The last quarter of 2001 emerged as the most eventful one for the UAE financial sector with events related to terrorism and money laundering barrelling along on parallel tracks.
The last quarter of 2001 emerged as the most eventful one for the UAE financial sector with events related to terrorism and money laundering barrelling along on parallel tracks.
The impact of the September 11 attacks in the U.S., and the progression of events leading to the imminent promulgation of the money laundering law, were perhaps the two main factors which overshadowed everything else that took place during the whole of last year in the UAE's financial community.
Little else of what happened comes to mind offhand - not even preparations for the imminent demise of 12 major European currencies on January 1, 2002. Even the noise about Emaar Properties getting a banking licence, was not what it would have been under normal circumstances.
In fact, even among seasoned bankers, it became confusing and difficult at times, to keep apart the issues of terrorist funding and money laundering.
The banking sector in the UAE was ticking along nicely - doing not too good, but then, not too bad either - when suddenly the terrorist attacks on the U.S. on September 11 shattered the tranquility of a normal ordinary year.
As with everywhere else, the banking community in the UAE stopped still in its tracks for a while.
But that was just for a while. As like the entrepreneurs who have made the UAE what it is today in just 30 years, the financial community recovered fast and recovered well.
Even as the incident was being absorbed, dissected, analysed and predicted upon, it was business as usual here. Activity resumed, though with some caution. The UAE realised the need to keep everything running smoothly and normally, and the business community, including the banking sector, rose to the occasion.
Dubai took the lead. Three of the region's largest trade exhibitions - Gitex, the Big 5 and Dubai 2001 air show - were scheduled for October-November period. These were held on time and had normal participation, even as hostilities broke out in Afghanistan - over 1,600 kilometres away.
And, business was not disappointed, nor were bankers. Dubai-owned Emirates airline announced an order package worth $15 billion. Overall deals worth $18.5 billion were signed at the air show while another $6 billion are reported to be under negotiation.
Apart from bringing cheer to a crisis-ridden airline industry, the order pleased the bankers most who have a major client with high investment rating in Emirates airline. Emirates hospitality chalet during the air show featured several prominent bankers daily.
That it was business as usual was also underlined by the fact that no large Arab withdrawal of funds from the U.S. or Europe were reported by UAE-based banks - as had been forecast by some following the market crash post-September 11.
Another fallout of September 11 incidents was the acrimony between international media and UAE banking authorities.
Ensuing claims involving Citibank, HSBC and Dubai Islamic Bank to terrorists' funds transfers, swayed everything that had happened in the UAE's banking sector towards terrorism and money laundering - much to the annoyance of the country's Central Bank governor, Sultan bin Nasser Al Suwaidi. Charges and counter charges flew.
Action on the part of the UAE Central Bank was swift. It came out with a clutch of successive directives to banks and money exchange houses to come down heavily on any suspect account - and if they did not, the Central Bank would come down heavily on them.
By October 11, having received two lists of terrorist organisations from the U.S. Office for Foreign Assets Control, the Central Bank governor said there are no terrorist funds with UAE banks. "Investigations are primarily aimed at ruling out any such possibility. We do not expect any terrorist organisation having assets here," said Al Suwaidi.
"So far, we have not found any accounts of the 27 names in the list provided by the U.S. and we are working on the new list of 39 names. But we don't think they belong to the UAE. Financial institutions in the UAE cannot be blamed by the U.S. if the names were similar," said Al Suwaidi by October 24.
On its part, Dubai Islamic Bank stated: "Following the events of September 11, the Dubai Islamic Bank has thoroughly checked the specific list of names given to it by the UAE Central Bank. The bank can categorically state that it does not hold, and has not held, accounts for named terrorist suspects".
Other steps taken by the UAE banking system subsequent to the September 11 events included investigation of all accounts.
The UAE Central Bank also set up a 12-member Financial Intelligence Unit to monitor and analyse suspicious transactions. It has asked all money exchange houses to report client details for any transaction above Dh2,000. A similar limit for commercial banks is being worked out.
Charity institutions were disallowed to open bank accounts unless cleared by the UAE Ministry of Labour and Social Affairs. Assets of some companies and individuals were frozen.
In a further tightening up, the much-awaited UAE anti-money laundering law was approved by the Cabinet and is expected to come into force soon. It now only requires ratification by the UAE Supreme Council and the Presidential signature.
All the events linked to September 11, divert from the fact that despite a slowdown in business in the last quarter, UAE banks are still expected to declare a growth in profits for 2001 - albeit smaller by UAE standards at just 10 per cent more than in 2000.
Another major development during 2001 was the rate cuts implemented by the Central Bank on the certificates of deposits (CDs), following the pattern set by the U.S. Federal Reserve. Most commercial banks independently cut their base rates, and of course, the cuts were not uniform, but it did bring some relief to the corporates.
However, the cuts ignored personal loans taken by individuals, and UAE residents continued to pay an almost unchanged rate of interest. This, of course, resulted in banks shifting focus towards higher revenue generating personal loans from large commercial exposures.
The interbank market remained almost inert while substantial funds are said to be idling with banks for want of proper takers. The rate cuts did not affect the industrial sector as there is not much of project financing in the UAE.
During 2001, the GCC common switch became more of a reality with the linkage between UAE and Oman. The UAE accounted for the majority of the automated teller machines (ATMs) in the shared network.
The year also saw the signing of the longest corporate term loan facility - that of Dh600 million for the expansion of BurJuman Centre.
Meanwhile, 39 banks were linked to a new inter-bank payment system, according to the Central Bank governor.
Since the middle of the year, the UAE Central bank went on a media offensive to educate people about the implementation of the euro in 12 European nations from January 1, 2002.
A highlight of the year was the announcement by Emaar Properties that it has got permission by the UAE Central Bank to set up a full service bank
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