'Rather fail with honour than succeed by fraud.' – Sophocles
By Rovine Chandrasekera
Posted: 10th July 2014 09:04As the UAE increases its status as a global hub for finance and investment, the issue of fraud becomes increasingly prominent.
The UAE's authorities are intensifying efforts to develop and adapt legislation to combat the increasingly sophisticated financial crimes to maintain a reputation as a safe environment for international companies to invest and do business.
Changing landscape in the UAE
In April 2009, Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum, said:
“There is no room for corruption and the corrupt… In all corruption cases, people are not only prosecuted and punished, administrative and legal holes that they exploited to commit their crimes are plugged…No one in the Emirates is above the law and accountability.”
Recent cases have shown that these words have force and that the UAE is focussing on setting a precedent that fraud will not be tolerated. To name but a few recent cases of interest:
- A former cabinet minister was sentenced to two years for fraud and embezzlement;
- A former Dubai Islamic Bank chief executive was sentenced to three years in prison and fined $27.2 million for accepting a bribe and unlawful commissions; and
- A former senior manager at the overseas investment arm of Dubai World received a prison sentence of five years and ordered to pay almost AED 10million in fines after being found guilty of embezzling $1.34 million.
It would appear therefore that there is a commitment to combatting fraudulent behaviour and maintaining a business-safe environment.
What is fraud?
There is no overriding definition of fraud in UAE legislation but it is a topic that is dealt with in both commercial and criminal provisions, the most prominent being:
i. The Penal Code (Federal Criminal Law No. 3 of 1987 and Federal Penal Procedures Law No. 35 of 1992) which provides for liability for fines and imprisonment in the event of forgery, embezzlement, trickery, cheating and fraudulent bankruptcy;
ii. The Commercial Code (Federal Law (No. 8) of 1984 on Commercial Companies law) which provides for liability of the chairman/directors towards the company, shareholders and third parties for acts of fraud,misuse of power, and any unlawful act vis-à-vis the company.
iii. Federal Law no. 5 of 1985 relating to Civil Transactions which provides for liability for fines and imprisonment in the event of "fraud" where a person deliberately becomes bankrupt to avoid debts, conceals property or changes residence to avoid execution against it.
iv. Federal Law (No. 18) of 1993 on Commercial transactions law which further prevents anyone convicted of fraud from engaging any further in trade.
What are the penalties for fraudulent action?
Both the civil and the criminal legislations provide for punishments for fraudulent behaviour of fines (generally up to AED 100,000) and imprisonment (up to 10 years), the value and length of which vary depending upon the nature of the unlawful act. Further, the person committing the fraudulent act will be liable for its proceeds.
Interestingly, a claim made pursuant to one set of legislation does not preclude action under another piece of legislation. Criminal and civil actions for fraudulent behaviour can therefore be commenced simultaneously against the same party.
What powers do the courts have to help combat fraud?
In addition to the ability to impose fines and prison sentences, the UAE legal framework also provides a mechanism under the Civil Code for attaching and/or arresting a person or company's assets in order to secure a claim against that person in fraud or enforce a judgment concerning financial claims including fraud pursuant to Article 209 of the Civil Procedure Code.
To obtain this injunctive relief, the Court would need to be satisfied that the Claimant had a prospect of succeeding, and, that there was a risk that the Defendant would dispose of all assets so that the claimant would have no remedy were its claim to succeed. However, the UAE courts does not, yet, have the same wide-reaching powers that are available in most common law courts and attachment orders are not as readily available as, for instance, England.
In contrast, the DIFC Court in Dubai has the power to grant interim injunctions and declarations and also orders for the detention, custody or preservation of property, including (a) “freezing orders” restraining a party from removing assets from the jurisdiction or dealing with any assets outside the jurisdiction; or (b) “search orders” requiring a party to admit another party to premises for the purpose of preserving evidence; or (c) orders for interim payment for payment by a defendant on account of any damages, debt or other sum (except costs), which the court may hold the defendant liable to pay.
Can the court assist to trace assets?
To apply for an order freezing assets and seizing property, the Claimant, in general, must have knowledge and evidence itself of the assets that exist and where they are located in the UAE. This can be difficult in the UAE jurisdiction where there is no specific procedure permitting the legal acquisition of sufficient and reliable information enabling a claimant to determine the assets of the defendant in the UAE. The information contained at public registries is often insufficient, and the process to access them, cumbersome.
Claimants will therefore have to be practical and seek to trace assets using sources on the ground and contacts in the UAE. A number of investigation companies operate in the UAE to do simply that i.e. investigate and trace assets for the purposes of litigation. This can be time consuming and expensive, however, it is a necessity in terrain where there is no route to that information via the Court system.
Whilst the plan to combat fraudulent behaviour is clear, i.e. punishment and fines for offenders, along with freezing/arresting assets to secure the claim, and recovery of proceeds of the fraud, there still remains a practical difficulty in implementing this plan effectively in that often assets and proceeds remain hidden.
The UAE is developing in the right direction and additional legislation is planned to further improve the position.
Rovine Chandrasekerais managing partner of Stephenson Group’s Dubai office and a commercial litigation partner. He advises on a broad range of commercial disputes and has particular experience in sanctions advice (relating to Iran, Syria, Ivory Coast), tracing and asset recovery, enforcements, injunctions, finance disputes as well as negotiating contracts relating to offshore oil and gas, shipbuilding and shipping.
Rovine has extensive experience of litigation and international arbitration in England as well as many other jurisdictions with particular experience in the Middle East and South Asian regions. He has substantial experience of working with clients based in the Middle East, particularly in the UAE, Iran and Syria, including insurance companies, traders, banks, brokers and ship owners. His specialist areas are fraud and asset tracing, sanctions advice, offshore oil and gas, marine and trade.
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