Dubai strengthens control over crypto-businesses in order not to become a global center for money laundering

Regulators in Dubai intend to bring local companies and major exchanges into the legal sphere. At the same time securing the region from illegal cryptocurrency transactions

After the FTX exchange went bankrupt last November, regulators in Dubai are tightening their grip on the crypto business. This followed the closure of a number of illegal cryptocurrency exchanges, and now officials at the Dubai Virtual Asset Regulation Authority (VARA) have started sending out requests for information to cryptoservices operating in Dubai.

What are the Dubai authorities doing and what are the consequences for crypto business

The authorities in Dubai have to find a balance between encouraging innovation. And the need for proper oversight of the crypto industry. One of the experts interviewed, who advises fintech companies on expansion in the Gulf region. Says the regulator intends to turn Dubai into the capital of the digital economy. And while retaining business ties with Western jurisdictions and not causing complaints from them.

The Middle East, represented by the UAE, is trying to strike a balance between remaining an attractive region for investment. And not to become a “global laundry”. Given the recent trend and the claims to the region by the international community.

The United Arab Emirates, of which Dubai is a part, has already cracked down on dozens of cryptocurrency exchangers that opened there without licenses. Our experts point out that this was part of a broader program to remove the UAE from the FATF’s gray list.

This trend is related to the authorities’ growing concern about the risks associated with the use of cryptocurrencies. Such as fraud, money laundering and terrorist financing. As a result, authorities are seeking to tighten regulation and oversight of companies. That deal with cryptocurrency transactions.

What controls the Dubai authorities plan to launch

Among the specific measures Dubai authorities could take. Our experts call for stricter licensing requirements for crypto-businesses. Such as more thorough verification of financial statements and strengthened compliance procedures. In addition, it is possible to increase fines and other sanctions for companies that violate the rules related to operations with cryptocurrencies. And in particular with ICOs. In general, these measures are aimed at increasing the transparency and reliability of operations with cryptocurrencies. And also to reduce the risks associated with these transactions.

The UAE has already received questions from the FATF in the context of the possibility of the country to be blacklisted. This was due to insufficient compliance with anti-money laundering measures, according to the regulator. The agency published evidence that the country directly and indirectly helps oligarchs evade Western sanctions. And this includes through cryptocurrency transactions. The country is currently on a gray list. Therefore, they do not need to be regulated, our experts believe.

Binance and other major exchanges are under supervision of the authorities

The world’s largest cryptocurrency exchange, Binance, has also faced inquiries from VARA. Its head, Changpeng Zhao, himself lives in Dubai and is working to make it the center of brand expansion in the Middle East.

The Dubai regulator is requesting more data from Binance than from other market participants. The agency is reviewing information on ownership structure, audit reports and governance procedures at the global group level. The process is complicated by the fact that Binance does not have a single headquarters. And instead of a board of directors, the usual form is a global board of experts. In addition, the exchange has a complex corporate structure, including several holding companies. And many legal entities in different regions. Representatives of Binance said that they had submitted to VARA a full set of data on requests. That included the results of an audit of the local unit.

In addition to Binance, the public registry of virtual asset service providers at VARA lists four other companies with licenses: Komainu, Hex Trust, GC Exchange and Crypto.com exchange. The latter, like Binance, has provisional minimum viable product (MVP) approvals. This means they cannot yet offer cryptocurrency-related services in Dubai. Which are officially regulated by local law.

All issued licenses are temporary, our experts explain. Obtaining higher level licenses will only be possible after the necessary changes in the legislation are adopted.