DUBAI INTERNATIONAL FINANCIAL CENTER - CENTRAL

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