DUBAI (Reuters) - Kuwait’s prosecutors have asked Dubai to release $500 million in funds belonging to a Kuwaiti private equity fund that were frozen as part of a money laundering investigation, according to a letter seen by Reuters.
The funds, held at a Dubai-based bank, were frozen at the behest of the United Arab Emirates (UAE) central bank in November 2017, according to a source with direct knowledge of the matter and legal documents and correspondence between parties involved in the case reviewed by Reuters.
According to a senior UAE official, the probe, which has not been previously reported, was undertaken by Dubai authorities to determine if funds sent from a bank in the Philippines to the Kuwaiti private equity fund’s account in Dubai constituted money laundering.
The probe comes as the UAE tightens financial regulations to fight a perception among some foreign investors that it is a hot spot for illicit money flows owing to its free trade zones and geographic proximity to Iran, the target of U.S. sanctions.
But the freezing of funds, which Kuwait says are owed in part to two of its state entities, could test its relationship with regional ally Dubai, which has not disclosed the reason for the money laundering investigation.
In the letter, dated Oct. 16, Kuwait’s attorney general asked his counterpart in Dubai to help release the funds.
The letter said two local government entities - the country’s port authority and its pension fund - were owed a total of around $200 million.
“We ask for your constructive cooperation to order the release of the funds and transfer $125 million to Kuwait Port Authority’s account and $79.2 million to the account of Public Institution for Social Security,” the letter said.
Both entities are among investors in Port Fund, a Cayman Islands-registered private equity fund.
The remainder of the frozen funds would be distributed to “those (other) shareholders who have rights,” the letter from Kuwait’s attorney general said, without naming them.
The Kuwait public prosecutor’s office did not respond to a Reuters request for comment about the content of the letter.
A Dubai government spokeswoman confirmed that an investigation into the funds frozen at Noor Bank was ongoing. Asked about the request by Kuwait’s attorney general to release the funds, the spokeswoman said the government did not want to comment further on the matter.
Dubai authorities are investigating the initial transfer of the $500 million to an account held by Port Link, which manages Port Fund, at Dubai’s state-owned Noor Bank, according to a July 2018 letter about the case sent by the UAE central bank governor to the country’s ambassador in the United States.
The letter, also seen by Reuters, said the case related to “money laundering offences” linked to individuals in Kuwait “suspected of public funds embezzlement and corruption.”
The letter did not name any individual and did not detail the allegations.
It said that at the time, Dubai and Kuwaiti state prosecutors were in contact with each other to investigate the lawfulness of the transaction.
U.S.-based law firm Crowell and Moring, which represents Port Fund, told Reuters that the money was a legitimate payment after Port Fund sold its investments in the Philippines.
The firm said that aside from the two Kuwaiti state entities, international investors, institutional investors in the Gulf and creditors – including U.S. advisers – were also owed some of the frozen funds.
The $496 million in question was transferred on Nov. 14, 2017, by Philippine bank BDO Unibank to Port Link’s account in Dubai, according to interbank messages seen by Reuters between BDO and Citibank, which acted as the U.S. intermediary involved in the transfer.
BDO said in a statement to Reuters the transaction was legitimate and complied with all banking rules. A Citi spokesman declined to comment.
Susan Shoury, a spokeswoman for Noor Bank, said the bank is committed to the highest standards of compliance, governance and internal controls.
Additional reporting by Michelle Price in Washington and Neil Jerome Morales in Manila; Editing by Ghaida Ghantous, Silvia Aloisi and Mike Collett-White