In the UAE, there is close interaction between the civil and criminal justice systems and this is particularly the case in relation to matters involving fraud. A victim of fraud may choose whether to bring a civil claim for damages arising from the fraudulent conduct before the civil courts, or to report the fraud to the police and later to join a civil claim to the criminal proceedings before the criminal court.
In the UAE, fraud is primarily treated as a criminal offence and there are fewer provisions specifically dealing with it under civil law. The crime of fraud is codified in the UAE Penal Code (Federal Law No 3 of 1987). There is a requirement of a material element and moral element. The material element of a crime consists of a criminal act committed or omitted in violation of a law forbidding or requiring it. The moral element of the crime consists of the intention or the error.
Article 399 of the Penal Code provides punishment for a company which:
In addition, a company, or any of its representatives, shall be punished if they transfer or dispose of any real or moveable property in the following circumstances:
Merely making false statements is not sufficient for a crime of fraud to have occurred. The false statements should be accompanied with material acts.
A crime of fraud can also arise under Federal Law Number 5 of 2012 (the “Cyber Crimes Law”). The offences under the Cyber Crime Law include:
Federal Law No 19 of 2016 on Commercial Fraud (the “Commercial Fraud Law”) criminalises commercial fraud, being any of the following acts:
The Penal Code prohibits a person or company from directly or indirectly promising, offering or granting a bribe to a public servant, a person assigned to a public service, a foreign public servant or an employee of an international organisation for the following purposes:
Similarly, it is prohibited for a manager of a private sector entity or establishment or an individual who is employed by such person in any capacity, to solicit or accept a bribe, directly or indirectly, for himself or herself or for another person, in return for the following:
A bribery conviction will lead to a fine equivalent to what has been demanded or offered or accepted (provided that the fine is not less than AED500,000, in which case a fine of AED500,000 shall apply). A person convicted of bribery can be imprisoned for a maximum period of five years.
The bribe itself will also be subject to confiscation. The Penal Code also provides for punishment of any individual who acts as an intermediary in the giving or receiving of the bribe.
However, under the Penal Code, an exemption may be provided if the individual informs the authorities of the crime before it is discovered.
There are also some individual emirate-level provisions. Under the Abu Dhabi Penal Code, it is a criminal offence to offer or give a bribe to a public official, if the public official abuses his official position in return for the bribe.
Under the Dubai Penal Code, it is a criminal offence to offer or provide any gift or benefit to a Dubai public official, even if the offeror has no intention to procure an act, or omission of an act, in violation of the duties of the public official’s function.
Under Article 44 and 45 of the Penal Code, individuals who conduct the following acts will be deemed to be accomplices to the crime:
Article 405 of the Penal Code provides that an individual who knowingly misappropriated, with the intention to own lost property owned by someone else or property in his possession by mistake or by force majeure, can be subject to a jail sentence not exceeding two years or to a fine.
Civil liability for fraud arises under the Federal Law Concerning Civil Transactions (Federal Law No 5 of 1985, as amended) (the "Civil Code").
Articles 185 to 192 of the Civil Code include liability for misrepresentation. Misrepresentation arises when one of the contracting parties deceives the other by means of trickery of word or deed which leads the other to consent to what he or she would not otherwise have consented to. Deliberate silence concerning a fact or set of circumstances can also be considered to be a misrepresentation if it is proved that the person misled the victim.
Articles 282 to 298 of the Civil Code provides that a person causing harm, or a person deceiving another, must make good the harm resulting from that deception. Harm may be direct or consequential. If the harm is direct, it must unconditionally be made good, and if it is consequential there must be a wrongful or deliberate element and the act must have led to the damage, which will typically be the case in fraud matters.
In all cases the compensation shall be assessed on the basis of the amount of harm suffered by the victim, together with loss of profit, provided that it was caused by the harmful act.
Articles 304 to 312 of the Civil Code include provisions which give rise to liability as a result of misappropriation of property. Whoever misappropriates property belonging to another must restore it and/or repay any losses.
The wrongdoer must also hand over any benefits or increase he or she has obtained from such property.
A claimant whose agent has received a bribe may make a complaint against the agent under the Penal Code. According to Article 236 of the Penal Code, an individual who manages or works in any entity or establishment and solicits or accepts or promises, directly or indirectly, any undeserved gift/bribe in return for the performance of or the refrainment from the performance of an act of his or her duties shall be imprisoned for a period not exceed five years.
Similarly, the same penalty shall be imposed on any public official or any other person who demands or accepts any undeserved advantage, gift or grant for himself or herself or for another person, directly or indirectly, in order for a public official or person to use his or her actual or assumed power for the purpose of obtaining an undeserved advantage from a public department or authority.
Federal Law by Decree No 11 of 2008, regarding the Human Resources in the Federal Government, also provides that a federal government employee who has requested or received a bribe shall be referred to the judicial authorities.
Onshore UAE – Civil Claims
There are a number of civil remedies available (in addition to criminal liability) that a person involved in bribery may be exposed to.
In onshore UAE, and under the Commercial Companies Law (CCL) each manager of a limited liability company shall be liable to the company, shareholders and third parties for any fraudulent acts. Further, he or she shall be required to compensate the company for any losses or expenses incurred due to abuse of power or violation of the provisions of any law in force or the company's memorandum of association or his or her contract of appointment or due to gross error by the manager.
Similarly, under the CCL, the members of the board of directors and executive management shall be responsible towards the company, the shareholders and the third parties for all acts of fraud, misuse of power, and violation of the provisions of the CCL and the articles of association of the company.
A director who has breached the CCL may be subject to financial penalties and/or criminal sanctions.
DIFC and ADGM – Civil Claims
In the DIFC and ADGM, a director of a company cannot accept a benefit from a third party where the benefit is conferred on him or her due to his or her position as a director of the company for him or her doing (or not doing) anything as a director, unless the acceptance of such benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.
Any breach of these duties may result in disqualification, personal civil liability, damages payable to the company in respect of losses suffered, in addition to the criminal liability already discussed at 1.1 General Characteristics of Fraud Claims.
In onshore UAE and DIFC/ADGM, it is likely to be possible to establish that an act of bribery gives rise to a cause of action unlike general tort/harmful act principles.
Accomplices, or individuals who assist or facilitate fraudulent acts will be subject to the same punishment imposed as the principal offender.
The provisions of Articles 44 and 45 of the Penal Code as outlined above apply when determining whether an individual is an accomplice.
However, under Article 52 of the Penal Code, where the characterisation of the crime or penalty may vary according to the offender’s intention or knowledge of the circumstances, accomplices will be punished only according to their knowledge and intention.
Limitations Period under the Penal Procedures Law
The Penal Procedures Law, provides that (i) for criminal cases the limitation period for felonies is 20 years, (ii) for misdemeanours it is five years, and (iii) for contraventions is one year starting from the date on which the crime was committed (Article 20). Depending on the seriousness of the fraud, either the limitation period for felony or misdemeanour may apply.
Limitation Periods under the Civil Procedure Code
Article 298 provides that the general limitation period for such claims arising is three years from the date on which the victim became aware of the harmful event and the identity of the perpetrator, subject to a maximum of 15 years from the date on which the harm occurred. If criminal proceedings in relation to the relevant events are pending at the time the three-year period expires, the limitation period is extended.
ADGM and DIFC
In the ADGM, the limitation period is for six years from when the fraud was discovered or when it could have been discovered, with reasonable diligence. In the DIFC, where a cause of action arises as a result of fraud by the defendant, there is no time limit before an action must be commenced for fraud. In relation to claims of misrepresentation, a cause of action arises on the earliest date on which the claimant knows or ought reasonably to know about the loss that gives rise to the cause of action, and this action must be commenced within 15 years of the date on which the cause of action arose.
Onshore UAE – Criminal
Article 82 of the Penal Code provides that once the commission of a criminal offence has been established:
If the assets recovered in connection with the crime are returned to the court, they are then managed by the public prosecutor at their discretion so there is no certainty that confiscation will benefit a victim.
Onshore UAE – Civil
There are no proprietary claims against property obtained as a result of fraud.
An attachment order can be obtained over assets in the civil courts in civil matters, although this is an interim remedy and does not provide a proprietary interest.
DIFC and ADGM
The common law principle of knowing receipt and dishonest assistance are likely to be recognised by the DIFC and ADGM courts.
There are no pre-action conduct rules that apply to fraud claims.
Whilst there is no concept of an “injunction” in onshore UAE, the UAE Civil Procedure Law Article 252 provides that a claimant may apply to the court for a precautionary attachment order (in rem), the effect of which is to seize or attach the defendant's property in order to preserve it pending trial. Attachment orders may also be made over assets that are in the possession of third parties (for example, bank accounts). For an order to be made, it must be apparent from the documents submitted to the judge that there is a serious question to be tried.
Article 252 provides that a person can apply for such order in any circumstance in which it is feared that an asset may be lost and as a result a claim may go unsatisfied, such as in the following circumstances:
Such an attachment order must be accompanied with a signed undertaking to indemnify the defendant in the event that the order was obtained on fraudulent grounds.
An application for a precautionary attachment order may be made without notice to the defendant, but it must be followed by a substantive claim filed at court within eight days from the date that the order is made, which addresses the validity of the precautionary attachment and allows the defendant an opportunity to raise objections. Failure to comply with the court orders may lead to fines.
Under certain conditions, a travel ban can be requested against the defendant. However, the court must be satisfied with the following conditions before imposing a travel plan:
DIFC and ADGM
Both the DIFC and ADGM courts have power to grant interim orders prior to the commencement of proceedings and without notice to the defendant. In the DIFC and ADGM, a victim of fraud, may be able to apply for injunctions, property preservation orders and freezing orders.
It is necessary to prove certain elements before a freezing injunction can be granted. These are as follows:
A claimant is generally required to provide a cross-undertaking in damages when applying for freezing orders in the DIFC. Court fees are generally paid by the claimant and vary depending on the nature and type of case.
DIFC and ADGM
Article 25.1 of the Rules of the DIFC courts ("the DIFC Rules") and Rule 71 of the ADGM Court Procedure Rules 2016 ("the ADGM Rules") set out a number of interim remedies that the DIFC and ADGM courts can order.
Under Article 25.1(6) of the DIFC Rules and Rule 71.1(f) of the ADGM Rules, a claimant is able to obtain a freezing order which either restrains a party from removing from the jurisdiction assets located there or restrains a party from dealing with any assets whether located within the jurisdiction or not.
Related to the ability of the claimant to obtain a freezing order, the courts, under Article 25.1(7) of the DIFC Rules and Rule 71.1(g) of the ADGM Rules, may direct a party to provide information about the location of relevant property or assets or to provide information about relevant property or assets which are or may be the subject of an application for a freezing order.
There is no regime in the UAE courts to require a defendant to disclose its assets pre-judgment.
Onshore – Criminal
The Public Prosecutor has broad powers when conducting a criminal investigation. These powers include the ability to enter a place to determine the status of the persons, places and objects related to the crime and search the place and seize anything which may likely be used in the perpetration of the crime.
Onshore – Civil
The procedures available for preserving evidence are similar to what has been described above at 1.7 Prevention of Defendants Dissipating or Secreting Assets.
A party will not be permitted to conduct a physical search of documents at the defendant's residence or place of business, but may request documents (as described in 2.1 Disclosure of Defendants' Assets) in onshore UAE.
In arbitration, pursuant to the UAE Federal Arbitration Law, the UAE courts may enforce an order from an arbitral tribunal to preserve evidence that may be relevant and material to the resolution of the dispute. Under Article 21(2), the party requesting the order for this conservatory measure may be required by the arbitral tribunal to provide appropriate security to cover the costs of the measures, and, further, that the requesting party should bear the damages arising in connection with enforcement in the event that it is decided that such party is not entitled to such measures.
DIFC and ADGM
As outlined in 2.1Disclosure of Defendants' Assets, the DIFC Rules and ADGM Rules provide for interim remedies which may be ordered by the DIFC courts and the ADGM courts respectively.
In instances where it is feared that important evidence might be destroyed or suppressed, parties may seek under Article 25.1(3)(a) of the DIFC Rules and Rule 71(1)(c)(i) of the ADGM Rules the detention, custody or preservation of relevant property. Rule 71(1)(c)(i) of the ADGM Rules goes one step further and also provides for an order permitting the inspection of the relevant property. To assist the party in possession of a preservation order, Article 25.1(4) of the DIFC Rules and Rule 71(1)(d) allows a party in possession of that order to enter any land or building for the purposes of carrying it out. Under Rule 71(1)(d) of the ADGM Rules, the party in possession of a preservation order may also enter any real property, with an officer of the court supervising, for the purposes of carrying out that order.
Parties may also apply for a search order under Rule 25.1(8) of the DIFC Rules and Rule 71(1)(h) of the ADGM Rules for the purpose of preserving evidence. These applications must be supported by affidavit evidence in both the DIFC and ADGM courts.
Onshore – Criminal
Federal Law No 35 of 1992 (Penal Procedures Law) provides the judicial police with broad powers to obtain evidence. Under Article 30, they are given the ability to “inquire about crimes, search for their perpetrators and collect the necessary information and evidence for investigation and indictment”.
Onshore – Civil
The UAE courts have broad and general powers to compel parties to produce documents in their possession. A court may, in the course of examination of the case give permission to join a third party to the proceedings in order to compel them to prepare and produce a written instrument or provide information that is in his or her possession or under his or her control. It may also order to join any administrative entity to produce or furnish any written instrument or information that lies in its possession and which is deemed necessary for proceeding with the case.
DIFC and ADGM
In the DIFC, an application for production of documents by a person who is not a party to the proceedings must be supported by evidence.
The court may make an order under this rule only where: (i) the documents of which production is sought are likely to support the case of the applicant or adversely affect the case of one of the other parties to the proceedings; and (ii) production is necessary in order to dispose fairly of the claim or to save costs. Such an order may specify the time and place for production
Similarly, in the ADGM, where an application is made to the court under any ADGM enactment for disclosure by a person who is not a party to the proceedings, the application must be supported by evidence and served according to practice directions.
There are no standard restrictions placed on the use of such materials.
Onshore – Criminal
See 1.7 Prevention of Defendants Dissipating or Secreting Assets.
DIFC and ADGM
Under Article 25.8 of the DIFC Rules and Rule 64 of the ADGM Rules, application for interim relief may be made on an ex parte basis or by giving notice. The permission of the DIFC and ADGM courts is required in instances where the application is to be made without service of an application notice to the respondent. Permission will only be granted where there is exceptional urgency or where there are good reasons for making the application without notice – for example, because notice would or might defeat the object of the application. In the case of the DIFC courts, permission for a without notice application will also be granted in cases where the overriding objective is best furthered by doing so.
For all applications made without notice, it is the duty of the applicant and those representing him or her to make full disclosure of all matters relevant to the application including, in particular, disclosure of any possible defences that may be available to the respondent to the application.
Onshore – Criminal
A victim of a crime may request that a claim for compensation be annexed to the criminal charges and considered by the Criminal Court, which would be determined when criminal liability has been established.
Onshore – Civil
Where there is a parallel civil claim by the victim, the Criminal Court will generally transfer the civil claim to the civil court upon conviction and sentence in the criminal claim in accordance with Article 26 of the Criminal Procedures Code. The Civil Court will assess the quantum of damages, as the fact of the conviction allows the Civil Court to assume the liability of the defendant and therefore the only remaining issue left for the Civil Court to determine is ordinarily the quantum of damages.
The pursuit of criminal proceedings in fraud cases is common in the UAE since the criminal courts have wide powers, such as to prevent a suspected wrongdoer from travelling abroad pending conclusion of an investigation.
The UAE courts may pass a default judgment if the defendant has been duly served and fails to attend without providing an acceptable excuse.
DIFC and ADGM
Similar rules apply in the DIFC and ADGM courts, wherein a claimant may apply for default judgment if the defendant has failed to acknowledge the claim or acknowledged a claim but failed to file a defence in time.
A defendant will then have the option to either seek to set aside or vary the court’s ruling. However they will not be able to appeal the judgment.
The DIFC and ADGM courts may give summary judgment (known as "immediate judgment" in the DIFC courts) against the claimant or defendant on the whole of a claim, part of a claim or on a particular issue if it considers that the claimant has no real prospect of succeeding on the claim or issue or if the defendant has no real prospect of defending the claim or issue and there is no other compelling reason why the case or issue should be disposed of at trial.
There are no special rules or professional conduct considerations for pleading fraud. However, under the code of ethics and professional conduct of the legal profession in the UAE, there is a requirement for a lawyer to maintain integrity.
Further, in the DIFC and ADGM a practitioner has a duty to never knowingly or recklessly make any incorrect or misleading statement of fact or law to the court.
There are no special rules to deal with claims against unknown fraudsters. A claimant may commence a criminal claim and the prosecution authority may then be able to assist using the broad powers given to them to identify unknown fraudsters as they are investigating the claim. However, there is no right to such assistance.
DIFC and ADGM
A "Norwich Pharmacal" order may also be made under the ADGM and DIFC courts’ jurisdiction in instances where the party knows that a fraud has taken place against it but it does not know the identity of the wrongdoer, but is able to identify a third party who has this information (whether this third party is innocent or not). This order enables a party to plead its case against the wrongdoer, to trace assets or to bring proprietary claims.
Onshore – Criminal
If a witness is summoned to appear before the public prosecution and fails to attend without an excuse, the prosecution has the ability to issue a warrant for the arrest of that witness and make them appear before the prosecution to give their testimony.
Onshore – Civil
The Civil Evidence Law provides measures to be applied in respect of witnesses that fail to appear before the court when they have been summoned.
This is provided in Article 42(3) which states that if a witness is duly summoned to appear and fails to comply, the court or supervising judge shall impose a fine and, after being fined, if the witness still fails to appear in court, may impose a second fine for persistent refusal.
However, the witness may be exempt from the fine if he or she appears and provides an acceptable reason regarding his or her failure to appear previously.
DIFC and ADGM
In the DIFC and ADGM, a witness summons may be issued by the court. Failure to comply with such summons may result in contempt of court, which typically results in a referral to a prosecuting authority.
The Companies Law provides for a company to “acquire a corporate personality” upon incorporation. This means that there is a corporate veil between the company and its shareholders and directors. Article 65 of the Penal Code provides that juridical persons, with the exception of governmental agencies, are responsible for any criminal act committed for their account or in their name by their representative, director or agent. Therefore, a limited liability company or other corporate entity may be liable in such circumstances.
The penalty that may be imposed against a convicted corporation is limited to a maximum fine of AED50,000. However, the Civil Procedure Law also allows the victim to make a claim against the company for civil compensation.
Under Article 22 of the CCL, a manager of a company is required to “exert the care of a prudent person” and “undertake all actions in line with the company’s objectives and the powers granted thereto pursuant to an authorisation issued by the company”.
In the Dubai Court of First Instance Judgment 207 of 2020, it was held that a manager of a limited liability company who acts in breach of their managerial duties, the law or the company’s memorandum or articles of association shall be liable in tort for fraudulent acts. As an exception to the standard rules of corporate personality, where a manager has engaged in fraudulent acts, they are personally liable for any debts assumed by the company. In its judgment, the court held that the managers conduct satisfied those elements for fraud of Article 282 of the Civil Code and therefore the manager was personally liable to pay compensation to the claimant.
DIFC and ADGM
Under the DIFC Companies Law, a company incorporated in the DIFC shall have a separate legal personality from that of its shareholders. The liabilities of a Company, whether arising in contract, tort or otherwise, are the company’s liabilities and not the personal liabilities of any shareholder or officer of the company.
Under the DIFC Law of Obligations, a principal is jointly liable with his or her agent in respect of liability of the agent arising in the course of the agency, provided that the act or omission of the agent which gives rise to such liability is within the authority of the agent. Accordingly, an individual corporate director or officer’s knowledge can be attributed to the company he or she represents, and such person may be held jointly liable together with the company if his or her actions arise out of the ordinary course of the agency.
In the ADGM, if any business of a company is carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, a contravention is committed by every person who is knowingly a party to the carrying on of the business in that manner.
The Companies Law dictates that the corporate veil may be pierced where shareholders, managers, directors and auditors provide false statements as to the company’s finances. An individual guilty of providing false statements may be punished by imprisonment for a period between six months and three years and/or a fine between AED100,000 and AED500,000.
DIFC and ADGM
Under the DIFC Companies Law, a company incorporated in the DIFC shall have a separate legal personality from that of its shareholders. The liabilities of a company, whether arising in contract, tort or otherwise, are the company’s liabilities and not the personal liabilities of any shareholder or officer of the company. Under the legal framework of the ADGM, the liability of a shareholder is limited to the amount, if any, unpaid on its shares.
Managers of a company have a statutory duty of care. In the event that a manager acts fraudulently or fails to act within the statutory duty of care, shareholders of the company may bring claims against the fraudulent directors.
Article 84 of the CCL provides that every manager in a limited liability company (LLC) shall be liable to the company, the shareholders and third parties for any fraudulent acts by such manager and shall also be liable for any losses or expenses incurred due to improper use of the power or the contravention of the provisions of any applicable law, the memorandum of association of the company or the contract appointing the manager or for any gross error by the manager.
Similarly, the board of directors shall be liable towards the company, the shareholders and third parties for all acts of fraud, misuse of power, and violation of the law or the articles of association of the company or an error in management.
Article 166 of the CCL states that “Each shareholder may individually pursue a liability claim against the board of directors of the Company if not filed by the Company, provided that the error may cause damage to him personally as a shareholder and that such shareholder shall notify the Company of his intention to pursue the claim. Every provision in the articles of association of the Company to the contrary shall be invalid.”
Under the Civil Code, directors may only act within their authority and will be personally liable for exceeding it.
DIFC and ADGM
In the DIFC, a director is considered a fiduciary. A person is the fiduciary of another if he or she has undertaken (whether or not under contract) to act for or on behalf of another in circumstances which give rise to a relationship of trust and confidence.
Where a fiduciary breaches his or her obligation of loyalty he or she is liable to: pay damages to his or her principal in respect of any loss suffered by the principal in accordance with the Law on Damages and Remedies; and account to his or her principal for any benefit he or she has acquired in consequence of the breach.
Further, under the DIFC Companies Law, a director has the following duties:
Furthermore, under Article 149 of the DIFC Companies Law, a shareholder is able to seek a court order requiring the company to take an action or refrain from taking an action. Under Article 149(1)(c), this includes an order authorising proceedings to be brought in the name of an on behalf of the company by such person or persons and on such terms as the court may direct.
In the ADGM, a director has a duty:
The ADGM Regulations provide for derivative claims which allow a member of the company to seek relief on behalf of the company and will be in relation to a cause of action arising from an actual or proposed act or omission involving default, negligence, breach of trust or breach of duty by a director of the company. This right is restricted to those eligible members holding five percent of the share capital
The rules to facilitate joinder of overseas parties is provided for in Article 20 of the Penal Code, which provides joinder in limited circumstances such as:
Recently, the Penal Code has been amended to strengthen anti-corruption legislation in the UAE. The provisions now apply outside the UAE, in the following instances:
Onshore – Civil claims
This can be done – both in DIFC/ADGM and onshore, although the latter is less common.
In order to enforce a UAE judgment, the claimant is required to start execution proceedings in the courts of the relevant emirate. The judgment has to be final and certified by the Execution Court.
The debt must be settled within 15 days. If the debtor fails to do so, a request can be made to the Execution Judge to enforce the judgment. Usually a UAE judgment is enforced in the form of an attachment order. The attachment could be to property, stocks, bonds, shares or real estate. Other methods of enforcement may include bankruptcy proceedings. However, debtors will usually appeal such judgments to achieve delay.
Process of Deputation
Enforcement for inter-emirate judgments (and previously the enforcement of DIFC court judgments and orders outside Dubai but in the UAE), has to be pursued through the process of "deputation" or "referral" as provided under Article 221 of the Civil Procedural law.
Article 221 provides that the Execution Court shall refer the judgment or order to the Execution Judge for the area in which the judgment or order is sought to be enforced, and provide the latter with all the legal documents required for execution. The Execution Judge to whom the referral is made would then take all the decisions necessary to execute the referral and rule on procedural objections relating to the execution.
The Execution Judge who has carried out the execution shall inform the Execution Court which made the referral of what has happened and transfer any items or property received by him or her as if the Execution Judge to whom the matter has been referred finds legal reasons precluding the execution, he or she must notify the Execution Court.
Dubai and DIFC
In Dubai, there is a reciprocal protocol of enforcement between the courts of the DIFC and onshore Dubai, pursuant to which a judgment of the Dubai courts (or DIFC court) can, subject to certain procedural formalities being met, be enforced in the DIFC as if it were a DIFC court judgment (or enforced in the Dubai courts as if it were a Dubai court judgment).
Abu Dhabi and ADGM
In Abu Dhabi, a memorandum of understanding (MoU) with the Abu Dhabi Judicial Department and ADGM has been signed for the reciprocal enforcement of their judgments, decisions and orders.
MoU Between DIFC/ADGM and Ras Al Khaimah
Similarly, an MoU between DIFC courts and Ras Al Khaimah courts and an MoU between Ras Al Khaimah courts and ADGM courts for enforcement of judgments has been signed.
Bilateral and Multilateral Conventions
The UAE has entered into a number of treaties with other countries which govern the reciprocal enforcement of judgments. The most commonly used in the Middle East is the Riyadh Arab Convention for Judicial Cooperation of 1983 ("the Riyadh Convention") for enforcing foreign judgments and awards. The other commonly used treaty is the GCC Convention of 1996 which allows the recognition and enforcement of judgments and awards without any review of the merits. The other signatories to the GCC Convention are Bahrain, Saudi Arabia, Oman, Qatar and Kuwait.
The UAE has also entered into a number of international treaties for enforcement of judgments such as with Tunisia, France, India, Egypt, China and Kazakhstan.
In criminal and civil matters, there is no concept of privilege against self-incrimination. However there is a general right for the accused to remain silent when responding to allegations against them and as such no inferences may be drawn if a defendant decides to remain silent.
DIFC and ADGM
In DIFC and ADGM, common law principles of privilege apply, including privilege against self-incrimination.
Under the UAE Advocacy Law, a lawyer is not permitted to reveal a secret confided in him or her, or which comes to his or her knowledge through his or her profession, provided its revelation is not in order to prevent the perpetration of crime.
A lawyer may be criminally liable if he or she discloses confidential information obtained during the course of his or her services under the Penal code. Article 379 of the Penal Code prohibits the disclosure of confidential information by any person who by his or her profession is entrusted with a secret.
In Practice Direction No 2 of 2009, DIFC Courts’ Code of Professional Conduct for Legal Practitioners, it is provided that practitioners are required to keep information communicated to them by their client confidential unless such disclosure is authorised by the client, ordered by the court or required by law. This duty extends to all partners and employees of a practitioner and continues even after the practitioner has ceased to act for the client.
Similarly, in the ADGM, there is a duty of confidentiality that is imposed on lawyers. Disclosure is only permitted if it is authorised by the client, ordered by the court or otherwise required by law as provided in the ADGM Courts Rules Of Conduct 2016.
In DIFC and ADGM, the common law principle that privilege may be lost if the communication or document in question came into being for the purpose of furthering a criminal or fraudulent design will apply. This is sometimes known as "the fraud exception" or "the iniquity principle", which is founded on public policy.
Onshore UAE and ADGM
The concepts of punitive damages and exemplary damages are not recognised by UAE law.
In the DIFC, courts may order punitive damages when the defendant’s conduct has been deliberate and particularly egregious. Article 40(2) of the DIFC Law of Damages and Remedies provides: “The Court may in its discretion on application of a claimant, and where warranted in the circumstances, award damages to an aggrieved party in an amount no greater than three (3) times the actual damages where it appears to the Court that the defendant’s conduct producing actual damages was deliberate and particularly egregious or offensive.”
Banking documents are confidential and disclosure without consent is likely to be unlawful. This is provided in Article 120 of the Central Bank and the Organisation of Financial Facilities and Activities Law which states that all data and information relating to customers' accounts, deposits, safe deposit boxes and trusts with licensed financial institutions – in addition to all relevant transactions with customers – shall be considered confidential in nature, and may not be made available or disclosed, directly or indirectly, to any third party without the written permission of the owner of the account or deposit, his or her lawyer or his or her authorised agent.
A court can order production where relevant to a claim in certain situations, as discussed in 2 Procedures and Trials.
DIFC and ADGM
Similarly, in the DIFC and ADGM banking documents are confidential and disclosure without consent is likely to be unlawful. However, production can be ordered in certain circumstances as discussed in 2Procedures and Trials.
Asset tracing is an often complex process used to identify and recover assets from wrongdoers, typically in the case of fraud. This is necessary because extensive and sophisticated steps are often taken by wrongdoers to move assets beyond a creditor’s reach or ability to identify them.
The process of tracing assets can therefore involve substantial cost and time in order to investigate and prove the movement of funds or other assets and then to restore them to a claimant via court or other enforcement processes.
Asset tracing in the UAE is particularly difficult due to a number of factors. While certain steps taken in recent years have offered some cause for optimism, major challenges still remain.
Emirate Level System of Law Making and Use of Freezones – Key Obstacles to Successful Asset Tracing
Asset tracing is particularly challenging in the UAE due in large part to its complex legal system. The UAE is made up of seven emirates (“onshore UAE”). Although the UAE’s legal system is federal, each emirate also has its own legislative and administrative powers and, therefore, priorities. These differences can be exploited to make the identification of assets and their recovery more difficult.
The UAE is also home to various commercial or financial free trade zones (“freezones”) which allow businesses in specified industries to operate with greater freedoms than those established elsewhere. Although many onshore laws apply to them, separate regulations also apply within the freezones, the most significant of which include the Dubai International Financial Centre (DIFC) freezone and the Abu Dhabi Global Market (ADGM). These have their own entirely independent system of laws, based on English law (in contrast to the civil law regime which applies in onshore UAE). In addition, there are large trading freezones such as Jebel Ali freezone – a port-based freezone and the home of a wide range of companies and commercial activity connected to the transportation, processing and trans-shipment of goods. The commercial and trading freezones typically afford a high level of privacy to their users, such that funds that are transferred to companies within them may be very difficult to identify.
In addition to this multi-faceted legal and regulatory regime, there is no single register of companies against which searches for financial, directorship or ownership information can be made. Generally, no public right to access company information is available. Claimants often work with professionals such as law firms and business intelligence specialists to gather information to assist in recovering assets. However, confidentiality is taken very seriously, with potential criminal sanctions for breach. Surveillance is also unlawful. This environment inevitably further hinders asset-tracing efforts.
Assistance Available From Courts
The civil law courts of onshore UAE are not as familiar with the types of relief that are often sought in common law courts in aid of asset tracing. Interim remedies such as precautionary attachment orders are available, but traditional common law interim remedies such as freezing orders, search orders or asset/information disclosure orders are not (outside of the DIFC and ADGM).
The DIFC has separate courts to the onshore Dubai (and other emirate) courts. These courts are modelled on English and other common law courts and are served by emirati and international judges with common law experience. The DIFC also enjoys a codified, English language commercial legal system based on English law, although with some important differences such as the inclusion of an obligation to act in good faith in contractual matters. The DIFC courts are therefore attractive as a forum for many international parties who do business in the region and who are less familiar with (and less confident in dealing with) the Arabic language civil law courts in onshore UAE.
In order to support the introduction of the DIFC and its courts into the Dubai legal system, a protocol was put in place which provides for the automatic mutual recognition and enforcement of Dubai court and DIFC court judgments, without review of the merits.
This system works well in regard to domestic DIFC – Dubai court matters. However, the arrangement has been used by foreign judgment creditors as well. Such creditors would bring their judgment to the DIFC court for ratification and then seek to enforce the DIFC Court ratification order (rather than the original foreign judgment directly) in the Dubai courts. There was a perception that this would make ultimate enforcement more straightforward as the onshore courts would not scrutinise the DIFC court order in the same way as the foreign judgment and to deal with the DIFC court would be a familiar and less challenging experience for a foreign judgment creditor. This worked for a while and gave foreign parties greater confidence in the UAE as a place where foreign judgments could, in both theory and in practice, be readily enforced.
However, this approach was often taken in circumstances where there were no assets in the DIFC against which the judgment creditor could enforce, and no other nexus existed to the DIFC. The strategy of using the DIFC court to circumvent the onshore court’s review of the judgment it was being asked to enforce therefore started to attract criticism. These cases were known as the "conduit jurisdiction" cases.
In 2016, the Ruler of Dubai established a special tribunal to decide issues of jurisdiction between Dubai and the DIFC courts. Now, after a long line of decisions, the use of the DIFC courts as a “conduit jurisdiction” to enforce foreign judgments in onshore Dubai/UAE has been significantly curtailed. There still remains an element of uncertainty as to the circumstances in which the DIFC court may have a role to play in respect of the enforcement of foreign judgments absent a substantive connection to the DIFC, but the overall trend is clear – if the asset in question is not in the DIFC, a creditor must go directly to the onshore UAE courts. This inevitably acts as a deterrent to the asset tracer, given the more limited range of court remedies available and the perceived challenges of dealing with an Arabic language court that is much less familiar to international parties.
It is also important to note that the UAE is a party to a small number of international treaties which provide for mutual co-operation and assistance in legal matters, as well as for the enforcement of judgments. Extending the range of treaties would be valuable in assisting with asset tracing and enforcement. A treaty between the UAE and India was brought into force in 2020 which is a positive development given the substantial business connections between the two countries.
Corporate Governance Weaknesses
The opportunity for wrongdoers to move and conceal funds in the UAE is high – in part, due to weaknesses in corporate governance. If businesses do not have a strong compliance culture, as well as hiring, educating and retaining high-quality professionals who are able to identify improper transactions or activity, the risk of internal and external fraud and the use of corporates to launder funds is heightened.
Due to significant weaknesses in corporate governance, the UAE has recently seen the rise and fall of some very high-profile businesses, including Abraaj Investment Management/Abraaj Capital Limited (“Abraaj”) in 2018 and NMC Health plc, a UAE-based healthcare company listed on the London Stock Exchange, in 2020.
In early 2018, investors in Abraaj complained that their money was being misused and investigations were initiated into the group’s affairs. The Dubai Financial Services Authority (DFSA) is the regulatory body for the DIFC. The DFSA’s investigation into the Abraaj group found that Abraaj Investment Management, a Cayman Islands company:
The DFSA imposed financial penalties of AED1,098,431,000 and AED56,062,645 on Abraaj Investment Management Limited and Abraaj Capital Limited, respectively, in July 2019.
These fines (the largest the DFSA had ever imposed) reflect the seriousness with which the DFSA views such contraventions. The DFSA continues to take a robust approach to wrongdoing within its jurisdiction, both by corporate entities as well as by individuals.
Another example of such an approach taken by the UAE authorities is the case of NMC Health Plc. This company currently reports overall debt of more than USD6.5 billion, which came to light in 2020 as NMC faced a raft of civil, criminal and regulatory allegations including fraud. Since then, the UAE Central Bank has instructed financial institutions to freeze bank accounts held by the former chairman, Mr Shetty, and his family members to protect affected stakeholders.
Regulatory Enforcement on the Rise
In addition to these headline-making cases, the DFSA is becoming more assertive and has been taking increased action in relation to fraud and dishonesty in the financial services sector, in order to assist the victims of wrongdoing and to deter those who are not prepared to operate in a compliant manner. A prime recent example of this relates to the fines and sanctions imposed on Al Masah Capital Limited, Al Masah Capital Management Limited and three "authorised individuals" – namely Shailesh Dash, Nrupaditya Singhdeo and Don Lim Jung Chiat.
Al Masah Capital Limited, a Cayman Islands registered company, was not authorised to carry on any financial services in or from the DIFC. The DFSA found that it had breached DIFC legislation by carrying on unauthorised financial services in the DIFC. In relation to Al Masah Capital Management Limited, a firm that was authorised by the DFSA to conduct financial services business in or from the DIFC, the DFSA found that it had (i) made misleading and/or deceptive statements as to fees in documents relating to offers of units in funds managed by Al Masah Capital Limited, and (ii) failed to take reasonable steps to ensure that the information about fees contained in marketing materials and subscription forms was clear, fair and not misleading.
The DFSA found that the three individuals who were charged were knowingly concerned in the alleged contraventions by the two firms. Additionally, as Mr Dash and Mr Singhdeo were authorised individuals at the time the alleged misconduct occurred, the DFSA also found that they failed to act with the standard of integrity required of them in their roles. The DFSA further found that Mr Singhdeo and Mr Lim engaged in misleading and deceptive conduct by being knowingly involved in the alteration of a bank statement to conceal the payment of fees into a bank account. The Financial Markets Tribunal imposed financial penalties on all five parties and also upheld the DFSA’s decision to prohibit all three individuals and concluded they are not fit and proper to perform any function in connection with financial services in or from the DIFC.
Similarly, following a lengthy investigation process, which commenced in 2017, the DFSA announced that it had fined La Tresorerie Limited (La Tresorerie) AED2,250,800, including AED960,000 by way of disgorgement of financial benefits La Tresorerie received, plus interest.
The DFSA took this action against La Tresorerie (a DFSA-authorised firm) due to multiple, serious breaches of its legislation, mainly arising from conducting an illegal service that provided physical cash to its clients. The DFSA’s investigation found more than 100 transactions carried out as part of the illegal cash service, ranging in value from EUR2,560 (approximately AED10,000) to EUR500,000 (AED2 million). The total amount of physical cash provided by La Tresorerie was calculated to be the equivalent of over USD7.3 million (AED27 million) and the fees the firm received were the equivalent of almost USD220,000 (AED800,000). An amount equivalent to these fees, plus interest of over USD41,000 (AED150,000), is included in the financial penalty imposed on La Tresorerie as disgorgement. The DFSA took this action to penalise La Tresorerie, deter others and protect clients.
Although claimants who have suffered loss at the hands of firms who have committed wrongdoing in the UAE may not benefit directly from the increased level of regulatory activity that these cases illustrate, the general trend is clear; the UAE is seeking to enhance its profile as a safe investment destination that has a solid legal, regulatory and enforcement regime that will not tolerate abusive conduct that harms its reputation or causes such large-scale loss to investors.
Enhancements to the UAE's Anti-money Laundering and Counter-Terrorism Financing (AML/CTF) Regime
It is also important to note that in the UAE (as opposed to many other jurisdictions) fraud is more often treated as a criminal matter, not a civil matter.
A focus on anti-money laundering will help, in part, to combat the concealment of fraudulent activity or illegally obtained assets. The UAE has recently made substantive changes to its legal and regulatory framework to align itself with other developed jurisdictions. For example, Federal Law No 20 of 2018 on Anti-Money Laundering ("the AML Law"), brought digital currencies into the scope of the law for the first time, targeting money laundering through cryptocurrencies. The AML Law further introduced the concept of “controlled delivery”, whereby authorities are now permitted to allow a suspected money laundering activity to continue, in order to investigate and arrest persons suspected of conducting illicit acts in a covert operation.
In addition, the Anti-Money Laundering Resolution (Cabinet Resolution No 10 of 2019) requires financial institutions and designated non-financial professions and businesses (such as law firms and accountants) to assess a client’s money laundering risk and conduct customer due diligence at the start of each business relationship for all transactions above AED55,000 (or wire transfers above AED3,500).
Further, the UAE Cabinet has recently approved the establishment of the Executive Office of the Anti-Money Laundering and Countering the Financing of Terrorism to oversee the implementation of the UAE’s National AML/CFT Strategy and National Action Plan. The Executive Office will be the primary national co-ordinating body, working alongside internal, intergovernmental and international organisations on the UAE’s AML/CFT National Action Plan, and will have a wide-ranging mandate to assist those entities in the UAE with an AML/CFT function. The establishment of the Executive Office follows a series of measures taken by the UAE authorities in combating money laundering.
This increased focus on AML/CTF is encouraging since it should start to make the concealment in the UAE of wrongfully obtained funds more difficult.
Other Steps to Assist in Asset Tracing
The UAE has been willing to use non-traditional methods to restrict individuals from fleeing when fraud is suspected. For example, UAE authorities will typically impose travel bans when individuals are suspected of serious wrongdoing pending the outcome of a criminal investigation.
The Civil Procedure Law also provides that any person may make an application for an order prohibiting a debtor from travelling if there are serious grounds to suspect that the debtor may flee the jurisdiction. In such a case, the applicant is usually required to pay a certain amount into court for any losses caused to the respondent as a result of the travel ban. Separately, the police may also confiscate the passport or other travel documents of an individual suspected of fraud.
Collaborations With International Law Enforcement Agencies
The UAE has collaborated with international law enforcement authorities to assist and deter fraudsters from seeking “safe haven” in the country. The increase in such collaboration is a notable positive trend in the battle against financial crime and by extension indicates that greater support for those who are the victims of fraud will be forthcoming, in particular where a situation attracts media attention. Most recently, the UAE collaborated closely with the FBI in apprehending an Instagram influencer known as “Hushpuppi” (official name Raymond Abbas) who was arrested in Dubai for committing various acts of online fraud and money laundering, along with ten other individuals. Dubai Police seized AED150 million in cash, 13 luxury cars, 21 computers and 47 smartphones during the raid.
Mr Abbas, who was featured on the FBI’s most-wanted list, was accused of operating various fraudulent schemes by sending emails and messages to people, which would prompt them to log in (and thereby expose their log in details) or make payments on the websites he created. The money obtained would then be laundered to various destinations, including Europe, the USA and Nigeria. Mr Abbas was returned to the USA to face wire-fraud charges.
Similarly, another example of collaboration with international law enforcement relates to the case of Scottish-born Afzal Khan who was accused of fraud amounting to USD1.5 million. Mr Khan, who had been on the FBI’s most-wanted white-collar criminals list for five years, was arrested in Abu Dhabi in early 2020. He was charged with five counts of wire fraud and said to have fraudulently obtained 21 loans totalling more than USD1.5 million. With the assistance of UAE authorities, Mr Khan was returned to USA.
Due to its location and legal framework, the UAE has been particularly susceptible to fraud and has faced challenges in enabling claimants to trace assets, in particular due to the role of freezones, the absence of publicly available company information and the different legal systems applied in the seven emirates. However, the trend is positive. The UAE is determined to reduce financial crime and fraud, as demonstrated by its amendments to its AML/CTF regime and the introduction of other supportive laws, as well as an increased focus on cross-border co-operation in law enforcement and heightened regulatory activity. Over time, these steps should make the UAE a less attractive place to seek to hide assets and make the process of tracing them more realistic for claimants.