Hundreds who rode the boom have been detained
Not long ago, British businessman Ryan Cornelius was living the high life, doing real estate deals out of Bahrain. He took his family on safari in Kenya and on big-game fishing trips on his yacht. Today, Cornelius resides in a prison cell in Dubai, accused of loan fraud. He's been locked up for more than two years without a court reaching a verdict.
Cornelius and other executives have been targeted by Dubai's government in an anti-corruption sweep provoked by the emirate's financial and real estate collapse in 2008. The emirate's image as the Singapore of the Middle East, a cosmopolitan hub for finance and tourism, is being tested as it tries to clamp down on the excesses that government officials say accompanied an explosion of foreign investment and immigration. Many of those accused of wrongdoing protest that they are innocent victims of abusive prosecutions. They claim they are being detained without the sort of due process provided by Western courts.
"The whole legal system seems to hold you in a state of constant suspension," Cornelius, 56, says from a pay telephone at Dubai's Central Prison. "We just don't seem to move forward."
He and six co-defendants have been charged with defrauding Dubai Islamic Bank by improperly diverting the proceeds of a $501 million loan. The case is one of the biggest frauds ever alleged by authorities in Dubai, the second-largest of the seven emirates that make up the United Arab Emirates. Cornelius denies any wrongdoing.
In all, Dubai authorities may have jailed several hundred executives, according to a London-based advocacy group called Detained in Dubai. The crackdown has focused on alleged fraud involving state-run real estate concerns and other companies. Dubai's judicial system, which is based on Islamic law, or sharia, has highly punitive aspects that private lawyers in the emirate say are weighted against defendants. The U.S. State Dept. issued a report in March that said the U.A.E. lacks an independent judiciary, suggesting that its courts are subject to political influence.
About 40 percent of the 1,200 people in Dubai Central Prison have been convicted of defaulting on bank loans, Human Rights Watch said in a report in January. The emirate's financial laws impose punishment of as much as four years behind bars for a single bounced check. Even after completing their sentences, some inmates remain incarcerated until their debts are paid off, something unheard of in modern times in the U.S. or the U.K., New York-based Human Rights Watch says. "Our current criminal laws are not fit to deal with sophisticated financial crimes," says Habib Al Mulla, the former chairman of the Dubai Financial Services Authority, an industry regulator. Al Mulla, an attorney, represents one of Cornelius' co-defendants. New laws are needed "to protect bona fide businessmen from the abuse that some do face under the current legal system," he adds. "This abuse has a damaging effect on the economy and the country."
After it launched its crackdown two years ago, the government said it had uncovered kickbacks and other corruption at a variety of state-controlled companies. During its boom years, the emirate and its companies amassed debts of more than $100 billion for projects such as the world's tallest tower and a group of artificial, palm-tree-shaped islands built by property developer Nakheel. The Dubai government and prosecutor's office didn't respond to repeated requests for comment.
Some U.A.E. citizens arrested in the anti-fraud offensive have been freed after repaying what the government said they owed. The former governor of the Dubai International Financial Center, Omar bin Sulaiman, was released from prison in May, following two months of detention after he returned to the Treasury of Dubai about $14 million in bonuses he allegedly awarded himself. Hashim Al Dabal, the ex-chairman of state-owned Dubai Properties, got out in June after eight months in detention by repaying $35 million he allegedly embezzled from the real estate company.
Others remain in prison as their cases inch along. Zack Shahin, a 45-year-old former PepsiCo (PEP) executive from Ohio who went to work for the property company Deyaar Development, has been incarcerated since March 2008, charged, along with others, with embezzling $27 million. In a statement earlier this year, Shahin's lawyers said that for days on end, their client had been denied food, held in solitary confinement and darkness, blindfolded, and threatened with torture. The attorneys said that Shahin is an innocent "target of a politically charged investigation." Dubai's attorney general, Essam Essa al-Humaidan, previously has rejected allegations that Shahin or anyone else has been abused by the emirate's prosecutors or legal system. The American government has repeatedly raised Shahin's situation with U.A.E. authorities, according to the U.S. State Dept.
Outside investors are looking carefully at how Dubai is applying its financial laws to foreign executives, says John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi. "It is good they are taking some individuals to court, pursuing them," Sfakianakis says, "but the way they are pursuing them could [negatively] impact Dubai."
Cornelius and his co-defendants are accused of diverting hundreds of millions of dollars from a trade-financing loan for projects such as the Plantation, a planned 20 million-square-foot development in the desert that was to include five polo pitches with stables for 800 horses, a luxury hotel, and houses. The prosecution charges that Cornelius and others forged documents and used the loans for "fake deals," according to a court document.
"I absolutely deny all the allegations against me," Cornelius says from behind bars. He said that the money in question was mostly used for property development in Bahrain and the relocation of an oil refinery from Canada to Pakistan, as well as for the Plantation project in Dubai. He and his associates reached a debt repayment agreement in 2007 with Dubai Islamic Bank, he added. The bank took control of the Plantation after Cornelius and his colleagues were arrested. If the bank had sold the property at that time, the proceeds would have more than covered all of the debt, Cornelius says.
He now lives in a dormitory with about 100 other men. The conditions are an improvement over those in Rashidiya prison, where he says that he and more than 250 prisoners shared six rooms meant for 48, and there were only two working toilets. Cornelius says he was held in solitary confinement for the first six weeks after his arrest in May 2008. The yacht and a beach hotel he owned in Kenya have been sold.
Cornelius says he has been in court about 30 times and has been denied bail a dozen times. The proceedings are in Arabic, and he finds them difficult to follow, even with an interpreter. Originally facing a maximum sentence of three years, Cornelius and his fellow defendants could get up to 20 years under a new anti-corruption law announced after his arrest. "This has been a devastating experience," he says.
Radha Stirling, a lawyer who started Detained in Dubai, says there has been a marked increase in detentions for financial crimes since last year. The majority of cases she is dealing with are related to bounced checks or other debts. "I think a lot of people relocated to Dubai as an extension of Europe, like France, Spain, or even the U.S.," Stirling says. "It was seen as very developed with a good legal system." Now, she predicts, "the average person who was once going there to seek employment or invest will shy away from Dubai."
The bottom line: Dubai's anti-fraud crackdown has resulted in the imprisonment of hundreds of foreign executives and financial workers.