Geopolitics and sanctions are weighing down consumer banking in the wealthy emirate of Dubai. The emirate has been known as a center of business that is freewheeling, attracting money from across the globe. UAE bank deposits increased 11% from the last month in 2011 to $322 billion in November of 2012. Part of the deposits that helped increase the total was from capital that was taken out of banks in other parts of the Arab world that were at unrest.
The banking theory is that as long as no criminal links are attached to money or it is not owned by companies or people directly linked to international sanctions, banks can accept it. However, the cost of making sure that rules are followed has become so high some banks are turning away money for deposits in advance.
This concern has not only affected customers in the Middle East, but also a number of U.S. citizens, because of the campaign in Washington against the evasion of taxes, said a Dubai banker. The bankers did not want to be named due to the political and commercial sensitivity to the issue.
Bankers worldwide are fighting with an increase in regulation, but in Dubai, the issue is very sensitive because of it being the top banking hub in the Middle East and close to the major countries that have been targeted by different sanctions.
The growth in banking in Dubai could be slowed down because of the cost of compliance and some banks could see their deposits leave and flow through non-main street financial firms.
Banks in the UAE are now reluctant to work with anyone or any business involving Iran even if it involves trades that are allowed under the current sanctions.