In the lobby of a Dubai skyscraper, a doorman fields queries about an increasingly popular crypto shop, directing clients to office 501, down a grubby corridor on the fifth floor.
(Bloomberg) — Sign up for our Middle East newsletter and follow us @middleeast for news on the region.
In the lobby of a Dubai skyscraper, a doorman fields queries about an increasingly popular crypto shop, directing clients to office 501, down a grubby corridor on the fifth floor.
Inside, staff are busy operating Coinsfera, an over-the-counter exchange that’s emerging as a favorite for Russians, Iranians and others who struggle to transfer money through banks due to Western sanctions or local restrictions, according to bankers, lawyers and crypto executives familiar with the matter.
The OTC structure allows customers to buy crypto assets back home with local currency and sell them for hard cash in Dubai. At Coinsfera, the process takes minutes and involves checking an identity document and answering few questions, according to customers and staff.
Clients include ordinary folks dabbling in crypto or navigating capital controls and restrictions that don’t target them but can complicate banking. Sanctioned Russians have, however, flown to Dubai for big OTC transactions, three of the people said.
Scrutiny
Since there are no international sanctions on Russia and the UAE has not imposed its own penalties on the country or on Russian individuals sanctioned elsewhere, neither Coinsfera nor other OTC shops are prohibited from doing such business.
Because trades are cash-based and not reported publicly, it’s unclear how much money is being moved using crypto as a conduit or what proportion of it might pique the interest of regulators.
Yet the OTC trade is adding to international scrutiny over potentially illicit money flows through the United Arab Emirates, which was given a gray-list designation by the Paris-based Financial Action Task Force in March.
A spokesperson said Coinsfera has offices in Istanbul and Dubai and screens potential clients fully, checking identification and following procedures aimed at combating illicit flows. The firm said it doesn’t engage with citizens of Iran or any other sanctioned countries.
The company also helps clients buy and sell real estate and luxury watches using digital currency and had faced no issues with clients or from authorities, the spokesperson said in an emailed response to questions.
A spokesperson for the UAE executive office responsible for combating money laundering and terrorist financing (AML/CFT) said a framework governing virtual assets was being finalized, warning that any firm or individual that doesn’t comply risks being prosecuted, fined or having their licenses revoked.
Dubai government spokespeople didn’t respond to a request for comment.
Crypto Hub
The rise of OTC shops — Coinsfera is one of dozens — coincides with Dubai’s declared push to transform itself into a global crypto hub. The UAE’s business capital has attracted more than 1,000 blockchain firms in the past year, from major exchanges like Binance and FTX to the embattled hedge fund Three Arrows Capital.
The Collapse of Three Arrows Capital Became a Crypto Contagion
Unlike centralized exchanges, where trades can be tracked on the blockchain, OTC transactions are often conducted through offline crypto storage systems, or “cold wallets,” so there’s no public order book, allowing clients to buy and offload assets without much of a paper trail.
The shops make their money by charging commission much like the traditional currency exchange kiosks found at airports and tourist hotspots. Coinsfera charges a 3% commission in Istanbul, and said it operates as a proprietary crypto trader in Dubai.
Karin Veri, a Dubai-based entrepreneur from Saint Petersburg who invests in the stablecoin Tether, said she visits Coinsfera monthly.
“It’s all very fast,” she said. “When friends and family come to visit, it’s an easy way to get cash out in just a few minutes.”
The company’s Dubai branch is also a favorite online, boasting a perfect 5.0 rating on Google with more than 600 reviews.
“In theory, Western officials should be unhappy with a gray-listed country with inadequate oversight going full force to expand crypto offerings,” said Jodi Vittori, a professor at Georgetown University who studies the nexus of financial flows and US national security.
Russian Money
Years before the world turned its attention to Russian money flows to Dubai, it was already established as a back door for sanctioned countries like Iran to access Western markets.
Since Vladimir Putin’s Feb. 24 invasion of Ukraine, it’s emerged along with Turkey as a destination for funds being moved out of Russia or Western nations that are freezing Russian assets and scrutinizing transactions.
It’s an extension of Dubai’s role as a tax-free magnet for wealthy businesspeople looking to protect their assets by buying high-end property.
The US Treasury Department has sanctioned several Dubai-based trading entities over their links to Russia and Iran in recent months, but has not targeted its crypto firms.
In June, Deputy Treasury Secretary Wally Adeyemo visited the UAE and Turkey, relaying the Biden administration’s concerns about potential Russian sanctions evasion including via virtual assets, people familiar with the matter said. A UAE delegation followed that up days later with a trip to Washington, according the state news agency WAM.
Russian Yachts and Money Are Going Where US Influence Has Waned
A US Treasury spokesperson said it was imperative for financial institutions, including virtual asset providers, to comply with international financial regulations. The US Treasury has ways to target those facilitating sanctions evasion, the spokesperson said.
A UAE government official said the country was “committed to working closely with international partners to combat the cross-border threats of illicit activity in the crypto industry and uphold the integrity of the financial system.”
More Competition
Many such crypto shops are based in Dubai’s Jumeirah Lakes Towers, the high-rise development where Coinsfera operates within the Dubai Multi Commodities Centre free zone.
Coinsfera’s website says it’s been operating in several countries since 2015.
Turkey’s trade registry shows Coinsfera was established three years ago by Geray Gerayli, an Azerbaijani citizen, as a joint stock company. It lists Gerayli as the firm’s only manager.
Efforts to reach Gerayli through his company email address and his colleagues at Coinsfera were unsuccessful.
In Dubai, a DMCC corporate register simply lists the parent company: A to Z Globe DMCC. That’s the name outside the Coinsfera office.
A DMCC spokesperson said the free zone works with regulators to ensure “our jurisdiction provides a robust operating environment.”
With the rapid growth of crypto in Dubai, Coinsfera regularly adds to its niche services.
A company advertisement in May said it could serve “citizens of different nations – Russia, Europe, Canada and Nigeria – where there is high crypto activity” and support clients “in search of expensive luxury villas.”
(Corrects story first published on Aug. 1 to reflect Coinsfera has different business models in Istanbul and Dubai in 14th paragraph, and to add additional Coinsfera comment in 8th paragraph)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
