x Abu Dhabi, UAEFriday 28 July 2017

Traders lose at least Dh9.5m in Dubai 'long-firm' scam

Investments Park company with appearance of solidity takes goods on credit from dozens of suppliers and vanishes.

Hemendra Ghaghada thinks the long firm emptied out materials from its warehouse on to trucks in Dubai Investments Park.
Hemendra Ghaghada thinks the long firm emptied out materials from its warehouse on to trucks in Dubai Investments Park.

DUBAI // When Hemendra Ghaghada called an employee of a building materials company at its warehouse in Dubai Investments Park on March 28, he heard loud noises in the background. "We are going to be closed for a few days because the owner's father expired in London," he was told. "It's just out of respect."

A week earlier, Mr Ghaghada's company, a small outfit called Orocell General Trading, had sold the client 3,700 cubic feet of Iroko, an expensive African hardwood with a rich, teak-like texture. Orocell gave the client the wood - enough to fill several large shipping containers - on 20 days' credit, accepting a Dh525,000 (US$142,934) cheque dated April 8 as payment. If the father of the owner had died, closing for a couple of days seemed reasonable.

After that call on March 28 call, however, there was no further contact from anyone in the company, Mr Ghaghada says. The noise he heard in the background, he now believes, was the sound of the stock of wood, pipes, industrial cables, power tools and other goods being loaded on to trucks to be moved out of the company's warehouse. By Mr Ghaghada's count, 37 companies sold goods worth a total of Dh9.5 to the company on credit. Companies that have not come forward are probably owed another Dh10m, he estimates. The traders do not know where the materials were taken or whether they have been sold. He has filed a complaint with the police.

"It was very well set up," he says now, calmly but a touch wearier for the ordeal. "It was sophisticated." If the traders' claims are borne out, this was an example of the classic "long firm" scam, a ruse where a company is set up to look legitimate, allowing it to buy goods on credit only to disappear one day along with all of its purchases. The goods are then sold on the black market at a steep discount and sometimes shipped abroad to disguise their origins.

The scam exploits characteristics fundamental to global trade, a system that still relies on trust and short-term credit to expedite the movement of large quantities of valuable goods. There is at least one other long firm fraud in Dubai's recent history. In 2005, a group of traders complained that they had been bilked of Dh6m by a ring of unscrupulous businessmen who fled to Oman. They do not appear to have been apprehended.

Many trading companies appear to have been caught in the web spun by the building materials firm. An official at Fritz Kohl, which sold the company Dh127,000 worth of wood veneers on credit, said he would seek Interpol warrants for the arrest of the company's executives. "I need my money," he said. Few of those victimised in the alleged scheme wanted to come forward, fearing that doing so could affect business relationships and cast them as dupes. But if Mr Ghaghada's telling of the affair is accurate, it would not appear to have been the work of ordinary crooks. There were many employees, from the Filipino receptionist to the Pakistani and Indian managers and a British woman named Linda. The office had an "artificial mountain with a mini waterfall", Mr Ghaghada recalls.

He first visited in February, after the company approached him about obtaining a Dh750,000 order of hardwood on 60 days' credit. His contact at the company acted like "a big architect who's very intimidating, always in a hurry and he knows his stuff". They went out for drinks at QD's in Dubai, where the contact showed him family pictures, mentioned that his children went to school in Dubai and said that he had been in the UAE for 20 years, that he could be trusted.

"They kept calling and said we need this material," Mr Ghaghada says. "I don't know anyone who would require African hardwood in such huge quantities, but the guy said it was going to be used on an island in Abu Dhabi." At the firm's office, Mr Ghaghada was shown a large book describing a contract in Abu Dhabi with Bechtel, the largest engineering company in the US. The pages were laminated and had signatures on them. It all looked official, he said. But to test the waters Mr Ghaghada first sold Dh60,000 of wood for cash. He also called two references who said they had been doing business with the firm for six months with no problems.

Eventually, the order was scaled back to Dh525,000 from the original Dh750,000, but it went through. After the alleged scheme fell apart and the cheques bounced, the companies involved lodged a complaint with police in Jebel Ali, but the people said to be behind the scheme have yet to be arrested. Many of them, Mr Ghaghada says, are not even being sought by police because the firm did not act as a sponsor for their visas, meaning they had no legal connection to the company.

An official at Dubai Investments Park said the company was listed in the free zone's directory but had not registered with the authorities there as required. An employee of GulfTech IT who helped set up the firm's website in December said he had been getting frequent calls about the company. But he said his contact had ceased after the site was fully operational. "We heard there was some major fraud in the company, but I have no information," he said.

Now, the phone numbers listed on the firm's website are disconnected. A recent visit to its warehouse turned up no evidence that the company was still in operation. Officials at SS Lootah, the company that owns the property, could not be reached for comment. "A bird in the hand is worth two in the bush," Mr Ghaghada says. " We learnt this the hard way." afitch@thenational.ae