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European Governments Urge Money Laundering Crackdown In UAE

by Lorys Charalambous,, Cyprus

30 December 2005

European governments are urging the authorities of the United Arab Emirates to strengthen money laundering controls, fearful that proceeds from tax evasion scams are being siphoned off by criminal gangs to fund Islamic terrorist groups.

European diplomats told a money laundering conference in the emirate of Fujairah earlier this week that the UAE, particularly the Gulf's flourishing financial hub of Dubai, has become a centre for European-based criminals to execute missing trader fraud, which deprives EU governments of billions of euros in value added tax receipts every year.

Missing trader fraud, also known as 'carousel fraud', involves the importation of goods (such as mobile phones and computer components) free of value-added tax. The goods are then sold on with VAT added, following which the perpetrators disappear, having pocketed the difference.

The phenomenon was noted in a report by Britain's Office of National Statistics earlier this year, which warned that missing trader fraud has reached such proportions that it is distorting the true picture of trade between EU and non-EU countries.

While the ONS said that it had accounted for such practices within the EU, and had adjusted its figures accordingly, a sudden surge of exports of mobile phones and computer chips to non-EU countries has raised concerns that the trade figures for April, May and June 2005 may need to be reassessed.

According to Cameron Walker, a representative of the British Embassy in Dubai, mobile phone trade between the UAE and the UK was worth some $2.88 billion in the first nine months of 2005. Despite the fact that neither country is a major manufacturer of mobile phone handsets the figure accounted for more than half of total bilateral trade and it is estimated by officials that as much as 88% of this trade could be linked to missing trader fraud.

Walker recounted that in at least one case of this type uncovered by the authorities, laundered money was used to fund an Islamic terror group.

However, whilst the UAE authorities have promoted Dubai as a low-tax paradise for foreign businesses and financial service providers, they have also been keen to emphasise that the emirate is well-regulated and conforms to international legal standards with regard to money laundering.

To demonstrate this, the Dubai Financial Services Authority and the emirate's police force last month signed an agreement designed to clamp down on fraud and money laundering. The pact, signed by Lieutenant General Dahi Khalfan Tamim on behalf of the Dubai police and Dr Habib Al Mulla, Chairman of the DFSA, aims to ensure the rapid transfer of information between the two entities, referral of criminal matters, and the sharing of technical knowledge.

"To combat any financial crime that may arise in the DIFC, we need to have effective procedures in place to refer criminal activities to the Dubai Police," Dr Al Mulla told the regional media after signing the agreement.

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