x Abu Dhabi, UAEMonday 22 January 2018

Foreign financial criminals target local markets

Paul Koster, the chief executive of the Dubai Financial Services Authority says foreign criminals are targeting UAE markets.

The UAE markets are under threat of manipulation by foreign criminal organisations, the head of Dubai's regulator says.

Paul Koster, the chief executive of the Dubai Financial Services Authority (DFSA), said the crooks were increasingly trying to take advantage of the difficulties in conducting investigations across borders.

He said he travelled widely last year to sign agreements with regulators in the major financial capitals of the world in a bid to protect the Dubai International Financial Centre (DIFC). The DFSA has signed more than 50 of these agreements.

"The most critical thing for the future to protect the financial system worldwide is co-operation among the regulators," he said.

Last month the US Commodity Futures Trading Commission (CFTC) obtained a court order to freeze the assets of two US citizens who were allegedly running a commodities fraud scheme.

Between 2005 and 2008, Robert Andres and Robert Holloway solicited US$50.2 million (Dh184.3m) from 243 investors to invest in a fund based on their "successful track record", the CFTC alleges. But the pair are alleged to have kept $15.7m for themselves and made unsuccessful trades with the remainder. They paid "profits" to investors that were in fact just the principal, it is alleged.

Mr Andres used investors' money to buy an aerospace consulting firm and provide money to his wife, while Mr Holloway bought houses, cars, home furnishings and jewellery, the CFTC claims.

The DFSA's team took part in that investigation, along with nine other regulators.

The case has echoes of the investigation into Bernard Madoff, albeit on a much smaller scale. The Madoff case has illustrated the complexity of investigating fraudulent funds with investors from around the globe. Thousands of lawsuits have been filed and investigators in multiple jurisdictions are still trying to fully understand who was defrauded and by how much.

Gerald Santing, the managing director of markets at the DFSA, said would-be criminals were fast innovating ways to perpetrate insider trading and other financial crimes.

The largest risk for a financial centre such as the DIFC is "criminal set-ups operating on an international basis that are targeting your markets, endangering your markets", he said.

"Insider trading has a much bigger environment than the local markets," he said.

While the DIFC is limited geographically, in total the 317 firms regulated by the DFSA do business in almost every jurisdiction in the world.

On a daily basis, Mr Santing said he was in touch with top supervisors at the Nasdaq Dubai to flag up irregularities in the market, including sudden changes in prices and suspicious buying activity.

As soon as evidence surfaces that something is amiss involving an international investor, the DFSA takes over.

Mr Santing said it was naive of the people who took part in such crimes to believe they would not be apprehended, he said. "They will be caught."