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DSI vows justice on Dh3B fraud

Waheed Abbas/Dubai
Filed on November 6, 2019 | Last updated on November 6, 2019 at 09.13 pm
DSI vows justice on Dh3B fraud
DSI promised to pursue everyone who was involved and is proven guilty of jeopardising in any manner the best interests of our shareholders.

Corporate governance to play key role in sustaining investor trust

Drake & Scull International (DSI), a Dubai-based contractor, on Wednesday said it will take the ongoing investigation into the company's financial irregularities to a logical conclusion and pursue everyone from the previous management who is proven guilty of fraud.

The company alleged that losses running into billions of dirhams were hidden from shareholders by the previous management between 2009 and 2017. The losses reportedly jumped from Dh939 million in 2015 to Dh1.396 billion in 2017, ballooning to Dh3.15 billion by 2017, which is approximately three times the company's paid-up capital.

"We will pursue everyone who was involved and is proven guilty of jeopardising in any manner the best interests of our shareholders and undermining their trust in the company. The investigation is still ongoing to uncover any other offences committed by the previous management," said Shafiq Ahmed Saleh Abdelhamid, chairman of DSI.

The contractor had posted a loss of Dh4.5 billion in 2018, widening from Dh1.18 billion in 2017. It had earlier confirmed in a statement that it is under investigation by the UAE's Emirates Securities and Commodities Authority.

This is the second major corporate governance issue that has come to light of late in the country after Abraaj Capital's collapse. Legal experts believe that the UAE's legal and corporate governance framework is strong enough to cope up with such challenges.

Mazen Boustany, head of the UAE financial regulatory practice of Baker McKenzie Habib Al Mulla, said it is a well-known fact the financial regulatory framework of the UAE, and the Dubai International Financial Centre (DIFC) in particular, is at par with international standards as the Dubai Financial Services Authority (DFSA) has modelled the governing rules of the DIFC from EU and UK financial regulations.

"The DFSA also acts as risk-based regulator, setting rules and guidelines for financial institutions in the DIFC to independently assess their risk exposure and build or strengthen their own corporate governance against all sorts of risks, including financial crime," he said.

Priyasha Corrie, senior associate at Fichte & Co, believes that though financial regulatory framework in the UAE is not as sophisticated as in other mature markets, it is only a question of time before more robust regulations are in place.

"That said, financial frauds are commonplace in all markets, and the Drake & Skull and Abraaj incidents provide the necessary learning curve for the regulators to understand how to deal with such financial irregularities," Corrie said.

She said corporate governance is going to play a significant role in the coming times to sustain the trust of investors and other stakeholders as well as to manage a business in the long-term.

Ashish Mehta, managing partner of Ashish Mehta & Associates, said the UAE has a robust financial, compliance and legal framework to tackle financial irregularities and offences.

"The federal government has been proactive in bringing out effective legislation and regulations to suit current requirements, eg the AML Law of 2018. The DIFC in Dubai is governed by the DFSA, which also has strong regulatory setup against various financial crimes," he added.

DSI chairman Abdelhamid said the company is providing the evidence to the relevant authorities to ensure a verdict that fairly protects the rights of all shareholders.

DSI has already filed 15 criminal complaints against the previous management, members of the previous board of directors and some of their family members, and these complaints are still under investigation by the relevant authorities.

The company said a travel ban has been placed against a previous executive manager and one of his family members. The ongoing investigations have led to the filing of additional criminal complaints, DSI statement said, adding that probes are also underway to uncover any other offences committed against the Company.

The authorities, according to the DSI statement, have also issued a directive to freeze the bank accounts of the executive manager and his wife as well as to seize properties registered under their names. The executive is currently abroad with his family, but he is still subject to ongoing investigations regarding the criminal complaints that were assembled by the experts and filed against him, said the statement.

Moreover, the court convicted one of the previous board members who is currently serving jail term. 

Khaldoun Tabari, who was the CEO of DSI from 1998 until 2016, said in a statement sent to Khaleej Times that his resignation as CEO was accepted by the DSI Board in August 2016. "I received a management indemnity and release from the Board at the time along with a director release during previous Annual General Meetings, from 2008 up until 2016."

He said: "In May 2017, Tabarak Investment - which had become a strategic shareholder - requested to buy my shares, with the condition that my daughter and I would resign from the Board, which we did. A due diligence process was then completed by Tabarak, in co-ordination with the CEO at the time and PWC in addition to replacing two board members and the CFO. In June 2018 I, along with other ex-management, was made aware of the allegations that DSI has put forward and have responded with the facts."

The statement said: "My family and I do not owe DSI any money, and to the best of my knowledge nor do previous managers. DSI's recent financial statements show there are no receivables expected from any ex-manager including myself and family. In fact, I have sued DSI along with my family for repayment of dues owed to us. We have now won a case in Dubai courts and are waiting for the decision on the second case."


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