Dubai: A Booming Entrepot and Growing Diversion Risk

“I have checked to see if there are any export control laws in the U.A.E. and to the best of my knowledge none exists.” This was the verdict of the American Embassy in Abu Dhabi in 1992, when an official faxed a memo to a Washington law firm that had asked about export controls in the United Arab Emirates.

U.S. officials now tell the Risk Report that the Emirates do have some export controls, but not on what matters most to Washington. “Their controls are meant to prevent such things as stolen cars, drugs, or precious art from being smuggled out of their country,” says one senior U.S. official, “we aren’t talking about weapons of mass destruction.” When it comes to controlling nuclear, chemical or missile-related transfers, the U.A.E. lags far behind the West. Last year, for example, the Emirates finally joined the Nuclear Nonproliferation Treaty (NPT), but “so far no regulations have been issued they haven’t even developed an agenda to follow through,” says the official.

In 1995, U.S. companies sold over $2 billion dollars worth of goods to the United Arab Emirates one tenth of the country’s total imports. As trade grows, so do U.S. concerns that American products are being diverted to Iran through Dubai, the U.A.E.’s commercial capital and premier trading port. Dubai now serves as the main entrepot of the Persian Gulf. It is what Singapore is to Southeast Asia and Hong Kong is to East Asia. “The concern over Dubai is fairly new,” says a U.S. government official, “other conduits such as Singapore, Hong Kong, Cyprus and Malta are more established and were more active during the Cold War.”

Dubai buys far more than it keeps. Up to seventy percent of Dubai’s imports are re-exported, and almost half of the re-exports go to Iran. “The Iranians have a strong official and commercial presence in Dubai — it is their playground, the most accessible window to the rest of the world, particularly to high technology,” says a U.S. official. Of Dubai’s population of 600,000, about 70,000 are Iranian passport holders and another 70,000 citizens are of Iranian origin.

Of the roughly $1 billion in U.S. goods exported to Dubai in 1994, trade officials estimate that more than a quarter were reexported to Iran. And though the current embargo makes most U.S. trade with Iran illegal, American products continue to reach Iranian shores by the boatload. Dubai’s wooden dhows have been carrying cargoes across the Persian Gulf for centuries. But instead of pearls, spices and gold, the products today are computers, electronics and home appliances. Iran imports more through Dubai than through any of its own ports, according to a U.S. official who tracks Iranian trade, and Dubai’s 700-kilometer coastline makes smuggling fairly easy. Vessels depart daily to Bandar Abbas, Bushehr and other Iranian destinations.

These realities leave U.S. officials pessimistic. How can the U.S. embargo against Iran be enforced in Dubai, when “ninety-nine percent of the trade is legal from Dubai’s standpoint?” says an official in Washington. “It’s an impossible enforcement situation to stop small cargoes of highly valuable goods.”

Another U.S. official who analyzes diversion networks says that Dubai is “the new kid on the block, but we have not seen established patterns yet.” At this point, he is more concerned about Iran’s primary suppliers than about diversions through the U.A.E. “We now have a bunch of suppliers that are very adept at getting around export control laws. Iraq taught a lot of Europeans in the 1980s how to set up dummy companies to make sales and take advantage of local laws that help a country acquire chemical weapons.” The bigger problem now, he says, is that some U.S. allies are willing to sell sensitive materials and equipment directly to Iran. Recently, dual-use items such as growth media and fermenters for biological weapons have gone straight to Iran from Europe, he complains. “Our allies obviously don’t share our view of Iran,” he adds.

Sultan Bin Sulayem, the Chairman of Dubai’s Jebel Ali Free Zone, points out that when it comes to high technology, “the French and the Germans are very active in Iran…and so is the former Soviet Union.” He also says that Iran’s high-tech suppliers are more likely to use airplanes to make deliveries whereas boats are used to deliver consumer goods. A U.S. enforcement official makes the same observation: “If you’re looking at the types of high-value items that Iran would like to get, air traffic is a better bet for transit.”

Dubai handles cargo with great efficiency. It is now the world’s second largest sea-air hub, outranked only by Seattle. It takes only four hours for cargo brought in by sea to be cleared through the Jebel Ali Free Zone, transported to the airport and loaded on a cargo plane, according to official records. And Dubai Cargo Village boasts that it can unload and reload a Boeing 747 cargo plane in 90 minutes. Other international air cargo centers can take more than two hours.

Dubai has figured in a number of well-known nuclear diversion cases. In the mid-1980s, a series of shipments of heavy water were routed through Dubai to Bombay by an unscrupulous German broker. The water wound up in unsafeguarded Indian nuclear reactors that make plutonium free for atomic bombs. In October 1995, seven persons were indicted in the United States for conspiring to export sensitive U.S. electronics through the Emirates to Iran. From 1991 to 1994, about $500,000 in electronics, communication equipment, computers and other items were exported without a license, the indictment charged. Named in the indictment was Jimsheed Khodagholipour of Hanofeel General Trading Est., a United Arab Emirates company. Through Hanofeel and an Iranian company, Tak Neda Co. Ltd., the defendants allegedly shipped the controlled goods to the Emirates, and from there to Iran.

Despite these smuggling incidents, a U.S. official tells the Risk Report that Dubai Customs does not want negative attention and is ready to cooperate in global enforcement efforts. “They clearly don’t want to be seen as a smuggling port, but rather as a law-abiding, efficient, reliable trading center,” says the U.S. official. Dubai Customs agents are “very willing to cooperate on hot tips and they work as professionals,” he says, adding that “there is an ethic of being efficient and honest.”

Dr. Obaid Busit, the head of Dubai Customs, says that his office has very good relations with Australian, European and U.S. Customs. He tells the Risk Report that he has recently cooperated on “two big operations regarding sensitive chemical transfers that involved India in one case and, I think, Germany and China in another.” Last year, Dr. Busit agreed with U.S. and European officials to start investigating the end-use of all sensitive chemical shipments. “We work silently, case by case; we are trying to build a database ourselves to profile companies and middlemen,” he says.


Capital: Abu Dhabi
Political System: Federation
President: Zayid bin Sultan al Nuhayan
Prime Minister: Sheikh Maktum bin Rashid al Maktum
Population: 2.3 million (Dubai: 605,000)
Gross Domestic Product: $38.8 billion (1995 est.)
Armed Forces: 61,500
Nuclear Nonproliferation Treaty (NPT): Signed in 1995
Nuclear Suppliers Group (NSG): Not a member
Missile Technology Control Regime (MTCR): Not a member
Chemical Weapons Convention (CWC): Signed but not ratified