Author: afridi-angell

New administrative fines imposed by the UAE Insurance Authority

On 6 January 2019, UAE Cabinet Resolution No. 7 of 2019 Concerning the Administrative Fines Imposed by the Insurance Authority was published in the UAE Official Gazette, which lists a total of 204 items that are considered to be violations by the Insurance Authority and their corresponding penalties. This resolution will come into force on 6 April 2019 and will apply to any person, company or insurance–related professional1 that commits any of the violations listed in the resolution.

 

The violations set out in the resolution are broad in range and generally cover, among other things, the following:

 

• the failure to comply with the various regulations applicable to insurance providers and decisions issued by the Insurance Authority, including the UAE Financial Regulations;

 

• the performance of insurance-related or reinsurance activities or the opening of a branch within onshore UAE without obtaining the Insurance Authority’s approval or the necessary license; and

 

• the failure to provide the Insurance Authority with the required data, documentation, reports and notifications within the specified periods of time.

 

Most of the administrative fines range from AED 5,000 to AED 250,000 per violation. One exception is when a company opens a point of sales for insurance products without being licensed and registered with the Insurance Authority. This fine is AED 50,000 for each point of sales. The amount of any administrative fine may be doubled if a violation is repeated within one year from the date of the last violation with a maximum fine amount of AED 2 million.

 

Any of the administrative fines issued by the Insurance Authority may be appealed within 15 days from the date of the notification of the fine and the appeal must be decided by the Insurance Authority’s board of directors within 60 days from the date that the appeal is submitted.

 

Insurance and reinsurance providers should review the resolution and the list of violations to ensure their compliance prior to the resolution’s effective date and should also continue to monitor their compliance accordingly going forward.

 

The complete list of violations and administrative fines included in Cabinet Resolution No. 7 of 2019 can be accessed on the Insurance Authority’s website.

 

For more information, please contact the professionals listed in the column above, or your regular Afridi & Angell contact. ■

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1 An insurance-related professional is defined in the resolution as any entity or person that is licensed by the Insurance Authority to practice as an insurance agent, actuary, insurance broker, loss and damage adjuster, insurance consultant, health insurance TPA or any other insurance-related profession regulated by the Insurance Authority.

Merger clearance matters

Introduction

 

The United Arab Emirates (the UAE) promulgated legislation to specifically address the regulation of competition (being Federal Law 4 of 2012, or the Competition Law) several years ago but until recently, it has been the case that the requisite implementing regulations and processes were not in place. This is no longer the case. Not only have the much anticipated implementing regulations been issued, the UAE Ministry of Economy (the Ministry) (being the regulator in charge of administering the UAE competition regime) has now formed the required committee and issued the anticipated guidance and forms to allow concerned parties to make merger clearance submissions to the Ministry where required to do so pursuant to the Competition Law.

 

In this inBrief, we highlight the key issues that those with market share in the UAE should consider in an M&A context.

 

In what instances is a request required to be filed? 

 

A merger clearance request is triggered (and must be filed) in cases where there is an “economic concentration”, unless an exemption applies.

 

The concept of an economic concentration is defined in the Competition Law as follows:

 

“any act resulting in a total or partial transfer (merger or acquisition) of property, usufruct rights, rights, stocks, shares or obligations from one establishment to another, empowering the establishment or a group of establishments to directly or indirectly control another establishment or another group of establishments”

 

The requirement to submit a merger clearance request is accordingly triggered in all cases where there is an economic concentration, irrespective of whether the parties to the concentration have a formal, licensed presence in the UAE. The test is an effect based test (see article 3 of the Competition Law) – hence why foreign-to-foreign transactions must also be notified if they otherwise qualify for a filing.

 

Cabinet Resolution 13 of 2016 (the Ratios Resolution) further stipulates that merger clearance is required to be sought where the overall market share of the parties to the transaction exceeds 40% of the relevant market.

 

For the purposes of this analysis, the Ratios Resolution does not stipulate any conditions or formulae for how the threshold must be met. In other words, it does not appear to be relevant whether the parties to an economic concentration together or separately meet the threshold, so long as together (i.e., after the concentration is complete), they would have a market share of at least 40% of the relevant market.

 

Exemptions available under the Competition Law

 

As noted above, there are a number exemptions contained in the Competition Law. To the extent that one or more of the concerned parties to a concentration qualify for an exemption, the obligation to seek merger clearance does not arise.

 

Sector specific exemptions

 

The Competition Law contains the following exemptions:

 

• telecommunication;

• financial sector;

• cultural activities (readable, audible and visual);

• oil & gas;

• production and delivery of pharmaceutical products;

• postal services including the express mail service;

• activities relating to production, distribution and transportation of electricity and water;

• activities on the treatment of sewerage, garbage disposal, hygiene and the like, in addition to supportive environmental services thereof; and

• land, marine or air transport, railway transport and services related thereto.

 

Businesses owned by the Federal or an Emirate level government

 

In addition, there is a carve-out for entities that are owned by the Federal or an Emirate level government. In order to qualify for this exemption the relevant business must be at least 50% owned by the Federal or an Emirate level government.  It is yet to be seen whether indirect ownership qualifies.

 

It is important to note that the Ministry has discretion to interpret the scope of each exemption and as such, if an exemption is to be relied upon, this is something that must be discussed with the Ministry on a case by case basis.

 

Small and medium sized enterprises (SMEs)

 

The term “SME” has been defined in Cabinet Resolution 22 of 2016.

 

• Trade sector:

 

  • o Micro-sized: Less than or equal to 5 employees, or revenue of less than AED 3 million;
  • o Small-sized: Between 6 and 50 employees;  or annual revenue of less than AED 20 million; and
  • o Medium-sized: Between 51 and 200 employees or annual revenue of less than AED 200 million.

 

• Industry sector:

 

  • o Micro-sized: Less than or equal to 9 employees; or revenue of less than AED 3 million;
  • o Small-sized: Between 10 and 100 employees; or annual revenue of less than AED 50 million; and
  • o Medium-sized: Between 101 and 250 employees; or annual revenue of less than AED 250 million.

 

Defining the market

 

The first step in considering issues of competition is to understand what the “market” is. This is not a task to be taken lightly and will usually require substantial discussion with both counterparties to the transaction and their respective commercial teams. There is as yet no official guidance available as to how the market(s) concerned are to be defined. For assistance, principles of EU competition law can be considered though these principles are not of any authoritative value under UAE law.

 

Broadly, the EU Commission has provided the following guidance on market definition :

 

• The relevant market combines the product market and the geographic market, defined as follows:

 

  1.  a relevant product market comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer by reason of the products’ characteristics, their prices and their intended use;

 

  1.  a relevant geographic market comprises the area in which the firms concerned are involved in the supply of products or services and in which the conditions of competition are sufficiently homogeneous.

 

Practical experience with the UAE merger control regime

 

Afridi & Angell has recently acted on a foreign-to-foreign merger in the rail and metro transport sector. We advised both parties to the proposed concentration on all aspects of the UAE merger control process and the submission of a clearance request in respect of the proposed transaction. Though the transaction was recently blocked by the EU Commission and therefore did not proceed, it was granted unconditional approval in the UAE by the Ministry.

 

Despite the limited number of filings submitted to the Ministry to date and the dearth of published decisions and guidance, the UAE competition regime is in force and is fully operational. Parties doing business in or from the UAE would be well advised to consider the impact of the competition regime on their existing businesses and on any acquisitions or disposals they propose to undertake. ■

Significant changes to Civil Procedure Code

Introduction

 

Significant changes to Federal Law No 11 of 1992 (the Civil Procedure Code) will soon be coming into effect. These changes are introduced through regulations (the Regulations) issued under the Civil Procedure Code and will come into effect on 16 February 2019.

 

The Regulations were promulgated pursuant to Decree by Law No 10 of 2017. These Regulations will amend the Civil Procedure Code where applicable.

 

The Regulations (in all, 193 articles) address a wide array of litigation procedures, from service of process, to enforcement of foreign judgments and arbitration awards, to execution procedures. Some of the Regulations codify practices already observed by the UAE Courts. In this inBrief, we set out a high-level overview of some of the Regulations which will impact both litigants and practitioners alike.

 

Service of Process

 

Pursuant to Article 3 of the Regulations, a court may permit a party or its attorney to serve process. Pursuant to the Regulations, process may be served between 7 am and 9 pm, unless served electronically, in which case the time limits do not apply. Article 6 of the Regulations provide that process may also be served by voice or video calls, text messages, fax, or any other alternative and technological means as may be determined by the Minister of Justice.  Importantly, Article 5 of the Regulations provides that if the official language of the defendant is not Arabic, the plaintiff is required to provide an official translation of the court notice in English. The cost of translating the notice is recoverable by a successful plaintiff.

 

Article 7 provides that service on parties domiciled abroad may be effected through ‘technological means, or private companies and offices, or as otherwise agreed between the parties, and if service cannot be so effected, process will be served through diplomatic channels.

 

Pursuant to Article 8, service is deemed to be effected on the date of sending the email or text message and on the date on which a voice or video call was made. Only process served by facsimile is deemed to have been served on the date of receipt.

 

Registration of Cases

 

Article 16 of the Regulations requires that a Statement of Claim/Plaint should include the details of the defendant(s) including information regarding the defendant’s identification number, which is applicable with respect to individual defendants. The practice of the Dubai Courts with respect to corporate defendants is to require a copy of the defendant’s trade license at the time of registering the case. It is therefore of practical significance that parties have copies of their counterparties’ ID and/or licensing documents with them, and obtaining such documentation should form part of best practice when entering into transactions.

 

Certain Regulations are evidently intended to speed up litigation procedures. Article 18, for example, provides that the period allowed for the defendant to appear in the Case Management Office or the court following registration of the case is ten days, which may be reduced to three days. Where summary claims are concerned (such as applications for provisional attachment) this period is 24 hours, which may be reduced to one hour on the condition that notice is served on the defendant personally. While Article 18 goes on to carve out an exception for maritime claims, the scope of the exception is currently unclear.

 

Proceedings in the UAE Courts are commenced by filing the plaint and supporting evidence (electronically or in person) with the relevant court. Thereafter, the Case Management Office of the court will fix the court fee payable, and complete the registration of the case upon receiving payment and completing any documentary requirements which may be identified by the Case Management Office. Given that there can be a considerable passage of time between filing the plaint and completing the registration in some instances, this led to uncertainty regarding the date on which action was commenced, which is an important consideration in determining whether time bars and other time related deadlines under law have been complied with. Article 19 of the Regulations clarifies that the date of registration is deemed to be the date on which the case was submitted to the court system, and not the date on which the registration of the case is completed.

 

Assessment of Case Value

 

Assessment of case value is an important practical consideration, as it has a bearing on jurisdiction, appeal thresholds, and of course the court fees payable by a plaintiff. Article 23 of the Regulations provides that minor circuits (as set out in Article 30(1) of the Civil Procedure Code) will have jurisdiction over civil, commercial and labour claims not exceeding AED 1 million in value (the threshold previously being AED 500,000), and counterclaims asserted in such cases irrespective of the value of the counterclaim. Decisions made by the minor circuit court in labour cases valued at no more than AED 20,000 and in all other cases valued at no more than AED 50,000 may not be subject to appeal. The current threshold is AED 20,000 for all types of cases. Article 23 further provides that the threshold (in terms of value) for appealing a judgment of the Court of Appeal to the Court of Cassation is AED 500,000. The current threshold is AED 200,000. Article 25 of the Regulations contains provisions for assessing case values in various types of disputes. For example, an action for the dissolution of a company and appointment of a liquidator is valued based on the company’s capital at the time of filing action.

 

Conduct of Proceedings

 

Certain claims may now be disposed of with only one hearing by a minor circuit court (Article 22). These claims include civil and commercial claims not exceeding AED 100,000 and claims for wages and salaries not exceeding AED 200,000. The Case Management Office is required to fix a case which is to be disposed of under Article 22 for its first hearing within 15 days of the date of registration of the case, and this may be extended only once with an additional 15 days by the judge supervising the matter. Article 22 does not apply to cases in which the State is a party.

 

Denying documents on the basis that they are copies (based on Article 9(2) of the Federal Law No 10 of 1992) is a position commonly adopted by parties, particularly defendants. Article 20 of the Regulations however provides that denying documents simply on the basis that they are copies will no longer be acceptable, and the party seeking to deny documents will also be required to maintain that such documents are “invalid” or were not in fact authored by the party to whom they are attributed to. A party which has denied documents and the court finds that the party’s denial was without justification may be subject to a fine of between AED 1,000 to AED 10,000. Importantly, Article 20 also provides that the court may inform the authorities regulating the legal profession in the UAE of the fine, and thus impacts the advocates having conduct of litigation. It is to be noted that fines for frivolous denials of documents is not new, however its codification is a welcome development.

 

The efficient conduct of litigation is a recurring theme in the Regulations. The Regulations require parties to plead their cases as completely as possible at the hearing before the Case Management Office (i.e. before the matter is transferred to a court). Article 32 provides that if the plaintiff or the defendant submits a document in a subsequent session which requires the court to adjourn the matter, and the court is of the view that the document could have been submitted at the first hearing, the court may penalise the party submitting the document with a fine between AED 2,000 to AED 5,000. Article 32 clarifies that a party may however produce documents in response to the defences and/or incidental demands of the other party without threat of sanction. Article 35 provides that a court may allow the parties to submit documents, submissions and new evidence, and to amend the relief sought and assert counterclaims that they were unable to submit to the Case Management Office. However, the court at its discretion may deny such submissions if the court is of the view that they could have been made to the Case Management Office.

 

Article 37 provides that a hearing may not be adjourned more than once for the same reason attributable to a party in the absence of a valid excuse. Where such a valid excuse exists, the second adjournment shall not exceed two weeks. Article 48 provides that where the pleadings have been concluded, the court may issue its decision or reserve the matter for judgment in a period not exceeding two weeks. The date reserved for judgment may only be adjourned once, and for a period of no more than two weeks. In other words, judgment must be issued within a month of pleadings being concluded.

 

Article 39 provides that the court is no longer confined to using interpreters appointed or licensed by the Ministry of Justice, and the court may use an interpreter from another source or resort to the use of ‘approved technology’. The Regulations do not provide any guidance as to what constitutes ‘approved technology’, and this may be the subject of further regulations.

 

Costs and Fines for Malicious Prosecution/Defence

 

While the law and the Regulations provide that the court may award costs, in practice the UAE Courts do not award legal costs, except in a token sum. Court fees and expert’s fees are however recoverable by a successful plaintiff. Article 56 of the Regulations provides that even a party that is successful on the merits of the case may be required to bear a portion of the expenses if that party has inter alia caused any ‘futile expenses’ or did not disclose documents which could have disposed of the matter to its opponents. Article 58 of the Regulations provides that a party which submits a malicious motion, plea or defence may be subject to a fine between AED 1,000 and AED 10,000.

 

Payment Orders 

 

Articles 62 through 68 of the Regulations set out provisions with respect to ‘Payment Orders’. Payment Orders are not new and the relevant provisions can be found in Articles 143 to 149 of the Civil Procedure Code. Payment Orders may be applied for by a creditor who has a claim for a fixed amount of money or a movable of a known type and quantity, and where the creditor’s right is confirmed. The Regulations enable the possibility of confirmation by reference to electronic sources, as well as the option of applying for a Payment Order where the subject of the claim is the execution of a commercial contract, or in case the creditor’s entitlement arises out of a commercial instrument. Pursuant to Article 63 of the Regulations, the creditor is required to demand payment from the debtor and grant at least five days to make payment. If payment is not received, a Payment Order may be applied for. The application must include the details required of a Statement of Claim/Plaint (as set out in Article 16 of the Regulations), and have the proof of the debt and evidence of the demand for payment attached thereto. Article 63 provides that the order be granted (or denied, presumably) within three days of the application being filed. If the application is denied, the judge is required to provide reasons. Prior to the Regulations, there was no requirement for the judge to provide reasons. A Payment Order may be appealed within 15 days by the debtor, and the court is required to determine the appeal within a week from the date of registration.

 

An application for a Payment Order does not preclude the party from seeking provisional relief under the relevant provisions of the Civil Procedure Code.

 

Enforcement of Foreign Judgments and Awards

 

Article 85 of the Regulations provides that an application to enforce a judgment or order of a foreign court shall be made to an execution judge, and that the judge is required to make his decision within three days. The execution judge is required to verify the following before issuing the decision:

 

• that the UAE Courts do not have exclusive jurisdiction over the matter;

 

• that the judgment or order has been issued by an authorised court under the law of the relevant foreign jurisdiction;

 

• that the parties to the foreign proceedings have been summoned and represented;

 

• that the foreign judgment/order sought to be enforced is res judicata under the laws of the relevant foreign jurisdiction; and

 

• that the foreign judgment/order sought to be enforced is not contrary to judgment or order of a UAE court, and is not contrary to the morals and public order of the UAE.

 

Article 86 provides that the provisions of Article 85 (set out above) are also applicable to arbitral awards issued in a foreign jurisdiction. Article 86 adds that the subject matter of the foreign arbitral award must be arbitrable according to the laws of the UAE, and the award must be enforceable in the jurisdiction in which it was issued, in order to seek enforcement in the UAE. The provisions of Articles 85 and 86 are without prejudice to the provisions of any treaties entered into by the UAE with respect to the enforcement of foreign judgments, orders or awards. The New York Convention is an example of such a treaty.

 

Conclusion

 

Overall, the Regulations are directed towards quick and efficient litigation, and will be welcomed by parties and practitioners. However, they put considerable time pressure on litigants, particularly on defendants, to ensure that their respective cases are pleaded fully within relatively short time periods.

 

The Regulations contain many provisions which warrant a detailed look, for example with respect to provisional orders and execution proceedings, which will be discussed in a series of inBriefs to follow. ■

New long term residency visas

What’s happened?

 

After much media coverage, Cabinet Decision 56 of 2018 (the Decision) has been gazetted which introduces new long term residency visas to, amongst others, the following four categories of persons in the UAE:

 

1. investors;

2. entrepreneurs;

3. individuals with specialised talents and researchers in various fields of science and knowledge; and

4. honours students with promising scientific potential.

 

The Decision is an important development in the UAE and it is expected to have a positive impact on the real estate market in conjunction with the run up to the Dubai World Expo 2020 and as part of the broader UAE vision 2021.

 

In this InBrief we look at the conditions that the Decision requires a person to satisfy in order to apply to the Federal Authority for Identity and Citizenship (the Authority) for a long term residence visa.

 

Investor Visas – Real Estate

 

A five year residency visa may be applied for by investors in real estate in the UAE if the following conditions are met:

 

1. the investor must have invested in one or more properties in the UAE with a total  value of no less than AED 5 million;

2. the amount invested must not be derived from the proceeds of a loan. Consequently, it will not be possible for there to be a mortgage over the property if this visa is to be applied for;

3. the property  must be owned by the investor for at least three years from the date of issuance of the residency visa;

4. the investor must not be financially liable for any claims or civil judgments which reduce his financial solvency below AED 10 million; and

5. the investor must have a comprehensive health insurance policy covering himself  and his  family members,

 

(conditions 2-5 above being hereinafter referred to as the Conditions)

 

An “investor” is defined in Article 1 of the Decision as an “Alien who spends his/her capital for financial gain or returns, in accordance with the controls referred to in this Decision.”

 

Investor Visas – Public Investments

 

A ten year residency visa may be applied for by investors in public investments if:

 

1. one of the following conditions are met:

 

a. the investor must have a deposit of no less than AED 10 million in an investment fund within the UAE. Note that the Decision does not define what constitutes an “investment fund”; or

b. the investor must establish a company in the UAE with a capital of no less than AED 10 million or be a partner in an existing or new company with a financial share of no less than AED 10 million; or

c. the investor must have investments in the UAE with a total value of no less than AED 10 million (provided that the non-real estate part of such investment constitutes no less than 60% of the total investment);

 

and

 

2. all of the Conditions must be met.

 

Entrepreneur Visas

 

A five year renewable residency permit may be applied for by entrepreneurs if all of the following conditions are met:

 

1. the entrepreneur must own a “former successful project” with a minimum value of AED 500,000 in an approved area. Again, there is no guidance in the Decision as to what constitutes a “former successful project”;

2. the entrepreneur must have obtained the approval of a business incubator accredited in the UAE to establish the proposed activity in the UAE; and

3. the entrepreneur must have a comprehensive health insurance policy for himself and his family members.

 

An “entrepreneur” is defined in Article 1 of the Decision as an “Alien who has an economic project of a technical or future nature based on risk and innovation, in accordance with the controls referred to in the present Decision.”

 

Specialised Talent Visas

 

A ten year renewable residency permit may be applied for by “Individuals with Specialised Talents” under the categories listed below subject to certain conditions set out in Article 8 of the Decision being met. Note, an “Individual with Specialised Talent” is defined in Article 1 of the Decision as an “Alien who is excellent or skilful, or a leader, or competent performer or has an outstanding talent in any field of science and knowledge, in accordance with the controls referred to in the present Decision.”

 

The categories of “Individuals with Specialised Talents” are as follows:

 

1. medical doctors and specialists;

2. scientists;

3. creative individuals in the field of culture and art;

4. inventors;

5. elite individuals;

6. executive directors; and

7. specialists in educational areas of priority.

 

Honours Student Visas

 

A five year renewable residency visa may be applied for by honours students (and their families) if all of the following conditions are met:

 

1. the student must have a grade of excellence or at least 95% in the General Certificate of Secondary Education or its equivalent;

2. the student must be enrolled in any of the accredited universities in the UAE and must have a  grade point average as set out in the Decision  in selected  scientific specialties;

3. the student must have obtained the approval of a committee established by the Decision for the purpose of examining such applications;

4. the student must submit proof of registration at a university or institute accredited in the UAE; and

5. the student must hold a comprehensive health insurance policy for himself and his family members.

 

Conclusion

 

The new law is a welcome development in the UAE.

 

The Authority has reported that applications for such permits will be accepted from 3 February 2019 and already a total of 20 visas have been granted to recent honourees of the Mohammed Bin Rashid Award for Scientific Excellence. ■

New promotion regime for domestic funds

In late November 2018, the Securities and Commodities Authority (SCA), the Dubai Financial Services Authority (DFSA) of the Dubai International Financial Centre (DIFC) and the Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) announced that they had reached agreement on facilitating the licensing of domestic funds by each authority for promotion across the UAE.

 

This is a potentially significant development. Historically, onshore legislation in the UAE has not been suitable for the formation of funds in the UAE. This has changed somewhat in light of the new UAE Commercial Companies Law that came into effect in 2015 and subsequent regulations issued by the SCA designed to encourage domestic fund formation.

 

The DIFC and the ADGM have more comprehensive legislation regarding funds and funds established in these jurisdictions are not subject to the 51% UAE ownership requirement. Hence, they are generally viewed as more attractive destinations to establish funds than the UAE proper. However, the existence of three different regulatory regimes in the UAE has been an impediment to the growth of funds set up in the DIFC or the ADGM. Most potential investors are not located in these financial free zones and a fund set up in one of these zones must comply with the regulatory regime of the SCA when marketing to investors in the UAE. This not only increases the regulatory burden because such funds have to comply with the laws of two different jurisdictions with very different rules but, as a practical matter, it means that a fund set up in the DIFC or the ADGM has been treated the same as a fund set up in foreign country as far as the SCA is concerned.

 

Hopefully, the new regime that will be developed under the agreement signed by the SCA, the DFSA and the FSRA will put an end to that. The press release states:

 

“The SCA, DFSA, and FSRA agreed on a common legislative framework in their respective jurisdictions, enabling them, to facilitate regulatory coordination amongst them in licensing domestic funds upon the adoption of the legislation. The three bodies confirmed that funds, which are licensed in accordance with the provisions of this agreement and the licensing regulations, may be promoted in or from the financial free zones in the UAE, in line with the provisions of the agreement and the licensing regulations. Under the terms of the agreement, a notification and registration facility will be established by each regulator, facilitating the promotion and sale of domestic funds, set up within the UAE, outside the financial free zones, or in either of the DIFC or ADGM, to potential investors situated anywhere in the UAE, and under a single licence.”

 

In other words, if the new regime works as advertised, a fund set up in the DIFC or the ADGM will be able to market and sell to investors throughout the UAE while only having to comply with the regulatory requirements of its jurisdiction of incorporation.

 

It is not yet clear how long it will take to implement the new regime contemplated by the agreement. The press release states that the SCA, DFSA, and the FSRA have agreed to establish common rules to implement the regulatory regime contemplated by the agreement but provides no estimated timetable for when such rules might be published. It further explains that the authorities will undertake a consultation process regarding the proposed new regime. Notwithstanding the tentative nature of these formal communications, it appears that some investment firms in the DIFC are already advertising this new capability.

 

This agreement represents a very encouraging development that could have a positive impact on making the UAE a much more attractive place to establish funds. ■

Federal Penal Code amendments

In the latest development in an eventful year, Federal Decree-Law 24 of 2018 introduces amendments to the Federal Penal Code, originally enacted as Federal Law 3 of 1987.

 

The amendments are designed to make the Penal Code consistent with other recent federal legislation and current federal enforcement policies. Only ten provisions of the statute have been affected, out of the more than 400 total articles contained in the statute.

 

Confiscation of instruments of crime

 

Article 82 of the Penal Code authorises the confiscation of instruments used in commission of a crime. The 2018 amendments expand the category of items that may be confiscated, and they also allow the imposition of a fine equal to the value of the items in cases where confiscation does not occur.

 

The previous text of Article 82 read as follows:

 

The court shall, upon conviction, order confiscation of the seized things and property that were used in the crime, that by their type are for use in the crime, that were the subject of the crime or that were obtained from the crime, all without prejudice to the rights of good faith third parties.

 

The 2018 amendments restore the following clause to Article 82, which had been deleted by earlier amendments enacted in 2016:

 

If the manufacture, use, possession, sale or offer for sale of said things is considered a crime in itself, then in all cases the confiscation shall be ordered even if such things are not owned by the accused.

 

The 2018 amendments also add the following clause at the end of Article 82:

 

If any of the things or property stated in the first paragraph of this Article are not seized, or if an order of confiscation cannot be issued due to the rights of good faith third parties, then the court shall pass judgment for payment of a fine equal to their value at the time of commission of the crime.

 

National Defence Secrets

 

A new provision has been introduced as Article 170, defining the term National Defence Secrets. This article had been deleted by the 2016 amendments. The provision in its entirety now reads as follows:

 

Each of the following shall be considered a national defence secret:

 

1. Military, political, economic, industrial, scientific and security information related to the security of society, or other information that by its nature is known only by persons authorised therefor and which are required by the interests of the state to be kept secret from others.

 

2. Correspondence, writings, documents, drawings, maps, designs, pictures, coordinates, and other things that if revealed could result in the disclosure of the information stated in the preceding paragraph and which are required by the interests of the state to be kept secret from others than those entrusted to maintain or use the same.

 

3. News and information relating to the armed forces, the Ministry of Interior, and the security bodies, their formations, movements, ordnance, provisioning, staff and other issues that may prejudice military affairs or war and security plans, unless the competent authority issues written permission for the publication or broadcast thereof.

 

4. News and information relating to the measures and procedures followed for investigating the crimes set out in this chapter and for the apprehension of criminals, as well as news and information relating to the conduct of the investigation and adjudication if the investigating authority or the competent court prohibits the broadcast thereof.

 

External and internal security of the state

 

In 2016, a new chapter was added to the Penal Code addressing crimes against the external and internal security of the state. The specific article in this chapter that was amended in 2018 is Article 201 (repeated) (9), which allows a court to grant a convicted criminal an exemption from or reduction in penalty if the criminal has reported to the judicial or executive authorities any information relating to offenses against the external and internal security of the state.

 

When this provision was enacted in 2016, it provided as follows:

 

The court shall, at the request of the public prosecutor or on its own initiative, order reduction of or exemption from punishment in respect of criminals who have provided information to the judicial or executive authorities related to any felony harmful to the external or internal security of the state, when the same led to discovery of the felony or its perpetrators, proof of their commission of the felony, or arrest of any of them.

 

As now amended, the provision allows the court also to replace the punishment with a fine of not less than AED 100,000 and not more than AED 10,000,000, in addition to reduction of or exemption from the punishment. This may be done when the convicted defendant has provided information to the judicial or executive authorities related to any felony that is deemed to be harmful to the security of the state in other criminal statutes, in addition to any felony harmful to the external or internal security of the state.

 

Moreover, the amendments now limit the circumstances in which sentences may be reduced. Specifically, for a criminal that does not provide information under this article, only the public prosecutor may request the court considering the case to reduce the sentence, if the request relates to the supreme interests of the state or to any other national interest. The amended provision adds that, if sentence has already been pronounced by the court, then the public prosecutor may still request reduction prior to or during execution of the sentence.

 

Public officials

 

Several changes have been introduced to the provisions of the Penal Code that deal with the obligations of public officials, including the anti-bribery provisions.

 

Article 225 of the Penal Code makes it a criminal offense for a public official or a person charged with public service to abuse his office by obtaining without entitlement funds, papers or other materials belonging to the state or public body or by facilitating the same for another person. The 2018 amendments provide for a more severe punishment if such a crime is associated with or connected to forgery, the use of a forged document or the use of a forged copy of an official document.

 

Turning to the anti-bribery provisions, Article 225 (repeated) now provides that a public official who unlawfully obtains or attempts to obtain without entitlement, either for himself or another person, a profit or benefit from any activity pertaining to the obligations of his office shall be sentenced to imprisonment.

 

Article 234 expands the scope of the prohibited “quid pro quo” acts that constitute one of the elements of the crime of bribery on the part of a public official. The definition of bribery now appearing in Article 234 reads as follows:

 

A sentence of temporary imprisonment will be imposed on any public official, person charged with public service, foreign public official or official of an international organisation who requested, accepted or took, whether directly or indirectly, a gift, advantage or grant without entitlement, or a promise of the same, whether in favour of the official himself or for another person, entity or facility, in consideration of such official doing an act or refraining from an act pertaining to his office or breaching the obligations of his office, even if he intended not to do the act, to refrain therefrom or to breach the obligations of his office, or even if the request, acceptance or taking followed the performance of the act, the refraining therefrom, or the breach of the obligations of his office.

 

The sections underscored in the text above were added by the 2018 amendments. Taken together, the actus reus of the government official may be:

 

• committing an act pertaining to his office,

 

• refraining from an act pertaining to his office, or

 

• acting in breach of the obligations of his office.

 

Article 235 is added to the Penal Code. It provides that a sentence of temporary imprisonment may be imposed in the foregoing circumstances even if the actus reus of the government official is believed or alleged in error to pertain to his office.

 

Another new provision, Article 236, states that arbitrators, experts and investigators shall be deemed to be public officials within the confines of the tasks entrusted to them.

 

While the provisions discussed above address corruption by public officials, Article 237 addresses persons who attempt to bribe public officials. The amendments add, as an actus reus for this offense, an act by an official in breach of the obligations of his office.

 

Arbitrators

 

To the presumed relief of persons practicing as arbitrators in the UAE, Article 257 has been amended.

 

The amendments to the Penal Code that were introduced in 2016 provided that an arbitrator, expert, translator or investigator appointed by the administrative or judicial authorities or selected by parties who issues a decision, gives an opinion, submits a report, addresses a case or proves an incident for the benefit or against the benefit of a person, in a manner that fails to maintain the requirements of integrity and impartiality, shall be subject to imprisonment. The amended text now omits the arbitrator from this provision. Moreover, the amended text now imposes a criminal sanction only upon an expert, translator or investigator who knowingly makes a false statement.

 

Electronic Surveillance

 

Finally, under new Article 280 (repeated), it is a crime for a person under electronic surveillance to evade such surveillance or by any means to damage or hamper the remote monitoring device. Enhanced penalties can be imposed if the act in question involves the destruction in whole or in part of electronic reception and monitoring devices, in which case the defendant will also be required to pay the value of the damaged equipment. ■

Confidentiality under renewed focus

The UAE federal government has recently issued a raft of important legislation, addressing and in many ways updating areas of law that are key to businesses in the jurisdiction. Amongst this legislation is Federal Decree-Law 14 of 2018 concerning the central bank and the organisation of financial institutions and activities (the New Banking Law) and Federal Decree-Law 20 of 2018 concerning anti-money laundering and anti-terrorism financing (the New AML Law). Both the New Banking Law and the New AML Law repeal and replace the previous legislation on their respective subjects.

 

Importantly, the New Banking Law and the New AML Law have together enhanced the protection afforded to confidential information under UAE law, in particular where financial and legal service providers and their customers and clients are concerned.

 

Confidentiality under UAE law

 

While it has long been the case that confidential information was given protection, such protection was spread across various pieces of legislation. For example, it has been generally accepted that UAE law includes an obligation on the part of a bank or a financial institution to hold information concerning its customers as confidential. This was understood to form part of customary banking practice in the UAE and was confirmed through certain guidance issued by the Central Bank. Similarly, obligations of confidentiality were placed on other service providers through sector specific legislation on the matter (see for example, Dubai Law 11 of 2013 concerning obligations of insurance companies in the Emirate of Dubai and Federal Law 23 of 1991 concerning the licensing of advocates). A general obligation of confidentiality was also contained in the UAE Penal Code (being Federal Law 3 of 1987, as amended).

 

Each of the New Banking Law and the New AML Law improves on this position and places customer confidentiality on statutory footing.

 

Confidentiality under the New Banking Law

 

Article 120 of the New Banking Law provides that all data and information concerning accounts, deposits and safe deposit boxes  (along with transactions concerning these facilities) of a customer shall be considered confidential and must not be directly or indirectly disclosed to any third party, in each case without the prior written consent of the customer. The obligation to keep such data and information confidential is stated to continue for an indefinite period, notwithstanding the termination of the relationship between the account holder and the bank or financial institution. Importantly, Article 120(4) stipulates that the obligation of confidentiality extends to all “agencies” and “persons” and other entities that by virtue of their profession or employment have access to such information.

 

Though the clarity provided by the Banking Law with regards to customer confidentiality is welcome, it remains to be seen how this obligation will affect the exchange of credit information (for example, in the context of disclosure of financial information to a UAE credit rating agency). It also remains to be seen whether there will be clearly prescribed sanctions and/or penalties for breach of such obligations.

 

The Banking Law provides that the Central Bank will issue further rules on this matter and it is anticipated that these rules will provide the required granularity to the confidentiality obligations set forth in the New Banking Law.

 

Confidentiality under the New AML Law

 

Like the New Banking Law, the New AML Law contains guidance with respect to confidentiality. Importantly, Article 15 of the New AML Law contains an exception to the obligation of a bank or financial institution covered by the New Banking Law to hold customer information confidential. In summary, such a bank or financial institution must issue a notification in the prescribed form to the designated unit within the Central Bank, where it has reasonable grounds to suspect a transaction or funds concerns a crime. In such case, the bank or financial institution must inform the designated unit within the Central Bank of its suspicion “without delay” and must include an appropriate level of detail on the account or transaction concerned, and without regard to the confidentiality of such information. It remains to be seen how banks and financial institutions will balance their obligations of confidentiality (as now enshrined within the New Banking Law) against their obligations of disclosure under the New AML Law. The obligation to report suspicious transactions is also imposed on Designated Non-Financial Businesses and Professions, a category that will be detailed in the implementing regulations contemplated by the new AML Law. Importantly, it remains to be seen how banks will determine what constitutes “reasonable” grounds. Is mere suspicion adequate?

 

Interestingly, the New AML Law provides (albeit indirect) recognition to the fact that lawyers (including those licensed as “legal consultants” in addition to those licensed as “advocates”) owe a duty to their clients to treat information received from such clients as confidential. It was previously the case that the confidentiality obligations of a legal consultant had to be derived by analogy to Federal Law 23 of 1991 concerning the licensing of advocates and, in the Emirate of Dubai, from the provisions of the draft code of conduct issued by the Dubai Legal Affairs Department.

 

Article 15 of the New AML Law stipulates that lawyers, notaries and other legal professionals are exempt from the requirements of disclosure contained in article 15 of the New AML Law, provided such information is received “subject to professional confidentiality”. This exemption is also extended to independent legal auditors. While the introduction of such exemption is welcome, it remains to be seen how the courts and authorities will interpret the requirement for the relevant information to have been received “subject to professional confidentiality” and whether the implementing regulations contemplated by the New AML Law will place limits on this exemption.

 

Despite further guidance pending, these legislative developments highlight the importance of confidentiality for businesses that receive and deal with confidential information. It also helps to bring into focus the high level of importance placed by UAE policy makers on matters of confidentiality and privacy. Businesses in the UAE would be well advised to take note of these developments and to stay alert for further developments in this field. ■

 

New anti-money laundering law

The new anti-money laundering (AML) law of the UAE took effect at the end of October 2018. Containing features recommended by the Financial Action Task Force (FATF), the new law introduces subtle but important changes to the AML landscape in the UAE.

 

The new law was enacted as Federal Decree-Law 20 of 2018. The previous AML law was Federal Law 4 of 2002, as amended by Federal Law 9 of 2014, and the implementing regulations that were promulgated pursuant to Cabinet Resolution 38 of 2014. The new law indicates that new implementing regulations will likewise be promulgated, although they have yet to be issued.

 

Prior to the 2014 amendments, AML compliance was confined to specific of regulatory silos. In particular, obligations were imposed on banks, other financial institutions, insurance companies, accountants, best lawyers, and businesses active in the Dubai International Financial Center and the Abu Dhabi Global Market. The 2014 amendments expanded the AML compliance obligation to all businesses and professions. This is continued by the new statute, but with somewhat greater precision. Specifically, the new statute imposes AML compliance obligations on Financial Institutions and on Designated Non-Financial Businesses and Professions (DNFBPs), terms adapted from the FATF. The implementing regulations will specify which DNFBPs will be subject to AML compliance obligations under the new statute.

 

It was an often overlooked feature of the 2014 amendments that AML compliance throughout the economy was required. This is continued and enhanced by the new statute. Both Financial Institutions and DNFBPs are required to comply fully with the express prohibitions contained in AML statute, to report suspicious transactions to the Financial Information Unit of the Central Bank, to conduct due diligence with counterparties, to adopt internal guidelines to ensure that AML violations will not be committed inadvertently, to provide regular training to personnel, and to conduct regular and ongoing AML assessments of the business risks and sector risks that they face. Regulators throughout the UAE are instructed to ensure compliance with these requirements.

 

In a potentially significant change, the new statute obliges each Financial Institution and DNFBP to conduct a risk-based assessment of its business activities and to adopt compliance measures based upon such risk-based assessment. An appreciation of the risks should guide conduct of due diligence of proposed customers and ultimate beneficial owners so that AML efforts might be most efficiently deployed. The previous law did not mandate a risk-based approach to AML obligations, and indeed a non-calibrated “one size fits all” approach was widely used in the conduct of due diligence investigations on proposed customers and counterparties. Importantly, the new law leaves open the question of which factors a Financial Institution or a DFNBP would consider when undertaking the assessment. We expect that this will be clarified in due course by the anticipated implementing regulations.

 

The law enforcement toolkit is substantially enhanced by the new statute. The authorities are given enhanced ability to investigate and prosecute offenses and to gain access to records in connection with the same. The power of the Central Bank to order an account freeze based on a suspicious activity report is maintained, but such a freeze may now be extended by order of the public prosecutor or its delegate beyond the initial seven day period, whereas the previous law required a judicial order for such an extension. Sanctions for violations are substantially enhanced, including measures directed at individual managers and directors. In a measure inspired by practices followed in London and Washington, the authorities are given the power to impose continuing reporting and monitoring obligations on businesses following an initial indictment.

 

In addition, there are express obligations to cooperate with international investigations and enforcement measures. The new statute addresses matters such as the collection of documentation, interrogation of witnesses and extradition of suspects, as well as the honoring and enforcement of orders and judgments from foreign countries.

 

In terms of prohibited conduct, the new statute makes only minor changes in comparison with the 2014 amendments. The definition of a predicate offense is considerably expanded. A predicate offense is now defined as any act constituting a felony or misdemeanor under the applicable laws of the UAE, whether the act is committed inside or outside of the UAE, when such act is punishable both in the UAE and in the country where it was committed. In addition, it is now stated unambiguously that the handling of funds that are tainted by association with a terrorist organisation or an illegal organisation would be a money laundering offense.

 

The obligation to file suspicious transaction reports with the Financial Information Unit of the Central Bank is maintained. However, for the first time, a professional privilege exception is introduced applicable to lawyers, notaries and other legal professionals and independent legal auditors. The scope of this privilege, never before acknowledged expressly in the AML context, is to be elaborated in the implementing regulations.

 

The FATF is scheduled to commence a mutual evaluation with the UAE in mid-2019 on the current state of AML compliance in the UAE. The new statute is a proactive initiative to introduce best-practice AML regulations according with the FATF’s guidelines. ■