Both the EU and US are urging the UAE to more strictly enforce compliance and root out sanctions-evading practices amid the large inflows of Russian expats and capital since the start of the war
Though the recent developments aim to increase scrutiny on business activity in the UAE, they are unlikely to strike investor and private confidence significantly. While pressure is heating up on potentially non-conventional activities, it is business as usual for the vast majority of the private sector. In a downside scenario where sanctions are imposed, they are likely to be limited to a few, specific high-net-wealth individuals linked to Russian President Vladimir Putin–adjacent oligarchs and new businesses (registered within the past year) facilitating sanctions evasion trade. Expect the UAE to provide more transparency on exports and opaque business activities. Expat inflows remain largely unaffected, and foreign investment attractiveness is buoyant. MNCs are advised to review their external partners to ensure that (in the unlikely event) they aren’t dealing with any potentially risky entities and individuals.
Overview
The UAE has seen large inflows of investments and expats pouring in since the start of the war in Ukraine. The country has also witnessed strong economic recovery since 2022, as it emerged strongly out of the pandemic. The private sector drove a significant portion of the growth, and the UAE has capitalized on it by further incentivizing businesses and expats to relocate and expand investments in the country. However, the West is growingly concerned that some of the new business activity may be disguising practices that are aiding Russia in evading sanctions.
- What is the context behind the sanctions risk with the UAE?
- The UAE comes into the spotlight as the Western alliance (the US and EU) crack down on sanctions enforcement against Russia and affiliated bodies. Recent rhetoric highlighted the UAE among “countries of focus.” The UAE has long adopted a neutral foreign policy, independent of global powers, regarding most headlining conflicts—including the war in Ukraine. Additionally, since the invasion of Ukraine, the UAE has become a destination for Russian expats and households relocating from around the world. This has triggered concerns from the West over potential risks for sanctions evasion and business activity opacity, which may be playing favorably to Russian-sanctioned entities. Recent developments such as the rare licensing provision to Russia’s MTS Bank and an increase in trade with Russia raised urgency from the West to communicate the importance of compliance with sanctions within the UAE.
- The US and Europe want to ensure the same risks and concerns do not resurface in a scenario where tensions with China escalate. The UAE is unlikely to change its foreign policy in the wake of such developments, but instead would seek to improve its balancing tactics, ensuring little risk emerges from such conflicts.
- What is being asked of the UAE?
- The Western alliance is asking for more proactive participation from the UAE in rooting out sanctions-evading activities. This includes enforcing sanctions on private businesses that are supporting and facilitating transactions or trade with Russian entities from within the UAE. Additionally, Europe has requested more information on what the UAE actually exports to Russia, particularly aimed at reducing exports of strategic goods used on the battlefield.
- It is important to note that the risk of sanctions for the UAE would be aimed at businesses and individuals in the private sector specifically supporting sanctions evasion (akin to the clampdown on firms aiding sanctions evasion in Iran).
Our View
Sanctioning a public Emirati body or entity or imposing any broad economic sanctions on the UAE remains out of the question. Instead, any risk of sanctions for the UAE would be aimed at businesses and individuals in the private sector specifically supporting sanctions evasion (akin to the clampdown on firms aiding sanctions evasion in Iran). This is already part of the wider UAE commitment to stem out financial crime, having stepped up efforts in recent years to comply with Financial Action Task Force (FATF) requirements. FrontierView also expects the UAE to take some steps in increasing trade transparency.
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