The UAE is under pressure to close its links to Iran's financial system from visiting US terrorism and financial intelligence officials.
US presses Emirates over Iran
The UAE is under increasing pressure to sever its links with Iran's financial system as US terrorism and financial intelligence officials visit the country to drum up opposition to Iran's nuclear programme, which Tehran says is for peaceful purposes.
Banks engaging in activity with Iran's Bank Saderat and Bank Melli, which both operate in the UAE, ran "a grave risk of finding themselves involved in a transaction that may support Iran's illicit activities," said David Cohen, the US undersecretary for terrorism and financial intelligence.
"We are looking to our partners around the world to take additional measures to isolate the Iranian financial system as a way to bring additional pressure to bear on Iran," he said during the UAE visit.
"One of the key areas we are focusing on is the extent to which designated Iranian banks are still able to operate in the international financial system," he said.
Mr Cohen's visit to the region comes days after the US ruled the entire Iranian banking system including the central bank was a "primary money laundering concern" under the US Patriot Act.
Together with existing international sanctions against Iran, pressure is tightening on the country.
Both Bank Saderat and Bank Melli have been flagged by the US, the EU, South Korea and Japan as helping to facilitate Iran's nuclear programme. But both banks have been an integral part of the UAE's financial community for decades, helping Iran to become one of the biggest destinations for the UAE's non-oil exports and re-exports.
Iran is Dubai's second-biggest trading partner and last year trade between the UAE and Iran stood at US$10.4 billion (Dh38.2bn).
The UAE Central Bank argues it is already complying with UN sanctions against Iran, which calls for vigilance when dealing with the banks. In addition, it has taken action to tackle potential avenues of illicit activity with Iran.
In June last year, the Central Bank sent a message to all banks, asking that the accounts of 41 businesses be frozen because of their dealings with prohibited companies, most of which are connected with Iran's powerful Revolutionary Guard.
International banks are coming under increasing pressure to sever their ties to Iran's financial system.
Last week, the UK announced it was imposing sanctions against Iran that would cut all UK financial ties with Iranian banks, including its central bank.
But the challenge for many foreign banks operating in the UAE is they risk exposure to Iranian banks through the UAE clearing system.
"The risk that any financial institution runs if they're doing business with Bank Melli, Bank Saderat is well established," said Mr Cohen. "These banks have been shown to be facilitating Iran's nuclear programme and they need a counter party to engage in financial transactions.
"Any financial institution that is engaging with transactions with Bank Melli or Bank Saderat runs a grave risk of finding themselves involved in a transaction that may support Iran's illicit activities," he said. Tightening sanctions against Iran have made banks in the UAE more reluctant to offer financing for businesses catering to the country.