Fraud in the Gulf - `at alarming levels’
April 16, 2009 |
The ongoing investigation into the multi million dollar alleged fraud at Nakheel, part of the state-owned conglomerate Dubai World, in Dubai suggests that the uncovering of large scale corporate frauds in the Gulf may only just be beginning. A recent fraud survey by one of the big four accounting firms indicated that 40% of firms surveyed believed fraud was a major problem, whilst 60% of respondents expect fraud levels to increase over the next two years.
The Nakheel fraud has attracted worldwide media coverage due to the nature of the matter. The Dubai waterfront development, which was overseen by the Dubai Government, was to be twice the size of Hong Kong, it was to house around 1.5 million people, cost billions to develop, and some of those placed under arrest are foreign nationals [refers]. The authorities have also interviewed officials at the Dubai Islamic Bank relating to allegations of kickbacks, false invoicing and over payments in relation to some Nakheel projects.
Around twenty executives of Nakheel and other developers have been arrested so far, including two Australians, for suspicion of fraud. Many of these executives remain in detention though no formal charges have been laid. Though there has been widespread coverage of recent frauds in the local media, some fear that press freedom may suddenly be curtailed should a new media law be passed which would penalize `misleading news that could harm the national economy’ in the UAE.
Some commentators anticipate further frauds and bogus deals to be uncovered as property values in Dubai and other parts of the Gulf continue to fall and companies shed personnel in an effort to keep functioning. Prior to the credit meltdown, Dubai was at the centre of financial growth in the Gulf attracting workers and investment from hedge funds, sovereign funds and petro-dollars generated during the oil price spike of 2007 & 2008. Adding to this volatile mix was the move in 2002 to allow foreigners to purchase freehold property.
With the mad rush to develop rapidly and spiraling land values in the Gulf and Dubai, some commentators raised issues as to the weaknesses in corporate governance, fraud controls and risk mitigation for some of the players. Just as Wall Street chose to turn a deaf ear to these concerns, so did investors in the Gulf.
In January 2009, prominent Indian businessman and the Chairman of Dynasty Zarooni, Kabir Mulchandani, was arrested in Dubai over allegations that he had defrauded investors of around US$100 million. Investors were promised huge profits for investing in property developments, some allegedly linked to Zarooni Dynasty. Some investors claimed that development of properties for which they had paid in full had still not commenced. Other reports suggest that the businessman had been one of the major print advertisers in Dubai promoting these property developments during the boom times. Lawyers acting for investors claim that they contributed millions of dollars for property developments which now have little likelihood in being completed.
Meanwhile, in late March 2009, aptly named Abid Al Boom, the owner of Al Boom Holding, failed in his civil lawsuit against the Dubai Public Prosecutor to release his passport and fourteen of his properties. In 2008, Al Boom and others were accused of defrauding investors across the Gulf of more than US$200 Million in an investment scam. Investigators are trying to locate the funds and assets purchased with money contributed by investors.
