House of Cards: Money Laundering in Crypto and Real Estate in the UAE

Thunder only happens when it’s raining, and players only love you when they’re playing. Fleetwood Mac could not have been more right, and even more precise when it comes to the recent money laundering trend in the UAE. Payment agents and real estate brokers are cashing in on the unreported crypto funds of investors, making them the darlings of the UAE FIU, who are trying to locate these facilitators.

The overwhelming criticism towards the regulators in light of the recent BBC expose has shed light on one form of fraud that was conducted in the European Union and the United Kingdom. Yet, a similar method of money laundering has been highlighted by the UAE Ministry of Economics, which has made the UAE Government very wary due to the FATF gray listing a year ago.

The #UAE has imposed a monetary penalty of Dh115 million ($31.3M) in the first quarter (Q1) of 2023 to combat #financial fraud, such as money laundering and terrorism financing. For more information click here: https://t.co/ZdIunxdcmUpic.twitter.com/WIEEGL109E

— Shufti Pro (@Shufti_Pro) May 2, 2023

As part of the real estate boom in the golden city of Dubai and the marble city of Abu Dhabi, many investors wish to catch the wave and purchase property in the area. Many of these investors hold a significant amount of cryptocurrencies, hoping to liquidize their virtual assets into tangibles. The real estate brokerage market in the UAE has picked up on this trend, and now many brokerages are following this route and allowing access to purchase apartments, housing, and office space in the UAE, using cryptocurrencies.

The problem arises when the main actors of the transaction: the buyers, real estate brokers, and liquidity providers, work unregulated. This has been highlighted by the UAE Ministry of Economics, which stated that such companies will now be in the spotlight for money laundering indicators. Facilitators of such transactions usually cover their money laundering schemes with claims of focusing on financial markets, analytics, and extensive development while serving as a liquidity provider for holders of cryptocurrencies vis-à-vis a third-party provider.

Serving as a point of contact for the third-party provider and later providing the real estate opportunity creates a façade that the broker does not fall under any liability for money laundering and KYC checks. Yet, this is precisely the root cause of a money laundering indicator, facilitating a transaction for a third party, even though the ultimate beneficiary owner will be the original client.

Crypto issues pop up increasingly in other committees of jurisdiction, and there are policy vectors to watch closely beyond the Banking and Ag committees. In this instance, Sen. Warren talking about her currently stalled validator KYC/AML bill in front of the Senate Armed… pic.twitter.com/rUNwHrRt87

— Alexander Grieve (@AlexanderGrieve) May 5, 2023

This trend, such as the ICO and NFT trends in the beginning of 2020 and 2021, will soon reach its melting point, and the governmental law enforcement agencies will have to enforce the FATF Recommendations, such as Recommendation 15 on virtual assets, and implement the risk-based approach for real estate as listed in the 2022 report. As the report highlights the use of real estate as a means to launder criminal and unreported profits allows criminals to pump the pricing of housing and commercial real estate for the purpose of dumping illicit funds, leaving the real estate market at a cliff, actual potential buyers at an abyss, and the facilitators of the liquidity at a win at their expense.

It is then expected that this issue will be raised and dealt with towards the newly scheduled rounds of the FATF negotiations with the UAE. Currently, the only way for the UAE regulators, such as VARA, SCA, and the UAE Central Bank based in Abu Dhabi, will be to enforce the warnings issued by the UAE Ministry of Economy and ensure proper licensing of the liquidity providers, meaning their hide-and-seek game of hiding as a third-party provider will not be tolerated anymore.

Source