FEATURED POST: UAE - Asset Tracing in Dubai - Structure & Process By Matrix Intelligence

Asset Tracing in Dubai - Structure & Process
By Matrix Intelligence - Corporate Intelligence Experts
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The process of Asset Tracing, where investigators conduct advanced financial enquiries to determine a subject's valuables, examining possible revenue generated from criminal activity, and then follow its trail, is complex in any jurisdiction but when you apply the UAE, specifically Dubai to the equation, the complexity takes on another dimension.

First, one has to understand the structure of the Emirates and then the sub-structure that applies to Dubai.

The United Arab Emirates [UAE] is a federation of seven states, namely Abu Dhabi, Dubai, Sharjah, Umm al-Qaiwain, Fujairah, Ajman and Ra's al-Khaimah.

It has grown from a quiet backwater economy dependent on fishing and a then declining pearl industry to one of the Middle East's powerhouses; a regional trading hub and a valuable economic centre - since the discovery of oil in 1958.

Located on the eastern coast of the Arabic Peninsular, in the south-west corner of the Arabian Gulf, Dubai is the largest and most populated city in the Emirates and has fast become one of the world’s most popular business relocation destinations with approximately 2,780,000 residents from over 200 nationalities.

Globally recognised as a flourishing hub for international trade and innovation coupled with its state-of-the-art technology and infrastructure, tax-free living and strategic location makes Dubai an ideal commercial zone.

However, access to information on UAE companies is severely limited. Some Emirates have a system where the Chamber of Commerce (particularly in the case of Dubai) provides minimal information online on the validity of an entity's licence and some management information.

There is generally no right to access for any corporate or financial information from an individual, a sole proprietorship or a limited liability company. Without a court order, it is virtually impossible to obtain any intelligence through official means for example, public access to the Commercial Register which is currently restricted to duly appointed lawyers.

Even Law enforcement and regulatory agencies are under no obligation to provide information or evidence without an order directing them to do so and the courts will only make such an order if the information or evidence sought is relevant to ongoing proceedings.

However, there are exceptions in the case of entities established in financial free zones e.g. the DIFC [Dubai International Free-Zone]

The DIFC is Dubai's primary independent free-zone; a top ten global financial centre and the leading financial hub in the MEASA [Middle East, Africa and South Asia] region. It offers companies 100% ownership without the need for a local partner. The district is governed by a common-law framework distinct from the United Arab Emirates (UAE) legal system, with laws and regulations issued in English.

Where an international insolvency is concerned, the recoverable assets of a bankrupt located in the UAE generally require separate legal proceedings to secure them. In essence, any foreign judgement or order with regards to an international insolvency will have to be enforced in the UAE, using the procedures available.

No international order for receivership or similar is likely to be enforced in the UAE directly, as it will either be seen to be usurping the UAE's local jurisdiction or as an attempt to bypass federal laws.

With all these obstacles in the way, the UAE Penal Code has become the primary asset recovery tool in recent years, but only where fraudulent activity is suspected, however, there is no appropriate criminal provision to deal with this in regard to private company issues and/or foreign invested monies, as many relevant provisions of the Penal Code are mainly applicable to government servants rather than the private sector.

In the instance of the DIFC, it has its own court which came into existence in 2006. Based in the Dubai International Financial Centre (DIFC) it is an independent English language common law judiciary, with jurisdiction governing civil and commercial disputes nationally, regionally and worldwide.

Originally, the jurisdiction of the DIFC Courts was limited to its geographical area, however on 31 October 2011, the signing of Dubai Law No 16 [1] allowed the DIFC Courts to hear any local or international cases and to resolve commercial disputes with the consent of all parties.

The DIFC Courts are part of the sovereign structure of the Emirate of Dubai, within the UAE. Specifically, Dubai Law No.12 of 2004 [2] ('Dubai Law No.12') is the governing statute which originally established the DIFC Judicial Authority (including the two DIFC Courts, the Court of First Instance and the Court of Appeal).

Asset tracing can be undertaken in the DIFC Court by using its mechanisms, to apply for attachments or other interim orders to at least secure assets, however, it is difficult to follow illegal money which has entered the UAE into third party accounts, or registered real estate in third party ownership and existing insolvency process is largely untested in the Courts with the enforcement of foreign insolvency judgements fraught with difficulty.

It is, however, possible to apply for a precautionary attachment order and for subsequent validity proceedings based on foreign insolvency proceedings. However, once those international proceedings conclude, the foreign judgement would need to be enforced in the UAE against those attached assets and in the absence of a bilateral treaty, the options are to enforce the foreign judgement under the UAE Civil Procedure Code, or to bring fresh proceedings.

There also exist various bilateral treaties for the mutual cooperation in civil, commercial and criminal matters and these can be of assistance for international insolvencies.

Given the limitations of corporate record and available public domain checks, the engagement of trusted professionals with multi-jurisdiction experience, is not only advised but essential.

While private investigators par se (known locally as "corporate researchers") are officially discouraged, many international law firms have developed excellent reputations in asset recovery, managing to circumnavigate the various limitations placed on their activities.

An example of the Emirates judiciary´s ineffectiveness is the much cited case of Akhmedov vs Akhmedova - The super yacht saga. In essence the 22-year marriage of Mr and Mrs Akhmedova’s came to an end in 2015. During the time of the marriage the couple amassed vast wealth and ultimately tangible assets including a plane, a helicopter and a super yacht - the Luna which was bought from Roman Abramovich for a reputed $360 million (US).

Subsequently the divorce proceeding became acrimonious, Mr Akhmedov, an oligarch of Azerbaijani-Russian extraction, fought hard [and surreptitiously] to avoid having to share any of the family wealth with his wife even going to the lengths of proffering forged documents in ‘evidence’. The English High Court found that he had hidden assets in a Bermuda based Trust with "the sole intention of evading his legal obligations to his wife".

Akhmedov lost the case and was subsequently ordered to pay to his wife in excess of £350 m plus the art collection, worth at the time, about £90 m, an amount equivalent to 41.5% of the family’s wealth. His numerous bank accounts including those in Liechtenstein and the Isle of Man were subject to a mareva injunction [a freezing order] issued by the High Court in London.

Undeterred by the trivia of the mareva injunction Mr Akhmedov breached the various mareva´s in place diverting his cash and artwork to Liechtenstein and sailing the Luna from Turkey to Dubai (believing the Dubai legal system might offer safe haven - ultimately he was right!).

In the meantime, the claimant, Ms Akhmedova took steps in Dubai under the jurisdiction of the DIFC Court to ensure that the Luna could not be spirited away again. She applied to the DIFC Court for a freezing order as a conduit into the Dubai Courts, which would recognise a DIFC court order on the basis of comity.

The Court granted a freezing order over the asset, agreeing with the claimant that as a matter of “fundamental policy", the DIFC court, like any other court of justice, must be in a position to respond to fraud and deliberate evasion”.

Immediately after obtaining the DIFC court freezing injunction, Ms Akhmedova applied to the Dubai courts for a precautionary attachment of Luna. The Dubai courts, acting as a delegate of the DIFC court and on the basis of the DIFC freezing injunction, duly granted the application, detaining the Luna pending the outcome of the main proceedings.

Mr Akhmedov filed a claim with the Joint Judicial Committee – a body set up to decide on potential conflicts of jurisdiction between the onshore Dubai courts and the DIFC courts. He won a hard-fought round in Dubai, getting an appeal court in the UAE to rule that the British court order freezing his assets could not be enforced in the Emirates, citing that it was contradictory to Islamic sharia law -leaving the appellant free to sail the Luna off to the Med.

With this rich tapestry of complication, lack of transparency and unforeseen obstacles, prevention is better than cure. All investors, whether banks, financial institutions or sophisticated individuals should always mitigate their risk with extensive pre-investment due diligence.

About Matrix Intelligence

Matrix Intelligence  has substantial experience and a proven track record of Asset Tracing globally. We deliver reliable and actionable intelligence to lawyers, financial firms, corporate clients, third party funders and HNW individuals. While operating internationally, we have exceptional capabilities in Eastern Europe, the Middle East and throughout the world´s offshore banking jurisdictions.
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