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There are two principal securities and related law enforcement authorities and regulators onshore in the United Arab Emirates (the UAE) excluding regulators in financial free zones: the UAE Central Bank (the Central Bank) and the Emirates Securities & Commodities Authority (the ESCA). In 2008, the Central Bank and the ESCA signed a Memorandum of Understanding (MOU) to determine the responsibility of each party in relation to regulation, licensing, supervision and inspection of activities in the financial services sector.
Pursuant to the MOU, the ESCA is the regulator for all the UAE stock exchanges, securities and commodities listed in the UAE, investment funds, financial analysis and consultancy services and financial promotions in the UAE. Notwithstanding this, there remains an element of uncertainty regarding the respective jurisdiction of the Central Bank and the ESCA in certain areas. For example, the Central Bank continues to police money laundering infringements. Furthermore, it is important to appreciate that some of the law and practice of the ESCA is not based on any published written policy or guidelines and, as such, it is subject to change. Accordingly, our responses are based on our current experience and understanding of UAE law and practice.
It is also important to note that there is no doctrine of binding precedent in the UAE. Court decisions in the UAE are persuasive, but not binding, on the lower courts (although they can serve as a guide to general principles), nor is there comprehensive reporting of cases as in common law jurisdictions. Furthermore, judgments are not always published it is difficult to gauge accurately the nature of awards and trends in this regard. Court judgments are issued in summary form and contain minimal legal and factual analysis.
Offshore (in Financial Freezones)
The position is different in the financial free zones (offshore) such as the Dubai International Financial Centre (DIFC) where registered entities are regulated by the Dubai Financial Services Authority (DFSA) and the Abu Dhabi Global Markets (ADGM) where the regulator is the Financial Services Regulatory Authority (FSRA). The ADGM was only established recently, and we are yet to see enforcement activity by the FSRA. Accordingly, our analysis focuses on the work of the DFSA as the principal securities and related law enforcement authority in a financial free zone in the UAE. In other (non-financial) free zones, the regulators will be the onshore law enforcement authorities.
The criminal prosecution authorities, namely the Police and the Public Prosecution, also have a role in enforcing and prosecuting general crimes set out in the UAE Penal Code and other federal laws, which are relevant in the securities and related law enforcement in the UAE.
Historically, the Central Bank was the primary authority for regulating securities and related activities until the ESCA was formed.
The Central Bank was formed pursuant to the Law concerning the Central Bank, the Monetary System and the Organization of Banking. The ESCA was formed pursuant to the Law concerning the Emirates Securities and Commodities Authority and Market (the ESCA Law).
The separate regulatory scheme existing in the DIFC, that is, the DFSA, was formed pursuant to the Dubai Law concerning the Establishment of the DIFC. The DFSA has various regulatory roles, including regulating financial services in the DIFC (under the DIFC Regulatory Law); regulating the securities markets in the DIFC (ie for Nasdaq Dubai) and listed entities that may not be DIFC entities (under the DIFC Markets Law)), and exercising delegated functions in regulating DIFC companies (under the DIFC Companies Law).
In addition, for criminal offences, the Police and Department for Public Prosecution, and ultimately the criminal courts, will have jurisdiction. They are organised separately in each of the seven Emirates that comprise the UAE. The Police and Public Prosecutor have jurisdiction both onshore and in the financial free zones (for example, the DIFC).
There are a wide range of violations and legal issues that would be subject to an investigation onshore by the Central Bank and the ESCA, which include violation of money laundering regulations, regulations governing public joint stock companies, brokers' regulations and other regulations regulating capital markets in the UAE. With respect to violations, the majority of securities violations are contained in the ESCA and Central Bank regulations.
In the DIFC, there are a wide range of violations and legal issues that may be the subject of an investigation. In recent years, DFSA has issued sanctions for market manipulation, anti-money laundering deficiencies, corporate governance issues, mis-selling financial products and not acting in the best interests of customers.
Financial institutions, such as Deutsche Bank, have been fined by the DFSA in relation to their customer practices management, for misleading the DFSA, failures in internal governance and systems and controls and in its client take-on and anti-money laundering processes.
Often, reference can also be made to general violations contained in other federal laws, such as corporate fraud in the UAE Penal Code, the UAE Companies Law, the UAE Commercial Transactions Law and the UAE Cyber Crimes Law. These violations can therefore be added to the ESCA violations in a criminal complaint, particularly where they might result in a higher penalty than prescribed in the ESCA or the Central Bank regulations.
Typically, the criminal law enforcement bodies will not investigate violations of securities regulations of their own accord. However, various ESCA regulations in place contain criminal sanctions. The ESCA has powers to administer penalties and fines up to a certain threshold. It does not, however, have authority to order the imprisonment of individuals or order fines above a certain threshold.
In practice, once the ESCA or the Central Bank conduct an investigation, and determine that there are violations of their regulations of a criminal nature whose penalties are outside of the ESCA's remit, they will refer the matter to the police. The police will consider the request and refer it to the Public Prosecutor, if it considers the complaint should be accepted. The Public Prosecution will thereafter work together with the ESCA or the Central Bank to satisfy itself that the violations took place and consider whether to refer the matter for prosecution before the criminal courts. In our experience, the police may take up to several weeks when reviewing complaints.
UAE criminal law applies in the DIFC and, therefore, businesses and individuals in the DIFC must be aware of their obligations in respect of criminal law. Relevant UAE criminal laws include the UAE Law regarding the Criminalisation of Money Laundering (the AML Law), the UAE Law regarding Combating Terrorism Offences and the UAE Penal Code. The Rules in the Anti-Money Laundry Module (AML Module) of the DFSA Rulebook should not be relied upon to interpret or determine the application of the criminal laws of the UAE. The Police and Public Prosecution could conduct any such criminal investigation and resulting criminal proceedings, even if the activity took place within the DIFC by a person employed by a DFSA-regulated entity.
The ESCA has investigatory powers and can bring administrative proceedings. The ESCA can impose a number of administrative penalties on violators of the ESCA laws and regulations that can, depending on the violation, include one or more of the following:
The police have wide investigatory powers, including the power to question witnesses, collect evidence, and gain access to a company's internal documents. In certain cases, the ESCA and the DFSA may seek the assistance of the police and the Public Prosecution to conduct investigations, for example, in undertaking dawn raids if deemed appropriate.
In addition, the ESCA can request the Public Prosecution to bring prosecutions seeking the imprisonment for a period of not less than three months and not more than three years, and to a fine of not less than 100,000 dirhams and not more than one million dirhams, or to either of these penalties. The ESCA would also have recourse through the civil courts for bringing claims against a violator.
In the DIFC, the DFSA has the power to conduct investigations and has supervisory powers as well. It can bring administrative and civil proceedings. The DFSA has the power to intervene in any proceedings in the DIFC Court. These will be proceedings in relation to commercial disputes.
Criminal proceedings can only be brought by the police and the Public Prosecution as the DFSA may not impose criminal sanctions (such as imprisonment of individuals) or pursue criminal prosecutions in its own right. As above, the DFSA can refer matters to the police.
Regulatory investigations and inspections by the ESCA are confidential, which may not be made public. Nevertheless, the ESCA may publish the names of violators of the ESCA's laws, regulations and decisions, as well as the breaches and penalties issued against them as it determined. However, in practice, this is rare.
Furthermore, the UAE Penal Procedure Code provides that criminal investigations, and the information produced throughout the course of the investigations, are private. Violations of this provision carry the same sanctions as those associated with the disclosure of confidential information.
In the DIFC, in respect of investigations by the DFSA, the DFSA will generally publish, in such form and manner as it regards appropriate, information and statements relating to enforcement actions, including censures and any other matters, which the DFSA considers relevant to the conduct. The publication of enforcement outcomes is consistent with the DFSA’s commitment to open and transparent processes and its objectives. This usually happens after the enforcement process is complete. The DFSA may, however, decide to publish at an earlier stage than suggested by the general policy, where circumstances justify this.
The party that makes a criminal complaint or is the subject of such a complaint can make enquiries with the police and Public Prosecution as to the status of its investigations, though it is at the police and Public Prosecution's discretion whether to provide such information. This equally applies to legal advisers or individuals authorised to represent these parties by virtue of a power of attorney.
All regulatory or criminal securities and related investigations, whether conducted by the ESCA, the police and Public Prosecution or the DFSA, can be targeted against companies or individuals.
The ESCA investigations can be targeted at both a natural and a corporate person. Furthermore, the ESCA may compel any person having a connection with activities in securities, whether a natural or a corporate person, to make public or private disclosure, and to submit any information related to his activity.
The DFSA will investigate individuals and companies and impose penalties on both. In the past, the DFSA did not always pursue individuals, though this practice is now changing.
While the police and Public Prosecution may investigate corporate (or similar) entities, in practice, criminal sanctions are more commonly imposed on individuals who, inevitably, will be the focus of the investigations. In circumstances, where a company is the target, it is often the general manager who will be held accountable for the actions of the company by the criminal prosecuting authorities.
Investigations typically begin when ESCA conducts inspections necessary to ensure compliance with its laws and regulations. If suspicious activity is uncovered, or even it is only activity of interest or concern, then ESCA may initiate an investigation. At the outset, the ESCA must define the scope of the investigation, and designate an individual to conduct it on its behalf.
In addition, the ESCA may accept information and complaints made relating to the regulated activity, conduct the necessary investigations, require any person to submit a written statement as to the circumstances and factors relating to the activity which is the subject-matter of the information or complaint, and take the appropriate decisions. In all issues not stipulated in a provision, the ESCA may be guided by the provisions of the UAE Civil Procedures Law, the UAE Law of Evidence, and other laws and general rules applicable in the UAE in conformity with the nature of the complaint filed.
With respect to DFSA-regulated entities, the DFSA has wide powers to oversee and inspect entities as it deems appropriate. The DFSA can undertake random inspections. In circumstances where they uncover suspicious activity or any cause for concern, they may initiate further investigations, make requests for additional disclosure or conduct interviews at their complete discretion. This may or may not lead to full regulatory investigations.
DFSA investigations may also be commenced following communications from whistleblowers and others lodging complaints with the DFSA, and following referrals from the Supervision Team to the Enforcement Team within the DFSA, or further to a complaint filed by a customer or other third party.
The requirement to lodge a suspicious transaction report with the Anti-Money Laundering and Suspicious Cases Unit (AML SCU) of the UAE Central Bank is contained in the AML Law. The AML Module of the DFSA Rulebook also contains a requirement that relevant persons report suspicious activities, including transactions, to the AML SCU. A relevant person is also required to notify the DFSA immediately following the submission to the AML SCU. Such a filing may cause regulatory investigations to be initiated by all such bodies.
The police may commence an investigation of its own accord, or on the submission of a complaint by a complainant. The complainant can be an individual or a corporation. Upon being presented with a criminal complaint, the police will contact the complainant and the accused to provide them with an opportunity to present their respective version of events. The police may also initiate investigations if requested to do so by the ESCA and/or the DFSA.
The ESCA does not specify a level of suspicion of wrongdoing to commence an investigation or bring a claim against an ESCA-regulated entity.
The UAE courts do not typically adhere to the common law concept of a "burden of proof", and therefore the level of suspicion required is dealt with on a case by case basis, and can be influenced by public policy considerations. Ultimately, the final decision is at the discretion of the judge hearing the criminal or civil case in the UAE courts.
The DFSA must usually have “reasonable grounds” to suspect a contravention of the DIFC Regulatory Law, or the related legislation, to initiate an investigation, but there is little guidance beyond this and the DFSA retains wide discretion to initiate investigations.
The inspection team appointed by the ESCA may enter the ESCA-regulated entities’ offices during working hours, inspect records and documents, and require that the team is provided with any document or information the team deems necessary to perform their task.
The DFSA may enter business premises during the course of an investigation for the purpose of inspecting and copying information or documents. This power may be exercised when the DFSA considers that the person occupying the premises may be able to give information or produce a document that may be relevant to an investigation. The company will typically be provided with prior notice of any such investigations. If the DFSA wishes to conduct a dawn raid (and cooperation is refused), it may seek the assistance of the Police and the written authorisation of the Public Prosecution, following a search warrant being issued by the DIFC Court.
In addition, the police in the UAE could undertake a "dawn raid" or an unannounced visit without a warrant if the investigation relates to a crime that is being committed at the time of, or immediately after, the dawn raid, and the officials may inspect the premises without written authorisation. This would usually be when the Police suspect that the suspect is hiding in the premises.
In all other cases, written authorisation from the Public Prosecution is essential.
Similarly, other international investigating authorities will not be able to conduct an investigation or carry out a dawn raid without the written authorisation of the Public Prosecution. They cannot attend without local enforcement officers (that is, the police).
The conduct of dawn raids does depend on the nature and seriousness of the allegations. It should be noted however that dawn raids are rare.
Certain ESCA regulations mandate that the ESCA should be notified of any violation of the law or the regulations, decisions or controls issued pursuant thereto or the internal regulations practiced by the ESCA-regulated entities. Under Central Bank and ESCA Regulations it is a criminal offence for employees and directors to fail to report knowledge of money laundering.
The DFSA relies on firms and individuals to disclose appropriately any mandatory information and any other information of which the DFSA would reasonably be expected to be notified. The DFSA expects firms to self-report a broad range of activity. Authorised persons as defined in the DIFC Regulatory Law, such as licensed financial institutions, have the obligation to disclose to the DFSA anything which reasonably tends to show a breach, or likely breach of a provision of the DIFC Regulatory Law or other legislation administered by the DFSA. Such likely breach needs to be attributable to the conduct of the persons above or its directors, officers, employees or agents. This rule does not apply to the extent that compliance with such requirement would disclose a privileged communication.
The UAE Penal Procedure Code places an obligation on anyone "with knowledge of the perpetration of a crime that the public prosecution can prosecute" to report such a crime to the Police or Public Prosecution and failing to do so can incur sanctions of imprisonment and/or a fine.
Unlike in many other jurisdictions, there has, until recently, been no statutory protection for whistleblowers in the UAE.
This appears to have changed (in part) in Dubai only with the passing of the Dubai Law No. 4 of 2016 regarding Financial Crimes, which for the first time includes protections for those that report crimes to the newly established Dubai Centre for Economic Security. Under article 19, this law provides for "protection for the reporter". The law stipulates that the reporter's freedom, security and protection shall be guaranteed, and that no legal or disciplinary action may be taken against the reporter unless the report is false.
Despite this development and the general obligation to report criminal activity, as set out at article 274 of the UAE Penal Code, in practice, whistleblowing is rare because the whistleblower may face criminal or civil claims from those he accuses.
The ESCA provides that an ESCA-regulated entity should have a whistleblowing policy that includes the mechanism and basis to protect the whistleblower and to ensure that he or she is not harmed, as well as the policies that should be followed to handle the reported violation in terms of maintaining the confidentiality of the whistleblower’s name, and the entity in charge of following up and addressing the violation.
The DFSA Rulebook states that the any person licensed by the DFSA in relation to carrying on financial services must have appropriate procedures and protections for allowing employees to disclose any information to the DFSA or to other appropriate bodies involved in the prevention of market misconduct, financial crime or money laundering. Once an investigation has begun, the DFSA will serve a section 80 Notice that grants witnesses legal protection to give evidence and any statements made during interviews cannot be disclosed to a law enforcement agency for the purpose of criminal proceedings unless the person consents to the disclosure or the DIFC is required by law or court order to disclose the statement.
The DFSA and the ESCA do not disclose the extent to which their respective regulatory investigations are instigated by whistleblowers. Therefore it is not possible to determine whether whistleblowers are a frequent source of information for investigations. In our experience, on account of the limited onshore statutory protection for whistleblowers, it is not common.
For the ESCA-regulated entities, there are different laws and regulations regulating each type of security which will include specific rules which to some extent, would include, the process for investigating violations if the laws and regulations relating to the specific security.
An investigation by the DFSA will be will usually start with the service of a section 80 Notice. These range from the powers to request documents, to access premises and to require witness to be compulsorily interviewed. Usually the DFSA will not publish details of the commencement or conduct of investigations, unless it is in the furtherance of the DFSA’s objectives or the public interest to do so. The DFSA will then undertake interviews of witnesses and targets and seek access to, and review, documents. At the conclusion of the investigation, the DFSA may take no further action, or take enforcement action against the relevant individuals or companies. Action against companies usually takes place first, with action against individuals following later.
Following a criminal complaint, or a referral from the ESCA or DFSA, the Public Prosecution will direct the investigation, usually by requesting interviews with the person that is subject of the complaint, and also the complainant. The Public Prosecution has discretion to apply travel bans or arrest warrants. Once the Public Prosecution has completed the investigation, they will then initiate criminal proceedings in the court.
There is no prescribed mechanism or published records in which the ESCA may have cooperated and coordinated with authorities outside the UAE. Nevertheless, international investigating authorities may obtain written consent from the Public Prosecution to conduct an investigation or carry out a dawn raid with the presence of the Police. Requests must come through diplomatic channels and via the UAE Ministry of Justice, and such judicial cooperation is usually governed by bilateral and multilateral treaties to which the UAE is party, as further set out below.
Furthermore, we are aware that Central Bank will cooperate and assist in securities and related law enforcement authorities overseas (for example, relating to money laundering and terrorist financing investigations), but the mechanisms and procedures for such cooperation are not publicly available.
The DFSA shall cooperate with and providing assistance to regulatory authorities in the State and other jurisdictions under article 8(4) of the DIFC Regulatory Law. The DFSA Rulebook states that the DFSA is committed to provide the fullest mutual assistance to other financial services regulators regarding cooperation and the exchange of confidential information according to standards and procedures that are equivalent to those prescribed in the International Organization of Securities Commissions Multilateral Memorandum of Understanding. There are many MOUs signed by the DFSA with international regulators.
The securities and related law enforcement authorities in the UAE have various bilateral and multilateral memoranda of understanding with overseas authorities to facilitate cooperation and the sharing of information. The UAE is also party to a number of treaties for the provision of mutual legal assistance in civil and criminal matters. Depending on the wording of the respective treaties, this would capture investigations. The level of coordination depends on the provisions of the relevant treaty, and ultimately the approach taken, as well as discretion exercised by the Public Prosecution.
There are no published records in which the ESCA has taken into account findings by a law enforcement authority outside the UAE. Nevertheless, it will likely be the case that the ESCA will take into account findings by a law enforcement authority outside the UAE to commence investigations into the practice of the ESCA-regulated entity in the UAE.
The DFSA has discretion to take into account findings by a law enforcement authority outside the jurisdiction, and will instigate its own investigations as a result.
The Public Prosecution will not be bound by the decisions or findings of authorities outside of the UAE, and has ultimate discretion as to whether it will take such findings into account during the course of its investigation.
The ESCA may require that it be provided with any document or information it deems necessary to perform their task and the ESCA-regulated entity may have to provide the ESCA with such reports and data as the ESCA requests and shall issue such press releases as are necessary to ensure transparency of information and transparent disclosure. In practice, we are not aware of press releases from ESCA being used in the context of disclosure requests.
The DFSA may require production of documents and information during the course of an investigation from the subject of an investigation. In the Deutsche Bank case, the DFSA used the DIFC Courts to require compliance with the disclosure requests. The DFSA can use such documents and information as evidence in proceedings provided that any such information or document also complies with any requirements relating to the admissibility of evidence in such proceedings.
The Public Prosecution's powers of investigation are wide and individuals and entities are required to comply with the police and Public Prosecution's investigations and document-production requests. The Public Prosecution's powers are wider than those of the regulator as they are largely unfettered
While it is always good practice to issue a litigation hold at the outset of an investigation, there is no formal requirement under UAE or DIFC law to issue a litigation hold during a regulatory investigation.
While not strictly a litigation hold for the preservation of documentation, the ESCA may, while it is conducting an investigation or inspection, order the party under investigation not to dispose the securities in their possession and to refrain from withdrawing any funds or securities deposited with another party.
The DFSA may retain possession of any information and documents given to it for so long as is necessary for the purposes of the investigation to which it relates and for such proceedings to be completed.
There are no specific provisions in the UAE's criminal law regarding the preservation of documentation. However, the Public Prosecution may seize documents for the purposes of its investigation and may hold them thereafter.
In the (onshore) UAE, the concept of legal (or any other attorney-client) privilege is not recognised and is vulnerable to permitted disclosure by virtue of a court order. That said, there are limited disclosure obligations in the onshore Courts. The principle of the confidentiality of communication between attorneys and clients is, however, entrenched in professional codes of conduct and laws governing the legal profession in the UAE.
The UAE law governing advocates provides that an advocate can withhold confidential information s/he has come to learn by virtue of his or her appointment as an individual's legal representative, except where such information if disclosed prevents the client committing a criminal offence. Although arguably this law does not also apply to (international) legal consultants in the UAE, in practice the risk of UAE authorities requiring lawyers to disclose confidential information is very low.
The ESCA could, in theory, request any documents or data related to the subject matter of complaint which can arguably include materials protected by attorney-client privilege or work-product doctrine.
The DFSA can also request the production of attorney-privileged documentation (but not typically those connected with the DFSA investigation itself). The general rule is that the DFSA requires a lawyer to give information or to produce a document or to answer a question disclosing privileged information. The lawyer is entitled to refuse to comply with the requirement unless it obtains consent from the person or body corporate from whom the lawyer needs to respect its duty of confidentiality.
The lawyer who refuses to comply with the request shall give to the DFSA a written notice setting out:
There is no concept of work-product privilege in the UAE, and the enforcement authorities can use material it obtains from third parties.
Typically, it is not possible to withhold the disclosure of information from securities and related law enforcement authorities in the UAE on the basis that it is confidential or commercially sensitive.
Generally onshore and in the DIFC, all information collected during the course of an investigation is treated privately as the investigation itself is private. Only in rare circumstances, will such information be disclosed, even at the conclusion of an investigation and during the course of subsequent enforcement proceedings.
The general rule is that it is not a reasonable excuse for a person to refuse or fail to permit inspection of a document, give or produce a specific document or even answer questions. This is regardless of the fact that it may tend to incriminate the person or make the person liable to a penalty; might reveal attorney privileged communication or might reveal a communication made in confidence.
There are limited grounds not to produce. In the Deutsche Bank case, where the DFSA sought assistance from the DIFC Courts, the duty to produce was found to override Swiss banking secrecy laws.
Without a written authorisation from the Public Prosecution and/or the DFSA, you are entitled to refuse entry to the officials. If you consider that the officials do not have the appropriate authorisations, you may reject entry but there is a risk that they will return with a police officer.
There are very limited grounds on which to withhold disclosure of data if the unannounced visit/dawn raid is authorised and justified.
There is no general federal data protection law in the UAE (although this may change soon) and there is also no single national data protection regulator. Nevertheless, there is a general right to privacy for citizens under the UAE Constitution. Under the UAE Penal Code, such right to privacy would be waived if a UAE official or public authority has requested for such information or such disclosure serves the public interests or national security.
In the DIFC, the DIFC Data Protection Law applies. The DIFC Data Protection Law protects the personal data of a natural living person; this data is generally also confidential information. The DIFC Data Protection Law sets out the requirements for processing personal data and the rights of data subjects. Deutsche Bank sought and failed to restrict disclosure to the DFSA in the course of an investigation on the basis of Swiss banking privacy laws.
Under the DIFC Data Protection Law, in certain circumstances, specified sections of the DIFC Data Protection Law do not apply to the DFSA. This exemption applies if the application of the specified sections of the DIFC Data Protection Law would be likely to prejudice the proper discharge of the DFSA’s powers and functions under DFSA administered laws, insofar as the relevant powers and functions are designed to protect members of the public against the dishonesty, malpractice or other seriously improper conduct of those operating in the financial services industry.
The exemptions do not apply to authority outside the jurisdiction, and therefore, data privacy obligations must be considered. For example, the DFSA will not normally notify an individual about a request from a foreign authority to provide information about a client of a financial institution if the request is for the purpose of investigating the client’s suspected participation in a securities fraud or criminal offence. In such cases, notifying the client or financial institution is likely to jeopardise the investigation and would defeat the public interest.
Onshore, it may be possible to restrict disclosure to overseas authorities on the basis on breaches of privacy (enshrined under the UAE Constitution). Such requests would need to come through formal (diplomatic) channels and would be subject to the discretion of the UAE enforcement authorities.
Voluntary disclosure should always be carefully considered in the context of local and international data privacy laws, and, for example, exemptions to the DIFC Data Protection Law do not apply to voluntary disclosure.
No restrictions on the storage of any data exist under the ESCA laws and regulations (although this may change too).
In respect of DFSA-regulated entities, foreign banking secrecy laws likely do not apply. This is because foreign banking secrecy laws or confidentiality provisions do not have extraterritorial effect in the UAE. Similarly, the DFSA does not have extraterritorial or direct access to confidential client information if the client’s business is booked, held, serviced and managed exclusively in foreign jurisdictions subject to a strict banking secrecy regime.
A document request will generally cover documents in the possession of the legal entity that holds the documents, irrespective of where they are located.
Whether such a request is enforceable in those overseas countries will depend on the laws and procedures applicable in the respective foreign country.
Yes. The ESCA can require any person to submit a written statement as to the activity which is the subject-matter of the information or complaint. It will likely be on the record but not made public.
In respect of DFSA-regulated entities, such interviews will likely be on the record and will not be made public. DFSA has the ability to conduct a compulsory interview on a person involved with the matter under investigation (as a witness or as a target). This person is not entitled to refuse or fail to answer a question on the basis that his answers may incriminate himself.
The DFSA may, where appropriate, conduct voluntary interviews. The decision as to whether a compulsory or voluntary interview will be conducted will depend upon the circumstances of the particular case.
All compulsory interviews will be recorded. The DFSA will, upon a written request from the interviewee at the conclusion of the interview, provide the interviewee or his lawyer with a copy of the recording or a transcript of the interview. The provision of a recording or transcript may be subject to any reasonable conditions imposed by the DFSA. Such interviews will not be made public, but some details may be referred to in enforcement notices.
The Police and the Public Prosecution have powers to interview witnesses during the course of their investigations. These interviews will be conducted in Arabic (with a translator present as necessary). These must be documented in (Arabic-language) reports signed by the questioning officer and the witness. It will likely be on the record but not made public.
In respect of the investigation of complaints, in case the summoned person fails to appear on time, the ESCA shall consider the complaint using the available documents and data.
In respect of investigations relating to DFSA-regulated entities, an interviewee is not entitled to refuse or fail to answer a question on the basis that his or her answers may incriminate him or her or make him or her liable for a penalty. If an interviewee refuses to attend a voluntary interview, then adverse inferences may be drawn by the DFSA.
In criminal complaints and cases, the Public Prosecution has powers to issue a warrant for an individual's arrest where an individual is summoned by the Public Prosecution to give testimony and does not attend or refuses to give such testimony without an excuse. That person may also be subject to a travel ban, or his passport being confiscated.
In respect of ESCA investigations, the rules and regulations do not require witnesses to receive separate counsel. Typically, we would expect witnesses to seek separate counsel, and the employer company to pay for such counsel.
In respect of investigations relating to DFSA-regulated entities, an interviewee is entitled to legal representation during the course of a compulsory or voluntary interview. In our experience, the company under investigations pays for counsel. During the interviews, the lawyer will be permitted to address any issues with the interviewer or interviewee relevant to the investigation. However, the lawyer is not permitted to answer questions on behalf of the interviewee or obstruct the investigation.
DFSA practice is to insist that a different firm to be appointed for a witness (separate from the company), and indeed for separate firms to be appointed for different witnesses (or at least information barriers to be established in the event that one firm acts for a number of witnesses).
In criminal complaints and cases, it is at the witness's discretion as to whether it wishes to engage a lawyer, but that lawyer will not be permitted to speak on behalf of his client (even if he is present) unless the lawyer has a power of attorney.
There is no specific right to challenge an ESCA investigation in court while it is ongoing, but depending on the circumstances, it is possible to challenge the findings of ESCA in court. Nevertheless, it is likely that the courts will decline such interaction until the investigation by the ESCA is concluded. There are no judicial review type remedies.
It is worth noting that criminal proceedings operate to automatically stay civil proceedings on the same subject matter pending judgment in the criminal proceedings.
In respect of investigations relating to DFSA-regulated entities, the target could challenge the investigation in DIFC Court or Financial Markets Tribunal whilst the investigation by the DFSA is still ongoing (in the event it is considered that the DFSA are exceeding its powers).
An ESCA-regulated entity will likely be able to respond to the ESCA once the ESCA commences investigation and once the ESCA-regulated entity submits its statement. However, there is no prescribed law granting the ESCA-regulated entity such opportunity.
In respect of criminal complaints and cases, please see responses to questions 2, 3 and 7. There are two main opportunities for an individual accused of a criminal action to respond to the complaint:
In respect of investigations relating to DFSA-regulated entities, this will be in the interview stage as outlined in questions 24 and 25. Furthermore, a draft Final Notice will typically be issued and it will be possible for terms (and also the factual notice) to be renegotiated on a without prejudice basis and to seek a compromise with the DFSA on factual findings and proposed remedies.
The ESCA laws and regulations do not prescribe the form of advocacy can be adopted during investigations. Advocacy may take the form of written submissions in Arabic as deemed appropriate.
There is no prescriptive form of advocacy in DFSA investigations, but again letters and written submissions, together with meetings and WP discussions on draft Final Notices, are common.
In criminal complaints and cases, however, the initial investigations conducted by the police and the Public Prosecution usually take place at a local police station or the Public Prosecution, and can take the form of submitting documentary evidence and oral witness evidence. Investigations are conducted in Arabic, and a translator will be requested in cases where this is required.
The statements made during the investigation process by the ESCA will not likely constitute a formal admission by the investigated party. However, in practice, it would be difficult for an investigated party to abandon a position that has been asserted in this way in future proceedings.
In respect of investigations relating to DFSA-regulated entities, statements taken by an investigated party during the DFSA investigation could be deemed admissions and will be relied on by the DFSA in future proceedings. However, statements made on a WP basis will not be admissible.
In criminal complaints and cases, statements made during the investigation process are recorded and signed by the maker of the statement and can be relied on in criminal court proceedings.
For the ESCA to consider an investigation into a violation, a complaint must be lodge within one year from the date of the last disputed trading or from the date of establishing knowledge of the incident subject of complaint.
In the DIFC, the general limitation period for a right of action is six years from the date on which the right of action accrued. However, the DFSA may only exercise a power in relation to a person within three years after the day on which the DFSA became aware of the act or omission that gave rise to the right to exercise the power in respect of that person.
In respect of criminal cases, there is no single limitation period. The limitation period applies by reference to the specific violation, whether it be an ESCA-specific violation or violation of one or more of the UAE's federal laws.
Criminal offences in the UAE are divided into three broad categories: felonies, misdemeanours and minor contraventions. The limitation period for felonies is 20 years, five years for misdemeanours and one year for minor contraventions.
The limitation period, as per the ESCA laws and regulations, runs from date of the last disputed trading or from the date of establishing knowledge of the incident subject of complaint.
In criminal cases, the limitation period begins to run on the date of the commission of the relevant offence.
The limitation period for the DFSA begins as follows:
The ESCA laws do not address limitation periods or tolling agreement. Accordingly, such suspicion or request for a tolling agreement will be at the sole discretion of the ESCA.
In criminal complaints and cases, a limitation period in respect of a criminal offence can never be stayed. It should however be noted that a criminal investigation operates to stop the limitation period in the same way as a trial does, provided that an accused has been notified of the investigation.
The DFSA are required to issue a warning notice within the relevant limitation period. Subsequent representations and notices such as the decision notice and final notice need not be within the relevant limitation period, provided the warning notice was issued in time.
DFSA procedures do not provide for tolling agreements to suspend the running of the limitation period, but the DIFC Courts would probably uphold a tolling agreement.
Investigations are not generally publicised in the UAE and the period of an investigation can vary. Nevertheless, in our experience, investigations are being processed in shorter times than historically (months rather than years).
In the DFSA, there is no set rule on how long an investigation from takes. This will depend on the circumstances of the specific case and it will depend on how much information the DFSA will need to decide on a specific set of facts. From our experience, most investigations last between 12 and 18 months, but there are exceptions, the Deutsche Bank case has been ongoing for four years against individuals allegedly involved in misconduct.
There is no prescribed period for a Police or Public Prosecution's Investigation. Indeed, investigations can be completed with a few months, while others can last for years. Factors that affect the length of the investigation are:
There is no prescribed process for closing an investigation where a violation is not revealed. Nevertheless, in our experience, the ESCA would provide a written confirmation that the investigation is closed without action.
In respect of investigations relating to DFSA-regulated entities, the DFSA will send a letter discontinuing the action.
In criminal cases, the Police or Public Prosecution will archive the criminal complaint and documentary evidence and records created during the course of the investigation. Written confirmation is not usually provided.
There is no prescribed process for settling an investigation or complaint with the ESCA. Accordingly, such resolution or settlement would be made at the discretion of the ESCA.
In respect of investigations relating to DFSA-regulated entities, a settlement is a resolution between the DFSA and a person who is subject to potential enforcement action, to agree an outcome resulting from an investigation. An individual or a body corporate who is or may be the subject of any form of enforcement action arising out of, or during the course of, an investigation may enter into without prejudice settlement discussions with the DFSA.
Towards the end of the investigation, the DFSA will issue a draft Final Notice, for comment from the target, which can be negotiated. These settlement discussions are conducted on a WP basis and the DFSA will only settle when the agreed terms result in what the DFSA considers to be an appropriate regulatory outcome.
In criminal complaints and cases, there is no prescribed process for settling an investigation process. Depending on the nature of the crime, the Public Prosecution may offer the accused the opportunity to settle the matter, and for financial cases, may insists on losses to be repaid for the case to be withdrawn.
If the matter is settled, the Public Prosecutor and/or the court (as the case may be and depending on how far the investigation progressed) will record the settlement.
The relevant department within the ESCA handling an investigation will decide on which charges to bring against a violator.
Following recommendations from the enforcement and legal teams, the Decision Making Committee (DMC) of the DFSA (consisting of one or three DFSA officers appointed by the chief executive) decides when to commence proceedings and what charges to select. The DFSA will generally make public any decision made by the DMC, and will do so in a timely manner after any relevant period to institute a referral of the decision to the Financial Markets Tribunal (FMT) has expired or appeal process has come to an end.
In respect of criminal cases, please see our response to question 7. Article 7 of the Penal Procedures Code provides that the Public Prosecution (or Attorney General in some cases) has exclusive jurisdiction and discretion to lodge and pursue criminal cases save where a law indicates otherwise.
With the ESCA and in criminal cases, this will depend on, amongst others, the type of the violation, the record of the violator and the extent of the harm caused by the violation.
In respect of investigations relating to DFSA-regulated entities, the factors include:
In addition, the Police, the Public Prosecution or the courts will have regard to aggravating and extenuating circumstances, such as the age of the perpetrator, the perpetrator's intentions (such as the exploitation of others), and public policy considerations.
The remedies will depend on the type of the violation and can include one or more of the below:
In respect of investigations relating to DFSA-regulated entities, at the conclusion of the investigation, the DFSA may:
The DFSA will determine a financial penalty figure that reflects the seriousness of the contravention. In determining such a figure, the DFSA will take into account various factors, which will usually fall into the following four categories:
In the Clements case, the fine was discounting by 30 per cent for self-reporting and full separation. The Public Prosecution has significant discretion when determining penalties, although there is guidance in the UAE Penal Code depending on the particular offence. The Public Prosecutor has discretion not to pursue an individual who voluntarily reported a criminal offence before it was discovered by the authorities.
While the ESCA laws and regulations do not address disgorgement of illegal profits, the ESCA will have the discretion to order a disgorgement of illegal profits.
In respect of investigations relating to DFSA-regulated entities, the DFSA will seek to deprive a firm of the economic benefits derived directly or indirectly from a contravention (which may include the profit made or loss avoided) where it is practicable to quantify this. This was ordered in the Clements case. The DFSA will ordinarily also charge interest on the benefit.
In respect of criminal cases, the UAE Penal Code provides that where a crime motivated by the realisation of profit, is committed and no fine is inflicted by the law, a judge may, in addition to the principal punishment provided for the crime, impose a fine not exceeding the amount of profit realised, unless there is a law to the contrary (but this will be paid to UAE authorities, rather than the victim of the crime).
Criminal charges can be brought against companies and/or individuals. In practice, criminal sanctions are more commonly only imposed on individuals. In circumstances where a company is the target, it is typically the general manager (or directors) that will be held accountable for the actions of the company by the criminal prosecuting authorities.
Criminal proceedings can only be brought by the police and the Public Prosecution as the DFSA may not impose criminal sanctions (such as imprisonment of individuals).
While the ESCA laws and regulations do not address reduced penalties for cooperation, the ESCA will have the discretion to make such decisions. The Public Prosecution also exercises discretion to provide reduced penalties for cooperation.
The DFSA Rulebook states that the DFSA should look at mitigating factors when considering the financial penalty that will be imposed on the firm or the individual. The degree of cooperation the firm showed during the investigation of the contravention will be taken into account. The DFSA’s practice is to discount fines by up to a maximum of 30 per cent (for example, ABN Amro and Clements cases).
While the ESCA laws and regulations do not address such arrangements, the ESCA may have the discretion to make such decisions.
In DFSA actions, enforceable undertakings are the equivalent of deferred prosecution agreements.
Before criminal courts, these are not provided for in the law and not typically seen in practice.
If the matter is settled, the Public Prosecutor and/or the court (as the case may be and depending on how far the investigation progressed) will record the settlement.
There is no requirement for settlement agreements to be approved by the DIFC Courts at the conclusion of DFSA investigations.
While the ESCA laws and regulations do not address such settlement arrangements, the ESCA will have the discretion to make impose an admission to certain facts or wrongdoing to ensure transparency of information and transparent disclosure to the public.
In DFSA matters, the Final Notice requires the background facts to be agreed, and an admission or acknowledgement of any contraventions of the DIFC Regulatory Law or the DFSA’s concerns.
Decisions of the ESCA as to the penalties of issuing a warning or a fine may be appealed before the Grievance Settlement Committee at the ESCA within 30 days of notification. The ESCA's decision on the appeal shall be final, but can be referred to the onshore Court as an administrative decision. A referral by the ESCA to the Public Prosecution cannot be appealed.
Decisions as to the penalties of encashment of the bank guarantee in part or in full or suspension of a broker from activity may be appealed before the competent court. In such cases the appeal shall be made within thirty days from the date of notification of the decision imposing the penalty.
A decision of the DFSA can be appealed to the FMT. This has only happened once, but there is a second case pending. The FMT is operationally independent of the DFSA and will consider the entire case afresh. The individual or body corporate accused in the proceedings or the DFSA may appeal the FMT decision to the DIFC Court on a point of law.
In criminal cases, an accused will have two opportunities during the investigation stage to put forward his or her version of events. The decision of the Public Prosecution to refer the matter to a criminal court itself cannot be appealed.
If a decision to issue a warrant for the accused's arrest is issued, the accused can appeal this decision to the Court of Appeal, whose decision on the matter is binding.
The criminal courts comprise the Court of First Instance, the Court of Appeal and the Court of Cassation. Court of First Instance and Court of Appeal decisions are appealable (on matters of fact and law), while Court of Cassation decisions are final and binding.
The consequences of a decision being reversed on appeal by the ESCA or the courts will depend on the issue in the appeal. In some cases, an appeal may be on a point of law in which case the decision may be remanded for further proceedings. In some circumstances, the case may be dismissed entirely.
A decision has not yet been reversed on appeal by the FMT for a DFSA investigation.
In some cases, enforcement action will be public and may, in addition, trigger disclosure obligations where the subject of the investigation is a listed company.
With the DFSA, the collateral consequence of reaching a resolution with the DFSA is the reputational damage in the event that an EU or a notice of decision is issued and publicly reported. In addition, there may be claims from shareholders and/or customers as a result.
While criminal proceedings are not publicly reported, anyone can attend the criminal courts and there may be reputational damage should the convictions come in to the public domain. The decisions are also archived and remain on the individual or company's record with the UAE authorities.
Where an enforcement action ends in a criminal conviction, there may be a ban on the ESCA- or DFSA- regulated entity operating in the UAE (or the DIFC, as applicable).
In addition, where an individual rather than a corporation is convicted, this will remain on the individual's record with the UAE authorities and will affect that individual's ability (particularly in the case of expatriates) to obtain gainful employment, and the residency permits required to conduct business or be employed in the UAE. In many instances, UAE residents (who are not nationals) will be deported following conviction and sentence.
The interaction between private litigation and investigations by the relevant authorities can be complex, and there are particular risks around issues relating to the investigations being (or becoming) subject to disclosure and inspection in related litigation.
Where a dispute relates to the same underlying subject matter, criminal proceedings operate to stay proceedings before the civil courts, though civil proceedings may be brought before the criminal courts to be examined concurrently with the criminal case.
As indicated above, however, the ESCA will typically first conduct an investigation and thereafter refer it to the criminal court where it considers criminal penalties it cannot administer itself may apply.
Findings by authorities in other jurisdictions may be admissible in evidence in private proceedings, but their effect will depend on the specific facts of the case. There are MOUs with other authorities.
Subject to any specific treaty on reciprocal enforcement of judgments, the Police, the Public Prosecution or the courts are not bound by findings of other authorities. The findings will be treated as ordinary documentary evidence, though the value and weight attributed to the evidence may vary depending on the issuing body and there can be periodical challenges in submitting evidence from overseas authorities
Disclosure would normally be sought from the defendant in litigation rather than from the ESCA. To obtain disclosure from the ESCA, the private plaintiff would be required to make an application for non-party disclosure. The decision will be subject to discretion of the ESCA.
Private plaintiffs cannot get access to DFSA records. However, if a DFSA investigation has been the subject of DIFC Court proceedings, there may some material relating to the investigations in the public domain.
With respect to criminal proceedings, please see our response to question 5. The party that makes a criminal complaint or is the subject of such a complaint or a criminal case, or an individual authorised on their behalf pursuant to a power of attorney, can request access to files or documents related to the investigation and/or proceedings.
At the investigation stage, it may be at the police's discretion whether it grants access to its investigation documents. During proceedings, the relevant parties have a right to view the memoranda submitted, though it is important to note that there is no principle of disclosure in UAE litigation, and therefore the documentary evidence submitted by each party is simply that on which it wishes to rely.
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