By John Irish
Four police probes into execs at major real estate and financial firms have raised fears over a lack of regulation and transparency.
A series of financial scandals at major Dubai firms threaten to derail the Gulf Arab emirate's ambitions to become an international business hub unless the government tackles corruption head on.
Propelled into the global limelight by glitzy projects such as the world's tallest tower, Dubai has long sought to transform itself into a global player, partly by assuring investors that it offers a world class legal system as well as zero tax.
But at least four police investigations launched this year into executives at major government-linked real estate and financial firms have raised fears that a lack of regulation and transparency could hamper investor confidence.
"There is a recognition that on these business dealings, negative headlines can have damaging consequences," said Christian Koch, director of international studies at the Gulf Research Center. "Confidence in the economy, its future plans, transparency and fighting corruption is all tied together."
The vice-chairman of government investment fund Istithmar World, who in June was ringing the Nasdaq's opening bell in New York, is under investigation for alleged financial wrongdoing in his previous post at Islamic mortgage firm Tamweel.
Nakheel, which built Dubai's palm islands and recently bought into Canada's Cirque du Soleil, said last week one of its officials was being investigated on suspicion of bribe-taking.
Unlike earlier cases, UAE nationals were implicated for the first time, making the cases juicy fodder for international and local media and threatening to tarnish Dubai's glossy image.
"You cannot allow stories like this to hang around, as the damages and end results will be much worse," said Koch.
With its gross domestic product rising to $53.9 billion in 2007 and an annual average growth rate of 8 percent, Dubai has begun to realise that it can ill-afford to rest on its laurels if it wants to keep its title as the Gulf business capital.
The government has said the latest investigations are part of a high-level decision to clamp down on graft.
"Any employee exploiting his position to make illegal profits will not have immunity," a rare statement from Dubai ruler Sheikh Mohammed bin Rashid Al-Maktoum's office said, following the latest revelations of financial irregularities.
The flurry of cases has coincided with a strengthening of the financial audit department at the start of 2007, giving it more power and making it directly answerable to Sheikh Mohammed.
It audits about 250 entities annually in Dubai, including all firms in which the government owns 25 percent or more, and passes any violations on to the public prosecutor's office.
"When you are expanding and there is booming activity, there will be mistakes," said the Financial Audit Department's director general Yaser Amiri.
State-controlled firms, including sovereign wealth fund Investment Corporation Dubai and Emaar Properties, the Arab world's largest developer, are among a growing number of companies publicly supporting the new directives.
Emaar Chairman Mohammed Alabbar is clear: "Embrace international best practices and [it] will reassure investors in the region and beyond."
The messages aim to reassure a jittery international community already wary after the global credit crunch. One of Dubai's biggest fears is losing the international credibility it has acquired as a financial safe haven, analysts say.
Shares of Tamweel, in which Istithmar World has a 21.6 percent stake, have lost almost a quarter of their value since the scandal surfaced, and most sellers have been foreign.
The dearth of regular economic data, such as monthly inflation figures, or vague statements from listed companies add to the aura of unease, said Marios Marathefis, regional head of research at Standard Chartered.
Solving such basic issues would bring transparency to Dubai's fast-growing and increasingly complex economy, he said.
But officials say corruption is no more entrenched in Dubai than it is in almost any country around the world.
"This happens all over the world and if you compare the size of Dubai with the size of corruption then it's very small," said Fawzi Tamim, an advisor at the audit department.
According to Transparency International's latest Corruption Perception Index, the UAE scores above average at 5.7 out of 10 points, but below nearby Qatar and others like Malta or Estonia.
"There is no perfect scenario... one tries to say everything is great in the UAE, but you have to accept the authorities are learning and this is part of the learning process," said Koch. (Reuters)