As the countries of the Middle East strive to diversify their economies and attract foreign investment, they have become intertwined in the global flow of goods and services, beyond just oil and gas production. However, certain jurisdictions in the region have also become a nexus for streams of illicit cash, dual use goods, and minerals such as gold. Following the Russian invasion of Ukraine in 2022, a substantial market has been created to help shield the assets of individuals targeted by Western sanctions and to evade restrictions placed on the exportation of restricted dual use goods to Russia. Similarly, civil war outbreak in Sudan has made the gold produced in the country vital for funding operations of the two warring factions. The flow of illicit cash, goods, and gold into the MENA region necessitates stronger due diligence practices among companies working in the area, or who seek to enter the market.
The Cash: What are the Blind Spots in Dubai’s Real Estate Market?
Following the sharing of leaked documents from the Dubai Land Office with investigative journalists, substantial property holdings in the Emirate were found to be linked to numerous foreign government officials, leaders of organized criminal groups, as well as individuals who are under international sanctions. Reporting on the leaked data out of the UAE has raised concerns in law enforcement and regulatory circles over corporate secrecy and the overall veracity of the country’s due diligence process as Dubai appears to be an attractive destination for those seeking to hide their assets. In 2022, foreign nationals owned $121 billion in Dubai real estate, or 43% of all available properties in the Emirate. Mirroring concerns previously raised regarding London; the significant scale of foreign property ownership represents a serious money laundering vulnerability.
The leaked records indicated that, following the February 2022 invasion of Ukraine, Russian property holdings soared more than tenfold in Dubai. Russian government officials, sanctioned individuals, and others fleeing the conflict invested as much as $6.3 billion in Dubai residential properties between 2020 to 2024. Notable property holders reportedly include the former Prime Minister of the internationally unrecognized Donetsk People’s Republic, and Russian State Duma member, Alexander Borodai, who records suggest owns an apartment in Dubai which he bought for over $400,000 in 2015. Borodai has been sanctioned by the U.S., E.U., U.K., Swiss, Canadian, and Australian governments since 2014.
Sanctions evasions concerns regarding the Dubai real estate market also extend to individuals affiliated with the Syrian government of President Bashar Al Assad who apparently own prime properties in the Emirate. Samer Foz, a Syrian businessman with close ties to the Al Assad regime who has been sanctioned by the U.S. and E.U., owns three residential properties in Dubai valued between $576,000 to $637,000, respectively. Foz’s brother Amer also appeared in records as the owner of a villa in the Jumeriah Palm worth $17 million. Rami Makhlouf, a prominent businessman and cousin of Al Assad, reportedly owns numerous properties throughout Dubai and has earned significant sums in rental income, despite being the subject of comprehensive international sanctions.
Notorious criminal elements such as members of the internationally wanted, Irish Kinahan organized crime family live openly in Dubai and own properties in the Emirate’s most exclusive communities. Alleged cocaine trafficker and boxing promoter Daniel Kinahan, who has outstanding warrants for his arrest in the U.S., personally owns a 115-square-meter office in a high-end Dubai office building. Kinahan’s wife Caoihme Robinson also bought a 20,569-square-foot villa in Dubai for $2.1 million in 2023, while she previously bought and sold numerous other valuable properties in the Emirate between 2018 to 2022.
Illicit cash flows from sanctioned individuals, criminals, and tax evaders necessitate strong diligence and KYC controls for financial services and real estate companies operating in Dubai. When buying or selling property in Dubai understanding who really is on the other side of the table in business dealings is crucial, as abiding only by the minimum local regulatory requirements may not identify potential bad actors ahead of time.
The Goods: What are the Risks Facing Dual-use Goods Manufacturers and Exporters?
Producers of dual use components such as microprocessors and aviation components face serious compliance challenges from the diversion of dual-use goods to Russia in violation of multinational sanctions. Since Russia’s February 2022 invasion of Ukraine, Western nations have imposed strict restrictions on the flow of various components necessary for weapons production. Malicious actors in the MENA region have used lax export and sanctions enforcement in places like Turkey and the UAE to profit from the Russian defense sector’s ever-growing demand for sophisticated components it cannot produce internally.
Turkey has emerged as a primary location for the redirection of dual use goods, despite its membership in NATO. During the first nine months of 2023, Turkey reported $158 million in exports of 45 types of dual-use goods to Russia and five other former Soviet states. This was three times the rate seen in 2022. These goods are listed by the U.S. Treasury Department as “high priority” items for Russian military needs, such as the production of cruise missiles, drones, and helicopters. Such goods have also been exported, or diverted, to Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan and Uzbekistan where they are often passed on to Russian firms. Numerous Turkish shipping and trading companies have been sanctioned by the U.S. Treasury Department for violating dual-use export restrictions targeting Russia.
Additionally, the UAE is also under scrutiny as a hotspot for the redirection of dual use goods to Russia. Companies operating within the UAE export computer chips, electronics and machinery to Russia using the corporate secrecy afforded by the various economic free zones in both Dubai and Abu Dhabi. These free zones allow individuals to obfuscate the ultimate ownership of companies involved in the diversion of dual-use goods abroad. The use of the Emirates as a junction in the flow of critical defense components to Russia has drawn the attention of the U.S. Treasury Department. In April 2023, the US imposed sanctions on two UAE-based companies, for exporting semiconductors and drones to Russia. This was followed by the imposition of sanctions against eight other Emirati companies for similar alleged violations in November 2023.
As those seeking to evade sanctions continue to use the MENA region as a conduit to divert dual-use components to Russia, manufacturers of such goods must exercise proper due diligence to prevent their products from ending up in Russian military production lines. Enhanced supply chain screening and other methods are crucial for companies seeking to do business in the region in light of stronger sanctions enforcement by the U.S. and other countries.
The Gold: What is the Path of Conflict-traced Gold in the MENA Region?
Flows of illicit cash and the illegal re-exportation of dual use goods are serious risks for firms in the MENA region, but another blind spot is the flow of illicit gold from Africa to the region. Swiss NGO Swissaid found in a recent investigation that of the 435 metric tons, or $31 billion, of undeclared gold smuggled out of Africa throughout 2022, 93% made its way to gold markets in the UAE. Various companies operating in the country process the gold which is then resold to other countries like Switzerland. Swiss legislation only recognizes the UAE as the gold’s country of origin because it was processed there, even though it came from mostly artisanal mines in various African states. Some of this gold is used to fund conflicts in the region such as in Sudan. The U.S. Treasury Department has sanctioned numerous Sudanese and UAE companies for their alleged involvement in illegal gold mining and smuggling to fund both sides in the civil war which has killed at least 15,000 and displaced more than 8.2 million since the start of hostilities in April 2023. In June 2024, OFAC froze the assets of seven Emirati jewelry and trading companies pending an investigation regarding their involvement in sanctions violations. The outflows of illicit gold to countries like the UAE represents risks for both companies interested in only sourcing conflict-free materials as well as those simply seeking to steer clear of sanctioned companies and individuals.
Conclusion: What does this all mean for companies in the region?
While many countries in the MENA region have made great efforts to present themselves as prime locations for foreign investment and trade, lapses in regulatory enforcement and the lack of transparency for corporate records necessitates higher standards of due diligence. Businesses operating in the region must identify who, exactly, it is they are doing business and their potential relationships with sanctioned individuals or companies. The risks for businesses in the MENA region encompass a broad swathe of sectors. The heightened sanctions environment caused by Russia’s invasion of Ukraine and the outbreak of war in Sudan has led bad actors to seek jurisdictions that have lax enforcement or offer a degree of anonymity through corporate secrecy. Without enhanced due diligence, companies operating in the region may find themselves caught in the reputational fallout.
Trevor Mace, Senior Associate, Integrity Risk International is a Washington, D.C.-based political risk and due diligence professional specializing in the Arabic-speaking world. He has extensive experience living and studying in the Persian Gulf region as well as a graduate degree in Near and Middle Eastern Studies from The George Washington University. Trevor is interested in issues relating to regional security, political economy, and nation building in the Persian Gulf and the wider Middle East region.
Contributor Lea George, Intern, Integrity Risk International, is a Washington, D.C.-based intern working in Spanish and French research at Integrity Risk International. She is a rising senior at the School of Foreign Service, Georgetown University. Majoring in International Politics with a concentration in security, Lea is particularly interested in themes relating to geopolitical risk, military strategy and global diplomacy.
