Following a worldwide trend of increasing the fight against corruption, the United Arab Emirates (UAE) is pushing ahead with new anti-corruption legislation to end financial malpractices, create transparency and make the country more attractive for foreign investment.
The State Audit Bureau was tasked by government decree to draft the anti-corruption law and see its successful introduction, thereby fulfilling the country’s obligation to the United Nations Convention against Corruption, which the UAE signed in 2003 and ratified in 2006.
“This law will greatly support the UAE’s efforts to fight corruption and related offences, protect public funds and better utilise national resources for comprehensive development,” the Bureau’s chairman, Hareb bin Saeed Al Amimi, was quoted by the semi-official daily Al-Ittihad as saying.
A union of seven emirates, the UAE is already one of the cleanest economies in the Middle East. Second only to Qatar, it is the 28th on Transparency International’s 2011 Corruption Perception Index (which covers 182 countries). In comparison, the United Kingdom is in 16th place and the United States in 24th.
“It is still unclear what the exact coverage will be; however, the new legislation is a move by the UAE federal government to demonstrate full commitment to a higher standard of corporate governance,” says Poly Rahman, Associate, Advisory Team at The Red Flag Group. She says it is important for businesses to keep up with the increasingly-high international standards.
The UAE, the second-largest Arab economy, has become a hub for international businesses. Enterprises that have a nexus with the United Kingdom and the United States therefore subject local companies to the Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act (UKBA). These entities and businesses are constantly asking local companies about the way they do business, thus creating pressure on local businesses to comply with these acts.
“The adoption of a new law will add clarity to the current code for companies – both domestic and international – doing business in the UAE and would act as a clear deterrent to future breaches,” Ms Rahman says.
As a first step, the federal government last year issued a resolution obliging the boards of all federally-owned institutions to form audit committees to monitor their financial statements and generally subject their organisations to more rigorous internal monitoring. Companies were also obliged to set up a nomination and remuneration committee to make these processes more transparent. However, no follow-up surveys have been published and it is hard to gauge how successful this resolution has been.
Although the State Audit Bureau, which has been assigned to draft the new legislation by the President His Highness Sheikh Khalifa bin Zayed Al Nahyan, has yet to disclose the exact nature of the provisions which will be included in this new legislation, some professionals and business people are already guessing the content.
Most people expect those drafting the new legislation to take a very close look at the United States’ and United Kingdom’s anti-bribery laws as a framework to build on.
“The wording of the new legislation will be a key indicating factor to gauge commitment,” Ms Rahman notes. “They will need to increase the clarity of the current code and plug some loopholes.”
While the current laws – which date back to 2005 – criminalise soliciting or accepting bribes in both the public and private sectors, offering bribes is only criminalised in the public sector. This provides no deterrent to people wanting to offer bribes in the private sector, and this is one aspect the new law should deal with.
There are no restrictions on offering bribes such as gifts, entertainment or facilitation payment to foreign public officials and officials of international public organisations through intermediaries or third parties.
There is neither individual nor corporate liability for offering bribes to foreign public officials or private individuals – the present laws simply do not address foreigners. The State Audit Bureau is currently the UAE’s only anti-corruption authority and there is no government agency appointed to enforce foreign bribery laws and regulations.
“The new legislation is expected to have wider coverage. Foreign corruption will certainly need attention as it is not addressed in the current anti-corruption laws in the UAE. It should cover all those elements, creating multi-jurisdiction protection,” Ms Rahman says.
No timeframe has been mentioned for the introduction of the new legislation but, although the month of Ramadan might have slowed down progress and there have been no follow-up reports in the media, Ms Rahman estimates that, provided the UAE take the US and UK anti-bribery and anti-corruption legislation as a basis, the new law might be enacted as soon as within the next two years.
“The framework is there, and it would be surprising if they introduce something the UK and US anti-corruptions laws don’t have,” she says.
In anticipation of the new legislation, both local and international companies should start by assessing their corruption risks and incorporating polices to manage them. They should make sure they have a code of conduct embedded in their corporate culture and that staff are well trained in it. In the interim, companies can look to FCPA and UK Bribery Act consulting firms for guidance until the new UAE anti-corruption and anti-bribery draft legislation is revealed.
At the same time, Ms Rahman emphasises that giving and receiving of gifts or hospitality – an old tradition in the Middle East – will not be entirely forbidden. As long as the company can show a genuine business case, such as relationship building, the expenses are within reasonable limits and there are no pending contracts to be signed, entertainment will continue to be permitted.
Apart from increasing transparency in the UAE at a federal-government level to increase the emirates’ role as a centre of international business in the Gulf, the new legislation is also expected to spur the members of the federal government to make further adjustment to their corporate governance legislation. Furthermore, it is hoped that the new law will give impetus to other Gulf countries to further tighten their regulations and intensify their anti-corruption measures.