UAE aims to stop dirty money
traffic By Meena Janardhan
DUBAI - As the United Arab Emirates and
other Persian Gulf countries move ahead with
economic diversification and development supported
by high oil prices, there are serious concerns
about slack auditing controls and inadequate
systems to check money-laundering.
The
Gulf region has been fighting money-laundering
since the attacks on the United States on
September 11, 2001. In 2002, the UAE passed an
anti-money-laundering law, imposed restrictions on
transfers and made the maximum penalty for
money-laundering seven years in jail and a 10
million dirham (US$2.72
million) fine.
In
major follow-up action, during the first week of
March, the government ordered local banks to
freeze the accounts of 21 individuals and nine
businesses suspected of involvement in
money-laundering and dealing in suspect money.
The governor of the UAE Central Bank,
Sultan Nasser al-Suweidi, told the press that the
money involved came from drug sales in Western
countries. ''Money was pushed into European banks
and came here through front companies,'' he said.
A police statement said a group involving
Asian, European and US citizens misused financial
institutions, ''assisted by some staff to conceal
such crimes''.
According to Eckart Woertz,
a UAE-based economist, the initial thirst for
development gave countries in the region little
time to verify all the capital inflow, which
encouraged money-laundering. ''But after achieving
remarkable success in a short period of time, they
are now realizing the need to adopt corrective
steps,'' he said.
''International pressure
and the need to maintain a clean reputation in a
highly competitive market is forcing the countries
in the region to crack down on dirty money. The
reigning trend is towards more compliance with
international standards,'' Woertz said.
Dubai, one of the seven emirates in the
UAE, has long been used by currency traders from
the South Asian subcontinent, among others, as a
transit point. While some move currency to
legalize their clients' unaccounted money, others
use the money for trading, letters of credit and
money-laundering. Millions of dollars are known to
be transferred electronically between operators in
Singapore, Dubai and Hong Kong for these purposes.
This multi-purpose system, popularly
referred to as hawala ("in possession" in
the Urdu language), leaves no paper trail because
there are no accounts, checks, signatures or
automated teller machines involved. Because
hawala works faster and cheaper than
conventional systems and reaches places where even
post offices do not exist, many low-income workers
in the Gulf use it to make their remittances.
However, since this informal system
assures anonymity, it is often misused by
deceitful business people who wish to evade taxes,
engage in money-laundering or hide the details
regarding the source of their funds or their
owners.
The system attracted attention
when the United States pointed out that chief
terror suspect Osama bin Laden's al-Qaeda network
transferred funds through hawala and cited
the UAE as a transit point from where most of the
money spent by terrorists for the September 11
operations was reportedly transferred.
A
report in the Washington Post in November 2001,
just as the US and its allies began the invasion
of Afghanistan, said Taliban and al-Qaeda networks
had sent couriers with bars of gold and bundles of
dollars into Pakistan. A large part of this money
was then transferred from Pakistan to the Gulf
through hawala and subsequently found its
way to other parts of the world.
Dubai's
reputation as a "free zone" also encouraged the
father of Pakistan's nuclear program, Abdul Qadeer
Khan, to supply Pakistani nuclear technology to
Iran, Libya and North Korea with the help of a
Dubai-registered company.
At present,
money-launderers are said to be focusing on gold,
diamond and property trade - all booming sectors
in Dubai. Hence, apart from the banks, the Dubai
Multi-Commodities Center (DMCC) has announced that
it will step up its fight against money-laundering
by ensuring transparent business in gems and other
precious metals. DMCC is expected soon to start
training programs for its staff on the
''identification, verification and
know-your-customer'' measures.
But the UAE
Central Bank is aware of the futility of banning
the hawala system. ''The system can be used
by those who have legitimate reasons for doing so
and those who seek to abuse the system for illegal
transactions will be identified and stopped by the
authorities,'' the bank said.
The efforts
to crack down on hawala operators alone
will not help, Woertz said. ''Today's banking
system has enough loopholes for manipulators to
channel unaccounted money and indulge in
money-laundering activities,'' he said, implying
that the practice cannot be rooted out completely.
In a volatile region, keeping tabs on who
is coming into the country is one of the greatest
challenges facing the UAE today, the former
president of Interpol, Norman Inkster, told the
UAE-based English-language newspaper Gulf News on
March 7.
''When you look out at this sea
of construction, you would like to know who owns
it all. Right now is the best time to boost levels
of preparedness for combating security risks,'' he
was quoted as saying by the newspaper.
''Money-launderers are no longer the criminals
they used to be - today they are astute business
people and use the banking system as a way of
moving money.''
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