Fresh Amendments to Law On Financial Audit Authority: Offending Employees Now Face Travel Ban and Asset Seizure

The Emirate of Dubai has recently passed new amendments to the existing “Dubai Law No. 4/2018 on the Establishment of the Financial Audit Authority” (“LAW”). As per the new amendments, financial fraud and misconduct in institution dealing with public fund is liable to strict penalties including travel ban and seizure of assets. Entities or individuals under investigation for financial misconduct should consult with top law firms in Dubai to ensure compliance and reduce legal exposure under the amended audit regulations.

The Dubai Law No. 4/2018 was passed to establish a Financial Audit Authority (“AUTHORITY”) to manage public funds used by various entities across Dubai. As per article 3 of the Law, this Authority will have financial and administrative independence and legal powers and will be required to report only to the Ruler. According to Article 18 of the Law, the entities that come under the power of the Authority are referred to as Controlled Entities and include the following:

1. Government and public entities

2. Private entities affiliated to the government, such as freezones

3. Government owned Companies and entities

4. Companies to whom a minimum profit is guaranteed by the government.

5. Entities receiving financial aid from the government

6. Project or entities that are audited by the government

7. Other entities who are required to be audited by the government as per this Law.

The Law states that if there has been financial fraud within Controlled Entities, the investigation, penalties and management of such offences will be as per the provisions of the Law. Article 31 of the Law lists out a non-exhaustive list of financial frauds that are required to be reported to the Authority by Controlled Entities. These financial frauds include:

1. Violating the rules and regulations in force in any of the Controlled Entities.

2. Violating the rules in relation to the public budget or the budgets of Controlled Entities.

3. Violating the rules and provisions governing the contracts and agreements concluded by the Controlled Entities.

4. Violating the administrative decisions of legislation in force which have financial impacts.

5. Violating the rules governing warehouses and accounting circulars issued by Controlled Entities.

6. Failing to provide financial information and related documents within the specified time limits.

7. Any act that has caused damage to Controlled Entities, or its financial rights and interests.

8. Misappropriation or aiding therein, of government funds or the money of Controlled Entities.

9. Wasting the money of Controlled Entities or committing fraud to misappropriate the same.

10. Abuse of public office to acquire profit for oneself or for third parties,

11. Committing forgery of documents and using them.

12. Accepting or requesting a bribe.

13. Tax-related crimes

Recently, the Dubai government passed certain amendments to the Dubai Law No. 4/2018, replacing articles 34, 35 and 36 of the Law, wherein new procedures and strict penalties were ordained to individuals and entities convicted of financial fraud under the Law.

As per the newly added article 34, the Director-General or a designated representative of the Authority will now have the power to take one or more of the following actions in the instance of a violation of the Law, resulting in investigation:

1. The power to place the employee accused of violation under suspension until the completion of the investigation.

2. The power to confiscate documents and records related to the investigation.

3. The power to archive the investigation in the following instances;

– When there is no proof of violation of Law.
– When there is Insufficient evidence
– Absence of evidence indicating that the employee committed any of the violations outlined in this Law
– In case of minor offences that entail disciplinary measures as opposed to criminal persecution

4. The power to refer the Investigation to the public prosecution in case of a criminal offence punishable by law.

5. The power to request withdrawal of decisions related to the violation, and cancel any legal or financial implications of those decisions as of the date of issuance.

6. The power to impose disciplinary measures on the violating employee.

7. If sufficient evidence exists, the power to request the Public Prosecution, for any of the following precautionary measures:

• travel ban of up to 3 months on the suspected employee, with a possibility of an extension
  Confiscation of personal assets and funds of individual in case of corruption or violation or suspected appropriation of public funds, until the investigation is complete.
• The Law provides that an individual can submit his grievances against the public prosecutions decision of travel ban or freezing of assets, to a competent court. But if the court rejects the grievance, a new appeal cannot be made for three months except in exceptional circumstances.

The Law also states that instead of referring a potential criminal violation to the public prosecution, the director general can settle the matter with the violating employee, if he restores all the funds and profits made from the misappropriated funds to the Controlled Entity, and under the condition that he will be liable to undergo disciplinary measures. Navigating the complexities of government audits and disciplinary proceedings calls for the expertise of a litigation lawyer in Dubai, especially when facing asset seizure or travel bans.

As per Article 35 of the Law, penalties imposed on violating employees may either be approved by the director general of the Authority, or the decision may be sent for review, to alter the penalty as per the severity of the violation. If the head of the Controlled Entity is unable to comply with the request of the director general within 7 days, the matter will be referred to the Central Violations Committee, an independent committee within the Authority. Accessing reliable legal services in Dubai has become essential for safeguarding interests and ensuring lawful conduct.

The decisions of the Central Violations Committee can be appealed by the offending employee or the head of the Controlled Entity, by submitting a written grievance to the newly established Grievances Committee, as per the provisions of the Law.