Aug. 11 (Bloomberg) -- Not long ago, British businessman Ryan Cornelius was living the high life, doing deals out of Bahrain and taking his family big-game fishing on his yacht and on safari in Kenya. He’s now into his third year in a Dubai jail cell, yet to be convicted of anything.
“The worst aspect of the way we’ve been treated is the fact that the legal system seems to be so suspended in its own inefficiency,” he said from a pay phone at Dubai’s Central Prison. “We just don’t seem to move forward. The whole legal system seems to hold you in a state of constant suspension.”
Cornelius, 56, and six co-defendants have been charged with defrauding Dubai Islamic Bank PJSC of $501 million, one of the largest such cases in the history of United Arab Emirates. He says he did nothing wrong, and like others, foreigners and nationals, who profited in Dubai in the boom times, he waits in prison as the legal system slowly tries to separate the guilty from the innocent of those arrested in an anti-corruption drive.
Dubai’s image as the Singapore of the Middle East, a global hub for finance and tourism, is being tested as it tries to clamp down on excesses such as fraud and overdevelopment, which came with an explosion of people and investment. Its judicial system still often has more in common with its regional neighbors than the Western nations that it aspires to emulate, say lawyers and economists who work there.
The government won’t say how many people have been arrested in the two-year campaign against financial corruption. Detained in Dubai, a London-based lobbying group, says several hundred executives may have been jailed.
In all, 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. Even after completing their sentences, the New York-based group said, prisoners are likely to remain in jail until their debt is paid off, unlike in the U.S. or the U.K., where debtors’ prisons were abolished in the 19th century.
Over-lengthy sentences and insufficiently developed laws for prosecuting financial crime threaten to discourage investment in Dubai, said Habib al-Mulla, the former chairman of the Dubai Financial Services Authority, an industry regulator. The U.S. State Department said in a March report that while the country’s constitution guarantees an independent judiciary, the U.A.E. court system remains “subject to review by the political leadership.” Defendants can spend months without being charged and are often unfairly denied bail, according to lawyers.
“Our current criminal laws are not fit to deal with sophisticated financial crimes,” said al-Mulla, a lawyer who helped defend Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum in a U.S. lawsuit and now represents one of Cornelius’s co-defendants. New laws are needed “to protect bona fide businessmen from the abuse that some do face under the current legal system. This abuse has a damaging effect on the economy and the country.”
The Dubai government and the prosecutor’s office didn’t respond to repeated e-mailed and phone requests for comment during a three-week period.
The government started the anti-corruption drive as the global credit crisis cut Dubai home prices in half from their peak in 2008, the biggest drop in property values in the world. The city-state, the second largest of the seven emirates that make up the U.A.E., has amassed debts of more than $100 billion related to projects such as the world’s tallest tower and artificial palm tree-shaped islands built by developer Nakheel PJSC.
Some U.A.E. citizens arrested were 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 about $14 million in bonuses, according to a government announcement. Hashim Al Dabal, the ex-chairman of state-owned Dubai Properties LLC, got out in June after eight months in detention by paying $35 million as part of an embezzlement investigation, the government said.
Others remain in prison as their trials inch along. Zack Shahin, a former PepsiCo Inc. executive from Ohio, has been incarcerated since March 2008, charged in the alleged $27 million embezzlement at property company Deyaar Development PJSC. Two Australian executives from Nakheel, Marcus Lee and Matt Joyce, spent almost half a year in jail without charges and are now on bail facing trial for misappropriating funds.
“In Dubai, they would prefer to keep them in custody to put pressure on them, to generally punish them and make life difficult for them,” said Robert Brown, a partner at London-based Corker Binning, which represented a Pakistani defendant whose extradition to Dubai from the U.K. was refused in March because a court ruled he faced possible torture.
In a statement earlier this year, Shahin’s lawyers said he was imprisoned without charges for 13 months, denied food, held in solitary confinement and often blindfolded, interrogated for 18 hours at a time and threatened with torture. They said Shahin, 45, is innocent and “a target of a politically charged investigation.”
Dubai’s attorney general, Essam Essa al-Humaidan, last year denied allegations Shahin, a U.S. citizen, has been abused, saying in an interview that Shahin and other defendants “have been granted all the rights under U.A.E. law.” The U.S. government has “repeatedly” raised Shahin’s case with the U.A.E. authorities, a State Department spokesman, who asked not to be identified because of the pending legal proceedings, said in an interview on July 23. Shahin’s case was last discussed in May at a Washington meeting between Attorney General Eric Holder and U.A.E. Justice Minister Hadef bin Jua’an Al Dhaheri, the spokesman said, when the U.S. asked the trial be conducted expeditiously.
“Regardless of whether an individual is innocent or guilty, there should be due process and he or she should be charged in a timely manner,” Samer Muscati, a lawyer from Human Rights Watch who specializes in the U.A.E., said in a phone interview from Toronto.
With about 90 percent of Dubai’s 1.8 million population made up of foreigners, there is a “natural tendency to assume these individuals pose a flight risk,” said Carlos Gonzalez, a partner for Miami-based Diaz Reus LLP, which has worked on commercial disputes and fraud cases in the Middle East.
Herve Jaubert, a former French spy who worked for Dubai World’s luxury submarine subsidiary, fled in a rubber dinghy in 2008 after being questioned about an alleged embezzlement, according to his book, “Escape From Dubai,” and its website. Jaubert was convicted in absentia and sentenced to five years in prison. He calls himself “the scapegoat for incompetent and corrupt government officials,” on the website. He declined to comment when contacted by e-mail by Bloomberg News.
“In the U.S. it is common to see the courts in white-collar cases grant bail,” said Gonzalez, adding that keeping individuals in jail for several years during legal proceedings puts “psychological pressures” on them.
Investors are looking carefully at the rule of law in Dubai after the prosecutions of foreign executives, said John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi. “It is good they are taking some individuals to court, pursuing them, but the way they are pursuing them could impact Dubai.”
In Russia, lawmakers are revising the law on economic crimes, resulting in the possible early release of as many as 100,000 imprisoned executives and entrepreneurs as the government seeks to attract investors.
Cornelius and his co-defendants are accused of diverting funds from a $501 million trade-financing loan for projects such as the Plantation, a 20 million-square-foot development in the Dubai desert that was to include five polo pitches with stables for 800 horses, a luxury hotel and houses. The prosecution charges 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 said in a telephone interview from Dubai Central Prison on July 15.
Cornelius said the money was mostly used for property development in Bahrain and the relocation of an oil refinery from Canada to Pakistan as well as the Plantation in Dubai. He said he and the others reached a debt repayment agreement in 2007 with Dubai Islamic Bank. It took control of the Plantation, valued in mid-2008 at $1.1 billion by property broker Jones Lang LaSalle Inc., after the arrest of Cornelius and his associates.
He spends his time in a dormitory with about 100 other men. The conditions are an improvement over the several weeks he was in Rashidiya prison, where more than 250 prisoners shared six rooms meant for 48 and two working toilets, he said. Cornelius said he was held in solitary for six weeks after his arrest in May 2008. The yacht and his beach hotel in Kenya have been sold, he said.
Cornelius said he’s been denied bail a dozen times. The proceedings are in Arabic and difficult to follow though he has a court interpreter. Originally facing a maximum sentence of three years, Cornelius and the others could get up to 20 years in prison under Dubai’s tougher new anti-corruption law announced after his arrest.
Radha Stirling, a lawyer and founder of Detained in Dubai, which offers support to expatriates held in Dubai, said there has been a marked increase in detentions for financial crimes since last year. The majority of cases she is dealing with are debt-related or because of bounced checks, a criminal offense in the U.A.E. A bad-check conviction can mean up to four years in jail at the discretion of a judge, said Jonathon Davidson, the Dubai-based managing partner at the law firm of Davidson & Co.
“I think a lot of people relocated to Dubai as an extension of Europe, like France, Spain or even the U.S.,” Stirling said. “It was seen as very developed with a good legal system. The average person who was once going there to seek employment or invest will shy away from Dubai.”
Rony Bacque, the business development manager for the Wine Academy of Spain, said he canceled plans to set up a branch in Dubai to offer training in wines for hotels and restaurants. His brother-in-law was named in an Interpol warrant for almost five years until this July after he was convicted in absentia for breach of trust in a Dubai business dispute, Bacque said.
The Dubai legal system is no better or worse than others in the region, said Gonzalez, the Miami lawyer. What is different, he said, is Dubai’s aspirations.
“You can’t wake up and say we’re working to have a world-class financial system overnight and build a legal system to match,” he said. “Dubai, as an aspiring global marketplace, must also endeavor to become recognized as a cutting-edge legal center capable of developing a legal structure that matches its financial ambitions.”
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