For a Bounced Check in Dubai, the Penalty Can Be Years Behind Bars
September 12, 2009 -- By ROBERT F. WORTH
DUBAI, United Arab Emirates — For more than a year, prosecutors have been cracking down on the corruption and kickbacks that thrived during the boom years in this Persian Gulf city-state. Dozens of executives have been arrested and charged in a high-profile effort to show that fraud will no longer be tolerated. Investigators say their cases have uncovered $3.58 billion that was stolen or used as bribe money.
But alongside the con artists and crooks, a rising number of businesspeople have been sent to jail for going into debt. Bouncing a check is a criminal offense here. That fact has begun raising questions about the fairness of Dubai’s laws, especially among the foreigners who make up about 90 percent of the population.
Consider the tale of Ali Fariq, a 33-year-old Iraqi real estate agent now serving a three-year jail term. Mr. Fariq says his ordeal in the Dubai legal system began last year when he was kidnapped and beaten by a diplomat who blamed him for an investment deal gone sour.
The diplomat, an Iraqi named Birhan al-Yacoubi, then forced Mr. Fariq — and later, his brother — to sign checks totaling $600,000, he said. She did not want the money; she knew they did not have it. Instead, she drove the men to a police station, where she presented the freshly signed checks as evidence of fraud, court records show.
The brothers, whose account is supported by police and hospital documents, were arrested, charged and convicted on several counts — one for each check.
The Fariq brothers’ ordeal may be unusual, but it starkly illustrates an inescapable reality: the criminalization of debt has put a formidable weapon in the hands of landlords, banks and other creditors, who can send someone to jail with a single document showing a check has been returned for insufficient funds. It has also complicated Dubai’s efforts to recover from the financial crisis by sending many legitimate but struggling businesspeople to jail, where they find it even harder to repay their debts.
Of course, kidnapping is a crime, too. Prosecutors drew up charges against Ms. Yacoubi, but later dropped them. Calls to the consulate were not returned.
The overall uncertainty of Dubai’s legal system — especially the risk of doing jail time for debt — has prompted many expatriates to flee when they are in financial trouble rather than filing for bankruptcy and setting out a repayment schedule. Early this summer, Simon Ford, the British founder of a travel company called bluebanana.com that closed down, issued an emotional letter to “the Dubai public” that was reproduced on Web sites after he fled the city with his family rather than face arrest for his rising debts.
“I am not running away from debt, I am purely protecting those dearest to me and getting out of a country which, due to the lack of structured bankruptcy laws and a banking system which has zero flexibility on loan repayments, drives people to make horrible decisions,” Mr. Ford wrote.
Some financial analysts say the risk of arrest for debt could also drive away potential new investors and businesspeople as Dubai struggles to recover from the current economic slump.
The risk is compounded by Dubai’s unusually heavy reliance on checks. Banks request signed checks when giving out personal loans, and small and medium-size businesses often require them to guarantee payment for large purchases. Landlords sometimes insist on more than one postdated check from tenants as a security deposit.
During Dubai’s long boom, when credit was flowing easily, that was fine. Once the market began to crash here late last year and businesses started failing, all those checks became potential time bombs.
The root of the problem, analysts say, is that Dubai’s legal structures have not kept pace with its frenetic development. In just a few decades, a sleepy pearl-diving town has been transformed into a hypermodern metropolis that aspires to be a financial hub like Singapore or Hong Kong. Dubai is rightly proud of its economic miracle, and of its relative tolerance and openness compared with other parts of the Arab world.
But its very success, and the large number of foreign investors and businesses it has lured here, have led it to be judged by Western criteria as well — and often found wanting. Dubai’s laws are largely based on Egyptian civil law and Islamic law, or Shariah, with no real effort to encompass the tremendous volume of its commerce. While many other Arab countries classify bounced checks as a criminal offense, they are not held to the same standards as Dubai.
“Here, business relationships are based on integrity and trust developed over time, and so, traditionally, there has been less recourse to legal procedure for dealing with bankruptcy and insolvency situations,” said Andrew Tarbuck, a Dubai-based partner at Latham & Watkins.
The government of Dubai, which is one of seven members of the emirates federation, has not given out numbers of those arrested for debt. But lawyers say the numbers have risen substantially since the global financial crisis hit Dubai last year. There have been so many arrests that lawyers and even the police have begun complaining about the pressure, saying debt should be handled in the civil courts. “Sadly now, as a police force we have been involved in a matter that shouldn’t have been under our mandate,” said Lt. Gen. Dahi Khalfan Tamim, Dubai’s top police official, earlier this year.
Some efforts have been made to change the system, though analysts worry that they may fade as the economic crisis recedes. In the meantime, Ali Fariq and his brother sit in jail, waiting for the next opportunity to prove that the checks they signed were not a crime.
An employee of The New York Times contributed reporting from Dubai.
DUBAI, United Arab Emirates — For more than a year, prosecutors have been cracking down on the corruption and kickbacks that thrived during the boom years in this Persian Gulf city-state. Dozens of executives have been arrested and charged in a high-profile effort to show that fraud will no longer be tolerated. Investigators say their cases have uncovered $3.58 billion that was stolen or used as bribe money.
But alongside the con artists and crooks, a rising number of businesspeople have been sent to jail for going into debt. Bouncing a check is a criminal offense here. That fact has begun raising questions about the fairness of Dubai’s laws, especially among the foreigners who make up about 90 percent of the population.
Consider the tale of Ali Fariq, a 33-year-old Iraqi real estate agent now serving a three-year jail term. Mr. Fariq says his ordeal in the Dubai legal system began last year when he was kidnapped and beaten by a diplomat who blamed him for an investment deal gone sour.
The diplomat, an Iraqi named Birhan al-Yacoubi, then forced Mr. Fariq — and later, his brother — to sign checks totaling $600,000, he said. She did not want the money; she knew they did not have it. Instead, she drove the men to a police station, where she presented the freshly signed checks as evidence of fraud, court records show.
The brothers, whose account is supported by police and hospital documents, were arrested, charged and convicted on several counts — one for each check.
The Fariq brothers’ ordeal may be unusual, but it starkly illustrates an inescapable reality: the criminalization of debt has put a formidable weapon in the hands of landlords, banks and other creditors, who can send someone to jail with a single document showing a check has been returned for insufficient funds. It has also complicated Dubai’s efforts to recover from the financial crisis by sending many legitimate but struggling businesspeople to jail, where they find it even harder to repay their debts.
Of course, kidnapping is a crime, too. Prosecutors drew up charges against Ms. Yacoubi, but later dropped them. Calls to the consulate were not returned.
The overall uncertainty of Dubai’s legal system — especially the risk of doing jail time for debt — has prompted many expatriates to flee when they are in financial trouble rather than filing for bankruptcy and setting out a repayment schedule. Early this summer, Simon Ford, the British founder of a travel company called bluebanana.com that closed down, issued an emotional letter to “the Dubai public” that was reproduced on Web sites after he fled the city with his family rather than face arrest for his rising debts.
“I am not running away from debt, I am purely protecting those dearest to me and getting out of a country which, due to the lack of structured bankruptcy laws and a banking system which has zero flexibility on loan repayments, drives people to make horrible decisions,” Mr. Ford wrote.
Some financial analysts say the risk of arrest for debt could also drive away potential new investors and businesspeople as Dubai struggles to recover from the current economic slump.
The risk is compounded by Dubai’s unusually heavy reliance on checks. Banks request signed checks when giving out personal loans, and small and medium-size businesses often require them to guarantee payment for large purchases. Landlords sometimes insist on more than one postdated check from tenants as a security deposit.
During Dubai’s long boom, when credit was flowing easily, that was fine. Once the market began to crash here late last year and businesses started failing, all those checks became potential time bombs.
The root of the problem, analysts say, is that Dubai’s legal structures have not kept pace with its frenetic development. In just a few decades, a sleepy pearl-diving town has been transformed into a hypermodern metropolis that aspires to be a financial hub like Singapore or Hong Kong. Dubai is rightly proud of its economic miracle, and of its relative tolerance and openness compared with other parts of the Arab world.
But its very success, and the large number of foreign investors and businesses it has lured here, have led it to be judged by Western criteria as well — and often found wanting. Dubai’s laws are largely based on Egyptian civil law and Islamic law, or Shariah, with no real effort to encompass the tremendous volume of its commerce. While many other Arab countries classify bounced checks as a criminal offense, they are not held to the same standards as Dubai.
“Here, business relationships are based on integrity and trust developed over time, and so, traditionally, there has been less recourse to legal procedure for dealing with bankruptcy and insolvency situations,” said Andrew Tarbuck, a Dubai-based partner at Latham & Watkins.
The government of Dubai, which is one of seven members of the emirates federation, has not given out numbers of those arrested for debt. But lawyers say the numbers have risen substantially since the global financial crisis hit Dubai last year. There have been so many arrests that lawyers and even the police have begun complaining about the pressure, saying debt should be handled in the civil courts. “Sadly now, as a police force we have been involved in a matter that shouldn’t have been under our mandate,” said Lt. Gen. Dahi Khalfan Tamim, Dubai’s top police official, earlier this year.
Some efforts have been made to change the system, though analysts worry that they may fade as the economic crisis recedes. In the meantime, Ali Fariq and his brother sit in jail, waiting for the next opportunity to prove that the checks they signed were not a crime.
An employee of The New York Times contributed reporting from Dubai.