A top US Treasury official arrived in the United Arab Emirates (UAE) on Monday to warn the regional business hub that helping Moscow evade sanctions wouldn’t be without consequences.
Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson, met with senior government officials from several UAE ministries, where he discussed “rooting out evasion of US sanctions, particularly on Russia and Iran,” as well as the US’ “commitment to take additional actions against those evading or facilitating the evasion of sanctions,” according to a statement.
The US Treasury earlier warned that “individuals and institutions operating in permissive jurisdictions,” including in the UAE and Turkey, risk losing access to G7 markets for doing business with sanctioned entities or not conducting appropriate due diligence against illicit finance.
G7 countries include Canada, France, Germany, Italy, Japan, the UK and the US.
The Gulf state has walked a tightrope between Washington and Moscow since the start of the Ukraine war last February, opting to remain neutral as it sees the world order moving toward multi polarity.
The US has repeatedly called on its Middle Eastern allies to support its efforts in slowing the Russian war machine, but a public threat of consequences against a close ally like the UAE is rare.
“What we’re seeing now is a bit more about messaging to the region and indicating the seriousness of these sanctions,” said Justine Walker, global head of sanctions, compliance and risk at the Association of Certified Anti-Money Laundering Specialists (ACAMS). The US is trying to say, “If you are going to do business with Russia, then you do business with Russia but you don’t do business with us,” she told CNN.
Since the war, the UAE has become the top Arab destination for Russian investors, with the Gulf state’s real estate market surging as Russians flock into Dubai and Abu Dhabi.
The US has previously sanctioned entities and individuals in the UAE for sanctions evasion. More recently, it sanctioned two UAE-based air transportation firms for collaborating with a sanctioned Iranian firm to transport Iranian UAVs (unmanned aerial vehicles), personnel, and related equipment from Iran to Russia.
The UAE’s foreign ministry didn’t respond to CNN’s request for comment.
Russia is already under a barrage of sanctions from the US, along with the UK and the European Union. But most of those are primary sanctions, which only apply within the territory of the sanctioning country.
For instance, if a Russian bank is under primary US sanctions, it cannot operate in a US market. The bank can still, however, work with a UAE or Turkish bank.
Sanctioned countries often stay afloat by finding loopholes to conduct business outside the US. Washington plugs that loophole by imposing secondary sanctions, which punish parties conducting commercial activities with the sanctioned entities – even when the activity takes place outside US territory.
Such sanctions force countries and entities to choose between the sanctioned nation or the US, but not both.
A senior US official told CNN that the US “will continue to use our authorities and all tools at our disposal to crack down on sanctions evasion that supports Putin’s war machine.”
Asked if the US is effectively imposing secondary sanctions on Russia by asking the UAE to crack down on business with the country, the official said “no.”
The US sees Russia circumventing sanctions by moving trade through the Middle East, as well as trading directly with the region, said Walker.
As the US dominates the global economy, secondary sanctions have often been effective in causing economic damage to the sanctioned country. But Walker sees their imposition in this case as unlikely, noting that it would be “serious diplomatic escalation in tensions” between the UAE and the US.
The UAE has invested tens of billions of dollars in the US economy, mostly through its sovereign wealth funds. In 2020, investors from the UAE accounted for about $45 billion of investment flows to the US, according to Abu Dhabi’s state-backed The National newspaper. That’s a 65% rise from the previous year.
Bilateral trade between the US and the UAE exceeded $23.03 billion in 2021. The US’ sixth largest trade surplus globally is with the UAE, and the close economic partnership between the two states supports more than 120,000 American jobs, according to the UAE embassy in Washington, DC.
“We are doing a lot of services for the Americans. They should be grateful to us rather than come up with this language,” said Abdulkhaleq Abdulla, a UAE political science professor, referring to the US’ warning about G7 markets. “American sanctions are American sanctions. They are not UN sanctions and countries can pick and choose. We have dealings with 190 different countries, and Russia is one of them.”
Abdulla says the US Treasury concerns are not new and that Washington knows “very well that we (the UAE) have healthy, ongoing conversations on everything, including these sanctions.”
“The UAE is as vigilant as any country, monitoring every single dollar that comes in, every single transaction – be it Russian or otherwise,” Abdulla told CNN, adding that the UAE “should not be singled out” for having an open financial market.
The US official told CNN that while Washington is “focused on some critical issues” it sees in the UAE and Turkey, the two countries “are not being singled out.”
“This is a conversation we are having with many partners and other countries around the globe,” added the official.
Karen Young, senior research scholar at Columbia’s Center on Global Energy Policy, said the US is unlikely to publicly chastise the UAE due to the two countries’ cooperation on other files such as relations with Israel and energy, but added that the economic benefit to the UAE from the surge in business from Russians is nevertheless too important to jeopardize.