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Firms can be held responsible for Crimes Committed by their Representatives

Owner's Profile

Pavitra Shetty

Published on March 22, 2024, 08:29:21


corporate liability, legal, uae, crimes, tax, prosecuting a company, money laundering, DFSA

In cases where a company fails to meet its obligations, such as paying government taxes, complying with laws, or adhering to the provisions of its Articles of Association and Memorandum of Association, the issue of liability arises.

The question then arises: can those decision-makers responsible for running the business be held accountable under the law?

Corporate criminal liability is a looming concern in the modern business landscape, especially within the legal framework of the United Arab Emirates (UAE).

The scope of potential crimes for which companies can be held accountable is broad and encompasses a variety of offenses outlined in the Federal Penal Code.

Article 21 of Federal Decree-Law No. 32 of 2021, known as the Companies Law, came into effect on January 2, 2022, replacing Federal Law No. 2 of 2015. Concurrently, Article 66 of the Penal Code delineates the framework for corporate criminal liability in the UAE.

Article 66 of the Penal Code establishes that a company can be held accountable for any offense outlined in the Penal Code committed by one of its representatives acting in its favour or on its behalf.

However, the Dubai Court of Cassation has ruled that a company cannot be criminally liable for the actions of its employees if the employee in question acted negligently, without intent, or without representing the company.

Corporate Liability

The new Companies Law stipulates that a company obtains "legal personality" upon its incorporation, establishing a corporate veil between the company and its shareholders and managers, although exceptions exist where this veil can be pierced.

Regarding corporate criminal liability in the UAE, Article 66 of the Penal Code outlines that legal entities, excluding government agencies and official departments, can be held criminally accountable for crimes committed by their representatives, directors, or agents acting on their behalf.

However, the Dubai Court of Cassation clarified that a company may not face criminal responsibility for the actions of its employees if the employee was negligent, acted unintentionally, or was not acting on behalf of the company.

Managers of a company are typically obligated to exercise due care, and failure to do so may result in personal liability. For instance, managers can be held liable if their actions cause harm, breach obligations, or constitute gross misconduct or negligence, including fraudulent activities.

Previously, managers were held personally accountable for issuing bounced cheques due to insufficient funds, which was deemed a crime under Article 401 of Federal Law No. 3 of 1987.

However, the new Penal Code decriminaliSed this act, except for specific exceptions. Despite this, beneficiaries of bounced cheques retain the right to pursue civil claims, including seizing assets owned by the issuer.

Enforcement Authorities

Prosecuting cases related to Corporate Criminal Liability in the UAE involves three authorities:

Police Department: Responsible for safeguarding the public, collecting initial statements, arresting suspects, conducting investigations and executing orders from the Public Prosecution to aid in the investigative process.
Public Prosecution’s Office: Initiates criminal cases on behalf of society members, overseeing the entire process from investigation to indictment or case dismissal. The Public Prosecution holds exclusive jurisdiction to initiate and prosecute criminal proceedings until a final judgment is rendered.
Criminal Courts: Handle criminal cases initiated by federal or local prosecution in each emirate. These courts include courts of first instance, courts of appeal and a supreme court, such as the Court of Cassation in Abu Dhabi.

Damages and Compensation

Victims of crimes have the option to request that a compensation claim be attached to the criminal charges and considered by the Criminal Court, as stipulated in Article 23 of the Criminal Procedural Law. This compensation is determined upon the establishment of criminal liability.

In practice, once a conviction and sentence are issued, the Criminal Court transfers the civil claim to the Civil Court per Article 27 of the Criminal Procedural Law. The Civil Court then assesses the extent of damages, as the conviction implies liability.

While the UAE does not have a class action system, multiple victims can collectively present their compensation claims to the Criminal Court.

Additionally, victims of white-collar offenses can seek compensation for losses through the Civil Courts, where a claim for harm (similar to tort) must demonstrate the act, sustained damage and the causal relationship between the act and the damage.

Procedure for Prosecuting a Company

The procedure for prosecuting a company for a white-collar criminal offense in the UAE is regulated by the Criminal Procedural Law, similar to other criminal prosecutions in the country. Article 9 of the Criminal Procedural Law grants exclusive jurisdiction to the Public Prosecutor to initiate and oversee criminal proceedings. The process unfolds as follows:

Filing a Complaint: A complaint can be lodged either with the Public Prosecution directly or with a Judicial Police Officer as per Article 12 of the law. Alternatively, the Public Prosecutor may initiate criminal proceedings independently.
Police Investigation: If a complaint is filed with the police, they investigate the alleged offense. This includes interviewing the complainant, the accused, and other witnesses and compiling all evidence into a case file.
Referral to Public Prosecutor: The case file is then forwarded to the Public Prosecutor, who may conduct further investigation with the assistance of Judicial Police or investigating officers, especially for more serious offenses. The Public Prosecutor evaluates the evidence and decides whether to proceed with the case or dismiss the complaint.
Decision by Public Prosecutor: Based on the evidence gathered, the Public Prosecutor determines whether to issue an indictment against the accused and refer the matter to court or dismiss the complaint.
Collection of Evidence by Judicial Police: The Judicial Police are empowered to collect necessary information and evidence for the investigation and indictment of criminal offenses. This includes interviewing complainants, victims and accused individuals, taking statements and engaging expert assistance.
Specialist Departments: Specialised departments within the police and Public Prosecutor’s office handle specific types of crimes, such as financial crimes (e.g., bribery, money laundering, abuse of power, embezzlement and misuse of funds) and cybercrimes. These departments are equipped to deal with the complexities of such offenses effectively.

Case Law

In November 2022, the Dubai Financial Services Authority (DFSA) levied a fine of $1.12 million against the DIFC branch of Bank of Singapore Limited for multiple violations of DFSA regulations, notably related to deficient anti-money laundering measures.

Additionally, the DFSA imposed its most substantial fine to date on an individual, Arif Naqvi, the former CEO and founder of Abraaj Group.

Naqvi was fined approximately $135 million, a penalty upheld by the Financial Markets Tribunal. This significant fine followed the DFSA's determination that Naqvi was complicit in misleading and defrauding investors concerning the misuse of their funds.

As a consequence, Naqvi was also subjected to restrictions preventing him from performing any functions within or from the DIFC.

As eloquently stated by Martin Luther King Jr., "The moral arc of the universe is long, but it bends towards justice." Therefore, in cases where a company or its members commit civil or criminal offenses, they can indeed be held accountable under the law.

This principle is crucial in a jurisdiction like the UAE, which hosts several major entities and thus recognises the importance of holding companies and their members accountable for breaches of rules, regulations, or laws.

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