Cargo movements and associated trade payments are being routed through outfits and banks in Dubai in transactions that come across like regular bilateral trade between India and UAE, two senior bankers and a few members of trade bodies told ET. Neither the banks handling the payments question the origin or final destination of the goods nor their clients talk about them.
“The payments are processed in a manner as if the Russian leg of the transactions doesn’t exist, be it import or export. But banks know the actual nature and purpose of the trades,” said an official with a large Indian bank.
‘Practiced During Iran Sanctions’
“They just shut their eyes though there’s no violation of rules here..It’s happening over the past few months in various items, but not in a very big way. It was common during Iran sanctions,” said the official.
The UAE entity that trades with an Indian firm acts on behalf of the original Russian importer or exporter in which the latter may be a partner. Payments for imports to India may be invoiced in dollars, though many prefer it in Emirates Dirham to avoid any link with the US currency and clearing system. The Dirham, which is pegged to the Dollar, is convertible into rupees with several banks offering daily quotes.
“Now, the Indian importer is not bothered how the money reaches the Russian seller. There can be different ways. We are told that the Dirham is converted into Renminbi. But there could be other ways of settlement using certain Russian banks which are not yet on the sanction list. It’s the same for the Indian exporter who is not bothered how the Russian buyer arranges funds but is happy as long as the Dubai bank of the UAE intermediary releases payments,” said another banker. “In the Russian leg of the deal there could be some cash settlement also,” he said.
Russian businesses have long enjoyed a certain clout in the UAE. And though financial institutions in Emirates have tightened their anti-money laundering regulations over the past few years, the UAE is sometimes perceived as a safe haven for the Russian rich.
In international trade, ‘bill-to, ship-to’ is a regular practice where the party who is making the payment is different from the party to whom the goods are shipped. “However, for Russia trades, many would like the goods to be routed through UAE despite a higher transportation cost so that there is no mismatch between the trade documents and payment details…The Indian party simply maintains that it is unaware of any Russian connection the UAE entity may have. There can be a new certificate of origin given in the UAE,” said a practitioner of foreign exchange regulations.
“Shipment to Russia has begun though not in full force yet. Some payments are directly coming from Russia, some are being routed through the UAE,” said a tea exporter from the south.