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Recent developments in a federal case in Alaska may indicate a new willingness from the United Arab Emirates to help advance overseas money-laundering investigations following a subpar evaluation of its controls against financial crime, sources told ACAMS moneylaundering.com.

The Financial Action Task Force, which sets global standards against illicit finance, criticized the UAE in April for not consistently tackling money laundering and sanctions evasion, and assigned the country a “low” rating in four of 11 areas of effectiveness for failing to cooperate with foreign investigations and open domestic financial-crime cases, among other shortcomings.

The jurisdiction now risks inclusion on FATF’s gray list unless wide-ranging reforms are made.

The UAE’s exposure to financial crime was brought into even sharper focus Tuesday in a report outlining how corrupt officials, drug traffickers, terrorist financiers and other illicit actors from South Asia, Sub-Saharan Africa and Latin America funnel their money through Dubai’s sparsely regulated real estate sector, banks, gold markets and 30 or more free trade zones.

“I think there’s strong agreement that Dubai seems to lack political will to enforce many of its [financial crime] laws,” said Jodi Vittori, a co-author of the 148-page report for the Carnegie Endowment for International Peace. “It’s well-documented that a number of sanctioned individuals [and other illicit actors] have chosen Dubai as a place to operate from.”

But an ongoing U.S. case suggests that Emirati authorities may have reconsidered their approach. On June 3, federal prosecutors in Alaska moved to forfeit $20 million from a Dubai lender allegedly linked to a three-year, $1 billion sanctions-evasion scheme that led to federal charges against its alleged orchestrator, Korean American businessman Kenneth Zong, in 2016.

The scheme, according to the 2016 indictment, hinged on Zong taking control of Iranian funds held in “restricted accounts” at the Industrial Bank of Korea, or IBK, by falsely representing them as payment for his exports of marble tiles and other construction materials to the Islamic Republic.

Prosecutors claim the construction materials did not exist and accused Zong of converting the $1 billion from Korean won into “more easily tradeable currencies, such as dollars and/or euros,” then routing them to the UAE, Switzerland, Canada, Bahrain and six other countries for the government of Iran, which paid him and his alleged co-conspirators for their services.

Zong, whose ties to IBK helped trigger an $86 million U.S. state and federal penalty against the lender in April, remains in custody in South Korea.

Forfeiture

The complaint filed last month in Alaska shines more light on the alleged scheme: the lion’s share of Iran’s money in South Korea, $863 million, allegedly moved from IBK to a UAE-registered front company, Orchidea Gulf Trading, which held multiple accounts at Emirates Bank.

Most of the remaining proceeds, $131 million, transferred in from South Korea to accounts that a web of apparent shell companies, including New York General Trading LLC, held at other, unspecified financial institutions in the UAE, according to the complaint.

Starting in October 2011, after the bulk of the scheme had ended, Houshang Hosseinpour, an Iranian associate of Zong, allegedly used around $20 million from the various shell-company accounts in a bid to acquire a hotel in Tbilisi, Georgia.

The hotel deal ultimately fell through and Hosseinpour and two other Iranian nationals, who did manage to buy a controlling stake in a Georgian bank, were eventually blacklisted as sanctions evaders by the U.S.

According to the complaint, Hosseinpour lost the $20 million he had already wired to the hotel’s account at the Commercial Bank of Dubai.

The sum is now the target of Alaskan federal prosecutors—though the UAE does not have a mutual legal assistance treaty, or MLAT, with the United States, and the Justice Department has yet to explain how they plan to take the funds into custody.

Despite those hurdles, federal prosecutors in a June 3 statement highlighted the “significant assistance provided by UAE authorities, including in particular the Dubai Police Department’s anti-money laundering and financial crimes division,” as well as the government of Ras al Khaimah, an emirate just north of Dubai.

The statement strongly suggests that Emirati authorities have already made clear in negotiations that they intend to enforce the U.S. forfeiture order, said Stef Cassella, a former deputy chief of the Justice Department’s asset forfeiture and money laundering unit.

FATF’s criticism may have helped spur their cooperation, as jurisdictions “typically bend over backwards” to avoid the group’s gray list, Cassella said. “In general, the UAE has not been a place where you typically look for assistance in getting [forfeiture] orders, so it’s nice to see it if this is what happens.”

In cases where overseas cooperation is lacking, prosecutors can use a relatively obscure provision of the U.S. Patriot Act, Section 981(k), as a “last resort” to seize an equivalent amount of funds from the foreign bank’s U.S. correspondent.

Federal prosecutors in Washington, D.C., used 981(k) seven years ago in an attempt to seize $49 million from the Emirates National Bank’s U.S. correspondent account at Deutsche Bank as part of their case against an Afghan national whose company allegedly overbilled the U.S. military.

The broad power of the statute may have helped persuade the contractor to settle the case for $25 million, moneylaundering.com reported at the time.

Details included in the June 3 forfeiture complaint suggest the UAE has already supplied bank records to help U.S. prosecutors identify where funds from the alleged sanctions-evasion scheme were located and could be seized, said Shirley Emehelu, former head of asset recovery and money laundering investigations for the U.S. Attorney’s Office in New Jersey.

Emirati authorities have made other gestures towards cooperation. The UAE hosted a U.N. anti-graft conference in December, and in June “expelled” a Nigerian resident who allegedly laundered hundreds of millions of dollars from fraud schemes.

The suspect’s attorney has since accused U.S. authorities of “kidnapping” his client from the UAE, which does not have a formal extradition treaty with the United States.

“The UAE does not have a great record … [but] this seems to be a signal of a change,” Emehelu said of the Alaska forfeiture effort. “I don’t know if they’re just trying to improve their image.”

Valentina Pasquali contributed to this story. Contact Daniel Bethencourt at dbethencourt@acams.org and Valentina Pasquali at vpasquali@acams.org