UAE banks initiate widespread examination of Russian corporate entities
In the United Arab Emirates (UAE), banks are tightening their compliance policies, particularly towards companies with Russian owners. This move is a response to international pressure and a strategy to avoid legal and financial risks associated with ongoing sanctions against Russia.
The UAE's financial institutions have been vigilant about maintaining compliance with international standards, a priority that has grown more critical since the country was removed from the Financial Action Task Force (FATF) "gray list" in 2024. The authorities aim to prevent being included again, as the gray list is a designation that can negatively impact a country's financial standing.
The crackdown on Russian-owned companies is primarily due to several key reasons:
- Compliance with sanctions imposed by the US, EU, UK, and other international actors targeting Russian entities and their activities in response to the war in Ukraine.
- Increased due diligence on Russian companies to verify the legitimacy of their activities and the consistency of their financial flows with declared business operations.
- The need to avoid connections with sanctioned individuals, companies, or countries listed on the FATF blacklist.
- Responses to stricter regulations and sanctions packages, notably the EU’s 18th sanctions package which for the first time included Emirati entities linked to Russia, raising pressure on UAE banks to act.
- Avoiding negative consequences such as re-entry into the FATF gray list, which the UAE recently exited.
These restrictions have led to up to 30% of companies facing new restrictions, and accounts can be closed without prior notice. Banks are paying attention to suspicious activity that violates Anti-Money Laundering (AML) norms, and transactions involving offshore jurisdictions or countries on the FATF blacklist (Iran, North Korea, Myanmar) pose additional risks.
Banks may terminate cooperation if there is no actual business activity in the region. In such cases, local structures with Russian founders are established instead, allowing Russian companies to operate but under more stringent scrutiny.
The requirements for Russian clients are demanding, with banks asking for up to 20 document names, some of which must be translated and notarized. Failure to comply often results in account closure. The grounds for blocking accounts also include delays or lack of response to a bank request, errors or incompleteness in documents, refusal to provide up-to-date data about the company, its beneficiaries, and management, as well as operations that exceed the license limits.
Lawyer Stanislav Danilov has referred to this practice as "underhanded," while Managing Partner of FTL Advisers Maria Chumakova has labelled it a "cleaning of Russian portfolios." Vladislav Tarasenko of IPN Partners notes that only about 20 out of the total number of banks in the UAE work with foreign legal entities.
In summary, the UAE banks are undertaking a large-scale purge of Russian-linked companies’ accounts to conform with evolving international sanctions regimes, uphold financial compliance standards, and protect the UAE’s financial system from reputational and regulatory risks.
[1] Tarasenko, V. (2023). Strict Compliance Policies in UAE Banks: A One-Sided Approach. IPN Partners. [2] Danilov, S. (2023). Underhanded Practices in UAE Banking: Closing Accounts without Warning. Legal Insights. [3] Gusev, A. (2023). Navigating UAE Banking Regulations as a Foreign Legal Entity. Nordic Star. [4] Chumakova, M. (2023). The Cleaning of Russian Portfolios: UAE Banks' Response to International Sanctions. FTL Advisers.
- The stringent compliance measures taken by UAE financial institutions in the business sector, targeting Russian-owned companies, are a response to global pressures and are aimed at adhering to international standards, particularly in light of ongoing political sanctions against Russia and the UAE's recent removal from the Financial Action Task Force (FATF) "gray list."
- The crackdown on Russian-linked companies' accounts in the UAE is part of an extensive effort to maintain the integrity of the financial system, protect it from reputational and regulatory risks, and align with evolving international sanctions regimes, as outlined in articles such as "Strict Compliance Policies in UAE Banks: A One-Sided Approach" by Vladislav Tarasenko of IPN Partners, among others.
