By Andrew White
The founding chairman of Dubai’s financial regulator slams the direction it has taken since its launch.
The bookshelves of Dr Habib Al Mulla’s Sheikh Zayed Road office are littered with photos. One shows Al Mulla with Sheikh Mohammed Bin Rashid Al Maktoum; another with former US president George W Bush; then snaps alongside Bill Clinton, Colin Powell and Al Gore. But the lawyer shows me the one of which he is clearly most proud. It’s his two-year-old granddaughter, up close and grinning.
“I want to enjoy my life, and my family,” he says, smiling. “I remember speaking once to a colleague, and he was retiring at the age of 55. He said ‘Listen, I’ve worked enough, I’ve made some money, and I have two choices – either spend it on enjoyment, or on my doctors’. I prefer to spend it on myself.”
No-one could possibly accuse Al Mulla of failing to earn his family time. One of the Gulf’s most prominent lawyers, the Harvard and Cambridge graduate has spent 26 years in private practice and government.
Founder and executive chairman of Dubai-based legal giant Habib Al Mulla & Company, he has represented the royal families of both Abu Dhabi and Dubai in high-profile legal showdowns in the UAE and US.
At the same time the 48-year-old Emirati, who was the founding chairman of the Dubai Financial Services Authority (DFSA), is also a committed reformer, an ever-present buzz in the ears of the establishment, with a reputation for straight-talking.
The evening we meet, things are no different. Al Mulla is making a powerful case for the prosecution — and in the dock is the financial centre he helped build.
“The Dubai International Financial Centre is more of a shopping centre and more of a real estate project [than a financial centre],” he says. “They need to get back on track to the initial goals of the DIFC.”
The boss of the DFSA is pushing for a guilty verdict, and pushing hard. The charge? That the financial centre Dubai hoped would establish the emirate alongside New York and London as a global hub has so far failed spectacularly in its remit.
“There was a clear vision with the first blueprint for the DIFC,” he says. “[However] it has moved away from the path we set out on, which was to build a financial centre with high standards, to attract the 500 top companies in the region, to become a hub for doing business for the whole region.
“That initial direction, particularly when it comes to the exchange, but also the DIFC as a whole, has been lost.”
It is three years since Al Mulla relinquished his role at the DFSA, and three years since he last sat down with Arabian Business. In 2007 he was tight-lipped on his reasons for stepping down; in 2010 it is clear he feels vindicated in his decision.
The shadow of corruption has been cast over the financial centre, and Sheikh Mohammed Bin Rashid Al Maktoum’s probe into suspected irregularities at the DIFC culminated in the arrest last year of former governor Dr Omar Bin Sulaiman, on embezzlement charges.
“The investigations have reconfirmed that my decision [to leave] was correct, and that my departure was the right thing to do at the time,” says Al Mulla. “I was not aware of any misappropriation [of funds], but I was not convinced by the overall direction of the DIFC, and how things were being developed.”
Although Bin Sulaiman has since been released from custody having paid back $14m in bonuses, and Al Mulla will decline to discuss the case of his former colleague, the lawyer does suggest that the DIFC will struggle to rid itself entirely of financial malpractice.
“When you have a vibrant society and vibrant economy corruption is something that’s going to pop up one way or another,” he explains. “I think the brave decision is to expose it and to take proper and strong action against it, although it’s difficult to have a corruption-free society, unless you are talking about a utopia.”
Al Mulla describes Dubai’s crackdown on corruption as a “healthy signal”, but he does believe it might have been handled better. In particular, a lack of communication between the state and the media may have diminished the impact of the inquiries.
“I think [the crackdown] lacked a proper explanation and transparency that would have given Dubai the credibility it required,” says Al Mulla. “The process itself was not very transparent, it was not explained, and there was no proper interaction with the media.”
This, he says, explains the media’s “cynical look” at the corruption probe, which in turn has damaged the confidence of investors and outside observers. “They know Dubai is prepared to fight corruption,” he says, “but they wonder if Dubai is doing it properly.”
Al Mulla acknowledges that the current anti-corruption campaign has gone “deep”, and that no-one, “no matter how senior, is above accountability”. He seems unsure as to whether the campaign will continue for much longer, but accepts that there has been a sea-change in the years since he left the financial district.
“A few years ago we had a conference or an article about corporate governance every week, but no-one was actually seriously doing it,” he recalls with a half-smile. “And now half of them are in jail.”
The scandals have coincided with a devastating economic downturn, and yet we can’t say we weren’t warned. Even back in 2007, at the height of the UAE’s economic boom, Al Mulla cautioned that not only was there a storm coming, but that we should do something about it.
“Now is the time to [improve legislation],” he told this magazine. “I don’t think we have long — within the next three to five years it will be a must, otherwise we will have immense problems coming up.”
Today there is no schadenfreude in Al Mulla’s assessment of the economic tempest in which Dubai finds itself embroiled. He might have warned us all, but that doesn’t ease his frustration.
“Unfortunately, yes, we have immense problems. Three years ago when everything was positive and people were relaxed, things could have been changed much more easily. Today it’s tougher because you need to change legislation with a lot of pain.”
According to Al Mulla, the nature of legal reform makes it less immediately attractive to politicians looking to carve their mark on the political landscape. Legislative change “is not something you can do overnight”, and on “the executive side and the bureaucratic side, people feel more hesitant to act”.
“Even if you are a minister and you start the reform of the judiciary, it will not end up during your term and you will not get the fruits of it,” he says. “So people look to short-term goals rather than at the overall need for legislative reform; it is ministers looking for a quick fix.”
He rues the belated introduction of the escrow law — legislation he says which “would have saved a lot of problems” had it been passed a year before the crash — and warns that the incoming strata law, designed to bring improved governance to the property market, could exacerbate the sector’s problems.
“All the controls that were put in at a later stage on the sale of off-plan properties, the strata law which is coming now, all this has added to the harm and suffering the sector is facing,” he says.
“People are not used to it, people don’t understand it, and it means that they will have to get the same people who are drafting the law to implement it,” he says. “This will mean added costs, and if this was a few years ago then that’s fine, but to do it now when the market is suffering, is not the proper time at all.”
Al Mulla argues that the imposition of complicated registration and property trading legislation choked the market off at a time when it was fighting to breathe, in the wake of the credit crisis and investor exodus.
“All these complications and restrictions which came later have really hampered the free flow of units, and the ability of the market to sort itself out,” he says. “I believe that the legislator has to play a role, but in this particular case it has played the wrong role at the wrong time.”
Of course, the collapse of Dubai’s once-stellar property sector exposed many to the rough edge of the emirate’s debt laws. And the issue of cheque fraud has proved particularly controversial, although the government has so far declined to decriminalise the act of bouncing a cheque.
It is a crime which currently carries the threat of jail time, thanks to a law which Al Mulla believes is playing right into the hands of banks which have lent irresponsibly in past years.
“The banks are using the government and the police as debt collectors,” he says matter-of-factly. “Rather than doing due diligence on the borrower, rather than taking tangible guarantees, they are simply relying on the issue of bounced cheques.
“You apply for a credit card, and instead of taking appropriate measures and checking whether you’re paying your bills properly, or whether you have a good credit history, they give you a credit limit.”
Al Mulla contends that the government is unlikely to decriminalise the offence of bouncing a cheque, as banks in the UAE have become used to the “artificial guarantee” the cheque fraud law brings, and would suffer significant losses if it was repealed.
While the jailing of individuals who bounce cheques is costing the government a “huge” sum, the law is unlikely to change soon due to the fragility of UAE banks’ balance sheets, he says.
“It won’t change — there are forces behind this issue,” he suggests. “I think the value of post-dated cheques in the market is so huge that if a decision comes that says bounced cheques are not a criminal action any more, there will be huge losses for the banks.
“They would sustain losses because they built their whole credit and risk system on the issue of bounced cheques, not on the credibility and worth of the customer. It is a decision to spare the banking industry from a very heavy shock.”
Although Al Mulla acknowledges that the law is “a good way of getting money back for the banks”, it is another example of a legislative knot that he believes is choking the UAE’s competitiveness on the international stage. Change is required, but he suggests that banks be offered a cooling-off period to adapt.
“To [change the law] now would not be wise — there should be a two or three year period for banks to adjust to any new system,” he cautions. “Unless there is sufficient time given for the market to adjust to new techniques, people will suffer losses. It would be a big shock, at a time when banks don’t need that headache.”
The banks are, of course, still reeling from November and the announcement that Dubai World is looking to restructure $26bn in debt — of which $14.4bn is bank debt. And Al Mulla is adamant that the decision to convene a special tribunal for Dubai World was a “mistake”, sending a “bad signal” and calling into question the government’s confidence in its own judiciary.
He also argues that investors have entered into contracts with Dubai World and its entities based on the understanding that they are subject to certain laws and regulations. To change the tribunal that these investors bring their disputes to, and to change the set of rules by which people are going to have their cases adjudicated, is “a dangerous thing to do”.
“Maybe in this case they wanted to bring in best practice and put together a world-class tribunal, but what is the guarantee that in some other situation, there won’t be another set of rules, a different standard?” he asks. “I don’t think they panicked, but I think they had bad advice, wrong advice.”
His mind back on the DIFC, Al Mulla remarks that the centre’s troubles were “always going to happen, with the way the DIFC has been run these last three years”. However, he believes the current management team at the centre, led by former finance minister Ahmad Al Tayer, is capable of putting the centre “back on track”.
“I think the fundamentals are there but we need to have a correction, and I think what the current administration is doing is hopefully going to put the DIFC back in the right direction,” he says. “From what I read and what I hear from the current governor and people who are in charge, I think they understand what happened to the DIFC.”
Since his departure from the Gate, Al Mulla has handled a number of high-profile cases, including the defence of Sheikh Issa Bin Zayed Al Nayhan when the royal faced torture allegations in January.
“The fact that the UAE went public and decided to put a member of the royal family on trial is something that the UAE should be proud of,” he says.
His firm has grown in numbers as well as reputation, so much so that days after we meet, Al Mulla and his team will move into plush new offices at Dubai’s Business Bay. And while the boss would love to take a step back from private practice and leave the future to the cadre of lawyers he has assembled under his name, he insists he is not about to return to government.
“A few years ago I would have said yes [to a new government role], but now I don’t have that energy I had when I was at the DFSA, to work 15 or 16 hours a day,” he says.
“I have been calling for legislative reform for the last 20 years, and now I think I’ve reached a situation where I think that war is lost. When someone asks me: ‘Have you heard about this new legislation that is coming in?’ I don’t believe it. It’s just not going to come.”
Dear Dr. Habib Al Mulla' Based on the interview you have given to AB and taking it at face value, I just have to say "May you tribe increase"
Change is a Journey. The only thing certain in this world is Change. UAE has with its exponential growth is facing the challenge of changing its governance frameworks to support the new & emerging Economic & Social Model. You simply cannot cut & paste a model from another country. Best Practice has to be fine tuned. There will always be plenty of Experiential Learning. One has to move on adapting the lessons learnt. Even the most mature (& so called best) economies are having serious problems and following a journey of continous learning. What is important is to be able to respond to the changes & challenges quicky listening to the pulse of all stakeholders. UAE has shown impressive, credible progress & demonstrated leadership in the willingness to listen, learn, embrace change. Change is a journey, its impossible to address everything at the same time, one has to prioritise. Excellent change management is important. We do need people like Dr Al Mulla to voice their views, continue their efforts in a sustained manner. You must not give up. Esteemed people like you are rquired to be a catalyst & champion change & influence the decision makers giving good advice which benefit all stakeholders which will assure the continued success & growth of UAE. A few battles may be lost - However you will WIN the war. (& battles must be prioritised & wisely picked ) The insights have been enlightening &valuable. Thank you Arabianbusiness.com & Dr Al Mulla
Instead of targeting to be the most expenisive REAL ESTATE,they should have INVITED the BEST FINANCIAL INSTITUTION to setup their offices at a very SUBSIDISED rate and the MONEY would have followed. They took a WRONG AND A LONG ROUTE.
Habib. You are absolutely correct regarding the issue of bounced cheques being illegial. All what this crazy law did was enable the banks to make more money as they did not have to do any or minimal credit cheques on the clients before lending money to them. The banks just put the put the fear of jail term into the clients and lent them whatever they wanted. So the banks just had a free for all as they had the UAE police force as their debt collectors. No gvt in any developed market ever allows the banks to pass on this job to the gvt. I agree with you point that this law cannot be changed now but what can be done is that the gvt can come in and say from a certain date in the future, the police force will not be responsible for going after people who default on cheques. This will once again but the responsibility on the banks to make sure that they do the credit cheques before lending money and not just relying on the police force to solve their problems. As long as the banks know that the gvt will help them catch defaulters they will always avoid having to do their job. !!! It was the same when the banks lent to so called Government related companies. Thy lent to then withouth doing much credit analysis as they all expected the gvt to come bail them out. What is the point of setting up limitied liability companies if a bank expects the debts of one legal entity to be paid by another legal entity. !!!
Dr. Habib Al Mulla is certainly not a voice in the wilderness for he has the standing and also the courage to speak up and be heard. With someone like him around there is still a possibility for a change for the better, and so for the sake of all those who look up to him to say the right thing at the right time, he has to hope that he will win the cause he so valiantly defends. There is a lot to be said for the power of â€˜Oneâ€ â€“ sometimes, it takes just one person to effect change, to chart a new course and to change the destiny of a nation and its people. So, no matter how long it takes, it is worth working towards achieving a dream that benefits not oneself but others who cannot dream. The article did justice to Dr Habib, analyzed the situation pragmatically and made very interesting reading. Congratulations to Arabianbusiness.com.
People who have lost jobs and have default credit cards should be given the oppurtunity to look for jobs so that atleast they can pay back slowly rather than keep them stranded with out a job where they dont have any money to pay back the bank what kind of recovery is this it makes no sense then why are banks doing business when they dont know how to run a business if the person serves his / her sentence in jail they dont have to pay back the banks so people pls turn yourselves in i guess thats the best solution