Exposing the Shadowy World of Fraud in the UAE
White Collar Crime & Investigations / UAE
Osama DaneshyarSenior Counsel,White Collar Crime & Investigations
Nour El ChamiTrainee Lawyer,White Collar Crime & Investigations
Fraud is a widespread problem in the interconnected modern world, undermining trust in contractual relations and ultimately harming the economy as funds that could be used in the legitimate economy are diverted to the black economy. The UAE is not unique in facing fraud, and the challenges confronting law enforcement authorities are similar to those in many other jurisdictions.
In this article, we aim to address the challenges many law enforcement authorities face in distinguishing between fraud and civil transactions that have gone wrong, which would then be a matter for the Civil Courts. We will highlight some of the challenges that both legal practitioners and Courts face in navigating the often-thin line between fraud and breach of contract. It is not an exaggeration to suggest that fraud is one of the most difficult offences to prove, and for understandable reasons. The legal landscape can be fairly described as a maze of potentially inconsistent decisions at both the investigative and judicial levels. We seek to identify the common thread that can weave together this seemingly conflicting outcomes.
Fraud under Article 451 (formerly Article 399 of the old law) of the Federal Law by Decree No. 31 of 2021 Promulgating the Crimes and Penalties Law (“Penal Code”) is described as conduct punishable by imprisonment (up to 3 years) or a fine for anyone who uses fraudulent means to deceive a victim into handing over property or money. The law now includes harsher penalties if the property belongs to a public authority and punishes inchoate offences with 2 years imprisonment.
The essence of fraud lies in using deceit to induce a person to voluntarily transfer ownership of property. Mere lies or deceit are insufficient; there must be a material act that supports the falsehood. For example, if a seller falsely claims to have goods available for immediate shipping to induce a victim to transfer money but does not support these claims with any tangible proof, it may be considered a breach of contract rather than fraud.
An interesting case that illustrates this point is the Dubai Cassation Court Judgment number 603/2022. This case involved a fraudster who advertised a counterfeit luxury watch on Instagram under a name similar to a known auction website. The victim, believing the watch to be genuine, paid AED 98,000. The fraudster challenged his conviction, claiming the dispute was civil. However, the Court upheld the conviction, ruling that the creation of an Instagram account mimicking a known auction website and selling a branded watch at a price seemingly close to the price of the genuine watch constituted a material act supporting the false representation that the seller was offering for sale a genuine watch. The Court concluded that this was sufficient to amount to fraud under Article 399 (now 451) of the UAE Federal Penal Code.
The core feature of fraud is the use of fraudulent methodology to deceive a person into voluntarily transferring the title of property. The consent obtained from the victim who transfers funds or property to the offender is vitiated by the latter’s fraud. It is clear from the wording of the provisions that something more than lies or deceit is required. There must be an action that goes beyond dishonesty and positively corroborates the lies that have been told.
A good example is where two parties contract for the delivery of 100 containers of a particular commodity on the condition that the buyer pays the seller 50% of the purchase price upon signing the contract. Even if the seller has never engaged in any trade and makes numerous false statements (whether orally or via email) that the goods are available for immediate shipping upon receipt of funds, but uses the contract as a ruse to induce the victim to transfer millions of dollars, which he subsequently misappropriates, the conventional approach, absent any other evidence, would be for the victim to start a civil action for a debt claim. Unless the victim can show that the fraudster supported his lies with positive actions to enforce the false claims, such as delivering a forged bill of lading showing that the goods are loaded onto the vessel, the authorities will view the dispute as contractual in nature.
This background makes the Dubai Cassation Court Judgment number 603/2022 (Criminal Cassation) an interesting outlier, as mentioned above. Courts often insist that a principal ingredient of fraud is a material act that goes beyond proving that the defrauded party was a victim of the offender’s false assertion. Time and again, the Court of Cassation has insisted that the lies must be reinforced by positive action, giving the lie an element of authenticity and inducing the victim to believe them.
In the case involving the counterfeit luxury watch, the Court rejected the offender’s challenge, and the Cassation Court upheld the conviction, ruling that using an Instagram account with a name similar to a known auction website to sell a luxury watch was an act of fraud. The Court determined that establishing an account with a name similar to a known auction website and offering a branded watch at a price that could be seen as a bargain was designed to deceive the buyer into transferring funds. Had the buyer known the watch was not genuine, he would not have done so.
In certain circumstances, the Courts can apply a strict interpretation of the provisions and decide that the offer was for the sale of a watch, and that is what the victim received. The fact that the seller provided a fake luxury brand in the absence of a forged certificate of authenticity to support the false representation affects the quality and value of the watch. Therefore, it amounts to a breach of contract rather than a crime of fraud.
The Cassation Court in this case took an equitable approach, applying a broad definition of what amounts to a fraudulent scheme. It decided that the mere establishment of an Instagram account similar to a well-known website, the advertising of the fake watch, and the implied representation from the price of the watch that it was genuine was sufficient to constitute a material act in support of the false representation that the watch was genuine. Therefore, in this particular case, the Court did not feel it was necessary to have a specific material act in furtherance of the crime, such as displaying or delivering a forged certificate of authenticity, for the Court to find that the circumstances gave rise to a crime of fraud under Article 399 of the UAE Federal Penal Code (now Article 451).
However, when one compares and contrasts the Cassation Court ruling in Case 603/2022 with Appeal No. 184 of 2003, in July 2003, one appreciates the progressive approach adopted in Case 603/2022. In Appeal 184/2003, the Cassation Court ruled that in criminal trials, in the absence of elements constituting the offence, there must be an acquittal, and found that the actions of the accused fell outside the scope of the offence. The case involved the payment by the victim of AED 217,906 for a bank guarantee in the amount of USD 272,100. The accused failed to secure the promised guarantee, nor did he abide by the promise to return the funds taken. The Court found no evidence that the guarantee shown to the victim had been forged. In the absence of a material act of fraudulent methods, the elements of the offence were not made out. Once more, the Court emphasised that “fraud under Article 399 is not made out unless the accused used a fraudulent method to a degree that leads the victim to be deceived, with the full knowledge by the accused that this was the case.”
When acquitting the accused, it was proven that he took the amount agreed upon in consideration for the issue of a bank guarantee and managed to obtain the issuance of a guarantee from one of the banks in Australia in favour of the company. There was nothing in the agreement to specify that the guarantee had to be backed by a local bank, and the Crime laboratory showed that the accused had indeed some transactions with foreign banks. As a result, the ruling was correct whether in relation to breach of trust or fraud, as it was not proven that the guarantee issued was a forgery. Therefore, the rejection of the victim of the terms of the guarantee does not constitute the elements of the offence, whether breach of trust or fraud. The Court went on to emphasise that the case was purely a civil dispute over which the criminal Court had no jurisdiction and should strictly be tried in the civil Courts.
Case 603/2022 is valuable in circumstances on the cusp between fraud and breach of contract. It shows that Courts are willing to adopt a broader substantive approach when considering the facts rather than applying a restrictive interpretation of the meaning of a fraudulent scheme to include implied deceitful acts as well as material acts. More importantly, notwithstanding the alternative offence under Article 2 of Federal Law No. 19 of 2016 on Commercial Fraud that punishes the sale, display, or acquisition for the purpose of sale of any counterfeit goods with a sentence of imprisonment of up to 2 years and/or a fine between AED 50,000 and 250,000, the Cassation Court showed its willingness to give a wide meaning to the words "fraudulent methods."
The case demonstrates that the legal system in the UAE is well equipped to deal with such crimes. As we navigate the complexities of modern society, it is crucial to remain vigilant against the threat of fraud. Strengthening regulatory oversight, raising public awareness, and enforcing strict measures are key to fostering a safer and more trustworthy environment.
Judgment Number 603/2022 Criminal in Dubai Court serves as a reminder of the importance of upholding justice and integrity in the face of deceit. With the threat of fraud ever-present, the UAE is committed to addressing the significant issue of fraud. It has a clear legal framework and penalties for fraud and protects those who report it. The country is also part of international efforts to fight fraud, has mechanisms for recovering assets, and emphasises fraud prevention. As cyber fraud emerges as a new threat, the UAE continues to adapt its approach, demonstrating a strong commitment to maintaining a reliable business environment.
For further information,please contact Osama Daneshyar and Nour El Chami.
Published in October 2024
