The UAE: The Middle East’s teflon nation

May 24, 2023

Mohammed bin Zayed has managed to avoid pushback as he charts an independent course. But that quality may be fraying at the edges.

The United Arab Emirates resembles US ‘Teflon President’ Ronald Reagan.

Congresswoman Pat Schroeder awarded Mr. Reagan the label because nothing stuck to him while he was president in the 1980s — not the recession, not his interventions in Lebanon that cost the lives of 241 US Marines, not his plunging job approval rating.

UAE President Mohammed bin Zayed doesn’t need to worry about performance ratings. His Teflon quality is the lack of pushback he encounters as he charts an independent course that sometimes puts him at odds with the United States, the UAE’s long-standing ally and security guarantor.

The UAE’s Teflon coating has long dampened the effect of allegations of loose money laundering and sanction compliance controls and human rights abuses, and repeated revelations about covert surveillance and monitoring operations beyond the country’s borders.

However, the Teflon shield, the product of one of the Middle East’s most successful nation branding campaigns, may be fraying at the edges.

Recent leaks involving a cache of 78,000 internal documents illustrated how a Swiss company operated by a former intelligence agent sought to destroy the reputations of some 1,000 people, including activists, journalists, and politicians, and 400 organisations in 18 European countries.

The targets were accused, often based on flimsy evidence, of being Islamists or critics of the UAE.

In June, British parliamentarians launched a bipartisan inquiry into the UAE’s treatment of foreign business executives accused of breaking the law. The deputies took the UAE to task for the lack of an independent judiciary and due process.

“There are shortcomings on many of those fronts in the UAE,” said Baroness Helena Kennedy, a prominent barrister and Labour Party member of the House of Lords, who chaired the inquiry.

In testimony, Meridith Morisson, head of business intelligence at the Risk Advisory Group, described the UAE as “the biggest latent business risk in the Middle East – because it’s the one that goes below the radar.”

In an echo of a 2006 debacle, when Dubai-owned DP World sought to acquire Peninsular and Oriental Steam Navigation Company (P&O), US national security officials are scrutinising UAE sovereign investor Mubadala’s US$3 billion takeover of New York-based Fortress Investment Group.

Concerned about handing management of six US ports to an Arab company, DP World was forced to exclude the facilities from the acquisition.

This time, the UAE’s close ties to China are the focus of US concerns. A UAE agreement to purchase 5G infrastructure from China’s Huawei telecommunications company has stymied Emirati efforts to buy US F-35 fighter jets.

US intelligence has since reported a resumption of construction at a suspected Chinese military facility in Abu Dhabi’s Khalifa Port, a year after the UAE said it had halted the project because of US concerns.

Mubadala agreed in May to acquire a 70 per cent stake in Fortress, a private equity and distressed debt investor, from Japan’s SoftBank Group.

Fortress’ investment portfolio consists of financial services, transportation, healthcare, energy, and infrastructure companies.

Mubadala hopes to salvage the deal by attracting American investors, including pension funds, who would reduce its stake in Fortress.

The Fortress deal scrutiny does not mean the UAE’s Teflon is irreparably damaged. On the contrary.

The UAE accounted in 2020 for about US$45 billion of foreign direct investment flows to the United States, much of that from its sovereign wealth funds, including Mubadala.

The United States, alongside Germany, Italy, and Greece, have recently pressured the Financial Action Task Force (FATF), an international anti-money laundering and terrorism finance watchdog, to remove the UAE from its watchlist despite persistent indications that the country is a hub for illicit transactions, involving, among others, Russia’s Wagner group and African gold smugglers.

The United States has sanctioned several Emirati companies because of links to Wagner or circumventing sanctions against Russia related to the Ukraine war.

In March, the UAE’s central bank cancelled a license granted to Russia’s MTS Bank after the bank was sanctioned by the United States and Britain. The UAE has also targeted Iranian entities for evading Ukraine-related sanctions against Russia.

The FATF grey listing dented the UAE’s reputation as the Middle East’s foremost financial hub. Members of the committee monitoring Emirati progress in addressing FATF concerns questioned the reliability of UAE submissions on steps it has taken to address deficiencies in its measures to prevent sanctions evasion, smuggling, money laundering, and terror finance.

Even so, a recent FATF progress report on the UAE’s adoption of the watchdog’s recommended fixes said the UAE was “now ‘compliant’ with 15 of the forty FATF Recommendations, ‘largely compliant’ with 24 Recommendations and ‘partially compliant’ with one Recommendation.”

US support for giving the UAE a clean bill came as Emirati National Security Advisor Tahnoun bin Zayed Al Nahyan, a brother of President Mohammed bin Zayed, visited Washington in early June for the first time in several years.

Mr. Bin Zayed’s visit was intended to improve strained relations over Emirati complaints that the United States had failed to respond forcefully to a 2022 attack on Abu Dhabi by Yemen’s Houthi rebels and UAE dealings with China and Russia.

A statement by Mr. Bin Zayed and Jake Sullivan, his US counterpart, said the two men had discussed “the importance of building trusted technology ecosystems.”

Officials said Messrs. Bin Zayed and Sullivan had agreed on ways to address US concerns about the UAE’s engagement with China. However, they provided no details.

This piece has been republished with permission from the Turbulent World .

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