'Illicit cash flows' rankings may have omitted sovereign wealth

UAE in sixth place for unaccounted-for money, says study

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DUBAI // A local economist has questioned the methodology used in a report that places the UAE in the top 10 developing countries with the highest flow of "illicit funds".

According to Global Financial Integrity (GFI), a Washington-based research and advocacy group, the UAE ranked sixth with US$296 billion (Dh1.08bn) between 2000 and 2009 - based largely on discrepancies in its balance of payments, between its sources and uses of funds.

But Tarek Coury, a former economist at the Dubai School of Government, says the explanation for these unaccountable funds might be sovereign wealth funds (SWFs), which were not mentioned in the report.

"There's half a trillion dollars in sovereign wealth funds in the UAE. Where is that accounted for?" he said. "I think that is something they should explain more carefully in the report."

Discrepancies in the balance of payments reflect "the proceeds of bribery, theft, kickbacks and tax evasion", according to GFI. The report said altogether, the developing world could not account for $8.44 trillion in cash flow during the decade. Three other countries in the Gulf also ranked in the top 10: Saudi Arabia came in fourth with $380bn (Dh1.40tn); Kuwait, seventh, at $271bn; and Qatar, 10th, at $175bn.

Abdulrahim Mohamed Al Awadi, head of the UAE Central Bank's anti-money laundering and suspicious cases unit, declined to comment on specific figures but said the report should have also noted the progress countries have made to stem illicit financial flows.

"We feel that the regulations and laws which are currently in place, their effectiveness has been excellent, and they fulfil all the requirements [of the international community]," Mr Al Awadi said.

"We also evolve our laws and regulations from time to time to keep up with what's happening in the international arena."

Federal laws passed in 2002 and 2004 against money laundering and terrorist financing mean that all banks, financial firms, insurers, auditors and the capital market in the UAE must follow international best practices by conducting due-diligence with customers, keeping close records, reporting suspicious transactions and training employees in these areas.

Informal money-transfer services called hawaladars, common in the UAE, have been required to register with the Government since 2003. So far 558 have applied and 308 have been processed, Mr Al Awadi said.

Dev Kar, the co-author of the report and formerly a senior economist with the International Monetary Fund (IMF), said the SWF argument was valid, but that such funds were impossible to measure consistently across countries: "There are no internationally comparable data on SWFs, [because] governments have not managed these SWFs in a transparent and uniform manner."

The lack of clear data itself raised questions, and such countries could seek help from the IMF to build their "statistical capacity", he said. "The fact that a country manages a large SWF does not in and of itself negate the models we apply."

The discrepancies in countries' balance of payments were calculated based on data provided by the IMF and World Bank.