Damas may fuel DIFC changes

Bradley Hope

• Last Updated: November 05. 2009 7:43PM UAE / November 5. 2009 3:43PM GMT

DUBAI // The disclosure of unauthorised transactions at Damas International, the biggest jeweller in the Middle East, could lead to regulatory changes in the Dubai International Financial Centre (DIFC), a top official says.

“We are very much a part of the investigation,” said Paul Koster, the chief executive of the Dubai Financial Services Authority (DFSA), which regulates the DIFC. “Once we have a better understanding of what’s happened there, we will know where to focus our regulatory efforts.”

Tawhid Abdullah stepped down as the chief executive of Damas last month after disclosing the company had made US$165 million (Dh605.9m) worth of transactions without shareholder approval. About 50 transactions were made, mostly involving property projects such as the Angsana Hotel and Suites towers on Sheikh Zayed Road.

Mr Abdullah and his two brothers own half the company, which was started by the family in 1907. The brothers have committed to paying back the money over the next 18 months, according to a statement on the NASDAQ Dubai website on Wednesday. Any additional unauthorised transactions would be paid back within two years.

Mr Koster said he could not divulge details of the DFSA’s involvement with the investigation until the independent audit by PricewaterhouseCoopers had finished.

The issues at firms such as Damas arise from the challenges involved in taking a privately held family company public, he said. “It is key that people understand that when you list a company, that brings additional responsibilities. You need to be transparent. You have continuous obligations.”

Mr Koster said the DFSA would increasingly educate companies undergoing this process about their new responsibilities, and would examine whether new regulations or laws were needed in the DIFC to prevent issues from arising in the future.

Dr Nasser Saidi, the chief economist at the DIFC, said the case demonstrated the need for businesses to focus on corporate governance reforms.

“The Damas case, and a number of recent cases involving regional families and businessmen, highlight some of the challenges that regional business leaders face as they tap capital markets which demand a higher degree of transparency and accountability,” said Mr Saidi, who is also the head of Hawkamah, a non-profit organisation that promotes higher standards of corporate governance.

Still, the UAE has made large strides towards improving accountability in the markets, according to the CFA Institute.

Whereas there were less than a dozen candidates for the chartered financial analyst (CFA) exam in 2003, there were 2,500 candidates this year, said Kurt Schacht, the managing director of the institute’s Centre for Financial Market Integrity.

“The UAE is the leading company in the region for reforms,” Mr Schacht said. “It’s not anywhere near where it needs to be, but the focus and effort are there … It’s a challenge to get any emerging industry to get regulators to focus on the whole notion of ethics and integrity in markets.

“We’re so consumed sometimes with the rush to advance the commercial interests associated with financial markets that we forget that the investor’s interests are not being protected.”



bhope@thenational.ae