UAE issues new law on Combating Commercial Fraud
On 12 December 2016, the UAE enacted a new law on Combating Commercial Fraud on 12 December 2016. This law has been in the making for a few years now and it replaces the previous law on Combating Fraud in Commercial Transactions issued in 1979. The new law entered into force on 16 December 2016 following its publication in the Official Gazette.
Commercial fraud is defined widely in the law as “an act of deceiving a client in any way” in relation to commodities or services, with specific examples being given.
Three categories of goods are identified as contravening the law: fraudulent, corrupt and counterfeit. Fraudulent goods are broadly defined as goods that do not meet requirements or standards set by law and goods that are different in nature from their advertised representation. Corrupt goods are goods that have expired or been damaged in storage or transportation and no longer conform to set standards. Counterfeit goods are those that “bear without permission a trademark identical or similar to the legally registered trademark.” The law clarifies that the fact that the buyer is aware of the fraudulent, corrupt or counterfeit nature of the goods does not relieve the seller from liability.
Notably, the law applies not only to fraudulent goods, but also to fraudulent commercial services. Additionally, it covers fraud involving the announcement of fake or unreal prizes or discounts.
As is common for laws establishing criminal liability in the UAE, it applies both onshore and also in all of the UAE’s free zones.
The enforcement authorities shall have the powers to mandate return of the fraudulent and corrupt goods to their source or to order destruction of the goods or their use for appropriate purpose. The counterfeit goods shall be destroyed in all cases. The relevant authorities also have the power to request disclosure of commercial records in relation to goods or services. There are a number of federal and local authorities tasked with the enforcement of the existing regulations, including customs, police and departments for economic development that are likely to continue enforcing the new law.
The law also envisages creation of a Supreme Committee and a Subcommittee for Combating Commercial Fraud that will report to the UAE Ministry of Economy. The Subcommittee will have the power to issue warnings and to close down businesses that are in violation of the law for a period of up to two weeks. Any complaints against such closures can be filed with the Supreme Committee, which is required to issue its decision on the complaint within three business days.
Certain actions can only be taken with the order of the court. For example, the court can order the goods to be seized and kept in custody for a period of up to thirty days.
The law envisages hefty penalties for offenders. The offence of committing commercial fraud will result in imprisonment of up to two years and/or a fine of between AED 50,000 (about USD 13, 500) and AED 250,000 (about USD 68,000). An attempt to commit commercial fraud will be punishable by imprisonment of up to one year and/or a fine of between AED 10,000 (about USD 2,700) and AED 100,000 (about USD 27,000).
The penalties for any offences or attempted offences in relation to food and medical drugs are more severe and will result in imprisonment of up to two years and/or a fine of between AED 250,000 (about USD 68,000) and AED 1 million (about USD 271,000). In addition, the court will order publication of the judgment against the convicted persons in two local newspapers, including one Arabic language publication. Depending on the severity of the offence, the court may also order closing down of the offending establishment for a period of up to six months.
In all cases of repeated violations, the court may close the establishment indefinitely and revoke the license from the owners.
The law envisages that the UAE Cabinet will issue regulations and resolutions implementing the law and provides that a breach would result in a fine of up to 50,000 dirhams.
The law entitles the Subcommittee to achieve settlements in relation to violations thereby avoiding public prosecution, but this option is not available in the case of offences relating to food and medical drugs.
The new law is a welcome development for brand owners and consumers in the UAE.
Anna Fomina, Mohamed El Hawawy