1. What is the state of corruption in the United Arab Emirates?
The United Arab Emirates (UAE) is considered one of the least corrupt countries in which to do business. A survey by the World Justice Project of individuals, legal practitioners and academics found the UAE to be largely absent of corruption, ranking the country 13th out of 102 countries. The TRACE Matrix, which measures business bribery risk, ranks the UAE 30th out of 197 countries.
Despite these rankings, the UAE is not devoid of corruption. Two areas in particular expose companies to a higher risk: gift giving and interactions with the ruling families. Gift giving, or hospitality, is an important element of UAE culture. For example, it is expected that companies meeting a tribal leader will provide a gift, while refusing any type of hospitality is considered offensive. In the UAE, business is often conducted over meals, usually in a hotel or restaurant – but gifts, meals and hospitality can expose companies to liability under various laws, such as the U.S. Foreign Corrupt Practices Act (FCPA).
The families ruling the various emirates are heavily involved in the economy. Foreign companies who want to operate outside of one of the country’s 36 free-trade zones require local sponsorship or a relationship with a local commercial agent, which means that a UAE national or company owned by UAE nationals must own at least 51 per cent of the business. Many companies in the UAE are owned by the government, and many state-owned entities are run by members of the ruling families. Accordingly, there is a higher risk that a foreign company will be working with a company owned by members of the ruling families, which in turn increases the risk of liability.
2. How do risks in the UAE typically impact foreign business?
According to EY’s 2015 EMEIA Fraud Survey, approximately 67 per cent of employees in companies in the Middle East and North Africa believe that giving gifts, entertainment or cash is not problematic, if it helps the business. However, this perception is often wrong; the key is the intent. If a gift, entertainment or hospitality is provided to obtain business or a business advantage, liability can result.
Personal relationships are key to conducting business in the UAE. For foreign companies without a significant presence, this may mean utilizing a local agent or sponsor with a large network or influence. These agents or sponsors may be companies, many of which are owned by the government or run by members of the ruling families.
3. In which specific foreign business sectors are corruption risks most prevalent?
Businesses that contract directly with the UAE government are more vulnerable to corruption. In 2007, Textron Inc. agreed to pay almost USD $5 million to settle charges that the company violated the FCPA, including by allegedly making payments to employees of subsidiaries of the Abu Dhabi National Oil Company to secure contracts. York International agreed to pay USD $21.9 million in 2007 to settle charges of FCPA violations related to improper payments to UAE officials to obtain government contracts. GlaxoSmithKline disclosed in 2014 that it was investigating allegations that the company had made improper payments to hospitals, pharmacies and healthcare professionals to secure business.
4. What measures can foreign companies implement to reduce their risk of involvement in corruption?
A survey conducted by EY found that only 52 per cent of large companies in the Middle East had an anti-bribery or anti-corruption policy and code of conduct. Anti-corruption policies and compliance programs are crucial to ensuring that employees are complying with anti-bribery laws. Companies can also work with TRACE Certified companies, which have completed a rigorous due diligence process based on international standards, including training and continuous daily monitoring of international sanctions and enforcement lists.
Companies may also refer to TRACEpublic, the first global register of beneficial ownership information, which allows companies to share and search for beneficial ownership information at no cost. The database supports the efforts of companies seeking to conduct business ethically.
5. What anti-bribery compliance support is available in the UAE?
The UAE has little civil society, and lacks organizations that focus on corruption. However, there are other resources available to companies operating in the UAE. Companies should coordinate with their local counsel to ensure they understand local regulations. The Arab Anti-Corruption Organization, which works to promote transparency in the Middle East, provides articles and publications related to various anti-bribery conventions and other corruption-related topics. Organizations such as TRACE, Transparency International and the Business Anti-Corruption Portal can provide companies with access to resources on anti-bribery compliance, wherever they are located.
This Q&A article was originally produced for ExportWise.ca, Export Development Canada’s online magazine.