Call for new laws to fight corruption in Dubai
Posted by 7starsdubai on August 22, 2008
Shuchita Kapur on Thursday, August 21, 2008
Financial experts are calling for stricter laws and regulatory policies to fight corruption following allegations of misconduct in Dubai property market.
On Tuesday developer Nakheel confirmed a former employee was being questioned by the authorities over bribery claims. The statement followed media reports Karim Masaad, international sales manager for Nakheel, was being questioned by Dubai Public Prosecution as part of an anti-corruption crackdown.
Last week Nakheel said one of its employees was being questioned on suspicion of taking bribes. This followed a report that Walid Al Jaziri, general manager for sales, was being investigated for financial irregularities.
Laws are already in place to tackle corruption but more needs to be done, leading analysts told Emirates Business. And one analyst said adopting strict international standards would be a major first step.
“I feel we should adopt international financial reporting Standards,” said Dr Nasser Al Saidi, chief economist at the Dubai International Financial Centre (DIFC).
“This should be the standard for both listed and non-listed companies. It should be the rule for the corporate world.
“In addition we should strengthen the listing requirements at stock exchanges – and this should apply not only to new entrants but to those already listed as well.”
Niall O’Toole, a partner at the international law firm Clyde & Co, said a new law was needed. “There have been major scandals in the United States and throughout Europe and these led to changes in legislation and procedures,” he said.
“The private sector in the UAE deserves a new companies law written to an international standard that would establish enhanced standards of corporate governance.
“Insider trading is already against Emirates Securities and Commodities Authority [ESCA] regulations and we have seen examples of exchanges reversing trades.
I would expect the three stock exchanges in the UAE to be very vigilant on this point and if changes are required to the regulations then I would expect these to be forthcoming,” he added.
Dr Saidi said insider trading involving companies listed on the country’s bourses should be made a criminal offence.
“There should be a criminal law for insider trading just as there is in developed markets,” he said.
Dr Saidi said the ESCA had sufficient powers in terms of the current laws and regulations as well as the full support of the minister of economy.
“Enforcement of the corporate governance code is very important. This was announced by the ESCA in 2006 and we should move towards it as early as possible to avoid such cases in the future.”
A recent report on the way businesses are run said the ESCA should be more proactive in introducing new rules to strengthen corporate governance practices – a view shared by many experts.
O’Toole said: “The UAE has no option but to continue to improve corporate governance standards. Both the ESCA and the Dubai Financial Services Authority have issued minimum codes of corporate governance for listed companies.
“These need to be enforced both by regulators and by shareholders, particularly institutional investors. Consideration should also be given to adopting similar codes for private companies.”
Sarmad Hasan Manto, Legal Consultant, United Trademark & Patent Services (UTPS), said: “It is necessary to promulgate laws and closely monitor activities through regulatory intervention. In addition the companies should also play a vital role through implementing the required levels of checks and balances.”
Experts believe that a lack of transparency is a major issue in Dubai. The say regulatory intervention and compliance are needed to make sure the levels of disclosure are up to international standards.
Amer Halawi, Head of Research at the National Investor, told Emirates Business: “The family structure of businesses in the UAE and the short history of the stock markets create a sense of secrecy. This results in companies communicating very little with their shareholders.
“A case in point is the land deal that was struck by Emaar last year. It was advertised as an absolute winner by the company but very few valuation details were given. As a result shareholders were not able to gauge the importance of the deal and the stock went down on the news.
“The deal eventually had to be cancelled. Since then Emaar has decided to appoint an investor relations officer to manage such situations better in the future.
“One of the very first things UAE Inc should do is to impose a strict set of regulations to improve disclosure and transparency. Another important step would be to harmonise regulations across the emirates, particularly when it comes to listed companies,” Halawi added.
Dr Saidi said: “Transparency and disclosure should be high on the agenda of a company. In most developed markets companies announce the date when they will publish their results in advance. However, within the region 90 per cent of the companies here do not do that.
“This is important as the company will be obliged to stick to the deadlines. All companies should also have an investor relations department,” he said.
Halawi said: “Everybody talks about the current allegations but no one really knows what is happening. This is a good example of poor communication. The market is wondering and, in the absence of answers, investors sell the stock. Crisis situations require excessive transparency.”
However a spokesman for Nakheel told Emirates Business that transparency was at the heart of the company.
“As has previously been advised Nakheel regularly conducts internal audits as part of its commitment to open and transparent corporate governance process,” he said.
“As a result of this internal audit process the company can confirm that a former member of staff is also being interviewed by the authorities in relation to acceptance of inducements from third parties. No other staff members are being interviewed and it would be inappropriate to comment further on this issue.”
Transparency will become even more important as Dubai develops further and more foreign money is invested in the emirate. Manto said: “In order to maintain and increase the volume of foreign investment it is essential that transparency and legal security is provided to stakeholders and their confidence is regained.”
But O’Toole said transparency was just one of a number of factors and there was no single solution to the problem of corruption.
“Transparency is certainly an important part of good corporate governance,” he said.
“However, it is dangerous to think that there is a single or simple solution. Other elements of a potential solution would include an international standard companies law, continuously evolving codes of conduct, shareholder activism, suitable training for directors and officers and stiff penalties for breaches,” he added.
Dubai move positive
Public Prosecutor Esam Al Humaidan said: “Dubai Government follows a clear policy. There are strict directions to have zero tolerance towards all aspects of corruption, bribery and taking advantage of official positions.”
Niall O’Toole, a partner at law firm Clyde & Co, said: “Corruption and scandals are a fact of life wherever you go. To suggest that the UAE is immune to this aspect of human nature would not be credible. The important thing is that the authorities do not overreact but rather react appropriately. Dubai Government making clear it has a zero-tolerance attitude to corruption is the right response.”
Halawi said: “The fact that the government is talking about zero tolerance means there is a strong will to do things correctly. These situations are accidents along the way to economic growth and they have to be managed. The UAE has done a pretty good job so far.”
Dr Nasser Al Saidi, chief economist at DIFC, believes the allegations will ultimately be good for business. “Even though it looks negative, it is good. People have faith in the system. The judiciary is holding people accountable for their actions. This will lead to an increase in investor confidence.”
Sarmad Hasan Manto, legal consultant at UTPS, said: “The zero-tolerance policy is highly appreciated and has played an important role in building confidence among stakeholders.”
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