Money laundering through banks in Dubai
| DOI | https://doi.org/10.1108/JFRC-07-2019-0087 |
| Published date | 20 January 2020 |
| Pages | 337-352 |
| Date | 20 January 2020 |
| Author | Fabian Maximilian Teichmann,Marie-Christin Falker |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
Money laundering through
banks in Dubai
Fabian Maximilian Teichmann
Teichmann International AG, St. Gallen, Switzerland, and
Marie-Christin Falker
Teichmann International (Schweiz) AG, St. Gallen, Switzerland
Abstract
Purpose –The purpose of this paper is to illustratehow illegally obtained funds from Austria, Germany,
Liechtensteinand Switzerland are laundered through the banking systemin Dubai.
Design/methodology/approach –The study is conducted using a qualitative content analysis of 60
semi-structured expert interviews with both criminals and money laundering prevention experts, and a
quantitativesurvey of 200 financial sector compliance officers.
Findings –Some banks in Dubai are highly suitable for all stages of the money laundering process.
However,although certain banks have weak compliance mechanisms,others act in an exemplary manner.
Research limitations/implications –The qualitativefindings are based on semi-structured interviews
and are limited to the 60 interviewees’perspectives.
Practical implications –Identification of gaps in anti-money laundering mechanisms provides
compliance officers, law enforcement agencies and legislators with valuable insights into how money
launderingcriminals operate.
Originality/value –The existing literature focusesmainly on organizations and the methods they use to
combat money laundering. Thispaper outlines how money launderers operate to avoid detection. Authentic
experiencesare illustrated. The reader is provided with valuable insightsinto the minds of money launderers.
Both lawful and criminalperspectives are taken into account.
Keywords Dubai, Compliance, Money laundering, Banks, Cash, Offshore centers
Paper type Research paper
Introduction
Anti-money laundering laws were initially implemented with the intention of facilitating the
conviction of criminals who earn money from trading arms or trafficking humans or drugs.
Money laundering was first deemed a criminal offense in the USA, where the principle of
immediacy, which gives participants in the administrative process the opportunity to respond
immediately during the course of a case (§29.8 of the Code of Administrative Offenses of the
USA), is of more significance than in Europe. Hence, it was anticipated that money laundering
would facilitate the line of argument concerning the “war on drugs.”However, anti-money
laundering laws have, so far, failed to achieve their original goal of eradicating international
drug trafficking (Razzano, 1994, p. 306). Subsequently, it was also applied to other forms of
crime. It is evident that to effectively combat money laundering, an understanding of how
money laundering criminals operate is necessary (Teichmann, 2016,p.2f.).
Modern-day money launderinginvolves three sequential stages: placement, layering and
integration. Placement is the most important and challenging stage for the launderer
No external research funding has been received for this study.
Banks in
Dubai
337
Received14 July 2019
Revised16 November 2019
Accepted20 December 2019
Journalof Financial Regulation
andCompliance
Vol.28 No. 3, 2020
pp. 337-352
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-07-2019-0087
The current issue and full text archive of this journal is available on Emerald Insight at:
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because the most incriminating evidence of money laundering can be eliminated at the
placement stage (Graber, 2009, p. 2). During the second stage, namely, layering, the funds
are equipped with a legend that providesthem with a seemingly legal origin. Criminals use
several bank accounts in different jurisdictions to layer funds (Madinger, 2011, p. 20).
Transfers via multiple accounts complicate tracing fund sources and subvert transaction
limits designed to slow money laundering (Grosse, 2001, p. 5). In the third stage of
integration, the funds are incorporated into the legal economy (Schneider and
Windischbauer, 2008,p.394;Arztet al.,2009,p. 686; Trechsel, 1997, p. 14). After integration,
successful money laundering prevents authorities from tracing the origins of incriminated
funds (Gao and Xu, 2009, p. 1494).
The legal definition of money laundering is not internationally agreed upon and varies
by country (Van Fossen, 2003, p. 238). In the Swiss criminal code, Article 305bis defines
money laundering as an act aimed at inhibiting the determination of the origins, or the
seizure of, assets that are likely the result of a criminal offense (Article 305 of the Swiss
Criminal Code), includingproceeds originating from crimes outside Switzerland.
Stopping money laundering is difficult and not a universal remedy for organized crime
(Teichmann, 2016, p. 4). One attempt to combat money laundering is the implementation of
new registers to make company and foundation ownership structures more transparent
(Tagesschau, 2015,p. 1). A connection of national registers is scheduledwithin the European
Union to combat money laundering and tax fraud (Reuters, 2015, p. 1). However, registers
can be circumvented throughconcealment of beneficiaries and employment of straw people
(Teichmann, 2016, p. 1). Money is also liquid, which complicates efforts to combat money
laundering (Focus, 2015, p. 1). If one nation tightens its measures, launderers can evade
those measures by relocating to other nations. Therefore, countries considering the
implementation of anti-money laundering policies must consider the cost of policies that
criminals might easilycircumvent.
In addition to avoiding nations with strong anti-money laundering policies, criminals
might avoid industries with strong anti-money laundering practices. Compliance experts
suggest that efforts to prevent money laundering in the financial sector are driving money
launderers to relocate their businesses to less regulated sectors (Teichmann, 2016, p. 27 ff.).
However, the present paper illustrates that offshore banks continue to be suitable to Swiss
money launderingoperations. The country of Dubai is suspected of beingespecially friendly
to money launderers(Teichmann, 2016, p. 28).
It will be demonstrated how financial institutions in Dubai may be used to launder
illegally obtained funds that are obtained in German-speaking countries. Although
laundering money through Dubai banks is associated with a number of risks and
challenges, the friendliness of these banks compared with those in other countries might
make Dubai a lucrativeplace to launder money.
One incident of money laundering through financial institutions in offshore destinations
was made public in 2018. In that year, 1MDB made headlines in conjunction with a
significant corruption scandal. As reported by Arab News, the US Justice Department
revealed charges against:
A fugitive Malaysian financier, Low Taek Jho, and two former Goldman Sachs bankers accused
in a money laundering and bribery scheme that pilfered billions of dollars from a Malaysian
investment fund created to spur economic development projects in that country”(Arab News,
2018,p.1ff.).
The fund, which was supposed to help the Malaysian people, “went missing, disappearing
into the shadows of the global financial system”(BBC News, 2019, p. 1 ff.). The US Justice
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