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Sun 24 Aug 2008 04:00 AM

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Dubai is turning the screw on white-collar crime, with a string of dramatic high-profile arrests.

Dubai is turning the screw on white-collar crime, a string of dramatic arrests sending the message that bribery and corruption will not be tolerated in the emirate. Arabian Business details the four-year investigation that culminated in the scandal of the summer.

The call came without warning. "They didn't give me much notice - it was a case of ‘get there now'," the CEO of a major Dubai property firm tells Arabian Business.

And when the call comes direct from Dubai Police's Criminal Investigation Department (CID), neither he nor the dozen other business leaders summoned was about to decline the invitation.

When each arrived at CID, each was grilled by officers about their finances - both company and personal. "We had to explain everything, every single thing," recalls the CEO, speaking on condition of anonymity.

There are strict directives to have zero-tolerance towards all aspects of corruption, bribing and taking advantage of official positions.

"But it was clear not everyone could - one guy was even asked how he could afford a private jet on his salary."

As is swiftly becoming apparent, those who found themselves unable to answer the questions to the satisfaction of CID, now have even more explaining to do. A wave of high-profile arrests, followed by the announcement of a crackdown on corruption, has put Dubai on red alert for white-collar crime.

"Dubai government follows a transparent and clear policy on such issues," warned the public prosecutor in a statement last week. "There are strict directives to have zero-tolerance towards all aspects of corruption, bribing and taking advantage of official positions."

In a statement emailed by the media office of HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, the public prosecutor added that the results of ongoing investigations into the accused employees would be announced once they are complete.

"The government will disclose the full extent of any wrongdoings that have been committed," says Parth Kikani, a senior analyst with Dubai-based investment company Al Mal Capital.

"This will send a clear signal that one should not indulge in this kind of activity, and ensure that going forward there are no such issues arising again."

The drama began last week when it was announced that the former CEO of mortgage giant Tamweel was under investigation for alleged financial wrongdoing.

Adel Al Shirawi, now vice chairman of state-owned Istithmar World PJSC, is being investigated for alleged embezzlement and mistrust while employed by the UAE's biggest mortgage provider.

The UAE national was arrested on August 5 and Dubai police have referred the case to the public prosecution office. Former head of investments at Tamweel and chief financial officer of Istithmar World, Feras Kalthoum, is also under investigation.A day later, it was reported that a criminal case had been brought against a senior executive at government-owned developer Nakheel, this time for allegedly accepting bribes.

The executive was named in media reports as the company's general manager of sales, Walid Al Jaziri, while on August 19 it was revealed that former Nakheel executive Karim Masaad is also being held in Dubai.

Nakheel is the master developer behind the iconic man-made Palm and World islands, which have become synonymous with Dubai's coastline since they first began to take shape in the Arabian Gulf.

While Nakheel is a private company, in the two trading days following the arrest of Al Shirawi, shares of Tamweel - in which Istithmar World has a 21.6 percent stake - dropped like a stone.

Shares trading at AED6.48 ($1.76) on August 13 were down to AED5.86 ($1.59) by close on August 17 - a drop of almost 10 percent. However, analysts suggest that although investor confidence may be shaken by the investigations in the short term, ultimately the markets will readjust.

"If companies are not listed then ultimately it's only their owners that will be at stake, but if they are public companies then it's the whole shareholder base that will be affected," says Kikani at Al Mal Capital.

For the short term there might be some pain, but for the long term I think this kind [of accountability] is always good, and ultimately even the market recognises that."

Indeed, Tamweel stock has since rebounded, closing at AED6.05 ($1.65) on August 19, just 7% down on its pre-announcement price.

"The announcement shows the government is paying a lot of attention to standards of corporate governance, which can only be positive for the markets in the long term," agrees Marios Maratheftis, regional head of research for the Middle East at Standard Chartered Bank in Dubai.

"It will provide investors with all the reassurance they need, and the track record of the authorities so far is a strong guarantee."

A series of high-profile police investigations are already underway over alleged financial irregularities by senior executives at Dubai Islamic Bank (DIB) - the UAE's biggest Islamic bank by market value - and its affiliate Deyaar, a development firm.

DIB's former vice president for finance structure, Rifaat Othmani, was arrested as part of a fraud investigation on June 5. He and several other former members of DIB staff are being investigated, according to the bank, while the probe also led to the arrest of JPMorgan Chase's senior country officer for the UAE, Omair Mooraj.

At Deyaar, meanwhile, four people have been arrested as part of a police investigation into alleged embezzlement. Those arrested include Deyaar's former CEO, Zack Shahin, who has since maintained his innocence.

And yet the scandal could just be beginning. Sources suggest that the CEOs of at least two other Dubai development majors - between them responsible for a completed project portfolio worth over $100bn - are currently the subject of CID probes.

"The probes include several real estate and financial companies, not just one company," Arabic daily Emarat Al Youm quoted another high-level source as saying last week.

The roots of this summer's crackdown can be traced all the way back to June 2004, and a very public scandal that engulfed the Dubai International Financial Centre.

Then, the two chief regulators at the Dubai Financial Services Authority (DFSA), Ian Hay Davison and Phillip Thorpe, were both fired after "questioning" several land contracts awarded by the authority.Their suggestion was that some DFSA members were favouring their own companies when it came to awarding of land contracts.

Although this was never substantiated and the DFSA has since led a drive for greater transparency in the emirate, the scandal focused CID attention on the issue of corporate accountability - and creative accountancy.

"It set the ball rolling. People started asking questions about companies, and then the questions were about the people running those companies, and those in positions of power," says one senior figure who witnessed the initial investigations at close hand.

Over the next two years, Dubai Police began looking closely at the financial affairs of its top officials. Nobody - not even those at the very top of the business community - was spared from the probe.

With the help of the financial audit office - which audits around 250 companies in Dubai each year, including firms in which the government owns 25 percent or more - CID and the public prosecutor's office had compiled detailed dossiers of unanswered questions by the time some business leaders were first called to account in early 2006.

"It was quite a heavy meeting, I would say quite aggressive," recalls a businessman who was present at the initial meetings. "The official leading the meeting said he was from Dubai CID, and it didn't seem to matter who you were, or how well known you were - you had to give answers."

In the two years since, CID has been probing in detail the personal affairs of Dubai's business leaders, studying their bank accounts, and even their spending habits - the size of home they live in, the model of car they drive and the type of holiday they go on.

The main question was a simple one: how could businessmen with salaries of AED100,000 ($27,247) to AED200,000 ($54,495) a month, afford the lifestyles they were leading?

Clearly, not all could - at least on their salaries alone. They now languish in police cells, while the net closes on those who have not yet been arrested, but who have serious questions to answer. And however many are finally called to account, the summer of 2008 could be remembered as a watershed moment for financial transparency in the emirate.

"The message is that there's a constant evolution of the economy here and things will continue to improve," says Maratheftis at Standard Chartered.

"Having a stronger regulatory environment will be very important, especially as the economy and markets become more complex, and the authorities are sending the message that they will do everything they can to improve things even further."

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