Author(s):M Kaul

Anti Fraud Law in the UAE

The United Arab Emirates recently enacted Federal Law Number 19 of 2016 concerning Combating Commercial Fraud (the Anti-Fraud Law or the Law) has replaced the erstwhile Federal Law Number 4 of 1979 dealing with the Concealment of Fraud and Deception in Transactions commercial in nature (the Old Anti-Fraud Law).

The much-anticipated Anti-Fraud Law has been in the news since the draft of the aforesaid law was introduced and circulated in the year 2013. As the United Arab Emirates grew into a commercial hub for trade and business between different jurisdictions, the requirements of a stricter regime and policies became increasingly essential to safeguard and protect the market from fake and counterfeit goods. As a result, the Anti-Fraud Law purports to regulate the framework and robust more policies towards a legal regime necessary to curb and combat fraudulent commercial activities to provide an efficient mechanism to counter infringement of intellectual property.

The Definitions

The Anti-Fraud Law sets out more extensive definitions, explicit penalties and broadens the scope to deal with commercial frauds, mainly dealing with intellectual property.

The definition of Commercial Fraud states that ‘Deception of one of the customers by any means whether by changing or altering the goods or their amount or nature or price or their material description or origin or source or fitness or any other matter related thereto, or presenting untrue or misleading trading information on the promoted products, which include fraud, limitation and cheating by doing service which does not conform with the applicable laws or may include false and misleading statement.’

Importantly, the Anti-Fraud Law explicitly sets out the definition of Counterfeit Goods as ‘the goods which bear, without permission, a trademark which is identical or similar to a legally registered trademark.’ The preceding definition significantly extends the scope of the Law by ruling out any ambiguity relating to nature of goods falling under the ambit of this Law, in as much as, the Law shall cover unauthorized use of goods and products with identical as well as deceptively similar or lookalike trademarks.

Also, the Law also provides for more clarity by clearly defining and categorizing goods into Goods, Fraudulent Goods, Corrupt Goods, and Counterfeit Goods.

Important Provisions

A noteworthy feature is the applicability of this Law within UAE. Article 2 of the Law explicitly provides for the provisions of the Anti-Fraud Law applies to whosoever commits the very act of commercial fraud including the free zones in the UAE. In most scenarios, the discrepancy in the procedures and regulations between mainland and free zones has to lead to uncertainties in the enforcement of rights and entitlements. However, this Law addresses the concerns and extends its scope explicitly to the free zones.

Pertinently, Article 2 further explains what falls under the purview of commercial fraud and includes Importation, export, re-exportation, manufacture, sale, offer for sale, possession with the intent to sell, storage, rent, marketing or circulation/trading of fraudulent, corrupt or counterfeit goods. Importantly, the expansive definition mentioned above regulates the manner in which possession, importation, and re-exportation undertaken in the UAE including the free zones.

Further, the law also provides recourse towards the use and possession of corrupt and fraudulent good as even counterfeit goods. Article 3 of the Law among other things ensures that regardless of the criminal liability on the offender, the relevant ministry will issue an order to import the corrupt of fraudulent goods to their source within a stipulated period. However, if the importer failed to abide by the order passed and did not return the goods to the source, the relevant authority also has the right to destroy the products or will give away the permission for usage of goods for any other appropriate purpose. The law further mentions that the usage of counterfeit goods should be in accordance with the rules and regulations outlined in the law.

In the manner, as provided aforesaid, the law makes a distinction in the way in which corrupt/fraudulent goods and counterfeit goods may be dealt with.

Another provision of the Law which is step up towards adequate safeguard mechanism is Article 4 of the Law which imposes an obligation upon the traders to provide all necessary and relevant information including trade books and financial statements concerning the goods owned and possessed including to any evidence towards details and documents to that effect.

Articles 5 to 8 of the Anti-Fraud Law also provides for a regulatory framework to be developed for this Law. In this regard, The Ministry of Economy shall form a Higher Committee which will inter alia be responsible for proposing strategies and policies, identify obstacles and advise on a mechanism to tackles issues, to carry out necessary activities assigned by the Ministry of Economy. Having a federal committee in this manner shall ensure integrated policies and mechanism in place to safeguard the interest of bona fide traders and brand owners. Article 6 further provides for establishment of sub-committees at each Emirate level and shall be assigned with the task of issuing warnings to the traders and businesses violating the Law, close down traders and businesses in violation of the Law, for a maximum of 2 years, follow up on the destruction or returning to source of the fraudulent/corrupt or counterfeit goods and provide the Ministry with periodical reports regarding its day to day activates in relation to the Law.

Role of the Committee

Importantly, the Anti-Fraud Law confers the sub-committee with the responsibility of undertaking matters of conciliation and settlements concerning violations of the Law. In this regard, Article 8 provides that upon a request for conciliation by the offender, the sub-committee may set an amount of fine payable in lieu of the conciliation which shall not be less than twice the minimum limit of fine prescribed under the Law. In the event the offender rejects/refuses the conciliation, the offense shall be referred to the Public Prosecutor for further prosecution. The Law provides limited opportunities to appeal against the decision of the sub-committee, particularly in the case where the conciliation is rejected by the sub-committee or against the decision of the sub-committee to close down a business. In both the situations as mentioned above, the businesses can object to the closing down an appeal against the rejection of conciliation before the Higher Committee.

It is understood that the Law provides that a set of implementing regulations shall prescribe relating to the manner and guidelines in which the said Law is to be implemented, for instance, setting out the process of the conciliation or determining the types of warnings that may be issued by the sub-committee. However, such implementing regulations are yet to be published.

Penalties under the Law

The essential provisions prescribed under the Law in relation to heavy penalties imposed on violators, which is a welcome change from the Old Anti-Fraud Law, is necessary to deter offenders and curb commercial frauds. The Old Anti-Fraud Law provided for a maximum penalty of jail term for two years and a maximum fine of AED10,000 (UAE Dirham ten thousand) for cheating a customer by delivering goods that are different to what was ordered. In contrast, Article 12 under the Law imposes a harsher penalty for the violators such as an imprisonment of almost two (2) years or some fine which ranges from AED 50,000 (UAE Dirham fifty thousand) to AED 250,000 (UAE Dirham two hundred fifty thousand) or both of the above. In addition, anyone who attempts to commit a commercial fraud under the Law shall face a punishment of imprisonment of up to 1 (one) year or a fine of an amount between AED10, 000 (UAE Dirham ten thousand) to AED100,000 (UAE dirham one hundred thousand), or both of the above.

As an exception, Article 14 imposes a higher penalty of imprisonment for a period of up to two years or a fine of AED 250,000 (UAE Dirham two hundred fifty thousand) to AED 1,000,000 (UAE Dirham one million) or both, where the fraud or offense is in relation to human foods, animal foods, medical drugs, agricultural crops or organic products. Additionally, in case of conviction in the offenses as listed in Article 14 above, the court shall order close down of the accused for up to six months, in addition to the prescribed punishment. In addition, in the event of repeating violation for the aforesaid offenses, the court shall be at a liberty to order more severe punishment or cancellation of the license.

It is pertinent to note that the Law imposes an astringent obligation upon the offender/violator of the Law, in as much as, Article 16 provides that the trader shall not be exempted from any punishment prescribed under the Law, even where the buyer is aware that the goods are fraudulent, corrupt or counterfeit.

Conclusion

The new Anti-Fraud Law is another progressive legislation, which is in tandem with the recently changing legal climate in UAE. This Law has made positive advancements towards formulating a robust legal framework to safeguard and protect the interest of registered brand owners and bona fide businesses. While the Anti-Fraud Law is indeed a welcome change, it still is at a nascent stage, where the success of the framework shall be heavily dependent upon the smooth operation of the Higher Committee and sub-committee and the manner in which the administrative processes assigned to them are carried out. Importantly, the regulatory framework and policies will be clearer once the implementing regulations are enacted. In any event, the heavy penalties provided for shall act as a deterrent against commercial frauds and crimes and shall bridge the lacuna created by the Old Anti-Fraud Law towards an effective measure to combat intellectual property crimes and other commercial frauds.