Fraud Cases May Complicate UAE Bid to Be Financial Center

There's 'Room for More Oversight,' Abu Dhabi Official Says

Dubai public prosecutors are investigating Deyaar Development, and Abu Dhabi is probing an alleged $109 million fraud. Both cases may hamper the United Arab Emirates' effort to become a global financial center.

"The investment culture isn't deeply rooted in this region," Giyas Gokkent, head of research at National Bank of Abu Dhabi, said in a telephone interview yesterday. "There is plenty of room for more oversight."

The UAE bought stakes in banks such as Citigroup and started tax-free business parks to attract foreign companies to vie with Qatar and Bahrain as the Persian Gulf region's biggest financial center. It has had to overcome Abu Dhabi's involvement in the collapsed Bank of Credit and Commerce International, a regulatory scandal at the Dubai International Financial Centre and findings that two of the Sept. 11, 2001, hijackers came from the Gulf state.

Deyaar, Dubai's third-biggest publicly traded property company, is being investigated for possible fraud, Attorney General Essam al-Humaidan said yesterday. Authorities have arrested staff members and detained former chief executive Zack Shahin.

Abu Dhabi police said they were investigating a suspect, identified by the initials A.A.G., in the alleged swindling of investors through an unlicensed investment company. A.A.G. and accomplices stole from 2,500 investors after promising them returns of 30 percent a month, the police said yesterday.

"People here have made money so fast on the property market it's made some think 40 percent a month is achievable," Nigel Sillitoe, Middle East head of the $14 billion Thames River Capital hedge fund group, said in a telephone interview from Dubai. "It just shows the investor education that's needed."

UAE property values have quadrupled since foreigners were first allowed to buy homes in 2002, Dubai-based Al Mal Capital said in a report last month.

The mobile phone of Shahin was switched off when Bloomberg called yesterday seeking comment. Shahin has been in jail for more than three weeks, Dubai's public prosecutor said.

Abdulrahim al-Awadi, head of the UAE central bank's anti-money laundering and suspicious cases unit, declined to comment on the Abu Dhabi fraud case when contacted at his office yesterday. Saeed al-Hamez, director of the central bank's counterfraud department, could not be reached for comment on his cellphone.

Personal wealth in the Middle East may rise to $2.2 trillion by 2011, from $1.4 trillion in 2006, as record oil prices fuel economic growth in the region, according to Merrill Lynch and Capgemini. The economies of Gulf oil exporters including the UAE and Saudi Arabia will probably grow by 6 percent this year, the International Monetary Fund has said.

The forecasts have encouraged banks such as HSBC, Deutsche Bank and Goldman Sachs to open regional offices in the Dubai International Financial Centre, a 110-acre self-regulated park opened by the emirate's government in 2004. In June of that year, the DIFC fired regulators Phillip Thorpe and Ian Hay Davison after they questioned the way the center awarded land-development contracts.

"Incidents like this will have an impact on foreign and local investors' attitudes to the UAE," Faisal Hasan, head of research for Global Investment House, Kuwait's biggest investment bank, said in a telephone interview yesterday. "It calls for increased corporate governance in the UAE capital markets."

Zainab Fattah, Tarek al-Issawi and Glen Carey in Dubai contributed to this report.