Shifting Sands in the Arabian Gulf?

Home , Robert Malley, Sanctions against Iran

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The Abraham Accords, the Biden administration’s strategy toward utilising sanctions as a tool of statecraft, and hints of US willingness to re-engage with the Joint Comprehensive Plan of Action, all have potential to profoundly affect trading relations with and between states in the Middle East region. Mahmoud (Mac) Fadlallah and Lauren Talerman address some of the big questions.

Mohamed Mahmoud Al Khaja 1. At the end of the Trump was sworn in as the first UAE administration there were ambassador to Israel. a series of developments which, it claimed, Economic represented a sea-change in The UAE and Israel have reported relations with the Middle robust bilateral activity since East. One part of that was signing the Abraham Accords, the ‘normalisation’ of including: relations between Israel, and the UAE and Bahrain – • The Dubai customs authority with the prospect of Saudi reported that between Arabia joining the fold. September 2020 and January Has that shift lead to the 2021, trade between Dubai and promised opening up of Israel reached AED 1 billion investment and commercial (~$272 million). opportunities? How is that • Israeli media has reported manifest? that over 130,000 Israelis have visited the UAE since the initiation of direct flights Following the signing of the between the UAE and Israel in Abraham Accords in September November 2020. 2020, we have seen a flurry of • In October 2020, the UAE, that it had signed cooperation to outweigh political issues that activity between Israel and UAE. United States, and Israel agreements with two entities, may arise as the UAE and Israel We expect that trend to continue established a $3 billion fund, Invest in Israel and the Israel adjust to normalisation. and to grow as activities expand the Abraham Fund, to support Innovation Authority, to between these countries and private sector investments in facilitate collaboration on other countries in the region. infrastructure, regional trade, investment and innovation. 2. The UAE and Bahrain said Some of these activities may and energy security. • In February 2021, Israeli that they would no longer occur under the umbrella of • Also in October 2020, Israel’s companies and their affiliates, maintain the Arab League formal agreements, and some state-owned Europe-Asia although limited by Covid- boycott on Israel – which could take place more informally, Pipeline Company (‘EAPC’) related travel restrictions US companies had to be so as countries like Saudi Arabia and signed a Memorandum of imposed by the Israeli mindful of when trading in Oman may hold off on signing Understanding with a new government, also participated the region. Does that mean an official deal but still engage entity called MED-RED Land in the International Defence that an area of compliance in a more open relationship with Bridge Ltd. (‘MED-RED’). Exhibition & Conference in risk is immediately lifted, or Israel. MED-RED is a joint venture Abu Dhabi and in Gulfood is the boycott still written In terms of Israel-UAE owned by Petromal, a unit of 2021, a food and beverage into legacy contract terms? relations, the two countries Abu Dhabi-based National exhibition in Dubai. have moved quickly to deepen Holding, Israeli firm AF diplomatic ties and to capitalise Entrepreneurship, and Lubber Given the degree of activity we In August 2020, the UAE commercially on their new Line, an international group have seen to date despite Covid’s formally issued Federal Decree relationship. that focuses on infrastructure effect on the regional economy, Law No. 4 of 2020 (the ‘UAE and energy. EAPC plans to we expect the level of economic Israeli Boycott Repeal Law’), Political transport crude oil from cooperation between Israel and abolishing Federal Decree Law The UAE and Israel have the UAE to the Red Sea port the UAE to increase, particularly No. 15 of 1972 Concerning the established a diplomatic presence of Eilat and then transport in light of both countries’ world- Arab League Boycott of Israel as in each country. In late January it by pipeline to the Israeli leading aggressive vaccination part of its efforts to normalise 2021, Israeli Ambassador Eitan city of Ashkelon, on the efforts, which may allow the relations with Israel. Bahrain Na’eh took up his new post in Abu Mediterranean coast, for two countries to move toward signed a ‘Joint Communique on Dhabi, opening Israel’s embassy onward export to Europe. economic recovery at a faster the Establishment of Diplomatic, in the UAE. Israel is also expected • In December 2020, Abu Dhabi’s rate than their neighbours. Peaceful and Friendly Relations’ to open a consulate in Dubai. Investment Office (‘ADIO’) Although there may be bumps establishing full diplomatic Around the same time, the UAE announced that it would in the road as the governments relations with Israel in October Cabinet approved the opening open an office in Tel Aviv, its of both countries navigate this 2020. Bahrain had previously of the UAE’s embassy in Tel first international branch. In new relationship, the potential withdrawn its boycott of Israel Aviv, and in mid-February 2021, February 2021, ADIO reported economic opportunities are likely in 2005 in connection with

17 This article is reprinted from the April 2021 issue of WorldECR, the journal of export controls and sanctions.

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signing a free trade agreement amounted to AED 45.76 million administration will continue particularly as the United States with the United States under (approximately $12.5 million), to take a firm stance toward seeks to garner multilateral the administration of President were imposed pursuant to Iran, but one that is different support from previous JCPOA George W. Bush. However, Article 14 of the Federal than the prior administration’s players (the P5 +1, which, in the 2005 agreement did not Decree Law No. (20) of 2018 ‘maximum pressure’ campaign. addition to the United States, lead to diplomatic ties or on Anti-Money Laundering Even before the inauguration, includes China, France, economic cooperation with and Combating the Financing the Biden team signaled its Russia, the United Kingdom, Israel; now, Bahrain and Israel of Terrorism and Financing willingness to engage with and Germany) to resume have entered into Memoranda of Illegal Organisations. The Iran and to revisit the 2015 negotiations. It is also unclear of Understanding focused on announcement of these penalties Joint Comprehensive Plan of whether the United States will cooperation in a variety of followed the December 2020 Action (‘JCPOA’), the nuclear seek to reenter into the JCPOA, sectors, from telecommunications UAE Cabinet decision to form deal that the United States or to negotiate a new agreement. to aviation. an Executive Office of Anti- withdrew from in May 2018, It tends to take more time Money Laundering (‘AML’) and demonstrated its strategic for significant changes like the and Countering Financing of focus on Iran by appointing Mr 5. Looking forward over normalisation of ties with Israel Terrorism (‘CFT’), formally Robert Malley as the US special the next two or three years, to translate into the regulatory/ established in late February envoy for Iran, a move which what would you say are the legal space. While the signing of 2021. This Executive Office is generated some debate with US sanctions/security related the Abraham Accords has had a charged with overseeing the foreign policy circles. However, risks that companies ought near-immediate ripple effect with implementation of the UAE’s Mr Malley is well known in to be factoring into their regard to the social and economic National AML/CFT Strategy the region for his work under horizon scanning for the atmosphere in the region, there and National Action Plan, which the Clinton administration on Gulf region? will be a lag with regard to the consists of reforms to bolster Israeli-Palestinian negotiations events’ impact on compliance. UAE financial controls. and as the lead US negotiator For example, we continue to hear It is possible that the recent on the JCPOA under the Obama Although we are still early in from clients that have identified sanctions are, at least in part, administration. Bringing Mr the Biden administration, its boycott language in their a response to a report issued Malley back indicates – to a actions to date have brought contracts and other agreements, in April 2020 by the Financial certain degree – that the Biden a focus on Iran, Saudi Arabia, which is generally boilerplate Action Task Force (‘FATF’). administration may be seeking, Yemen, and China. language included in standard The Gulf Cooperation Council to the extent possible, given all templates that some companies (‘GCC’), of which the UAE is that has transpired, to pick up Iran will continue to use until those a member, is a member of the where the United States left off We reiterate that companies templates are updated. There are FATF. The FATF report assessed in 2018. ought to plan for the also contracts that pre-date the the UAE’s performance against US sanctions against Iran continuation of US sanctions lifting of the UAE boycott, and the FATF’s 40 recommendations, have substantially affected against Iran. Although the the boycott language in those a global framework of measures the Gulf, given its proximity contours of the sanctions contracts remains reportable to combat ML/CFT and and business ties with Iran. imposed by the United States because the boycott was in force sanctions evasion activities, However, the Gulf is largely may change over the course at the time the language was and stated that the UAE is in alignment with the United of the next year or two, even included. Because US boycott ‘exposed to significant ML States with respect to Iran and if the Biden administration laws remain in effect and, as [money laundering] and TF shares many of the United eases sanctions, we may not of today, unchanged, boycott [terrorist financing] risks and to States’s concerns regarding see the type of sanctions relief requests must be evaluated on proliferation financing.’ Iran’s development of its that the JCPOA offered (e.g., a case-by-case basis, and legal The UAE government’s focus nuclear programme. Gulf the relief directed at foreign departments should continue to on combatting AML/CFT and countries have even joined the subsidiaries of US companies) encourage employees to report sanctions issues will continue, United States in sanctioning for some time, if at all. And all boycott language to their legal which could lead to additional certain corporations, banks, even if we do, there are sure to team for review. sanctions and/or enforcement and individuals linked to Iran’s be sanctions that remain – Iran actions. The recent sanctioning support for militant networks. sanctions are a highly intricate of the 11 banks came on the heels Although many businesses in web of statutes, regulations, 3. In January, the UAE of the UAE Ministry of Justice’s the region would welcome an executive orders, and guidance, Central Bank announced October 2020 suspension of the easing of trade restrictions for dating back over four decades, that it had imposed law licenses of 200 law firms in economic reasons, there is an and cannot be entirely undone financial sanctions on 11 the UAE for one month for their understanding that even if the in four years. banks operating in the alleged failure to follow AML United States considers lifting country for their failure to procedures. certain sanctions as a sign of Saudi Arabia reach appropriate levels of good faith to bring Iran back to During his campaign, compliance on anti-money the table, the United States is President Biden indicated laundering and sanctions. 4. What is the mood in the not likely to make significant that his administration would What precipitated such a Gulf vis-à-vis Iran, and what moves with regard to sanctions recalibrate US-Saudi relations, move? Does it signal a new, does it hope from the Biden in advance of reengaging in which were particularly more robust approach to administration in terms negotiations with Iran. warm under the Trump enforcement of sanctions? of its negotiations with Further, in light of the break administration. Already, the Tehran? in diplomatic relations with Biden administration has ended Iran since 2018, the region arms sales and other support The sanctions that the UAE recognises that it will take time for Saudi offensive operations Central Bank imposed on The Gulf is anticipating to fully reopen the channels in connection with ongoing these 11 institutions, which that President Biden’s of communication with Iran, conflict in Yemen.

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Following the issuance government, are believed to would not expect to see the and Road Initiative, a global of a US intelligence report have been directly engaged group re-designated. However, infrastructure development concerning the 2018 killing in serious, extraterritorial depending on how the conflict strategy. of journalist Jamal Khashoggi counter-dissident activities. evolves in Yemen, we could see Given that the US in late February 2021, the additional sanctions imposed government has identified Biden administration stopped Yemen against individual Ansarallah Huawei as a threat to national short of imposing sanctions Although not a member of the members. For example, in security and subjected it to US against Saudi Crown Prince GCC, because of its geographic early March 2021, the State export control restrictions – Mohammed Bin Salman, location, we include Yemen Department sanctioned Mansur an assessment that the Biden which would have significantly when assessing risk in the Al-Sa’adi, the Houthi Naval administration has indicated affected US-Saudi relations as region. In the final days of the Forces Chief of Staff, and will not change – going well as the various commercial Trump administration, the Ahmad ‘Ali Ahsan al-Hamzi, forward, companies engaging ventures in which the crown State Department designated the commander of Yemen’s in the Gulf, especially in the prince is involved. However, the Ansarallah (also referred to Houthi-aligned Yemeni Air telecommunications sector, administration has sanctioned as the Houthi movement) as a Force and Air Defence Forces. should be sensitive to these the former Saudi intelligence foreign terrorist organisation export restrictions. In addition, chief, and the Saudi royal and imposed sanctions against China US concerns regarding Chinese guard’s rapid intervention it. In mid-February 2021, the China is one of the Gulf region’s surveillance and espionage force, and has announced State Department, possibly leading trade partners. In 2019, could potentially lead the visa restrictions on 76 Saudi in relation to the Biden the United Nations estimated US government to impose citizens, referred to as the administration’s strategy that trade between China and restrictions in connection with ‘Khashoggi Ban’, which the US for brokering negotiations Saudi Arabia reached over the sale of defence-related items government has stated could be between the warring factions $36 billion, while trade with to the Gulf. expanded to apply to families of in Yemen, revoked the the UAE exceeded $50 billion. the blacklisted individuals. The Ansarallah designation, In particular, Saudi Arabia Mahmoud (Mac) Fadlallah is Khashoggi Ban, a policy created allowing US persons to engage and the UAE have partnered the managing partner and pursuant to the US Immigration in transactions so long as no with Huawei in connection Lauren Talerman is a counsel and Nationality Act, allows blocked persons are involved. with adopting 5G broadband at Akin Gump in Dubai. the US State Department to If the Biden administration’s cellular technology in their sanction individuals who, objective is to bring Ansarallah respective countries, efforts WWW.AKINGUMP.COM acting on behalf of a foreign to the negotiating table, we that are part of China’s Belt

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