Kudos to Zawya Dow Jones for keeping an eye on an evolving legal dispute between Dubai Islamic Bank (DIB) and four businessmen.
Proponents and practitioners of Sharia-compliant finance are fond of trumpeting the safety, reliability and relative simplicity of their offerings. But as the Nakheel debacle demonstrated, the reality is these products are far from bulletproof (or risk-free). Crucially, Islamic finance is as vulnerable to the vagaries of human nature as its secular cousins.
Case in point: the $651m tit-for-tat involving the Dubai’s part state-owned and largest Shariah-compliant bank.
As Dow Jones reported on Thursday, the bank is facing a civil lawsuit filed by four men who are themselves facing fraud charges — to the tune of $501m — in Dubai:
Bahrain resident Charles Ridley and business partners Ryan Cornelius, Erin Nil and Arthur Fitzwilliam have filed a civil suit in Manama requesting a precautionary attachment order on 245.5 million Bahrain dinars ($651 million) of the Islamic bank’s funds held by the Central Bank of Bahrain, according to the filing.
In September 2009, DIB seized the assets of Dubai-based real estate developer Plantation Holdings…DIB and public prosecutors in Dubai accuse Mr. Ridley and his associates of wrongfully obtaining a loan from the bank that was secured against Plantation’s assets. Mr. Ridley and the other defendants in the Dubai case deny any wrongdoing.
The background to these cases, in FT Alphaville’s admittedly wonkish opinion, provides useful insight into the murk of the region’s financial sector.
In March 2009, Dubai’s public prosecutor alleged that seven businessmen had attempted to defraud DIB to the tune of $501m.
The prosecutor’s indictment alleged the fraud took place over a three year period from 2004 – 2007, and came after a year-long probe into suspected financial irregularities in the emirate’s heated property sector, the FT reported last March.
The four men counter-suing DIB were among those indicted, according to the FT report:
The public prosecution document accuses Charles Ridley and Ryan Cornelius, both Britons, and Erin Nil, a Turk, of forging documents to defraud the bank of $501m via CCH, a trade finance company owned by Mr Nil and linked to Messrs Ridley and Cornelius.
Arthur Fitzwilliam, the British developer behind the polo-themed Plantation, is accused by the prosecution of aiding Messrs Nil, Ridley and Cornelius to carry out their alleged fraud.
(For a more colourful take on the Brits involved, see the Telegraph’s ‘end of a glittering Dubai dream‘ story from June 2009)
As for the investigation into the alleged fraud, here’s what the FT reported in November 2008:
A government financial audit department report identifies Mohammed Khalfan bin Kharbash, former chairman of Dubai Islamic Bank and its real estate affiliate Deyaar, in connection with allegations of financial wrongdoing at Deyaar.
Zack Shahin, Deyaar’s former chief executive, and John D’Cunha, former operations director, are among a handful of ex-employees who could face trial as early as this month as the public prosecution finalises its case.
The official report sheds light on the year-long corruption investigation that has led to the detention of dozens of executives in state-backed companies linked to the Gulf business hub’s booming property sector.
Worth noting that even prior to the publication of that audit report and the accusations contained therein, Dubai’s rulers had taken action. Ridley has been detained in Dubai since June 2008, for instance.
And according to the FT, he may not have had the worst of it:
Zack Shahin [detained since April 2008], former chief executive of Deyaar, has via US lawyers complained about his extended detention, claiming he had been tortured and was being victimised to protect senior locals.
The Dubai authorities countered saying the investigations have been carried out according to United Arab Emirates law.
The complaint that authorities were protecting senior locals was echoed by Omair Mooraj, a former executive at DIB who is facing trial and who is counter-suing (bear with us…) a former finance minister of Dubai, Mohammed Khalfan bin Kharbash. Mr bin Kharbash was previously a chairman at DIB.
Here’s what the FT wrote on the matter in May:
The court filing calls on the public prosecution to “start legal proceedings” against the senior DIB managers and to pay damages to Mr Mooraj. Mr bin Kharbash declined to comment on the case on Monday.
Mr Mooraj has long argued that he and a former DIB colleague who is a co-defendant in the trial were set up as scapegoats for a transaction approved and initiated by their seniors.
Mooraj is himself facing charges of facilitating the allegedly fraudulent $501m loan to Ridley and his cohort.
Dubai has aggressively positioned itself as an international financial center and a destination for capital. Events like those described above suggest it’s quite some way from shedding its frontier market trappings.