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Corporate Fraud in the United Arab Emirates: An Overview

 

Introduction to United Arab Emirates legal system

The United Arab Emirates (UAE) legal system works under a civil law system comprising of a federal court system composed of civil, criminal and shariah courts. The highest court in the land of UAE is the Supreme Court with its presence in three Emirates which are Abu Dhabi, Dubai and Ras Al-Khaimah and their jurisdiction covers all matters which does not fall under the federal courts which are allocated according to the UAE constitution with their own first instance and appellate courts.

Apart from that, the UAE also has formulated additional framework or regulations to govern the free trade zones with special tax, customs and imports regimes. There are certain law especially commercial laws that do not apply in some free trade zones. For example, the Dubai International Financial Centre (DIFC) is a free trade zone which practices offshore common law jurisdiction with its own law. The civil and commercial laws of UAE except UAE criminal law does not apply in the DIFC. This blog does not cover the jurisdiction or laws of the DIFC.

Corporate or business fraud offences                             

The UAE government and the corporate lawyers in Dubai are very careful to remain within the law and it expects the same from the corporate sectors. However, now and then the UAE judiciary find itself facing financial offences like fraud in the context of corporate business that includes the following crimes as it has been established by the UAE Penal Code:

  1. Article 399 of UAE Federal Law No. 3 of 1987 – engaging in fraudulent activity – this offence states that the offender take possession (either for himself or for others) of any movable property or written instrument by assuming a false name or quality and/or by using fraudulent practice with the mindset of deceiving the victim in surrendering his/her legal rights.

As a result the offender can be guilty and punished for falsification.

  1. Article 401 of the Penal Code of the UAE Federal Penal Code enacted in 1987 – dishonoured cheque – the act of any individual who in bad faith, draws a cheque without any existing or drawable fund; or after issuing the cheque, withdraws all or part of the provision so that the balance becomes insufficient to settle the amount of the cheque; orders the drawee not to pay the cheque; or deliberately makes or signs the cheque in such a manner to prevent it from being paid.

When a payer defaults, the receiver have the right to file a complaint for the cheque along with a civil case for recovery.

  1. Article 402 Federal Law No. 3/1987 – This deals with a drawee who, in bad fair, declares the availability of the fund which is less than the amount he/she actually has available for withdrawal.
  1. Article 404 Federal Law No. 3/1987 – the offence of breach of trust – It involves the offences committed by any person who embezzles, uses or diminishes funds, instruments or any other movables which were entrusted to him/her in a fiduciary capacity, and causes damage to the person who holds title to such funds, instruments or any other movable, can be considered as breach of trust.

It carries a penalty of imprisonment or a fine.

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Additional related legislation

A leading judge has warned that cases of cyber, electronic, phone and scam fraud are on the rise across the UAE. So, the UAE government passed additional legislation to effectively govern these types of fraud. Let us learn more about the most common relevant legislation:

  1. The UAE Cyber Crimes Law – This shed light among other things – unauthorized access to networks or data systems, data tampering, credit cards cloning and the use of IT to commit a variety of offences.
  1. The UAE Commercial Transactions Law – that penalized a company’s board of directors if they commit certain acts at the time of the company’s bankruptcy, such as hiding or demolishing company accounts or documents, or acknowledging debts that they know are not payable by the company.
  1. The Dubai Recovery of Public Funds Law – prohibits the retention of “illegal money” which is funds that are directly or indirectly received as a result of a deed that constitutes a crime punishable under federal or Dubai Law. It also governs the misappropriation of public funds in Dubai.