Kenneth Rijock says that if he were still in his old line of business, Dubai would be a good place to work.
Security is tight and violent crime almost nonexistent. But it is other features that make the emirate attractive, he says — notably its loosely regulated free trade zones, thriving ports, freewheeling property sector and permissive business environment.
Mr. Rijock, 62, an American military veteran and a former lawyer, spent years moving around bundles of cash in suitcases across America on behalf of drug kingpins. His criminal career ended with a two-year prison sentence in the early 1990s. Upon release from prison, he found himself to be a wanted man, only this time by law enforcement agencies wanting to know the tricks of the trade.
Mr. Rijock now advises banks and governments on financial crime for the London consulting firm World-Check. This role brought him to Dubai last month to speak at a conference on financial crime.
“Dubai was not yet an international banking center when I was engaged in active money laundering,” he said. “If I was in that business in 2010, I would definitely be there. Dubai is at the junction of Asia, Europe and Africa, and with a global movement of funds and public perception of bank secrecy, it becomes very attractive for money launderers.”
But the authorities in Dubai played down the extent of money laundering here and said there were laws to fight it.
In 2002, when Dubai’s property sector was opened up to foreign buyers, an international crime threat assessment, prepared for the U.S. government by the Federation of American Scientists, drew on published news reports to conclude that “money-laundering activity in the U.A.E. may total $1 billion annually.”
Businesspeople in Dubai, and lawyers who handled cases, say this figure was very likely exceeded as the property boom took off, before shrinking at the onset of the financial crisis in October 2008, as property prices collapsed.
“During the boom, Dubai was a good place for money laundering, through property, land sales and the big projects” said Hamdan Abdullah al-Sayyah, a managing partner at Al Sayyah Advocates and Legal Consultants in Dubai.
Mr. Sayyah cited a case he dealt with, in which a person claiming to be a businessman filtered $10 million from Russia into a Dubai land purchase deal.
“The money arrived in small transactions, so the bank wouldn’t be suspicious, and he had a sales contract to show the bank,” Mr. Sayyah said. “At that time, nobody was looking into it because the country needed investors to come in.”
Property consultants recalled that people visited their offices with cash in hand, looking for real estate to buy.
“We told them we were unable to accept it and said they would have to legitimize it by opening a bank account,” said Ron Hinchey of Cluttons, an international property investment consulting firm in Dubai. “I think the whole industry — not just property — maybe unfairly relied on the banks to be the first line of defense.”
Christopher M. Davidson, an analyst of Middle East politics and deputy head of the School of Government and International Affairs at Durham University, said the consensus of Western intelligence agencies pointed to cartels operating in India, Iran and Pakistan as the main sources of illicit cash.
“Money laundering has for many years been a component of Dubai’s informal economy,” Mr. Davidson said, “but this is more a byproduct of Dubai being the region’s most laissez-faire free port.”
Dubai alone is home to 16 free trade zones offering tax exemptions, loose regulation and the possibility of 100 percent foreign ownership of businesses, he noted, while other member states of the United Arab Emirates are home to another 18, with more in preparation.
A 2008 study of the Emirates by the Financial Action Task Force, the intergovernmental organization that coordinates and monitors efforts to block money laundering, highlighted the low level of suspicious transaction reports filed in a country where so much wealth existed.
The report singled out Dubai as particularly vulnerable to money-laundering and terrorist-financing activities because of its exponential growth in migrant population, investment and infrastructure since 2001.
A “dramatic improvement and formalization of communication channels is absolutely imperative,” it concluded.
Even though the property market crash has, as a side effect, plugged one avenue for money launderers, big cases still linger. Eisa Bin Haider, a lawyer and managing partner at Bin Haider Advocates in Dubai, who has worked on several large money-laundering cases, said he was preparing for one expected to begin this month in which eight suspects are accused of bringing in $14.9 billion of illicit cash from sources in Germany. He declined to give more details.
In February, the Anti-Money Laundering and Suspicious Cases Unit at the Emirates central bank said 1,729 cases of questionable money movements were reported in 2009, an increase of 42 percent from 1,170 in the previous year. Abdul Rahim Al Awadi, who heads the unit, said at a news conference at the time that the rise reflected the “commitment by the banking sector to tackling crime.”
While property is typically identified as the main route for cleaning illicit cash, small businesses are coming under increased scrutiny, experts say.
“Foreign businessmen just need to find a local partner, who takes a 51 percent stake in the company,” Mr. Davidson said, “and they can set up a business in Dubai with relatively few checks on where their capital originated from.”
Dubai is also sensitive to accusations of money laundering, Mr. Davidson added, because it is still viewed with suspicion by the United States and other Western powers for its role as a staging point for money wired to hijackers in the terrorist attacks of Sept. 11, 2001.
In 2002, Dubai passed a law stipulating, among other things, that all foreigners arriving in the United Arab Emirates must declare cash exceeding 40,000 dirhams, or about $11,000.
Funds declared by inbound passengers to customs officers at Dubai International Airport during the first half of this year reached $6.4 billion, according to figures from the passengers’ operation unit at the airport.
In 2008, the central bank also tightened rules on money transfers. Financial institutions must now register the details of anyone wiring or changing as little as 2,000 dirhams, or about $540.
Meanwhile, a series of high-profile arrests have been made, including the detention of James Ibori, a former governor of an oil-rich state in Nigeria, who was held in Dubai in May on suspicion of laundering hundreds of millions of dollars during his eight years in office.
“We have good staff in the Dubai police and good detectives — we are ready for any crime,” said Essam Issa al-Humaidan, attorney general in Dubai. “We have the laws here. We do have money laundering here but not too much. This is not only a local crime; it’s international.”
The Dubai Financial Services Authority, which regulates the Dubai International Financial Center, a sprawling financial free zone created in 2004 and now home to 745 companies, has also stepped up systems which have enabled it to better identify suspicious transactions as well as cases of fraud.
Companies setting up in the center have to undergo stringent background checks, which can take up to six months and cover full investigations into their ownership and associated businesses.
Bryan Stirewalt, the managing director of supervision at the authority, Dubai Financial Services Authority said that money laundering was a big issue in the sense that if a major incident was to emerge at the center, it could have a catastrophic effect on Dubai’s reputation as it tries to recover from the financial crisis.
“A money-laundering event here would be magnified by the media: one, because we’re new and two, because the region we’re in is the subject of a lot of focus,” he said.
“So we take it very seriously because we do consider it to be a big risk.”
Dubai has also been tough on cracking down on fraud, another characteristic of the property boom.
More than 30 executives from property and financial companies, mainly owned fully or partly by the Dubai Government, were arrested on allegations of fraud, in a massive anti-corruption sweep launched in 2008.
“Most of the cases involved salaried staff taking bribes or commission on property or land sales,” said Mr. Sayyah. “They were living the executive lifestyle and everyone wanted more money.”
While reports of major arrests petered off by the middle of 2009, files from Dubai’s Public Prosecution office confirmed that the operation had, up to that point, identified $950 million of money allegedly derived from theft or bribes.
According to figures from the Public Prosecution office, there were 398 fraud and swindling cases filed in 2008. This figure dropped to just 74 last year, a decline that experts say may reflect a choice by many accused people to repay the Government before their cases reached court.
“The government doesn’t want to give the image that all staff are fraudulent,” Mr. Sayyah said. “They wanted people to pay without making problems for everyone else.They have to build trust for investors. So the 2008 sweep was a punishment and a signal to say ‘be careful, the government will catch you at any time.”’
Still, while high profile cases have largely been dealt with, fraud attempts by those working in lower-level positions within companies at the financial center are creeping up, according to Mr Stirewalt. “It is more typical of a down economy,” he said.
“It’s things like insurance fraud, internal fraud or falsifying documents,” he said. When people are in danger of losing their job “maybe they’ll take a chance that they would not have taken thinking they’re a long-term employee.”
As part of the campaign to raise legal standards, the Dubai Judicial Institute graduated 53 judges, public prosecutors and military prosecutors in early November — the largest graduation ceremony in the history of the institute.
“Because there are so many cases in the queue you need a number of judges to play a greater role in solving and reducing them,” said Jamal Hussein Alsumaiti, the institute’s director general. “Corruption is not from today or yesterday, it’s from so many years. But it’s very difficult to expose every case.”
As Dubai strives to revive investor confidence, Mr. Alsumaiti pointed to incidents such as the authorities’ success in October in intercepting two explosive packages, which were planted on a cargo plane bound for Chicago from Yemen.
“We have a strong security, police and judicial system. We also have strong judicial authority as well. So it will definitely help in getting Dubai back on track,” he said.