UAE / Financial Crime
Mohamed KenawySenior Associate,Financial Crime
Historically in the UAE, as a result of a money laundering conviction, the proceeds of crime have ended up in the pockets of the State Treasury, irrespective of whether the laundered funds had originated from bona fide third parties as victims of the predicate offence.
This scenario derives from the rule adopted in previous money laundering laws. The current position is contained in the Federal Law No. 20 of 2018 On Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organisations, as amended by the Federal Decree Law No. 26 of 2021 (“AML Law”). The AML Law is complemented by implementing regulations laid down in Cabinet Decision No. 10 of 2019 (“Cabinet Decision”).
Article 26 of the AML law stipulates that proceeds of crime shall be confiscated to the government. Having said that, however, paragraph 4 of the said Article allows the rights of bona fide third parties to be taken into account as follows:
"1. In the event of proving the committing of a crime, the court shall order to confiscate the following:
Without prejudice to the rights of a bona fide third party, any contract or disposal where both or one of its parties has known or should have known that the purpose of the contract or disposal is to affect the capacity of the competent authorities to seize, freeze or confiscate and execute such funds.”
According to the previous practice and law the UAE Courts used to order, in the vast majority of money laundering cases, the proceeds of crime to be confiscated by the state, regardless of the fact that a bona fide third party could potentially bring a legitimate claim requesting to be restituted as the victim of the predicate offence. It should be noted that even if the 2021 amendment to the AML Law re-worded the above-mentioned provision of law, the rights of bona fide third parties were to be taken into account already before when the Courts were applying the previous AML Law.
The act of money laundering requires a separate offence, referred to as the predicate offence that generates the illicit proceeds, followed by the act of concealing the illegitimate source of the proceeds, referred to as money laundering. The aim of money laundering is to place the proceeds of the crime back into the legitimate economy by disguising the illegitimate source of the proceeds. Article 2 of the AML Law explicitly states that money laundering is a separate offence and therefore prosecuted independently which effectively means that a conviction for the predicate offence is not required as a prerequisite for money laundering charges.
As such, treating money laundering as a separate offence from the predicate crime increases the chances of money launderers being prosecuted, which makes the enforcement of money laundering legislation more efficient. At the same time, focusing on prosecuting money laundering overlooks the fact that the victim of the predicate crime is likely to be the ultimate owner of the laundered funds with legitimate rights to the same, which the authorities consider as proceeds of crime, resulting in confiscation to the government. Moreover, if the predicate offence took place outside the jurisdiction whilst the funds have ended up in the UAE, the UAE would most likely not prosecute and convict the defendants based on the predicate offence but focus on the money laundering only. If it is not possible to obtain a restitution order to benefit the victim in the money laundering proceedings, the victim is thus left in a difficult position.
According to recent case law, the UAE Courts have started to pay attention to paragraph 4 of the aforementioned Article which provides that the confiscation shall be imposed “without prejudice to the rights of a bona fide third party”. The law remains silent about the definition of these rights and the manner of their application in practice, which implies that the Courts have wide discretion to order restitution of the proceeds of crime to the victim of the predicate offence. Recent case law demonstrates that the UAE Courts have recently adopted an interpretation that increases the chances of the victims of predicate offences to claim back, in the money laundering proceedings, what they have lost as a result of the predicate offence. This development puts the victims of predicate offences in a completely different position compared to the past cases.
In a recent case deliberated by Dubai Criminal Courts [Penal case No. 46376 of 2018], the Public Prosecution charged eleven accused parties (three of which are companies) with money laundering, on the basis that they intentionally transferred into UAE bank accounts a sum of USD 4 million in order to conceal the illicit origins of the funds. Funds were also transferred to other jurisdictions.
The concealed funds had been illegally generated through cyber fraud committed in the USA against a multinational company. The Public Prosecution concluded that the accused parties hacked the email system of the company and thereafter conspired to forge internal emails and electronic documents so that the recipient of the emails thought that the emails had actually been sent by the person from whose inbox the emails came from. The defendants impersonated the sender by forging e-signatures of the company’s employees and sent fabricated payment instructions from the email account of the company’s CFO to the finance team for the finance team to process the aforementioned transfers amounting to USD 4 million into the UAE bank account of one of the accused entities. The funds were then transferred further to the bank accounts of other defendants. The amount of USD 4 million consisted of several smaller transfers, some of which the company was able to recall with the help of their bank.
The amount of AED 9 million was located in the UAE bank account of one of the accused companies and was frozen by the Public Prosecution as proceeds of the fraud. The UAE Prosecution did not bring charges against the defendants based on the cybercrime but indicted the defendants and committed the case to the Criminal Court solely based on act of money laundering. The First Instance Criminal Court added the act of possession of proceeds of crime, criminalised by Article 407 of the Federal Penal Code to the list of charges.
The claimant company filed a civil claim before the First Instance Court as the victim of the offence and requested the Court to order restitution of the seized amounts in light of the second paragraph of Article 85 of the Federal Criminal Procedures Code, since it was evidenced by the Prosecution that the seized funds are proceeds of the cyber fraud and therefore the property of the claimant.
The Court of First Instance sentenced each of the accused to imprisonment, fined each of them and ordered the seized proceeds to be paid to the civil claimant as restitution due to the civil claimant being the victim of the predicate cybercrime offence.
To strengthen the legal grounds for the restitution order based on the money laundering law, the Court invoked the second paragraph of Article 85 of the Federal Criminal Procedures Code which states that:
“When deciding the case, the criminal court has to decide the issue on the arrested objects should the claim for restitution be requested to the court, as it may order, if it deems necessary, to refer the parties to the civil court and, in this case, put the arrested objects in custody and take other measures to preserve them.”
The defendants appealed the judgment. The Appeal Court upheld the first instance judgment and confirmed the findings of theFirst Instance Court.
The defendants challenged the appeal judgment before the Court of Cassation repeating the same arguments presented before the lower instance courts, invoking lack of knowledge of the predicate offence and the illegitimate origins of the funds and therefore the lack of intentional concealment of the proceeds of crime. The Cassation Court upheld the lower instance judgments and rejected all appeals.
Before the release of this judgment, the victims of the predicate offence were often hesitant to seek recovery of their lost assets in the UAE, in particular if the predicate offence had taken place abroad. There was a common belief that proceeds of money laundering offenses have no other destination than the State Treasury and could never be paid back to the victim. On a practical level, the First Instance Judgment firmly clarifies that the victim of the predicate offence, in a case of money laundering charges, is entitled to be refunded if it has been evidenced that the victim was subject to the crime through which the illegitimate funds where generated. The judgment significantly improves the legal position of the victims of predicate offences in the UAE and encourages them, irrespective of their geographic location, to seek justice in the UAE.
Moreover, the judgment, despite not being a binding legal precedent, will most likely trigger other courts in the UAE to adopt the same approach to secure the rights of bona fide third parties in similar money laundering cases.
For further information, please contact Mohamed Kenawy.
Published in November 2022
