In a major fraud case involving a UAE law firm, thirteen members of a financial crime ring have been sentenced to prison by a Dubai court over an elaborate Dh185 million embezzlement and money laundering plot.
It is worth mentioning before delving further into this case, that unlike some other jurisdictions, enforcement actions and the names of defendants are not public in the UAE, therefore we relied on what has been reported by the local media who had access to court records in this case.
The defendants were accused of forging official documents and using them to set up four legal consultancy firms in different countries while illegally obtaining the firm’s money.
As per court records consulted by the local medias, the defendants defrauded the law firm by establishing three shell companies in different countries and duping clients into believing they were subsidiaries of the law firm. Some of the gang members were employees of the firm, and reportedly worked within its intellectual property department.
“One of the defendants withdraw Dh25 million from a bank and another defendant withdraw Dh22 million,” Emirati lawyer Salem Al Shaali, owner of Al Shaali Company Advocates and Legal Consultants, said in court hearing, as reported by Gulfnews.
The owner of the Dubai-based law firm alleged that he discovered in 2017 that the prime defendant, a 44 year old working in his law firm along with the rest of the defendants, had embezzled the money by forging documents.
The prime defendant allegedly illegally accessed the firm’s database, copied information about clients and forged e-documents, saying that the firm had been restructured before sending forged letters to clients.
Al Shaali added that the defendant managed to open a supplier account number at a large automotive corporation in Europe, with assistance from a 45-year-old defendant who is still at large. The supplier’s account number was used so that the firm’s clients could deposit money to that account and fraudsters access those funds.
Through these entities, the gang was able to issue fake invoices, receive fees and even print receipts for the unsuspecting clients.
The defrauded clients included recognizable names such as car manufacturer BMW, a major car agency in the UAE, a Swiss watches group, and Japanese Kyocera Group.
Through this scheme, the gang was able to embezzle millions of dirhams in client payments and transfer them to exchange companies & bank accounts in Egypt, Morocco, Jordan (among other countries), exceeding the permissible limit, and thus violating the law (presumably money laundering laws).
As per the reports, the gang comprised four Jordanians, three Indians, two Egyptians, two from the Philippines, an Emirati, a Canadian, a Briton and a Moroccan. Whilst, some of those people were identified, the identities of other co-conspirators remain unknown. It is unclear whether the UAE authorities are cooperating with authorities in the listed countries to identify/prosecute the people who aided in pulling off this scheme abroad.
The gang was found guilty of charges including money laundering, fraud and forgery, with 13 given prison terms of between one and three years.
Two of the group’s members were fined Dh20,000 each for their roles in the crime (approx. $5,445).
The three shell companies were each fined Dh500,000 (approx. $136,147). The court ordered the confiscation of all assets owned by the defendants to help recover the laundered amounts.
Some thoughts about the fine: considering the gang embezzled about Dh185 million, and a fine for the money laundering offence committed by a corporate entity ranges between 500,000 dirhams and 50 million dirhams as per UAE law, one may wonder why the entities were fined such a small amount…
Some Compliance Thoughts
This interesting case reminds us once again that shell companies could be used for a variety of nefarious purposes, including but not limited to, embezzlement, fraud and the laundering of those ill-gotten proceeds.
This case is a perfect reminder that engaging a third party could bring inherent risk, so companies are advised to create a third party strategy to mitigate that risk.
Often companies fail to appreciate that law firms also fall under the third parties definition, and fail to conduct the appropriate due diligence before engaging them to engage into cross-border transactions on their behalf. Outside of FCPA or other anticorruption considerations, this example highlights that a failure to conduct due diligence on law firms could also open the door for a company to be defrauded.
In the interest of reminder, third parties include—but are not limited to—law firms, accountants, consultants, advisors, agents, brokers, consultants, contractors, distributors, freight forwarders, sales representatives, suppliers, vendors, and other intermediaries and goods and services providers.
The UAE, a high-risk jurisdiction for financial crime
The shell companies in this case appear to have been established outside of the UAE as well as in a UAE free-zone. The Emirates have long been criticized for their lucrative offshore financial industry. Their 40+ free-trade zones offer clients no questions asked shell companies, opaque enough to conceal owners’ identities, with the added bonus of financial secrecy on top to cover-up misappropriated assets.
Earlier this year the UAE was added to the “gray list” of countries targeted for extra scrutiny by the world’s main anti-money-laundering watchdog, the Paris-based Financial Action Task Force (FATF).
FATF said the UAE needed to make major improvements to ensure that it has effective systems to fight money laundering and terrorism financing.
UAE officials said they would strive to meet a list of requirements laid down by the taskforce, including increasing prosecutions .
“The UAE will continue its ongoing efforts to identify, disrupt and punish criminals and illicit financial networks,” the UAE’s Executive Office of Anti-Money Laundering and Countering the Financing of Terrorism said in a statement, pledging “robust actions and ongoing measures… to secure the stability and integrity of the country’s financial system”.
How much the UAE improves certainly remains to be tested.
In the meantime, compliance officers are reminded that identifying jurisdictions that may pose a higher risk of money laundering, and identifying third parties that may pose inherent financial crime risks (such as corruption, fraud, money laundering, sanction evasion etc.) are some of the core components of an effective risk management process.