The United Arab Emirates is hoping that, among other benefits, the agreement to normalize relations between Israel and the UAE will bring succour to the Gulf nation’s economy, hit hard by declining oil revenues and the coronavirus pandemic.
Indeed, Emirati Economy Minister Abdulla bin Touq Al-Mari is expecting as much as $550 million in new business deals for the UAE as a result of the peace deal, including through joint Israel-UAE solar power projects as the country is trying to reduce its dependence on the oil sector.
Al-Mari has good reason to be hopeful that the deal may usher in a fresh wave of prosperity for the Emirates and Israel alike. With the agreement, the UAE has certainly created many new economic opportunities and diversified its trade partners away from the Arab world, not to mention currying favor with Washington.
At the same time, the recent FinCEN leaks have only confirmed that the UAE still has significant shortcomings regarding the robustness of its financial good governance which could serve as a dealbreaker for potential partners in Israel.
Indeed, much of the Israel-UAE accord’s long-term success will depend on the Emirates’ willingness to genuinely reform its financial and legal frameworks so that it can become a global financial hub in the post-oil era without allowing corruption and illicit funds to besmirch its reputation.
Over the past two decades, the UAE has enjoyed spectacular growth. Massive hydrocarbon wealth and pragmatic policies enabled a rapid transformation from a small and frugal nation into a regional champion boasting futuristic urban landscapes, successfully attracting talent from all over the world and serving as a gateway for trade, travel and investment from and to Asia, Africa and the Middle East.
This metamorphosis has left the UAE within striking distance of achieving its dream of emerging as one of the globe’s leading financial hubs. As the recent FinCEN leaks have illustrated, however, the UAE’s booming business sphere has taken off in part due to a willingness to turn a blind eye to problematic financial flows.
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This is exactly the sort of inaction which the Gulf nation needs to crack down on to realize its aspirations of becoming an international commercial hub and take full advantage of normalized relations with Israel.
With the recent decline in hydrocarbon revenues potentially the canary in the coal mine heralding the last days of the oil era, the Emirates can no longer countenance the contradictions within its judicial system and its tolerance to corrupt capital which continue to raise questions among investors, transnational corporations and governments worldwide.
If the FinCEN leaks showcased the weaknesses in the UAE’s financial regulation, one extremely high-profile case has put the Emirates’ legal system under a similar international spotlight.
In August of this year, Dubai’s Court of Cassation — the emirate’s highest court — rejected an attempt by Tatiana Akhmedova, the ex-wife of Russian billionaire Farkhad Akhmedov, to seize her ex-husband’s superyacht MV Luna as a partial payment for the £453 million divorce bill which London’s High Court determined she is owed.
While this may seem like a trivial domestic affair, the key point is that in the course of the proceedings the Dubai court refused to respect a UK court decision – a worrying precedent for potential Israeli investors.
Indeed, the UK court ordered the whopping divorce payout, roughly 40 percent of Akhmedov’s fortune, back in 2016, but the billionaire failed to pay, prompting the court to grant a worldwide freeze of assets order under which MV Luna was impounded in Dubai in 2018. The Russian tycoon apparently exploited the fact that Dubai courts are rooted in Islamic law (sharia) to secure a favourable decision about his luxurious vessel.
Even though the outward-looking Dubai International Financial Centre courts which initially handled the Akhmedov case were inclined to respect the UK court order, once the proceedings were moved to family courts in Dubai, these refused to enforce the English court decision that Tatiana Akhmedova was entitled to her share of her ex-husband’s riches because sharia law does not share the Western principle of "shared assets" between spouses.
If the Akhmedov case has revealed loopholes within the UAE’s judicial system that might have far-reaching consequences, it’s far from the first sign that the Emirates’ legal armature is insufficient to support its dreams of becoming a global financial hub.
Even before the FinCEN files revealed that the UAE financial system processed some $142 million in suspicious transactions, there were reports that a coterie of dubious individuals, from Indian mobster Dawood Ibrahim to Angolan businesswoman Isabel dos Santos, under criminal investigation in Angola and whose assets are frozen there, were using Dubai as a base to launder funds or complete transactions.
As a recent report from the Carnegie Endowment spelled out, "corruption has become […] a central element of Dubai’s political economy." The Emirates’ patchwork of opaque company registries has established it as a hub for global corruption.
A number of the most serious money laundering and embezzlement cases of the past decade, from 1MDB to the Russian Laundromat, have all seen Emirati shell companies play important roles.
What’s more, this vulnerability to corruption and money laundering has been exacerbated by the very flaws in the judicial system which were recently laid bare by the Akhmedov case.
The UAE’s shaky legal system complicates international law enforcement cooperation with Emirati authorities, including the Financial Action Task Force (FATF) which warned the UAE it risks ending up blacklisted unless it makes more effort to avoid "attracting funds with links to crime and terror."
The peace accord with Israel has given the UAE an important step up in revitalising its economy amidst the coronavirus pandemic and slumping oil prices.
The Emirates will be unable to fully take advantage of the opportunity, however, unless it commits to genuinely reforming its judicial and financial framework so that it becomes a more dependable partner for its international allies.
Dmitriy Frolovskiy is a political analyst and independent journalist on policy and strategy in the Middle East and Central Asia and is based in Moscow