Corruption scandal rocks Dubai

Corruption is supposedly unheard of in the state of Dubai.

Corruption is supposedly unheard of in the state of Dubai. Sheikh Mohamed bin Rashid Al Maktoum, vice president and prime minister of the United Arab Emirates, and the ruler of Dubai, has a strong handle on the way his emirate runs from all standpoints–economic, financial, government, practically everything that reflects image.

However, once in a while, a few unscrupulous and careless business โ€œpractitionersโ€ slip through the cracks unmindful of the mines ahead. I can recall a few years back while residing in Dubai, a previous director general of the Dubaiโ€™s civil aviation, a general manager of one of the first-ever built, exclusive golf courses/resorts, several five-star hotel managers and mega-mall operators were indicted for corruption, fraud and misappropriating excessive funds.

Just like any booming capitalistic state, Dubai is not quite immune to the disease of corruption, as new developments prove. Last September 11, the United Arab Emirateโ€™s financial giant Tamweel’s deputy CEO, Abdulla Nasser Abdulla, has been detained as part of ongoing investigations into corruption in Dubai’s booming real property market. Local papers have brought the spotlight firmly back onto the negative side of the emirate’s economic success story. News of the deputy CEO’s detention in connection with financial irregularities hit the group’s shares hard on the Dubai Financial Market.

The scandal hit the press less than a month when two former Tamweel executives–Adel Al Shirawi, then Tamweel’s chief executive, and Feras Kalthoum, the finance company’s head of investments, were detained.

Tamweel Properties & Investments is a wholly-owned subsidiary and is Dubai’s largest mortgage lender and a central part of the emirate’s booming real estate market, said Edward Poultney, editor of Emap Limited. โ€œInvestigations form the latest act in the Dubai government’s crack-down on instances of corruption, embezzlement and abuse of position as it attempts to improve transparency and strengthen investor confidence in the property sector,โ€ he said.

Earlier in April, the Khaleej Times reported that Nakheel Poroperties, the Dubai-based real estate developer which has teamed up with US property magnate Donald Trump to sell condominiums on its $12.3 billion artificial Palm-shaped island, was at the center of a crackdown on alleged corruption in the emirate. Two people were arraigned on suspicion of bribery days before a high-profile sales team led by its CEO, Chris Oโ€™Donnell, headed to the US to lure investors to Dubaiโ€™s $300 billion property boom.

But, according to Stephen Atkinson, CEO of Arabian Real Estate Investment Trust, Dubai is relatively transparent. โ€œWhen you talk about transparency in the property sector, Dubai still leads the market, which is an improvement,โ€ Atkinson said at the recent Cityscape USA in Manhattan.

On ranking business transparency levels in Middle East countries, Dubai lawyer Mohamed Kamal, partner, Al Tamimi & Company, citing Jones Lang LaSalleโ€™s survey, said that Dubai is nowhere near the top five positions. Globally, the top five positions belong to Canada, Australia, New Zealand, USA and the UK. Dubai is further down the scale at 32. He said: โ€œA useful indicator in terms of where Dubai is, with respect to other jurisdictions, shows a rank in line with where Singapore is. Dubai is seen with similar real estate markets as Singapore and Hong Kong. Abu Dhabi is at 54. The other emirates are at rank 72.โ€ Dubai has tried to bolster its regulatory framework from a foreign investors perspectives – used to safeguards, consumer protection legislation, build quality standards, and an environment conducive to lending and sustaining growth appreciation.

โ€œDubai is almost complete in legislation. One of the laws came about last year in which developers register projects and obtain approvals; it was followed by an escrow law set for purchasers for properties in Dubai who make payments towards construction,โ€ said Kamal, adding that these laws have certainly slowed down launches of projects in Dubai, as well as made processes the developers undergo very stringent. Thereโ€™s greater transparency on who is actually approved.

โ€œFrom an investorโ€™s point of view, you have comfort in knowing they have been through the process,โ€ said the attorney. Over 700 developers registered in Dubai are currently asked to go through the approval process.

Another important piece of legislation designed to protect investors in Dubai from paper trading, which is when people put down deposits of 10-25 percent for a simple contract, has been passed. The paper would have been traded as they would have had in the futures market which begs the investorsโ€™ question: How secure is a contract in Dubai? Some developers did not deliver. Some engaged in double-selling when they would cross a buyerโ€™s name off the list then resell the same property to some other buyers over and over again. Risks involved in paper trading scams are now covered by Dubaiโ€™s new escrow law.

Last month, another legislation has made it mandatory on all purchasers to register their contract with the lands department. Kamal said: โ€œThe biggest factor and safeguards are the implementation of the laws. We are at a stage with a complete set of legislation.โ€ Investors, however, may need to check out the practical applications of the escrow law, the resolution of disputes and issues of developments. Dubai has not yet seen many cases of breaches. But there are a few. In terms of the real estate landscape in Dubai, a lot of companies are public companies; a majority is private who increasingly try to promote transparency in terms of business practices, added Kamal.

When asked if a defendant could win his case against the owner who may be the ruling family, Kamal said: โ€œThe initiatives of Sheikh Mohamed maintain fair treatment of legitimate claims, disputes and dispute resolutions. We have seen cases of arbitration where foreign investors try to protect contractual rights. There is a view that chances of success can be slim if you are trying to take on a Sheikh or a firm with majority of the shares owned by the Sheikh. But certainly the move of all companies is to be accountable and to allow due process of legitimate claim.โ€

Egyptian national Karim Masaad worked for Nakheel Properties, which is owned by the Sheikh. Nakheel said he โ€œresignedโ€ as a sales executive and questioned in connection with alleged wrongdoing while working for the developer. Masaad was the second person held by Dubai authorities in the Nakheel investigation. Walid al-Jaziri, Nakheelโ€™s general manager for sales, was also questioned, according to the Khaleej Times. โ€œNakheel sits at the heart of the multibillion business empire of Dubaiโ€™s ruler Sheikh Mohamed bin Rashid al-Makhtoum and is a cornerstone of his plan to make the emirate an international business hub to rival New York and London.โ€

Walter Kleinschmit, founder of R2E Consultants Inc. revealed that Dubai commercial developer Damac Properties was guilty of delaying delivery of numerous housing inventory. Damac was โ€œpulled overโ€ by the court of public opinion to respond to this negligence. He said, โ€œEmaar and other developers faced a major storm about 18 months ago and made to answer to this legal and social process.โ€

Recent arrests suggest that Sheikh Mohamed wants to clean up the emirateโ€™s reputation in a bid to lure foreign investment. Dubai is aiming to double the size of its economy to $108 billion by 2015. To do this, it needs foreign money. And this cash would certainly come from the two billion people within a two-hour flight from Dubai. “The success of the current boom is making it unaffordable for people in the lower echelon to live there,” said the R2E chair, adding, “But there are enough rich people who want a second home, or first home or want to acquire residential rights in Dubai. It is imperative to keep those people happy in a community that’s welcoming and supportive.”

About the author

Avatar of Linda Hohnholz

Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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