United Arab Emirates

United Arab Emirates Corruption Report

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Snapshot

UAE_250x123.pngCorruption is a low risk for companies in the United Arab Emirates, the least corrupt country in the Arab world. The UAE offers a business-friendly environment, with an effective and efficient public administration. However, foreign companies must rely on local sponsorship if they want to succeed, and ruling families' involvement in the economy creates an uneven playing field. The UAE Penal Code criminalizes active and passive bribery, embezzlement and abuse of functions. Anti-corruption and anti-fraud legislation is enforced, and practices of bribery and petty corruption are uncommon. Gifts and hospitality are regulated under the UAE's anti-corruption framework. Facilitation payments are treated as bribes and are thereby illegal. It should be noted that information on business and political corruption in the United Arab Emirates is scarce due to severe censorship in the country, making it difficult to estimate the extent of corruption.

February 2016
GAN Integrity

Judicial System

Corruption is not a significant risk in the UAE's judicial system. The UAE's constitution provides for an independent judiciary, but in practice court decisions are subject to review by the political leadership and permeated by nepotism (HRR 2014). The executive and the judiciary are not functionally separated (BTI 2014). In 2011, a special court was established to handle cases for an investment company headed by the Dubai ruler’s son; the court exempted the company from the Dubai International Financial Centre laws (BTI 2014). Business executives report that irregular payments or bribes to obtain favorable judicial decisions are uncommon (GCR 2015-2016). The judiciary is generally efficient in settling disputes and in challenging government regulations (GCR 2015-2016). On average, enforcing a contract takes 495 days, less than the OECD average (DB 2016). 

Investors should note that the legal system is divided into Sharia (Islamic law) courts for family and criminal matters, and secular courts for civil law (FitW 2015). Dispute resolution can be difficult and uncertain in the UAE, and small, medium, and some larger enterprises fear being frozen out of the UAE market, as court proceedings may be lengthy and costly, especially when politically influential local parties are involved (ICS 2015). In severe cases, some enterprises even feel compelled to leave the UAE market (ICS 2015). The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards is in effect in the UAE and supersedes all incompatible legislation and rulings (ICS 2015). The UAE is a member state of the International Centre for Settlement of Investment Disputes (ICSID). 

Police

Businesses face a very low risk of corruption when dealing with the United Arab Emirates' police. Authorities maintain control over UAE police forces and have effective mechanisms in place to investigate and punish corruption and abuse of functions in the police, and impunity is not a problem (HRR 2014). Companies demonstrate a high degree of trust in the police's ability to protect from crime and to uphold the rule of law (GCR 2015-2016).

Public Services

There is a very low risk of corruption when obtaining public services in the United Arab Emirates, which offers a business-friendly environment where the burden of government regulation is low and services are provided efficiently (BTI 2014). Occurrences of petty corruption are generally uncommon, and there is no evidence that suggests corrupt acts by public officials is a systemic problem (ICS 2015). The UAE is among the countries companies rate the least likely in the world to bear risks of irregular payments or bribes when obtaining public utilities (GCR 2015-2016). Similarly, companies in the UAE rank well in terms of their ethical behavior in interacting with public officials, politicians and other companies (GCR 2015-2016).

Getting electricity and dealing with building permits in the UAE is among the easiest in the world, and starting a business is considerably less time-consuming and less costly than regional averages (DB 2016). The UAE is very advanced in the development of e-governance, and businesses are advised to consider the UAE's one-stop shop portal with information and services (United Nations, 2014). Nevertheless, the use of wasta (connections and favoritism) represents a challenge as it can affect hiring and promotion policies (The National, Jan. 2013). While the UAE is increasingly opening up to foreign investment, local investment is still often favored over foreign investment (ICS 2015).

Land Administration

The UAE's land administration sector carries a very low risk of corruption. The mechanisms for enforcing ownership of property through either court system (Sharia or secular) are generally considered both predictable and fair (ICS 2015). Administrative procedures regarding the land administration are swift and cost-efficient: Registering property takes less than two business days, while obtaining a construction permit is easier only in Singapore (DB 2016).
Problems can arise from variations in the regulation of property acquisition between nationals and non-nationals, stringent visa rules for investors, lack of transparency in cancelled projects, unclear procedures for resale of property, and the need for a proper dispute resolution mechanism (BTI 2014). Nevertheless, businesses generally report their property rights are protected in the UAE (GCR 2015-2016).

The Dubai real estate portal, eMart, enables free exchange of information on the sale and rental of properties, and it facilitates transactions between public and private sectors. 

Tax Administration

Businesses face a very low risk of corruption when dealing with the Emirati tax administration. Irregular payments or bribes never occur in connection with tax payments (GCR 2015-2016). Dealing with tax payments in the UAE is easier than anywhere else in the world: Preparing, filing and paying taxes takes on average 12 hours per year (DB 2016). As the UAE does not levy income or profit tax, the total tax rate is much lower than on regional or OECD average (DB 2016). Companies located in the multiple free trade zones, known as 'free zones', are exempt from import and export taxes (ICS 2015).

Customs Administration

The risk of corruption in the UAE's customs sector is very low. The border administration is the UAE is transparent, and companies do not consider corruption an obstacle to importing and exporting goods (GETR 2014). Business executives report that irregular payments or bribes in relation to imports and exports are uncommon (GCR 2014-2015). Dealing with customs in the UAE is less time-consuming than elsewhere in the Middle East (DB 2016). Obtaining, preparing, processing, and submitting documents is more costly than in other regional countries (DB 2016). At the same time, tax exemptions for companies importing and/or exporting to and from free zones reduces costs (ICS 2015).

Public Procurement

The UAE's public procurement sector carries a moderate risk of corruption as the sector lacks transparency (BTI 2014). Almost half of companies report having suffered from procurement fraud in the UAE; these companies indicate that fraud is most likely to occur in the bid tendering or vendor selection phases (PwC, 2014). Despite these findings, businesses demonstrate a high degree of trust in government officials to make decisions objectively and to not favor well-connected companies or individuals when deciding upon policies and contracts (GCR 2015-2016). Businesses further report that irregular payments or bribes in connection with awarding contracts are uncommon (GCR 2015-2016). While there is a general lack of transparency in the Persian Gulf states regarding defense spending, the UAE stands out with higher levels of integrity and institutions to counter corruption than others (TI: GDACI 2015). 

Government tendering in the UAE is not conducted according to generally accepted international standards, and retendering is the norm (ICS 2015). Foreign companies have to rely on local sponsorship, and the widespread involvement in the economy of a small number of influential families makes for an uneven playing field (Al Tamimi & Co, July 2015). Conflicts of interest are a major area of concern in this regard (BTI 2014). Foreign investors considering bidding on public tenders are advised to use a specialized public procurement due diligence tool to help mitigate corruption risks associated with procurement in the United Arab Emirates.

Natural Resources

There are no reports of corruption in the Emirati natural resource sector. Nevertheless, companies should note that corruption risks can exist as the overall budget lacks transparency, not least because oil revenues are not included in the federal budget calculations (BTI 2014). 

Legislation

The UAE has a comprehensive legal framework against corruption, but it is scattered across various laws and codes of conduct. The government has generally implemented the country’s anti-corruption framework effectively (HRR 2014). On the Federal level, the UAE Penal Code criminalizes corruption, embezzlement, abuse of office, passive and active bribery, bribery or attempted bribery of both public and private employees, a term that covers everyone performing a job for the public service. Facilitation payments are considered a form of bribery (Ethic Intelligence, 2016). The mediator or middleman between the recipient and the person offering the bribe is also guilty of an offense (Ethic Intelligence, 2016). In the private sector, however, only an individual who accepts a bribe, in exchange for acting in violation of the duties of their position is guilty of an offense (Al Tamimi & Co, Apr. 2011). A public official found guilty of accepting a bribe is sentenced to five to ten years' imprisonment, while a private person trying to bribe or a mediator face a maximum of five-years' imprisonment. Federal Law on the Criminalization of Money Laundering criminalizesmoney laundering. No laws in the UAE address the bribery of foreign public officials. The Federal Human Resources Lawprovides specific provisions addressing gifts, bribes, and conflicts of interest among federal government employees. TheDubai Government Human Resources Management Law aims at curbing government corruption in Dubai, while Law No. 1 of 2006 contains anti-corruption provisions and civil service conduct regulations for the Emirate of Abu Dhabi (Al Tamimi & Co, Apr. 2011). The UAE has ratified the United Nations Convention against Corruption (UNCAC).

The misappropriation of public funds is one of the main corruption-related issues in the UAE; it is the most commonly reported economic crime (PwC, 2014). In 2012, the UAE's anti-corruption body uncovered ten cases in which it was revealed more than AED 1 billion of public funds were misappropriated, but to date no verdicts have been rendered (ICS 2015).

Civil Society

Civil society is extremely weak and underdeveloped in the UAE. Freedoms of expression and the press are granted by the constitution, but in practice these rights are restricted by the government (HRR 2014). Access to government information is granted by law, but the provision is poorly implemented and selective, and requests for access usually go unanswered (HRR 2014). Most media outlets are government-owned and conform to non-transparent guidelines (HRR 2014). The Federal Law of Governing Publications and Publishing is among the most restrictive press laws in the Arab world; it prohibits domestic and foreign publications and prohibits criticism of public officials or members of the ruling families (FotP 2015). It is also prohibited to publish information that could damage the national economy (FotP 2015). Accordingly, information on business and political corruption in the UAE is scarce (Al Tamimi & Co, July 2015). Journalists can face defamation charges from the government, so most exercise self-censorship (FoP 2015). Online censorship is extensive, and activism and free expression are penalized (FotP 2015). In 2014, the government enacted a counterterrorism law, further stifling any criticism of the government (HRW 2016). 

The government places limits on freedoms of assembly and association (FitW 2015). Political organizations, political parties, and unions are illegal in the UAE, while NGOs can operate in the country without any government interference as long as organizations focus on non-political topics (HRR 2013). Civil society organizations (CSOs) must register with the Ministry of Labour and Social Affairs before applying for government subsidies (FitW 2015). Foreign NGOs cannot have a base in the country, but the government allows for limited visits of their representatives and of international organizations addressing human rights issues. Another constraint facing civil society is a risk for individuals to be detained or imprisoned when speaking with rights groups (HRW 2016).

Sources

Topics: Middle East & North Africa