Tech

Exclusive Russians liquidate crypto in UAE as they look for safe havens

FILE PHOTO: A rendering of the virtual cryptocurrency Bitcoin
FILE PHOTO: A representation of the virtual cryptocurrency Bitcoin is seen in this illustration taken on October 19, 2021. REUTERS/Edgar Su

March 11, 2022

By Yousef Saba, Lisa Barrington, Riham Alcousaa and Alexander Cornwell

DUBAI (Reuters) – Crypto firms in the United Arab Emirates (UAE) are being inundated with requests to liquidate billions of dollars in virtual currency as Russians seek a safe haven for their assets, company executives and financial sources said.

Some clients are using cryptocurrency to invest in real estate in the UAE, while other firms want to use it there to convert their virtual money into hard currency and store it elsewhere, the sources said

A crypto firm has received many inquiries from Swiss brokers over the past 10 days asking it to liquidate billions of dollars in Bitcoin over their clients’ fears that Switzerland will freeze their assets, an executive said, adding that none of the Inquiries had been for less than $2 billion.

“We’ve had about five or six in the last two weeks. None of them have come loose so far — they fell over at the last minute, which isn’t uncommon — but we’ve never had that much interest,” the manager said, adding that his firm usually receives a request for a large transaction once in the month.

“We have a guy – I don’t know who he is but he came through a broker – and they say, ‘We want to sell 125,000 bitcoin’. And I’m like, ‘What? That’s $6 billion, folks. And they say, ‘Yes, we’re going to send it to a company in Australia,'” the manager said.

The Swiss Financial Market Authority declined to comment on the transaction volume of cryptocurrencies.

The country’s economic secretariat (SECO) said in an emailed statement that crypto assets are subject to the same sanctions and measures that Switzerland imposed on “ordinary” Russian assets and individuals. So if a person is sanctioned, their crypto assets must also be frozen in Switzerland.

Dubai, the Gulf’s financial and business hub and a growing crypto hub, has long been a magnet for the world’s ultra-rich, and the UAE’s refusal to take sides between Western allies and Moscow has signaled to Russians that their money is safe there.

A real estate agent whose company has partnered with a cryptocurrency service to help people buy property said, “We’ve seen a lot of Russians and even Belarusians coming to Dubai and bringing whatever they can, even in crypto.”

WAY FROM SANCTIONS?

A financial source in the UAE confirmed that Russians were buying property in Dubai and using crypto to bring their money to the Gulf state from other jurisdictions.

Cryptocurrency exchanges have said, while divulging few details, that they are freezing the accounts of Russians sanctioned by the West over Moscow’s invasion of Ukraine, which Russia calls a “special operation.”

Major exchanges like Coinbase Global Inc and Binance say they are taking steps to ensure crypto is not used as a means of evading sanctions and are working with law enforcement on the matter.

With crypto offering users a high level of anonymity, European countries like Germany and Estonia have called for tighter oversight this week to close any loopholes that could allow sanctions to be breached.

Three Western diplomats said they were increasingly concerned by the number of Russians seeking refuge in the UAE for their assets, including property, in recent weeks and worried some may be acting on behalf of those under sanctions.

Two of the diplomats said they were skeptical that the UAE would act against Russian assets in the Gulf state, which they said were mostly held in Dubai, citing the country’s neutral stance on the conflict.

A third said he hoped the UAE, which is also a gold trading hub, would understand the impact on its reputation and take action.

The United Arab Emirates was “grey-listed” this month for increased surveillance by financial crime and money-laundering watchdog Financial Action Task Force (FATF).

The FATF identified risks in certain industries, including real estate agents and precious metals dealers. Dubai this week passed a law on virtual assets and established a regulator. The UAE regulator said it was on the verge of issuing regulations and had sought advice on money laundering risks in the sector.

The Dubai Government Media Office and the UAE Central Bank did not immediately respond to requests for comment.

The UAE Foreign Ministry said it had no further comment on previous statements that the government had a “strong commitment” to working with the FATF on areas where improvements could be made in its anti-money laundering and anti-terrorist financing regime.

MARINA AND DOWNTOWN

Some experts say the relative transparency of cryptocurrency transactions, which are recorded on the blockchain ledger underlying Bitcoin and other tokens, makes large-scale evasion of sanctions difficult.

The U.S. Treasury Department said on Monday that breaking sanctions with crypto is “not necessarily practical,” urging firms in the industry to be vigilant.

Two sources familiar with the matter said UAE companies have reputational concerns about doing business with Russians, but noted the state’s abstention at the UN Security Council when Russia opposes a resolution condemning its invasion of Ukraine Vetoed a signal that they should not impose restrictions on Russians.

The United Arab Emirates, which has deepened ties with Russia over the years, has not complied with sanctions imposed by Western nations and its central bank has not issued guidance on the measures.

An attractive tourist destination, Dubai has long been popular with Russians, who were already disrupting the Russian economy before the war and sanctions that followed.

Apurv Trivedi of Healy Consultants, which advises on the formation of companies, including crypto companies, said they definitely got more interest from Russian clients.

“They are essentially trying to protect themselves against the inflationary pressures being put on the Russian currency. So crypto was a very good way out for them to manage the risks they face,” said Trivedi. “It’s a good liquidity provider for them.”

Healy’s Sami Fadlallah said much of the money from Russia has flowed into Dubai’s properties, citing both industry talks and her company’s experience.

“People park their money in dozens of apartments in the marina, downtown,” Fadlallah said.

“We have seen many Russians hedging their bets against ruble devaluation by moving many assets into crypto. And the UAE is relatively lax about their regulation and powers when it comes to transferring crypto here.”

(Reporting by Yousef Saba, Riham Alkousaa, Lisa Barrington and Alexander Cornwell; Writing by Samia Nakhoul; Additional reporting by Tom Wilson in London and Brenna Hughes Neghaiwi in Zurich; Editing by David Clarke)

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Emma Bowman

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