Dubai, which teetered on the brink of default in 2009, is cracking down on misconduct at its financial center to safeguard its position as a business hub.

The Dubai Financial Services Authority, which regulates the Dubai International Financial Centre, is taking Deutsche Bank AG to court for not providing information relating to a probe into its wealth management unit, according to a Nov. 17 statement. A day later the regulator, known as the DFSA, said it fined Dubai- based Middle East Auditing Office 55,000 dirhams ($15,000) for auditing a DIFC company’s accounts without being registered.

The investigations follow a string of fines by the regulator against professionals earlier this year at the DIFC. Those ranged from a BNP Paribas SA private banker who executed $8.4 million worth of transactions without his client’s consent to the chief executive officer of a Lebanese bank’s Dubai unit who overstated by about 26 times the net worth of a client.

“Dubai has long had a reputation as a business hub where regulators looked the other way,” Jim Krane, a research fellow at Rice University in Houston and author of the book ’Dubai: The Story of the World’s Fastest City,’ wrote in e-mailed comments. “Now that Dubai’s economy has bounced back, it wants to send a signal to those who would revert to the bad old ways. The backroom deals and side payments that held sway in the 2000s are no longer permissible.”


Dubai was rife with cases of fraud and corruption during the global financial crisis, when property prices crashed about 60 percent and indebted expatriates abandoned cars and property rather than face imprisonment for failing to honor debts.

Omar bin Sulaiman, former governor of the DIFC, spent two months in prison before returning $14 million in bonuses, while Hashim Al Dabal, the ex-chairman of state-owned Dubai Properties LLC, paid $35 million to secure his freedom after spending eight months in detention in an embezzlement case.

Several government-owned companies in Dubai also had to restructure loans as credit markets froze. Dubai World Corp., one of the three main state-controlled holding companies, reached a deal with about 80 banks to delay payments on $25 billion of debt. Dubai Group LLC, an investment company owned by the emirate’s ruler, in May agreed on final terms for restructuring $6 billion of bank debt.

The DFSA last month banned Jaime Corona, a former financial adviser of an unnamed DIFC-based company, for six years for providing two Dubai-based clients with falsified portfolio account statements which said the value of their holdings were significantly greater than their actual value.


In September, it fined Tareck Fouad Farah, chief executive officer of the Dubai unit of Lebanon’s FFA Private Bank, $7,500 for claiming a client was worth $5 million, when his actual wealth was about $190,000. Nikhil Das, a private banker with BNP Paribas was also fined that month for executing two transactions worth $8.4 million for a client without his consent. A third case involved a $50,000 fine against Dubai-based United Investment Bank for failing to provide appropriate safeguards for its financial products.

“The DFSA is taking an increasing interest in the conduct of financial advisers to improve the quality of advice provided to consumers,” chief executive officer Ian Johnston said in an Oct. 7 statement. People who “act unethically cannot avoid the DFSA’s scrutiny by leaving the jurisdiction or failing to communicate with the regulator,” he said.


Johnston took over as CEO of DFSA in June 2012 after working at the Australian Securities and Investments Commission and Hong Kong Securities and Futures Commission.

Farah is now chairman of asset management firm MENA Invest Sal in Beirut. In an e-mailed response to questions he said his case “didn’t deserve any publication when it was a small issue with no working ban.” Contact information for Corona and Das wasn’t immediately available, while a spokeswoman for BNP Paribas in Bahrain declined to comment.

A city of 2.1 million people, Dubai became a regional banking hub after opening the DIFC in 2004 to attract international banks, asset managers and insurers with promises of zero taxes for 50 years.

The United Arab Emirates’ economy is forecast by the government to expand 4.5% this year, the most since 2006, while Dubai home values surged at the fastest pace in the world in the second quarter after falling 64% during the crisis, broker Knight Frank LLP said.

The legal case against Deutsche Bank is the first that the DFSA has filed with Dubai courts since 2009 and only the fourth since 2007.


“The recent cases brought to light are part of a classic path for markets transitioning toward a more sophisticated stage, with the regulator enforcing best standard practices,” said Philippe Dauba-Pantanacce, senior Middle East economist at Standard Chartered Plc in London. “Tightening the regulatory environment is wholly part of a successful transition.”

The DFSA is examining whether Deutsche Bank’s private wealth management business breached rules related to due diligence, assessing money-laundering risks and client agreement requirements, according to court filings dated Oct. 31 and made public on Nov. 17. Michael Lermer, a spokesman for Deutsche Bank in Dubai, declined to comment. In the case documents, Deutsche Bank refused to disclose the information because it said it would contravene Swiss law.

Deutsche Bank shares fell 0.1% to 33.76 euros at 2:05 p.m. in Frankfurt trading.

The U.A.E. central bank is also imposing borrowing curbs and tightening rules on mortgage approvals and plans to set up a credit bureau to control lending and ensure that the emirate registers sustained growth.

MSCI Inc., the New York-based index provider whose stock gauges are tracked by investors with about $7 trillion in assets, said in June it will raise the U.A.E. to emerging market status from frontier rankings in May 2014. The upgrade will bring in an estimated $170 million from exchange-traded funds to the U.A.E., Bank of America Merrill Lynch said Sept. 23.

“Now that the U.A.E. exchanges have achieved emerging market status, they are playing to a different crowd,” said Krane. “The fund managers are people who read the fine print. They aren’t amused by financial shenanigans. To keep them happy, Dubai has to tighten its game.”

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