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Tue 1 May 2007 12:40 PM

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Game over?

Writing a cheque that bounces can have serious repercussions in the UAE. Diana Milne reports on what happens to those who get caught.

A study of inmates at Dubai Central Jail in March this year revealed that 19% of them had been imprisoned for having written cheques that bounced.

And more than 60% of those inmates had been jailed for the first time and did not have a criminal record.

Colin Edwards, a British IT journalist, narrowly escaped becoming one of those statistics last year when he was detained by immigration authorities at Dubai Airport and informed that a cheque he had written to his landlord had bounced.

He is one of many expatriates every year who are caught short by the UAE law which states that it is illegal to write a cheque if you have insufficient funds in your account.

According to the law, in the event that a cheque bounces, the holder of cheque can report the matter to the police who will then arrest the writer of the cheque and give them an opportunity to pay the money back. If the payment is not made then the case is referred to the Criminal Court where in most cases the perpetrator is sentenced to jail. Edwards' case goes to show just how easy a mistake writing a cheque can be - a mistake that costs perpetrators dearly.

Recalling the mistake that nearly landed him in jail, Edwards says: "The first cheques I ever wrote here were for the rent and furniture on my apartment. I was a bit short of cash because I had to pay a deposit and rent in advance as well as pay for furniture so I had to get an advance from my employer. I told the landlord he could cash the rent cheque immediately but not the one for the furniture as I was short of about AED50 for that. Unfortunately he went ahead and cashed the furniture cheque first before presenting the rent cheque which of course bounced. I thought I had been managing my money wisely. I had a separate bank account for the rent and as I only deposited the rent amount monthly and issued only one cheque quarterly, I genuinely didn't bother to check the account."

Edwards discovered the error of his ways at passport control at Dubai Airport when he returned home from a business trip.

"I arrived back exhausted one morning to be greeted by a passport control officer and was taken to a side office. I told them I knew nothing about a bounced cheque."

Edwards was taken to a police station where he spent three hours giving his details to officers before being allowed home and told to return the next day with the cash on the condition that he left his passport behind.

He returned with AED20,000 in cash, his passport was given back to him and he was free to go. However despite escaping a jail term - Edwards now faces the stigma of a bad credit history and has been penalised for that by UAE banks.

"There was no hassle or recriminations, I suppose having had to wait around for three hours had been punishment enough. The bank however punished me big time in that they charged me about AED400 for the bounced cheque and put a black mark against my name so I couldn't get a car loan when I applied for one. I had to get a car loan from another bank and because I had a bad credit history I had to pay them over the odds in interest."

Given the repercussions of bouncing a cheque in Dubai it's easy to see why many people would prefer to avoid ever having to write one at all.

But the systems set up by banks and landlords in the UAE mean this is virtually impossible. For a start most landlords require up to a year's rent in advance. And as few people can afford to pay this upfront, they have no choice but to hand over post-dated cheques.

Joss Clarence, operations manager of the property management division at Better Homes, said: "The norm in Dubai is that all payments have to be taken in advance either as a current dated cheque or a post- dated cheque. If the tenant has the funds to give us one entire payment they give it to us as one cheque in advance, otherwise it is a post-dated cheque. Some of the landlords are very particular and they will only accept one payment. While some of them go up to two payments and the absolute maximum is four."

The law in the UAE states that cheques that have already been written can only be cancelled if the cheque is lost or stolen - or if the writer of the cheque is officially declared bankrupt.

It is crucial therefore to keep a careful eye on your finances and ensure that when the time comes around for your post-dated cheque to be cashed by your landlord, you have sufficient funds in your bank account.

Otherwise the post-dated cheque you wrote six months ago becomes what financial advisor Sandi Saksena of Nexus Insurance Brokers describes as: "a sword of Damocles hanging over your head".

"People here are very happy to accept a post-dated cheque because they know they've got you covered," she says. "And if you don't pay it they can easily use the tactics of the law."

Banks too often require a cheque from customers as a guarantee against a loan.

This is usually written out to the full amount of the loan and cashed in the event of a customer failing to repay the loan.

When the bank cashes the cheque and finds the customer has insufficient funds to pay it - it can in theory contact the police and file criminal proceedings against the customer.

Ali Amiri of the Dubai based law firm The Attorneys, explains: "Most loan agreements state that if there is a default in payment and it is not paid or rectified within a week or 14 days then a cheque for the entire loan plus the interest can be cashed. The bank will receive a returned slip stating that this cheque has bounced and there is insufficient funds in the account.

"The bank that granted the loan will take this cheque to the police station and lodge a complaint. The police will call the person who issued the cheque and ask them to come and pay and if he does then the matter is closed. If he does not come forward or he comes but doesn't pay then they will detain him."

Amiri goes on to say that if the loan is for less than US$13,600 it is possible for the defendant to be bailed out.

However, this is not usually possible for amounts above this.

Brigadier Khamis Mattar Al Muzainah, director of the General Department of Criminal Investigation at Dubai Police says cases whereby a customer writes a cheque to a bank to secure a loan are among the most common he encounters.

"Most of the bounced cheques we hear about are for the banks," he says.

"It's where people have borrowed money, sometimes to get a car, some of them, a house. Before they go to the police they (the banks) try to work with the customer and if that doesn't work they go to the police. Some of them pay immediately when the bank informs the police. Others they try to be late."

Banks are keen to stress that they prefer to work with the customers who have fallen back on debt repayments to find a solution to the situation directly rather than contacting the police and resorting to criminal proceedings.

Nabeel Malik, chief marketing officer of Mashreqbank, says: "There is a whole process we follow. First of all we call the customer and remind him that his fund has not been credited into his account and we give him time to do that. That is followed by another call reminding him that his previous installment is due and his next installment is also coming up. If that does not work then we look at debt counselling, so we look at rescheduling the loan repayments to make it easier for him. If all those efforts fail then we are forced to take legal recourse."

Daffer Luqman, head of branch management at HSBC Middle East bank adds, "What we do first is call the customer to check the reason for the bounced cheque and help them to make available funds to honour it. If this does not work the case is forwarded to the legal department."

Clarence says that Better Homes too prefers to settle cases of bounced cheques directly with the customer and manages to resolve the vast majority of cases that way.

He explains that where a tenant has a particularly good payment record or has a genuine reason for not being able to pay they can be given up to 30 days to pay the money into their account before the company begins legal proceedings.

"We have lots of cases of bounced cheques, but most of them we settle directly and we don't even go to the police.

"It's better if you know your tenant is in genuine difficulty to give them the time to settle their finances. For us to go to the police it's a big hassle for everyone. To avoid all these complications we feel the right way to settle these situations is directly and amicably with the tenant."

Clarence explains that the procedure is first to inform the tenant in writing and by telephone about the bounced cheque and to give the tenant an opportunity to explain why the cheque bounced.

An arrangement may then be made giving the tenant a grace period to settle the situation, beyond that the case is referred to the police and to the rent committee who would start eviction proceedings.

"The cases usually do get settled with the police or the rent committee," he says.

Despite taking a hard line on bounced cheques, Brigadier Al Muzainah says that Dubai's police force endeavours to avoid cases having to come to court.

He explains that once a person has been arrested they are given 30 days to pay the money they owe.

"We believe that everyone's fortunes can go up and down - particularly that of businesses. And if we find a good way to settle the problem, we must follow the good way. Businesses prefer to do that too.

"The market here is small and if some customers have problems after writing cheques to a business then maybe others will be too afraid to have relations with those businesses afterwards."

He explains that if a person fails to settle the matter within 30 days the case is taken to court and in most cases the defendant is jailed until he is able to find a means to pay the money back.

The receiver of the bounced cheque may also take the matter to the Civil Court in order to get the money back.

Through this channel a person's assets, such as their car or home, may be possessed in order to repay the debt.

Brigadier Al Muzainah says: "Sometimes a jail term is not enough (to make people pay). But if the injured party files a civil case they can get the money back by freezing the person's assets."

If a person skips the country and does not return after writing a bounced cheque, then depending on the size of the amount owed, Dubai Police will pursue them with the help of Interpol and will in some cases return them to Dubai for criminal proceedings.

"We get the order from our court then we go to the Ministry of Justice, then the Foreign Ministry then directly to the country where this person is," says Brigadier Al Muzainah.

"Sometimes we have good relations with the other country and when the authorities there catch the perpetrator they tell him to pay, he does and once the money is sent back the case is closed.

"Other times we bring people back to Dubai with the help of Interpol."

Those who attempt to re-enter the country while still under investigation will be detained by the immigration authorities at the airport.

And like Edwards many of them will be blissfully unaware that they are even in any kind of trouble.

In many cases, for those arrested, it is a post-dated cheque they wrote months ago to their bank or landlord that will land them in hot water.

And the situation could easily have been avoided if they had only checked their bank accounts and kept a careful eye on what money was going in and out at the time when the cheque was due to be cashed.

"It's all about careful forward planning," says Saksena. "And make sure that if you are going to give a post-dated cheque you negotiate a sum of money that is comfortable for you."

Experts strongly urge those who do find themselves caught short by a post-dated cheque to contact their respective banks or contact their landlords immediately to explain the situation they are in before it's too late.

"If there's a genuine reason why you can't pay on time, make sure you clearly inform the management company or the owner in advance with a valid reason," says Clarence.

"Most of the property management companies and landlords would allow you to request some time to pay it off."

Edwards agrees, adding that in most cases banks are prepared to listen before laying down the law.

"Look after your money but also remember that banks are quite prepared to listen to your problems even though they may not advertise that," he says.

And if everybody followed this simple advice then no doubt far fewer would end up behind bars.

Appearing in Dubai Courts

In a bid to make the justice system in Dubai as transparent as possible there is now a website where all cases can be viewed by case number.

It is also possible for members of the public to observe court proceedings as long as no sensitive security matters are under discussion.

Once proceedings begin the accused has the right to an interpreter and the right to have the charges against them read out in court in their language.

In Dubai the identities of anyone involved in a court case - the accused and the victim - are protected until an absolute final decision has been made.

This means that newspapers are not allowed to name either party until this point - and even then the victim has to formally agree to be named.

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