to escalate, it is expected that regulators will continue to put pressure on the Russian economy, targeting more associates and family members of oligarchs and Putin’s inner circles who may already be sanctioned. In light of this, businesses must build sophisticated and holistic due diligence processes on sanctions screening to stay ahead of sanctions evaders.