Federal Law on Combating Business Fraud in UAE

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Staff Writer, TLR

Published on July 14, 2023, 17:41:00


UAE, Dubai, Federal Law, Fraud, supreme committee, Anti commercial, Law, goods, penalties,

The UAE passed a law on Combating Commercial Fraud on 12th December 2016, following its publication in the Official Gazette. This law has been in the making for a few years now and it replaces the previous law on Combating Fraud in Commercial Transactions issued in 1979. In legal terms, Commercial fraud is defined as an act of deceiving a client in any way concerning commodities or services.

 Goods that are identified to breach the law are categorized as corrupt, fraudulent and counterfeit. Fraudulent goods are different from the way they are represented in the advertisements and also, they do not meet the standards and requirements set by the law. Corrupt goods are goods that are known to have expired in storage or damaged during transportation and also, and they no longer follow the set standards. Counterfeit goods are goods that have a trademark identical or similar to the legally registered trademark, but without permission.

 The law declares that if the buyer is fully aware that the goods, he is purchasing, are counterfeit, fraudulent, or corrupt, then this fact does not relieve the seller from liability. Not that this law applies to fraudulent goods as well as fraudulent commercial services. This law also involves cases where the fraudsters make announcements of fake and unreal prizes and discounts. As is common for laws establishing criminal liability in the UAE, it applies both onshore and also in all of the UAE’s free zones. The enforcement authorities shall have the powers to mandate the return of the fraudulent and corrupt goods to their source or to order the destruction of the goods or their use for the appropriate purpose. In all cases, the counterfeit goods shall be destroyed. The relevant authorities also have the power to request the disclosure of commercial records related to goods or services. There are many federal and local authorities tasked with the enforcement of the existing regulations, along with the customs, police and departments for economic development that are most likely to continue enforcing this law.

 The law also predicts the formation of a Supreme Committee and a Subcommittee for Combating Commercial Fraud that shall report to the UAE Ministry of Economy. The power to close down businesses that violate the law for a period of up to two weeks and the power to issue warnings is given to the Subcommittee. Any complaints against such closures can be filed with the Supreme Committee, which is required to issue its decision on the complaint within three business days. Certain actions can only be performed with the order of the court. For instance, the court can order the goods to be detained in custody for thirty days. In all cases of repeated violations, the court may close the establishment indefinitely and annul the license of the owners. The law predicts that the UAE Cabinet will issue regulations and resolutions implementing the law and provides that a breach would result in a fine not exceeding AED 50,000. The law entitles the Subcommittee to achieve settlements concerning violations thereby avoiding public prosecution, but this option is not available in the case of offences relating to food and medical drugs. This law is welcomed and wanted advancement for the consumers and the brand owners in the UAE.
Punishment - The law envisages hefty penalties for offenders. The offence of committing commercial fraud will result in imprisonment of up to two years and/or a fine of not less than AED 50,000 but not exceeding AED 250,000. An attempt to commit commercial fraud will be punishable by imprisonment of up to one year and/or a fine of not less than AED 10,000 but not exceeding AED 100,000. The penalties for any offence or attempted offence regarding food and medical drugs are more severe and shall result in imprisonment of up to two years and/or a fine of not less than AED 250,000 but not exceeding AED 1 million. Additionally, the court will order publication of the judgment against the convicted persons in two local papers, including one Arabic language publication. The court may also order, depending on the severity of the offence, closing down of the offending establishment for a period of up to six months.
The Anti-Commercial Fraud Law in the UAE - The Law brings significantly heftier penalties and definitions which more effectively and robustly combat fraud, including fraud relating to intellectual property. The law expands the scope of counterfeit products from the 2013 draft, which only included in its scope identical products thereby excluding similar or confusingly similar products and leaving doubt regarding incrimination of many violations to trademark rights.
Application and enforcement of the Law - According to Article 2 of the Law, the provisions will be applied to anyone who commits a crime of commercial fraud, and the free zones are not excused from this law. For the first time, we have anti-fraud legislation that addresses free zones in explicit terms. These economic zones have greatly concerned IP rights holders given the difficult procedures and the uncertainty involved while enforcing rights in free zones.
Any act of displaying, possessing, and selling any counterfeit goods is defined under the Law as an act of commercial fraud. The importation, exportation, re-exportation, manufacturing, storage, rental, marketing, and selling is also considered an act of commercial fraud. This is another significant advancement in explicitly regulating possession. Again, this is important, particularly concerning free zones but also regarding general re-export businesses which may have counterfeit goods stored in their warehouses. Re-export businesses in UAE, and particularly Dubai, need these laws so that only legitimate goods are handled, thus, safeguarding the reputation of Dubai and the UAE.
Illicit goods vs. counterfeit goods - The Initial draft of the law, first submitted in 2013, was heavily debated by the IP industry, with particular concern being expressed over remedies. One of the remedies available to the authorities in penalising infringers was to re-export counterfeit goods. This was a problem flagged by IP practitioners, as some infringers would regard this as a reward rather than a penalty. Fortunately, the UAE legislator has done away with this draft clause, and the Law specifically stipulates the destruction of counterfeit goods as a remedy. Article 3 of the Law states, “Without prejudice to criminal liability, the relevant authority may issue a decision ordering the importer to return Fraudulent or Spoiled products to their source during a specific period; Counterfeit products will be destroyed, all of which are subject to the rules and regulations set out in the implementing regulation of this law”.
The distinction between counterfeit goods (which must be destroyed) and spoiled/fraudulent goods (which may be returned to their source). This reflects the importance, which the UAE gives to combating counterfeiting, and highlights the important role the UAE plays on a global scale in ensuring the problem of counterfeiting does not continue to move from one country to another.
Disclosing information related to goods - The Previous legislation did not provide for disclosure of information. However, under article 4 of the Law, a trader is obliged to submit to the competent authority all commercial books and ledgers, which detail trade data for goods owned or possessed, in addition to information on the value and all supporting documents and invoices when requested to do so. This is important to all the brand owners who seek to go beyond the subject complaint and investigate further to identify the supply chain related to the counterfeit business and also further assist in bringing civil claims against the infringer. Currently, civil claims are rarely brought because of a lack of evidence to support the claim for damages, but this ability to obtain disclosure will enable more claims to be made and allow victims to be properly compensated.
The Higher Committee for Anti-Commercial Fraud – The Law establishes a body empowered to combat commercial fraud in the UAE – the Higher Committee for Anti-Commercial Fraud. A sub-committee has also been established at the Emirate level to implement the functions of the Higher Committee. The Higher Committee represents a step forward in the regulation of IP, as the UAE previously lacked a unified IP authority to undertake enforcement on a federal level. Previously, enforcement of IP rights was delegated to various departments in each Emirate, but with the adoption of this law, the Higher Committee is now charged with proposing policies to fight commercial fraud on a national level and is also able to address common challenges faced by brand owners.
The Higher Committee's responsibilities include:
• To propose strategies and policies to combat commercial fraud;
• To study reports of commercial fraud referred to it by the competent authority and take the necessary decisions;
• To study obstacles facing law enforcement and propose procedural mechanisms.
• Article 6 identifies tasks for the sub-committees formed at the Emirate level. These tasks consist of putting infringers on notice; considering requests for conciliation by those who violate the law; administering destruction operations; ordering temporary closure of offending establishments, and recycling or re-exporting infringing goods.
The Law provides for hefty penalties aimed at increasing the deterrence level, stepping up efforts in the fight against fraud and counterfeit goods. Article 12 penalizes anyone who commits commercial fraud with a jail penalty of no more than two years and/or a fine of not less than AED 50,000 but not exceeding AED 250,000. The legislator increased the minimum fine to a level that creates a realistic deterrent, as before the minimum fine was in practice AED 5,000, which was too many offenders a slap on the wrist. The Law introduces a ceiling to the fine of AED 250,000. An exception is made for the crimes affecting human health such as those relating to pharmaceuticals, food or organic food products. These are punished by a fine of AED 1 million and a two-year jail term.
Article 18 gives courts the power to close offending establishments for a period not exceeding 6 months. This is in addition to the other hefty penalties imposed by the legislator.
The broad scope of the law, as well as the hefty penalties it provides, will place the UAE at the forefront of nations that deal stringently with IP crimes. Brand owners and consumers remain the beneficiaries of the deterrent penalties provided for by the law, to prevent crime or prevent repeat infringements. The most interesting feature of this law, perhaps, was the provision of enforcement in free zones, areas of which were not previously clearly addressed because the free zones were formed after the previous laws were enacted. The possibility of forced disclosure by traders of information and documents has filled in a gap that previously taunted enforcement agencies and brand owners alike and opens the door for disrupting and uncovering the trade cycle of counterfeiters. Finally, the Law allows the authorities to charge the expenses related to the cost of destruction back onto the counterfeiters, creating yet a further deterrent. The enactment of the Law is a leap in the fight against commercial fraud and counterfeiting in the UAE. All the changes and enactments introduced are expected to be warmly welcomed by the IP community and consumers.

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