I. Corporate liability deriving from criminal activity
1. Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company)
The United Arab Emirates Federal Penal Code No. 3 of 1987 (the “Penal Code”) states, in its Article 65, that corporate persons are liable for any criminal act committed, for their account or in their names by their representatives, directors or agents. In such case, the court may only impose upon the corporate person fines, confiscations and other criminal measures provided in the law. However, if the criminal sanction entails other principal sanctions in addition to a fine, only the fine (not exceeding AED 50,000) will apply. The foregoing applies without prejudice to any other special law that prescribes different sanctions.
2. Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
Here are examples of crimes from which corporate liability may arise in the UAE:
- Corporate governance-related crimes — The new UAE Federal Commercial Companies Law No. 2 of 2015 (the “Companies Law”), which came into force on 1 July 2015, lists a number of acts that will be criminally sanctioned if committed by the corporate person. Some of these crimes may be subject to a plea bargain.
- Securities and Stock Exchange-related crimes — Law No. 4 of 2000 Concerning the Emirates Securities and Commodities Authority and Market (the “ESCA Law”), subjects entities and their representatives to criminal liability in the case any transactions in contravention with the rules and regulations of ESCA are made.
- Anti-Money Laundering Crimes — Law No. 2 of 2004 — as amended by Law No. 9 of 2014 — subjects entities that contravene the anti-money laundering requirements and procedures to pecuniary fines and confiscations.
- Antitrust Crimes — The UAE Federal Antitrust Law No. 4 of 2012 (the “Antitrust Law”) prescribes numerous sanctions for acts committed by corporate entities that break the Antitrust Law, including restrictive agreement, abuse of dominant position and economic concentration.
- Trademark and forgery crimes — These are governed by the UAE Trademark Law No. 37 of 1992 (the “UAE Trademark Law”).
- Immigration and Residency Crimes — The Immigration and Residency Law No. 6 of 1973 criminally sanctions any person (which includes corporate persons) who employs an expatriate without the required immigration and residency documentation.
- Cables and safety crimes — The UAE Safety of Telephone and Electricity Law No. 10 of 1976 penalizes crimes that affect the safety of cables and sets out a special sanction for corporate entities.
3. Identification of companies and entities to which liability may apply
Article 65 of the Penal Code excludes governmental agencies and their official departments, public organizations and establishments from the scope of application of criminal liability of corporate persons. Therefore, all types of corporate persons, except for those listed above, may be criminally liable.
4. Corporate liability for crimes committed abroad by its representatives or subsidiaries
There are no specific provisions in the Penal Code that governs the criminal liability of corporate entities for crimes committed abroad. However, the Penal Code generally extends its scope of application to crimes committed outside the UAE if the act is committed by a person who is believed to be an accomplice or the author of a crime that is fully or partially committed in the UAE.
Article 20 stipulates that the Penal Code applies to any individual who performs, outside of the UAE, an act that causes him to be considered an accomplice or the principal author of one of the following crimes:
- Crimes committed against the internal or external security of the UAE, or against its constitutional regime or its stocks and bonds issued under legal license, or in connection with its stamps, or crimes of falsification or counterfeiting of its official documents or seals
- Crimes of falsifications, counterfeiting or forgery of state money, or putting such money into circulation or the possession thereof with the intention of putting it in circulation, whether such acts are committed in or out of the state
- Crimes of falsification, counterfeiting or forgery of coined or paper money that are legally in circulation in the state, or crimes of putting such coined or paper money in circulation in the state or the possession thereof with the intention of putting it in circulation
It is worth noting that the Antitrust Law states that any breach committed outside the UAE that negatively affects competition in the country may be prosecuted in the UAE.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
- Mergers — The company resulting from the merger shall be liable for all the liabilities of the merged companies (Article 291 of the Companies Law).
- Transformation — The transformed company will continue to bear all the liability incurred prior to the transformation (Article 281 of the Companies Law).
II. Applicable sanctions
1. Type of sanctions applicable to the company
Sanctions applicable to corporate entities include fines, confiscation, cancellation of trade licenses and closure of establishments.
Here are examples of some of the applicable sanctions under the various UAE laws:
- Corporate governance crimes
- Delay in completing the listing procedures — A daily fine of AED 1,000 is payable.
- Refusal to give access to a shareholder for the review of shareholders’ assemblies’ minutes of the meeting, related party agreements or company records — A fine of not less than AED 10,000 and not more than AED 50,000 must be paid.
- Failure to maintain accounting records for five years from the end of the financial year — A penalty of not less than AED 20,000 and not more than AED 500,000 will be administered.
- Violation of the minimum local shareholder requirements — A penalty of not less than AED 20,000 and not more than AED 200,000 will be imposed.
- Failure to comply with the requirements of the Companies Law within one year from the date of its coming into force — A daily fine of AED 1,000 is payable.
- Antitrust Crimes — Entering into restrictive agreements or abuses of a dominant position, in accordance with the conditions outlined in the Antitrust Law, will be subject to a fine of not less than AED 500,000 and not more than AED 5 million. Moreover, if an economic concentration is proven, a fine between 2% and 5% of the annual turnover released in the UAE will apply if the turnover is quantifiable; if not, the fine will range from AED 500,000 to AED 5 million. The court may also order the closure of the concerned establishment for a period of not less than three months and not more than six months.
- Anti-money laundering crimes — In addition to pecuniary fines, the funds of financial institutions involved in an anti-money laundering crime may be frozen and may be subject to conservative attachments. Confiscation may also be ordered.
2. Interim measures, cease and desist orders, bans and confiscatory measures
Please refer to Section II (A)(1).
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
There is no specific provision in UAE laws that addresses the liability of directors and managers for not having adopted measures in order to prevent the crime. However, the Companies Law imposes on the management of a company, under Article 22, the duty to act as a “prudent person.” A “prudent person” is one who has adequate experience and a commitment to the performance of his or her duties. This is a newly introduced concept and therefore, there are still no tested cases as to how this duty will be applied by the courts. UAE courts have usually applied the test of a “reasonable person” to determine whether a manager or director has failed any of his or her duties.
III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions
1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)
Unlike other jurisdictions, the UAE does not have a system of models of prevention that companies may adopt to avoid being penalized. However, there are corporate governance rules applicable to public joint-stock companies, which are businesses that manage public offerings. Abiding by the corporate governance rules may eventually assist a corporate entity with proving that all internal procedures have been correctly implemented and complied with, and that any breaches have been committed by individuals. There are no precedents in this regard.
It is worth noting that in May 2015, new corporate governance rules have come into force, and these govern private joint-stock companies.
2. Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)
There is no modality in the UAE according to which a compliance model may be adopted.
3. Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; mode of operation of such person or body
Monitoring is not applicable in this case.
IV. Judicial proceedings to determine corporate liability
1. Court competent to decide the liability of and penalties applicable to the company
There is a combination of federal and emirate level courts with parallel local jurisdictions, depending on which system the emirate has opted for. The judicial systems of all emirates — with the exception of Dubai and Ras Al Khaimah, which have created their own laws and judicial systems — adhere to the federal legal system. Dubai and Ras Al Khaimah have separate local courts.
The Public Prosecutor, following investigation together with the police, refers the criminal act to the Criminal Court, either at the relevant federal or local court, as the case may be. There are three court levels: First Instance, Appeal and Cassation. There is no special court for corporate entities. The same judge will review the case against the individual and the corporate entity.
2. Possibility of the application of interim measures
Articles 22 through 29 of the Penal Code address civil cases in relation to criminal cases (ie, the right to file a civil case in order to claim damages as a result of harm caused by the crime under question). In such case, the plaintiff can take interim measures in accordance with the UAE Federal Civil Procedures Law if there is a possibility of loss of the defendant’s assets.
3. Plea bargains and related effects on the corporate liability
Some of these crimes may be settled with a plea bargain. This is usually permitted only when the punishment consists of a pecuniary fine or if it is expressly permitted under the text of the law.
4. Permanence of corporate liability if the crime is extinguished
The Penal Procedures Code No. 35 of 1992, as amended, includes numerous provisions on extinguishment by lapse of time. There are no special express provisions addressing permanence of corporate liability if a crime has been extinguished.
V. Corporate liability in multinational groups
1. Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company
The Penal Code does not address the criminal liability of a corporate group. Therefore, there are no express provisions on the conditions based on which a parent company may be held criminally liable in relation to offenses and crimes committed by any of the subsidiaries or their management. If it is deemed that the parent is an accomplice, then it may be held criminally liable. Please refer to the response to question I. 1 (4).
2. Basis of liability and applicable sanctions
This is not applicable.
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant case law, if any
The Dubai Court of Cassation, in its judgment Numbers 49/2003 and 68/2003, has ruled that crimes committed by an act of negligence by an employee of a corporate entity do not necessarily trigger the liability of the corporate entity if it is proved that the employee did not intentionally commit the relevant crime for the account and in the name of the corporate entity, and that it has undertaken all required actions per the applicable regulations.
2. Proposed or contemplated new legislation
To the best of our knowledge, there is no contemplated new legislation in the pipeline with regard to corporate liability in the UAE.