CDR - Essential Intelligence: Fraud, Asset Tracing & Recovery
I Executive summary
Despite historical perception to the contrary, the UAE legal landscape in fact provides for a broad range of tools for tackling fraud. Both common law and civil law jurisdictions co-exist in the UAE, and proceedings in both are often conducted in parallel. Civil and criminal statutes and measures often overlap and can also be used in conjunction with each other. Parties with more limited options in one jurisdiction, depending on the particular case, may have more success in another.
Moreover, the country is becoming increasingly plugged into the international frameworks for judi- cial co-operation and cross-border dispute resolu- tion. There has been continued progress with greater reciprocity of enforcement between the UAE courts and foreign jurisdictions, the development of the UAE’s extradition processes, and its participation in INTERPOL’s “Red Notice” system.
The UAE coped admirably during the COVID-19 pandemic and has been a regional economic stand-out in its aftermath. The growth of digital assets in the UAE – including their regulation and trading – is one of the fastest in any market anywhere in the world. The legal sector has not lagged behind either, with the Dubai International Financial Centre (“DIFC”) Courts passing judgment in one of the first crypto- currency disputes to reach a full evidentiary hearing (Gate Mena v Tabarak Investment Capital Limited ). Technology, including artificial intelligence (“AI”), has also been increasingly co-opted in the recovery of assets.
The regulation of digital assets falls within the remit of various long-standing regulatory bodies, including the UAE Securities and Commodities Authority (“SCA”), the UAE Central Bank, and the Abu Dhabi Financial Services Regulatory Authority (“FSRA”), the Dubai Financial Services Authority (“DFSA”) as well as very recently established new regulators such as the Dubai Virtual Asset Regulatory Authority (“VARA”). Regardless of the length of their tenure, these institu- tions all place a common emphasis on greater trans-parency and reporting, including the development “whistleblowing” regimes. These themes are expected to be expanded on and developed in the years to come.
II Important legal framework and statutory underpinnings to fraud, asset tracking and recover schemes
Criminal legislation. UAE criminal law penalises fraud and other similar economic crimes. Federal Law No. 31 of 2021 on the Issuance of the Crimes and Penalties Law (as amended) (“Penal Code”) makes several references to fraud, including fraudu- lent misrepresentation.
For fraud practitioners, the most salient provi- sions are in Book 2, Title 8, Chapter 2 covering fraud in commercial transactions. Article 451 imposes a prison sentence of up to two years or fine of up to AED 20,000 in the following terms:
Any person who unlawfully appropriates for himself or for another person movable property, or who obtains a benefit or document or a signature on the said document, or a revocation or alteration of the document, by seeking fraudulent method or by false pretence or capacity so as to deceive the victim and induce him to surrendering such document, shall be liable to a jail sentence or a fine. The same penalty shall be imposed against any person who disposes of a real estate or movable property, knowing that he is neither the owner nor having the right to dispose of the same, or that he has previously disposed of the same or concluded a contract on the same, and which may inflict damage to a third party.”
Attempted fruad is also penalised in the same Article.
Also of note are the offences of embezzlement in a public office (Article 260) or in respect of telecom- munication services (Article 444), and the crimes of breach of trust in Articles 453 to 455. Fraud involving written instruments is covered by Article 452; criminal deceit is penalised at Article 176.
Related offences are also found outside the Penal Code. For example, Federal Law No. 34 of 2021 concerning the Fight Against Rumours and Cybercrime (“Cybercrime Law”) criminalises hack- ing-related offences (Articles 2-4, 12), compromising personal and governmental data (Articles 6-7, 13), misappropriation of secret information (Article 9), online/email fraud (Article 11, 17), forgery of elec- tronic documents (Article 14), defrauding through compromising electronic payments (Article 15) and tampering with digital evidence (Article 18), among other offences. A general offence of cyber fraud is also contained in Article 40 which provides: "Everyone who unduly seizes for himself or for others movable property, benefit, document or signature of such document, by adoption of a fraudulent manner, using false name or imperson- ating oneself through the information network, electronic information system or information tech- nology method shall be sentenced to detention for a period of not less than one year and/or to pay fine of not less than (250,000) two hundred fifty thou- sand Dirhams and not more than (1,000,000) one million Dirhams.”
Whilst the Penal Code provides for a scheme of confiscation of the proceeds of crime generally (in Article 83), the Cybercrime Law provides for a sepa- rate confiscation scheme (in Article 56) in respect of proceeds of cybercrimes (which is for the benefit of the State but expressly without prejudice to the rights of third parties impacted by those offences) following conviction. To the extent that a harsher penalty is appli- cable for the same conduct under the Penal Code, the provisions of the Penal Code shall prevail over those of the Cybercrime Law.
Civil legislation. Victims of fraud can pursue claims for civil damages. Typically, the criminal conviction is used as the basis for substantiating the civil claim. A civil claim can therefore either follow a criminal conviction, or be pursued in parallel with a criminal complaint; in the latter instance, the civil claim will be stayed pending determination of the criminal action.
Further, once a criminal conviction for fraud has been secured, the victim may apply to the first instance criminal court for a temporary award of damages on a summary (immediate) basis to be paid by the defendant pending a claim against him in the civil courts. The maximum amount that the criminal courts are permitted to award a victim under Articles 425 and 426 of the Penal Code is, however, relatively low (i.e. limited to AED 20,000 (c. USD 5,400).
Through Dubai Law No. 37 of 2009 on the Proce- dures for the Recovery of Public Property and Illicitly Collected Money, there is a penalty of imprisonment of up to 20 years (depending on the amount defrauded) for criminals who refuse to return the proceeds of their crime in relation to offences committed in Dubai. More importantly, under Law No. 37, victims of fraud also have standing to seek restitution of the proceeds of crime. This applies to both public and private funds.
Civil claims are usually brought under the general provisions of Federal Law No. 5 of 1985 on the Civil Transactions Law of the United Arab Emirates State (as amended) (“Civil Code”) from Articles 282 et seq., which stipulate that any harm or tort committed on someone shall render the actor liable to compensate the victim.
Fraud practitioners may alternatively prefer to pursue a solely civil recovery strategy. For example, through claims under the torts of unjust enrichment and unjust expropriation, which are found in Book 1, Part 4 (Acts conferring a benefit) of the Civil Code, and which provide for restitution and compensation. Specific orders. The Public Prosecutors in each of the seven Emirates of the UAE have powers that can aid the investigation of fraud. For instance, the Public Prosecution can apply for a travel ban to stop a suspect leaving the UAE, including an order to surrender any passports held. The civil courts can also impose “precautionary attachments” akin to freezing orders, either before or after criminal and/or civil proceedings have commenced. Once an order for payment has been made by any UAE court, the execution judges and their teams assist judgment creditors with recovery, e.g. by writing to the major banks through the UAE Central Bank to ascertain whether the judgment debtor hold accounts with them, making enquiries with the local stock exchanges and the land and vehicles departments.
The Abu Dhabi Global Market (“ADGM”) and DIFC. The UAE is a civil law jurisdiction and does not differentiate between the legal and equitable ownership of property, other than in the very limited ambit of the UAE Trust Law (Federal Law No. 19 of 2020). However, two “islands of common law” exist within the UAE in the form of offshore financial free zones, namely the DIFC and the ADGM, which apply their own civil and commercial laws. The courts of these two jurisdictions can deploy the full panoply of civil tools that common law practitioners are familiar with, including search, freezing and
other injunctive orders, all of which can (in theory) be enforced outside of the territory of the relevant free zone. Examples of key cases are given in the section on cross-jurisdictional mechanisms below.
Neither the DIFC or the ADGM have their own separate criminal law regimes; both jurisdictions are subject to UAE federal criminal laws, such as the Penal Code and the Cybercrime Law discussed earlier in this chapter.
In all, the UAE legal regime provides ample tools for aiding the pursuit of fraudsters and the recovery of stolen assets. The UAE authorities are one of the fore- most users of INTERPOL’s “Red Notice” scheme, and there are several instances of their detaining and extra- diting suspects in response to foreign Red Notices.
III Case triage
UAE criminal proceedings.In criminal proceedings, the UAE’s Public Prose- cutor possesses wide-ranging powers and discretion to take any necessary steps to investigate matters and conduct the tracing of assets. The Public Prosecutor collects the necessary information and evidence and may seize or freeze assets. The Public Prosecutor may also enlist the assistance of other bodies if required, such as the UAE Central Bank or financial institu- tions. Such powers are also exercisable against third parties and the criminal courts may also summon witnesses to provide evidence.
Even if confiscation is not required by law, upon issuing its decision, the criminal court may order the confiscation of assets derived from the criminal activity (Article 83 of the Penal Code). Where proceeds of crime have been wholly or partially converted into or combined with other lawfully obtained property, the proceeds or crime or an equivalent amount may never- theless be confiscated (Article 83 of the Penal Code).
UAE civil proceedings. Information of both a personal and commercial nature is strictly guarded in the UAE. When it comes to obtaining documents and information, a court order would be required to request or compel disclosure of such information from third parties. The court may mandate an expert to carry out an independent inves- tigation of the facts and prepare a report for the court setting out their findings. The expert is empowered through the court’s mandate to require delivery up of information and documents from parties (including third parties) in supremacy to the UAE’s secrecy laws and may request to inspect a party’s premises, posses- sions, objects, data, or any other physical or electronic records. Technically, penalties (by way of fines) can be imposed on any parties which refuse to comply with the expert’s directions, though this is not guaranteed in practice. The court is also entitled from an eviden- tial perspective to draw adverse conclusions from a failure to comply.
Whilst civil proceedings in the UAE are predom- inantly based on written submissions and it is not the norm for witness evidence to be heard, under recent amendments to the UAE Civil Evidence Law (Federal Law No. 35 of 2022 Promulgating the Law of Evidence in Civil and Commercial Transactions), a party may request the court to summon a witness to appear before the court and answer questions. If a witness refuses to appear, the court may in certain circumstances impose a fine of between AED 1,000 and AED 10,000 (Article 74).
Federal Law No. 42 of 2022 Promulgating the Civil Procedures Law (“Civil Procedures Law”) permits the attachment of assets belonging to any debtor and a creditor may apply to the court for such an order, which can be imposed over real estate or any movable property of the debtor, including assets physically in the custody of third parties (such as bank accounts or safety deposit boxes). Attachments may also be granted in respect of a company’s trade licence which prevents it from winding up, restructuring or phoe- nixing in an effort to dissipate/hide assets.
It is not possible to request summary judgment under UAE law and it is therefore more difficult to obtain a civil court judgment without a full trial. However, if the defendant fails to attend trial without a valid excuse, the court may issue judgment in default. Once judgment has been entered, interim attachment orders may be crystallised through execu- tion procedures or further attachment orders over real estate or movable property may be granted. If a debtor fails to comply with a final judgment or any final order for payment, then the creditor may apply to the court for a detention order against the debtor. In certain circumstances, a travel ban may also be requested against the debtor.
DIFC and ADGM. The DIFC and ADGM courts are civil courts which benefit from a broader range of investigatory powers akin to those of other common law jurisdictions. It is the claimant itself who must lead the investigation and tracing activities and seek to persuade the court to exercise its powers in support of this process.
Provided the necessary jurisdiction can be estab- lished, a claimant can seek a preservation order from the DIFC and ADGM courts where there is a concern that evidence may be destroyed. Possession orders, known in England and Wales as Anton Piller orders, effectively provide the right to search premises and seize evidence without prior warning. Freezing orders, sometimes also known as Mareva injunctions, can be used to freeze a debtor’s assets in order to prevent them from being taken abroad or dissipated, as well as to compel the debtor to provide documents and informa- tion about the assets, including their location. Norwich Pharmacal orders can be sought against innocent third parties to compel them to provide relevant documents and information, although an application supported by strong evidence will be required for them to be granted.
A party who disregards any DIFC or ADGM court order would be in contempt of court and may be subject to sanctions. Although the DIFC and ADGM courts do not have criminal jurisdiction, matters of contempt can be referred to the Public Prosecutor, and there are recent examples of this having been done (e.g. in (1) Lateef (2) Lukman v (1) Liyela (2) Liyani [2020] DIFC ARB 017 (24 March 2022), where the DIFC court found, for the first time, both the individual and corpo- rate defendants guilty of contempt and referred them to the Attorney General of Dubai for investigation and prosecution).
IV Parallel proceedings: a combined civil and criminal approach
In the last 12 months the UAE has welcomed the introduction of the new Penal Code and Federal Law No. 38 of 2022 on the Issuance of the Criminal Procedure Law (“Criminal Procedure Code”), both of which build on the UAE’s close overlap between civil and criminal proceedings.
The Penal Code makes clear that there are no time limitations for civil actions arising from or connected to fraud or bribery offences (Articles 270 and 286), and there exists provisions for victims of fraud to apply for a temporary award of damages pending the resolution of a civil claim against the defendant.
The Criminal Procedure Code allows for a civil lawsuit which arises out of the facts of a criminal case to be filed before the criminal court in certain circumstances, and later referred if necessary to the civil courts by the criminal court (Articles 23 and 27). As discussed above, civil claims are frequently brought under the general provisions of Articles 282 et seq. of the Civil Code.
Any civil lawsuit filed in the civil court is suspended until a final judgment is issued in the related criminal case (Article 29 of the Criminal Procedure Code). To preserve the position of the parties in the civil case, urgent interim remedies, such as “precautionary attach- ments” akin to freezing orders or travel bans, can be sought. A civil claim will not preclude the issuance of a criminal sentence in the matter (Article 344 of the Criminal Procedure Code).
Private prosecutions by non-state actors are not
permitted under UAE law.
V Key challenges
The legal framework in the UAE is comprised of an intricate web of federal laws which are applied in the national courts, along with Emirate-specific legislation, as well as separate laws appliable within various free- zones, and two common law jurisdictions (the DIFC and ADGM) which have their own courts. The differ- ences between these separate jurisdictions have histori- cally hindered asset tracing efforts, for example through the lack of standardisation of company registries which provide different levels of information relating to companies. Indeed, it is often difficult to obtain the trade licence of a company and to ascertain who the beneficial owner is, which is further compounded by strict privacy rules in the UAE. However, in an effort to alleviate such difficulties the UAE intro- duced Federal Decree-Law No. 37 of 2021 on the Commercial Register, which introduced the concept of a centralised companies register for all businesses oper- ating in the UAE, except the DIFC and ADGM. This seeks to unite the records of the separate commercial registers of each Department of Economic Develop- ment (“DED”) within each of the seven Emirates, and standardise the level of information required to be recorded in each DED’s commercial register. The combined records are maintained by the Ministry of Economy as a separate Economic Register. Similarly, a central UBO Register was also established in 2021. Whilst documents and information from these Regis-ters are not publicly available, they are readily available to the authorities and should, in theory, be made avail- able to investigative experts mandated by the courts in civil cases.
The remedies available to claimants between the onshore UAE courts and the DIFC and ADGM courts differ, and claimants should be aware that they may encounter challenges in the onshore UAE courts which are less familiar with the full gamut of interim measures and relief available under common law (and which are available in the DIFC and ADGM). The scope of the DIFC courts as a conduit juris- diction to the onshore Dubai courts has also been reduced. Previously, foreign parties often sought to ratify foreign judgments in the DIFC court for onward enforcement in the onshore Dubai courts, despite there being no assets in the DIFC. Parties previously sought to follow this process in order to circumvent the Dubai onshore courts’ scrutiny of the underlying merits of the foreign judgment when considering its enforceability. In 2016, the Joint Judi- cial Tribunal was established to act as an arbiter of conflicts of jurisdiction between the DIFC courts and the onshore Dubai courts. The general view now is that where there is no nexus between the assets and the DIFC the creditor must go directly to the UAE onshore courts, which may prove challenging for creditors who are not familiar with them and/or do not speak Arabic (though on 1 January 2023 English was introduced as a further official language of the UAE onshore courts). The ADGM has gone even further and expressly stated that it cannot be used as a conduit jurisdiction.
VI Coping with COVID-19
Across the various different legal jurisdictions oper- ating within the UAE, the courts adapted swiftly to ensure the smooth running of the justice system in order to preserve access to justice, not only for those users of the justice system based in the UAE, but those located internationally as well.
Onshore courts. In Dubai, on 17 March 2020 the Dubai courts issued Resolution No. 30 of 2020, which postponed all court hearings before the Court of First Instance, Court of Appeal and Court of Cassation from Sunday 22 March to Thursday 16 April 2020. The issuance of certificates and personal status docu- ments (such as marriage and divorce certificates) was also suspended for the same period. Thereafter, all hearings took place electronically using Micro- soft Teams, with the filing of all new cases being carried out electronically. Criminal cases and appeals involving inmates and detainees continued remotely as per an order by the Chief of Dubai Courts, with the courts initially prioritising the hearing of cases where the accused was in custody (as opposed to on bail). All precautionary attachment applications were required to be filed electronically to the summary judge, who then rendered a decision remotely and uploaded it electronically to the courts’ online system.
Adopting a very similar course, on 30 March 2020 the Abu Dhabi courts issued Administrative Deci- sion No. 61 of 2020 which required all court proce- dures, court hearings and notary public ratifications to be undertaken through electronic means through the Abu Dhabi courts’ electronic system. Initially, all civil cases (save for those already reserved for judg- ment) before the Court of First Instance, Court of Appeal and Court of Cassation were adjourned for a period of 30 days, with hearings scheduled and communicated to the parties by SMS. In addition to requiring precautionary attachment and arrest appli- cations to be filed electronically (as in Dubai), the Abu Dhabi government also suspended enforcement against bank accounts, vehicles, real estate and shares for two months.
The move to virtual hearings prompted by the COVID-19 pandemic was very successful. In 2021, within a six-month period, the Abu Dhabi courts alone held 83,249 criminal hearings and 34,006 civil hearings, and the UAE Ministry of Justice set the target that 80% of litigation sessions should be held virtually on a permanent basis before the end of 2021.
ADGM and DIFC. The ADGM courts were already undertaking remote hearings prior to the COVID-19 outbreak. The ADGM’s e-courts platform permits parties to interact with the courts entirely virtually, including filing court forms, making court fee payments, undertaking case management and filing and using electronic bundles at interloc- utory and final hearings. Judges and parties need not be present in the ADGM in order for hearings to take place. As a result, the cases proceeding in the ADGM did not suffer any interruptions or delays due to the impact of COVID-19.
Similarly, the DIFC courts, which were already an entirely paperless court, suffered very limited disrup- tion to its case management protocols. Court users were encouraged to use the DIFC e-registry portal, with special permission being required for the use of hard-copy bundles with hearings (including those requiring witness testimony) taking place remotely. Cases before the Small Claims Tribunal were also heard virtually and whilst the DIFC Pro Bono clinic closed for in person consultations, those wishing to use the service were able to access it via the DIFC Enquiries email address, which then distributed the queries to the participating law firms within the DIFC. In its 2022 Annual Report, the DIFC courts reported that 100% of its orders and judgments were issued in digital format, 90% of its hearings were conducted remotely, and 100% of all internal and customer facing processes were conducted digitally. If anything, the speed at which cases before the DIFC courts progressed increased, given that multiple hear- ings could take place virtually simultaneously.
VII Cross-jurisdictional mechanisms: issues and solutions in recent times
Criminal mechanisms. As noted above, the UAE is a user of the INTERPOL “Red Notice” system and has a developed system for co-operating on international criminal matters under various bilateral and multilateral treaty arrangements. The scope of the UAE’s assistance (at a federal level, but by impli- cation at the emirate level too) is set out in the 2020 Guide to The International Judicial Cooperation in Criminal Matters (Surrender of Persons and Things – Judicial Assistance) issued by the UAE Ministry of Justice (https:/ www.moj.gov.ae/Content/Userfiles/ Assets/Documents/ce11fada.pdf ).
Civil mechanisms. In cross-border fraud and asset tracing cases, parties may need to request the assistance of overseas courts with investigating and applying interim remedies. To do so, a party would need to obtain a court order from the civil court requiring the UAE Ministry of Justice to make a request for mutual legal assistance from the Ministry of Justice/courts of the foreign jurisdic- tion. However, such requests would predominantly be limited to those countries with whom the UAE has a mutual legal assistance treaty or other countries where the principle of reciprocity is applied. The UAE is a signatory to certain international conven- tions which contain provisions dealing with asset recovery, such as the United Nations Convention against Corruption, the United Nations Conven- tion against Transnational Organised Crime and the Riyadh Arab Agreement for Judicial Cooperation.
Perhaps the most fruitful civil mechanisms are those offered by the DIFC and ADGM courts, the courts of the respective offshore financial free zones. There, the key tools are freezing orders and other injunctive relief as well as disclosure orders (including those akin to the US 1783 production orders). In United States Securities and Exchange Commis- sion v Wintercap SA & Others [2019] DIFC-CFI-003, the DIFC courts affirmed their jurisdiction and willingness to grant freezing orders in aid of foreign proceedings, even in the absence of an underlying claim in the DIFC (in that case, a freezing order was obtained by the US financial regulator, the SEC, over assets in both the DIFC and “onshore” Dubai outside of the DIFC, in aid of an interim worldwide freezing order granted by the US District Court in Massachu- setts). In Childescu v Gheorghiu and ors [2019] DIFC CFI 074, the DIFC courts made a freezing order upon the application of a wealthy businesswoman and investor in support of her civil claim (seeking over USD 30 million) in the Cypriot courts against her former advisors, their associates and five companies affili- ated with the other defendants. However, the ambit of the DIFC courts’ jurisdiction does have limits. In Akhmedova v Akhmedov [2018] DIFC CA 003, for instance, the Court of Appeal held that the courts were not conferred jurisdiction by their own Judicial Authority Law, over a third party to a foreign judg- ment against whom enforcement was sought, which would have required a piercing of the corporate veil.
Both the courts of the offshore financial free zones and the “onshore” courts can enforce judgments and orders rendered by foreign courts under certain condi- tions. Whilst the overall enforcement framework is beyond the scope of this chapter, the key issue is usually one of reciprocity, with the UAE courts keen to ensure (as a matter of foreign law expert evidence or inter- national agreement) that the rendering court would enforce a UAE judgment or order if presented before it (please see the “Recent Developments” section below).
VIII Using technology to aid asset recovery
The UAE has implemented a National Artificial Intelligence Strategy 2031 with the purpose of posi- tioning itself as a global leader in AI. The approach aims to have an integrated AI program across various vital areas of work and life in the UAE.
This is just one example of the steps being taken to ensure the UAE maintains its status as a leading global jurisdiction for AI technology. This tech-led approach will inevitably feed into the advancements being seen globally by practitioners in the asset recovery field, as document and/or data heavy tasks are being reduced in complexity and speed by the development by a variety of modern tools. One example receiving attention in the region is the platform that enables a search of banks around the globe to see if they have ever communicated with (and not blacklisted) an individual email address. This has potentially far-reaching consequences for those attempting to identify undeclared bank accounts. Another is the ability of certain providers to provide forensic analysis of blockchains to identify or trace certain transactions. While these signs are good, as technology develops so will criminal behaviour and ingenuity. However, the gap appears to be closing and the UAE is at the forefront of the technology behind it.
IX Highlighting the influence of digital currencies: is this a game-changer?
The UAE has placed itself at the forefront of digital currency development and their influence in the region is enormous and continues to grow.
The ADGM was one of the first jurisdictions to publish a framework for digital assets (including digital currency) when the FRSA published its exten- sive regulations in 2018.
There followed federal legislation governing the whole UAE in 2020-22, with the SCA passing Deci- sion No. 23 of 2020 Concerning Crypto Assets Activities Regulation and the UAE Central Bank publishing its Stored Value Facilities Regulation. In December 2022, the UAE issued Cabinet Deci- sion No. 111 of 2022 on the Regulation of Virtual Assets and their Service, requiring anyone wishing to conduct virtual asset activities in onshore UAE to first obtain approval and a licence from the SCA or a local licensing authority. On 12 February 2023, the UAE Central Bank launched its Financial Infra- structure Transformation Programme (“FIT”) which proposed the launch of the Central Bank Digital Currency (“CDBC”) for both cross-border payments and domestic usage. The first phases of implementa- tion subsequently commenced in March 2023.
At an emirate level, in 2022, Dubai passed Law No. 4 of 2022 on the Regulation of Virtual Assets, creating the VARA, and the DIFC implemented its Crypto Token regime. On 7 February 2023, VARA published its Virtual Assets and Related Activities Regula- tions 2023. The Regulations set out the framework governing cryptocurrencies in Dubai (excluding the DIFC), including the general and specific supervision and enforcement powers of VARA.
As to the take-up of digital currencies in the region, the Telecommunications and Digital Govern- ment Regulatory Authority Digital Lifestyle report published in 2022 found that 11.4% of UAE residents have invested in cryptocurrencies, placing the region 10th globally in terms of investments in cryptocurren- cies, with Kraken, crypto.com, Bybit and Binance all operating in the region. However, this rising popu- larity is also fuelling a rise in fraud. In 2021, the Dubai Police stated that there had been hundreds of cases of crypto scams in which people in Dubai had lost a total of USD 21 million in the first half of 2021 alone.
The UAE has taken a number of steps to combat cryptocurrency fraud, and to ensure its efficient pros- ecution. The first step is the development of the regu- latory framework, including a specialist regulator in Dubai (VARA), with an extensive remit to oversee and enforce compliance with its regulations by those to whom it grants licences. Regulators in the UAE are also being proactive in highlighting potential pitfalls to consumers. For example, the SCA has added entity names and Twitter accounts to its list of alerts for falsely claiming to be regulated by the SCA. Similarly, in the DIFC, the DFSA has sent alerts about fraudulent crypto assets falsely claiming to be regulated by the DFSA.
In addition to policing compliance with licences, the Cybercrime Law also introduced new criminal offences of dealing in cryptocurrencies that are not recognised in the UAE, and operating in the digital assets space without a licence (Articles 41 and 48 of the Cybercrime Law). Persons who contravene those provisions are subject to a penalty of detention and/or a fine between AED 20,000 and AED 500,000.
The Dubai Police has set up a dedicated Virtual Assets Crime Division tasked with investigating and prosecuting breaches of these laws.
In terms of jurisprudence, the region is also leading the way in considering some of the key issues that will govern disputes concerning cryptocurrencies in the years to come. In 2022, the DIFC courts issued a judgment in the case of (1) Gate Mena DMCC (2) Huobi Mena FZE v (1) Tabarak Investment Capital Limited (2) Christian Thurner, one of the first cryptocurrency litiga- tion disputes in the region and one of the few reported cases anywhere in the world. It addresses issues such as the safe transfer of cryptocurrency between buyer and seller and the obligations owed by a custodian of cryptocurrency. This case gave rise to various other interesting questions such as the nature of Bitcoins and whether cryptocurrencies are considered commod- ities, currencies, properties or something entirely different, and the appropriate time to value Bitcoins. That case has been granted permission to appeal, with a hearing expected later this year.
This case was heard in the DIFC courts’ Technology and Construction Division (the first occasion the Division was utilised for a technology-related dispute). Any future such matters, however, will be heard in the DIFC courts’ specialist Digital Economy Court, which was launched in 2023 with its own procedural rules designed to consolidate knowledge and resolve issues specific to disputes concerning cryptocurrencies.
X Recent developments and other impacting factors
Given the region’s significant investment in devel- oping the digital asset regulatory ecosystem, we expect that there will continue to be a battle in this sector between fraudsters, on the one hand, and regulators, legislators and fraud practitioners, on the other hand, with innovations and evolution on all sides. In addi- tion to this, we have identified three other key factors which will impact fraud and asset recovery cases in the region in the next 12 months:
Increased transparency and reporting. Firstly, the UAE Central Bank, the DFSA (the DIFC’s regu- latory body) and the FSRA (the ADGM’s regulatory body) have each introduced whistleblowing reporting regimes into their existing framework in the past two years. As in other countries, these regimes require regulated entities to have policies and procedures in place to facilitate the reporting of a reasonable suspi- cion of fraudulent activity and provide protections for those making such disclosures, including immunity from civil or contractual liability and having their employment terminated. Secondly, an immunity from punishment was introduced into the Penal Code in 2021 for persons who report crimes before they are discovered. The expectation is that these develop- ments will encourage the increased reporting of fraud- ulent business practices and drive greater confidence in the business practices of regulated entities in the region, especially given that, historically, there was a tension between whistleblowing and the strict privacy and defamation laws in the UAE.
In addition to the Penal Code, anti-money laun- dering (“AML”) laws within the UAE also provide a provision for the seizure of the proceeds of crime following conviction. The main AML provisions include Federal Decree-Law No. 20 of 2018 on Anti- Money Laundering, Combating the Financing of Terrorism and Financing of Illegal Organisations (as amended) (“AML Law”) and Cabinet Resolution No. 10 of 2019 Concerning the Implementing Regulation of Decree-Law No. 20 of 2018 on Anti-Money Laun- dering, Combating the Financing of Terrorism and Financing of Illegal Organisations (“Cabinet Resolu- tion”). The AML Law and Cabinet Resolution coin- cide with increased regulatory scrutiny in the region of AML policies and procedures generally, and the introduction of specialist AML courts to try related criminal matters.
Extradition and reciprocity. The UAE (which already has extradition treaties with the UK, India, Pakistan, China, France, Italy, Nigeria, Kazakhstan, Uzbekistan, Bahrain, Iraq, Qatar, Tunisia and Oman) is taking steps to widen the scope of its extradition regime, with the aim of facilitating the prosecution of those who are guilty of fraud and financial crime and who are present in the region. Recently, such steps have been in direct response to specific situations. For example, the UAE ratified further extradition treaties with South Africa in 2021 and Denmark in 2022. Following that, in mid-2022, Atul and Rajesh Gupta were arrested in Dubai following the issue of an INTERPOL Red Notice against them in connec- tion with alleged state corruption in South Africa. In December 2022, the Dubai Court of Appeal ordered the extradition of Sanjay Shah (a British citizen) to Denmark following accusations by the Danish author- ities of a suspected €1.7 billion dividend tax fraud.
In a similar vein of extending its co-operation with other jurisdictions, the UAE Ministry of Justice has recently called upon the Dubai courts to enforce judgments of the English courts. This follows the English High Court’s decision in Lenkor Energ y Trading DMCC v Puri (2020) EWHC 75 to give recognition to a judgment of the UAE (onshore) courts, and marks a significant shift in attitudes between the two systems, as previously the English courts had been reluctant to enforce UAE-issued judgments and the UAE courts had in turn used the lack of reciprocity as a bar to the enforcement of English judgments. This reciprocity should assist asset recovery proceedings between the UAE and the UK and will be welcomed.
New offences: corporate income tax. UAE Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses will see businesses become subject to UAE corporate tax from the begin- ning of their first financial year that starts on or after 1 June 2023. The UAE has already established, in 2021, a separate court specialising in money laundering and tax evasion applicable to entities operating in Abu Dhabi.
This article was first published by Global Legal Group.
