An e-mail of a scanned internal memo has been circulating in the Arab states of the Persian Gulf recently, carrying the signature of Abdullah Bin Hamad Al Attiyah, the highly influential minister of energy and industry of the wealthy State of Qatar and chairman of Qatar Petroleum.
It is addressed to the directors of QP, identifying two companies. “I hereby declare that my son owns the following companies,” it states and requests “all the concerned parties not to deal with the above mentioned companies to avoid possible conflict of interest”.
It was a highly unusual step in the countries of the Gulf, where conflict of interest does not raise many eyebrows and the mere mention of it is akin to character assassination in the west.
In the UAE for example it is not against the law nor is it unusual for a government minister to serve as chairman of a bank, or two or three at the same time.
Directorships also extend to numerous competing institutions in sectors such as finance, real estate and insurance. Unlike its neighbour the Sultanate of Oman, which under Article 53 of its constitution forbids a minister from serving on the boards of publicly owned joint stock companies, the UAE has yet to enact such legislation.
In early soo8, the UAE government took a series of measures that addressed some of these issues.
The board of the central bank of the country, for example, was completely revamped. The move injected much needed new blood into the institution, with only the veteran governor retaining his post. It also led to the appointment of the governor of the semi-independent Dubai International Financial Centre as the deputy chairman of the central bank.
Membership of the previous board was an issue that drew criticism within the UAE community, as certain members were allowed to serve on the boards of numerous financial institutions, including banks, which they were meant to regulate.
In the summer of soo8, shortly after the revamp, Dubai launched a big anti-corruption drive in which these very financial institutions were implicated.
Still, some of the current members of the newly revamped central bank board continue to hold board positions on the companies they regulate. The same can also be said for the Emirates Securities and Commodities Authority, the local stock market regulatory body which also has overlapping board members who serve on institutions that ESCA regulates.
This situation may stem from the fact that the UAE is a young nation in which it was not too long ago challenging to find enough qualified nationals to serve in the country’s fast growing financial institutions.
However, as the government has spent billions of dollars on educating young people, there exists today a larger pool of professionals from which the authorities can draw candidates to serve on boards of varying institutions.
This can eliminate conflict of interest and further enhance the reputation of Dubai and the whole UAE as a financial hub.
This year also witnessed the first time that charges were brought against a UAE federal minister of state, who allegedly mishandled the finances of his late business partner’s inheritors and, after being relieved of his ceremonial position, is facing charges of betrayal of trust, deception and unlawfully taking possession of money and property in a multimillion dollar case.
At the height of this summer’s corruption crackdown, the arrest of senior officials from institutions that have become household names, such as Istithmar, Tamweel, Dubai Islamic Bank, Deyaar and Nakheel were featured on the front pages of local newspapers, sending a powerful message from the government of Dubai.
Although local stock markets have reacted negatively to the corruption drive —the Dubai Financial Market lost up to a third of its value during at the height of the arrests — the authorities must be lauded for taking such steps.
For too long the playing field was wide open for the unscrupulous — both foreign and home-grown — to take advantage of what was perceived as a lax attitude towards graft.
In order to strengthen Dubai’s reputation in global financial circles, the need is for preventative steps that eliminate conflict of interest by closing legislative gaps. This will assure local and international investors that their funds are being employed under the best legislation possible in what is possibly the most promising business environment in the world today.
As the Arabic saying goes: “A dirham spent on prevention is better than a bucket of gold spent on a cure.”
This article was originally published in The Financial Times on October 20, 2008.