US embassy cable - 03ABUDHABI3477

C O N F I D E N T I A L ABU DHABI 003477 
 
SIPDIS 
 
E.O. 12958: DECL: 07/21/08 
TAGS: ECON, EFIN, ETTC, PREL, TC 
SUBJECT:  DUBAI INTERNATIONAL FINANCIAL CENTER - CENTRAL 
BANK VIEWS 
 
REF: A) DUBAI 3100, B) ABU DHABI 1137 
 
1. (U) Classified by Acting DCM Oliver B. John for 
reasons 1.5 (B and D) 
 
2. (C) Summary:  The Central Bank Governor told the 
Ambassador that, despite press reports, banks and 
financial institutions operating in the Dubai 
International Financial Center (DIFC) will be 
subject to UAE law, at least as far as money 
laundering is concerned.  He also noted that the 
President still needs to sign the law to establish 
an offshore financial center and that, if the 
Central Bank had any concerns about the draft as 
passed, it would not be signed.  End Summary. 
 
3. (C) Ambassador and Econchief met with Central 
Bank Governor Sultan Nasser Al-Suweidi to discuss 
recent news that the UAE cabinet passed a law 
permitting Dubai to establish the DIFC.  The 
Governor noted that he had reviewed the original 
draft bill and had requested a copy of the cabinet 
approved bill.  He added that the Federal Supreme 
Council needed to ratify the bill and the President 
needed to sign it before it became official.  He 
said that he would prevent any bill from being 
signed that did not address the concerns that the 
Central Bank expressed about the original draft. 
 
4. (SBU) The Central Bank has four major conditions 
for any offshore financial center (financial free 
zone): 
 
-- The DIFC must apply the UAE's anti-money 
laundering law and financial institutions will have 
the same reporting requirements that local 
financial institutions have.  The Central Bank will 
inspect to ensure compliance. 
 
-- Banks and financial institutions cannot set up 
head offices in the DIFC and will not be permitted 
to incorporate there.  Furthermore, only banks and 
financial institutions headquartered in "well 
regulated" financial centers without currency 
controls will be allowed to set up branches in the 
DIFC. 
 
-- Banks and financial institutions will not be 
allowed to take local deposits. 
 
-- There will be no Dirham dealing.  Monetary 
policy will remain under Central Bank control. 
 
5. (SBU) The Governor explained that the DIFC would 
be self-regulating, but that the Central Bank would 
have the right to inspect the DIFC and planned to 
do so regularly.  He added that if the USG had 
concerns with specific companies it should raise it 
with the Central Bank. 
 
6. (C) The Governor downplayed media speculation 
that the DIFC would be fully operational in time 
for the September IMF/WB Annual meetings in Dubai. 
In his opinion, it would take time to attract top- 
flight financial institutions.  He acknowledged 
that Dubai would want to have something up and 
running in time, but suggested that it would be 
more symbolic than actual. 
 
7. (C) Comment:  The Central Bank's more cautious 
view about regulating the DIFC is a welcome 
antidote to the press reports that suggested that 
the DIFC would be a completely self-regulating 
offshore financial center.  We will continue to 
monitor developments in this matter, but we believe 
that the UAE federal authorities and, for that 
matter, the Dubai authorities recognize that 
transparency and at least a level of federal 
oversight are key both to the reputation of the UAE 
and to the ultimate success of the DIFC.  End 
Comment. 
Wahba