The Pitfalls of Doing Business in the Gulf

Israelis must avoid working with entities and individuals under US sanctions, expert warns

Israelis rushing to ink business deals in the newly available Arab Gulf market would do well to take precautions before signing on the dotted line, an expert in international economic law warns.

Ties between Israel and the United Arab Emirates are blossoming following the signing of the historic Abraham Accords in September, which normalized relations between the two countries. Israeli companies and investors, as well as their counterparts in the Gulf, have since been busy cementing dozens of important deals in a variety of sectors.

But while the new market is rife with opportunities, it also presents potential risks.

Dr. Efraim Chalamish is a senior advisor and global institute fellow at the Duff and Phelps financial consultancy firm and a professor at New York University.

“So many people are focused on the excitement but there are definitely risks,” Chalamish told The Media Line. “The first risk that we should keep in mind is that, like every new market, it is very important to identify and work with credible individuals.”

“Politically Exposed Persons (PEPs) or government-sponsored entities maintaining a direct or indirect interest in locally registered companies in addition to acting as an investment partner, customer or supplier, can present regulatory or reputational challenges,” he also said.

Chalamish’s firm, Duff and Phelps, is a global company with a presence in the Gulf. Since the signing of the peace agreement, people have reached out to the firm in order to conduct business intelligence work and background checks on individuals and companies.

So many people are focused on the excitement but there are definitely risks

There are also various types of compliance and anti-money laundering risks associated with doing business in the Gulf, he says, especially in relation to the region’s financial sector and booming fintech industry.

“When you pursue a transaction with a local entity, it is important to confirm — via a specialized due diligence — the source of funding and examine the possible connection to people from countries that are currently sanctioned, have been sanctioned in the past, or where public records are limited,” Chalamish explained. “This also requires an understanding of the sanctions regime.”

In August, the Trump Administration slapped sanctions on two UAE-based companies after they were found to be providing parts and logistics service to Iran’s biggest airline. Parthia Cargo and Delta Parts Supply FZC provided the parts for Iran’s Mahan Air, which is blacklisted by the US under its sanctions regime.

Aside from sanctions, understanding the corporate governance structures of companies in the Gulf could present Israeli businesspeople with an obstacle of a different nature.

“While many entities in the Gulf are small- to medium-sized enterprises and family-owned conglomerates with limited governance structures and transparency, other sovereign funds and state-owned enterprises currently looking into the Israeli and Palestinian markets are world-class institutional investors with a different level of governance structures,” Chalamish said.

Chalamish spoke to The Media Line on the sidelines of the ARISE 2020 Digital B2B Summit. The online conference, titled “Prospering in the New Normal,” featured hundreds of investors and leading businesspeople from around the globe seeking to develop partnerships with and invest in Israeli companies.

Organized by ARISE — the Alliance to Reinforce Israel’s Security and Economy — and Israel’s Ministry of Foreign Affairs, the event was held on Tuesday. The purpose of the conference is to connect businesspeople and encourage investment in Israeli startups and technology, especially in the fields of health, agriculture and education.

Much of the summit focused on new areas of innovation that have arisen as a result of the COVID-19 pandemic and new economic opportunities that have emerged following the historic peace agreements between Israel and its Gulf neighbors.

Attorney Calev Myers, founder and president of the ARISE organization, said that the goal is to reach out to as many executives as possible worldwide in order to bolster the Israeli economy.

“There is a drive to digitize everything because of the realities of the coronavirus,” Myers told The Media Line. “We definitely see an increase in digital products. I’ve also seen an increase in real estate investment.”

While the majority of those attending the summit were pro-Israel Evangelical Christians, Myers said the alliance has no religious agenda.

Speakers included dignitaries and businesspeople from the UAE and Bahrain, as well as Israeli officials and pro-Israel Christian leaders.

“I think at the end of the day that peace prevails,” Ahmed Al Mansoori, a board member of the UAE-based Abrahamic Business Circle, told online attendees. “Both of our countries have proven that we are very committed to the future.”