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ACI Real Estate has filed for bankruptcy on four of its seven property funds, according to media reports in Germany.

The company – which launched a number of celebrity branded towers in Dubai – is understood to have declared the funds bankrupt at a court in Bielefeld, Germany.

The property funds were launched in 2004, with investors believed to have paid $75m into them. The first fund six years ago was used to develop a property in Jumeirah Lake Towers, Funds two and three were used for ACI’s City of Arabia development, and funds four and five for projects in Business Bay and Victory Bay.

Funds six and seven related to investments in the sports-branded Michael Schumacher and Nikki Lauder developments.

Payments from the funds were due in March last year, but did not materialise. Shortly after, the company’s boss Robin Lohmann told Arabian Business: “Giving money back is not an option as this point in time. The money has been invested in the land, which is fully paid for, and the money has been spent in the development, which is normal – the contractor and suppliers are not working for free.”

It is not clear whether work will now progress on a string of ACI Real Estate projects in Dubai. In 2008, the company announced plans for Michael Schumacher Business Avenue, Boris Becker Business Tower and Niki Lauda Twin Towers.

Construction on all three projects stalled last year. Its website still lists 11 projects that it says are under development, with another six being undertaken by “third party developers”.

Last year Lohmann hit back at claims that the projects were being cancelled and that investors would lose their cash, saying: “For me there is no chance I will do a hit and run. You know why? Because I haven’t even collected the money I have invested and spent here. I’m not going ahead and losing AED500m ($136.1m), it’s not the way.”

Lohmann could not be contacted for comment.

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Aug. 11 (Bloomberg) — Not long ago, British businessman Ryan Cornelius was living the high life, doing deals out of Bahrain and taking his family big-game fishing on his yacht and on safari in Kenya. He’s now into his third year in a Dubai jail cell, yet to be convicted of anything.

“The worst aspect of the way we’ve been treated is the fact that the legal system seems to be so suspended in its own inefficiency,” he said from a pay phone at Dubai’s Central Prison. “We just don’t seem to move forward. The whole legal system seems to hold you in a state of constant suspension.”

Cornelius, 56, and six co-defendants have been charged with defrauding Dubai Islamic Bank PJSC of $501 million, one of the largest such cases in the history of United Arab Emirates. He says he did nothing wrong, and like others, foreigners and nationals, who profited in Dubai in the boom times, he waits in prison as the legal system slowly tries to separate the guilty from the innocent of those arrested in an anti-corruption drive.

Dubai’s image as the Singapore of the Middle East, a global hub for finance and tourism, is being tested as it tries to clamp down on excesses such as fraud and overdevelopment, which came with an explosion of people and investment. Its judicial system still often has more in common with its regional neighbors than the Western nations that it aspires to emulate, say lawyers and economists who work there.

The government won’t say how many people have been arrested in the two-year campaign against financial corruption. Detained in Dubai, a London-based lobbying group, says several hundred executives may have been jailed.

Debtors’ Prisons

In all, about 40 percent of the 1,200 people in Dubai Central Prison have been convicted of defaulting on bank loans, Human Rights Watch said in a report in January. Even after completing their sentences, the New York-based group said, prisoners are likely to remain in jail until their debt is paid off, unlike in the U.S. or the U.K., where debtors’ prisons were abolished in the 19th century.

Over-lengthy sentences and a lack of specially trained judges to deal with white-collar crime threaten to discourage investment in Dubai, said Habib al-Mulla, the former chairman of the Dubai Financial Services Authority, an industry regulator. The U.S. State Department said in a March report that while the country’s constitution guarantees an independent judiciary, the U.A.E. court system remains “subject to review by the political leadership.” Defendants can spend months without being charged and are often unfairly denied bail, according to lawyers.

‘Damaging Effect’

“Our current criminal laws are not fit to deal with sophisticated financial crimes,” said al-Mulla, a lawyer who helped defend Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum in a U.S. lawsuit and now represents one of Cornelius’s co-defendants. New laws are needed “to protect bona fide businessmen from the abuse that some do face under the current legal system. This abuse has a damaging effect on the economy and the country.”

The Dubai government and the prosecutor’s office didn’t respond to repeated e-mailed and phone requests for comment during a three-week period.

The government started the anti-corruption drive as the global credit crisis cut Dubai home prices in half from their peak in 2008, the biggest drop in property values in the world. The city-state, the second largest of the seven emirates that make up the U.A.E., has amassed debts of more than $100 billion related to projects such as the world’s tallest tower and artificial palm tree-shaped islands built by developer Nakheel PJSC.

Some Freed

Some U.A.E. citizens arrested were freed after repaying what the government said they owed. The former governor of the Dubai International Financial Center, Omar bin Sulaiman, was released from prison in May following two months of detention after he returned about $14 million in bonuses, according to a government announcement. Hashim Al Dabal, the ex-chairman of state-owned Dubai Properties LLC, got out in June after eight months in detention by paying $35 million as part of an embezzlement investigation, the government said.

Others remain in prison as their trials inch along. Zack Shahin, a former PepsiCo Inc. executive from Ohio, has been incarcerated since March 2008, charged in the alleged $27 million embezzlement at property company Deyaar Development PJSC. Two Australian executives from Nakheel, Marcus Lee and Matt Joyce, spent almost half a year in jail without charges and are now on bail facing trial for misappropriating funds.

“In Dubai, they would prefer to keep them in custody to put pressure on them, to generally punish them and make life difficult for them,” said Robert Brown, a partner at London- based Corker Binning, which represented a Pakistani defendant whose extradition to Dubai from the U.K. was refused in March because a court ruled he faced possible torture.

‘Politically Charged’

In a statement earlier this year, Shahin’s lawyers said he was imprisoned without charges for 13 months, denied food, held in solitary confinement and often blindfolded, interrogated for 18 hours at a time and threatened with torture. They said Shahin, 45, is innocent and “a target of a politically charged investigation.”

Dubai’s attorney general, Essam Essa al-Humaidan, last year denied allegations Shahin, a U.S. citizen, has been abused, saying in an interview that Shahin and other defendants “have been granted all the rights under U.A.E. law.” The U.S. government has “repeatedly” raised Shahin’s case with the U.A.E. authorities, a State Department spokesman, who asked not to be identified because of the pending legal proceedings, said in an interview on July 23. Shahin’s case was last discussed in May at a Washington meeting between Attorney General Eric Holder and U.A.E. Justice Minister Hadef bin Jua’an Al Dhaheri, the spokesman said, when the U.S. asked the trial be conducted expeditiously.

Flight Risk

“Regardless of whether an individual is innocent or guilty, there should be due process and he or she should be charged in a timely manner,” Samer Muscati, a lawyer from Human Rights Watch who specializes in the U.A.E., said in a phone interview from Toronto.

With about 90 percent of Dubai’s 1.8 million population made up of foreigners, there is a “natural tendency to assume these individuals pose a flight risk,” said Carlos Gonzalez, a partner for Miami-based Diaz Reus LLP, which has worked on commercial disputes and fraud cases in the Middle East.

‘Psychological Pressures’

“In the U.S. it is common to see the courts in white- collar cases grant bail,” said Gonzalez, adding that keeping individuals in jail for several years during legal proceedings puts “psychological pressures” on them.

Investors are looking carefully at the rule of law in Dubai after the prosecutions of foreign executives, said John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi. “It is good they are taking some individuals to court, pursuing them, but the way they are pursuing them could impact Dubai.”

In Russia, lawmakers are revising the law on economic crimes, resulting in the possible early release of as many as 100,000 imprisoned executives and entrepreneurs as the government seeks to attract investors.

‘Fake Deals’

Cornelius and his co-defendants are accused of diverting funds from a $501 million trade-financing loan for projects such as the Plantation, a 20 million-square-foot development in the Dubai desert that was to include five polo pitches with stables for 800 horses, a luxury hotel and houses. The prosecution charges Cornelius and others forged documents and used the loans for “fake deals,” according to a court document.

“I absolutely deny all the allegations against me,” Cornelius said in a telephone interview from Dubai Central Prison on July 15.

Cornelius said the money was mostly used for property development in Bahrain and the relocation of an oil refinery from Canada to Pakistan as well as the Plantation in Dubai. He said he and the others reached a debt repayment agreement in 2007 with Dubai Islamic Bank. It took control of the Plantation, valued in mid-2008 at $1.1 billion by property broker Jones Lang LaSalle Inc., after the arrest of Cornelius and his associates.

Prison Life

He spends his time in a dormitory with about 100 other men. The conditions are an improvement over the several weeks he was in Rashidiya prison, where more than 250 prisoners shared six rooms meant for 48 and two working toilets, he said. Cornelius said he was held in solitary for six weeks after his arrest in May 2008. The yacht and his beach hotel in Kenya have been sold, he said.

Cornelius said he’s been denied bail a dozen times. The proceedings are in Arabic and difficult to follow though he has a court interpreter. Originally facing a maximum sentence of three years, Cornelius and the others could get up to 20 years in prison under Dubai’s tougher new anti-corruption law announced after his arrest.

Radha Stirling, a lawyer and founder of Detained in Dubai, which offers support to expatriates held in Dubai, said there has been a marked increase in detentions for financial crimes since last year. The majority of cases she is dealing with are debt related or because of bounced checks, which is a criminal offense in the U.A.E.

Image Tarnished

“I think a lot of people relocated to Dubai as an extension of Europe, like France, Spain or even the U.S.,” Stirling said. “It was seen as very developed with a good legal system. The average person who was once going there to seek employment or invest will shy away from Dubai.”

Rony Bacque, the business development manager for the Wine Academy of Spain, said he canceled plans to set up a branch in Dubai to offer training in wines for hotels and restaurants. His brother-in-law was named in an Interpol warrant for almost five years until this July after he was convicted in absentia for breach of trust in a Dubai business dispute, Bacque said.

The Dubai legal system is no better or worse than others in the region, said Gonzalez, the Miami lawyer. What is different, he said, is Dubai’s aspirations.

“You can’t wake up and say we’re working to have a world- class financial system overnight and build a legal system to match,” he said. “Dubai, as an aspiring global marketplace, must also endeavor to become recognized as a cutting-edge legal center capable of developing a legal structure that matches its financial ambitions.”

–With assistance from Camilla Hall in Abu Dhabi and Zainab Fattah in Dubai. Editors: Steve Bailey, James Amott.

To contact the reporter on this story: Henry Meyer in Dubai at hmeyer4@bloomberg.net;

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

CRACKS have emerged in the fraud prosecution of two Australian executives in Dubai, raising questions about the claims of their alleged victim, Sunland, the Gold Coast-based developer that alleges it was duped in a property deal.

BusinessDay believes a series of emails will be relied on by the defendants in Dubai and in a civil case in Australia in an attempt to contradict Sunland’s claims that it was kept in the dark and that Matt Joyce and Marcus Lee misled it when they were working for Dubai Waterfront, the world’s biggest waterfront development.

Joyce and Lee spent nine months behind bars in the emirate until they were bailed in October to fight the fraud case, in which Sunland is the key witness for the prosecution. Its claims of being cheated are also central to the civil case it has launched against Joyce and other parties in the Federal Court, where it is trying to recoup millions lost on the venture.

In the Dubai and Federal Court proceedings, Sunland alleges it was misled in two critical ways when it bought Plot D17 in 2007 from the Dubai government-owned master developer Nakheel, parent company of Dubai Waterfront.

First, it says its chief operating officer in Dubai, David Brown, was duped into believing that another Australian company, Prudentia, had rights to buy the plot, so Sunland paid Prudentia a $14 million ”consulting fee” to release the land.

Second, Sunland claims Joyce, as managing director of Dubai Waterfront, failed to disclose a long-term friendship with Prudentia’s director, Angus Reed, with whom he attended Geelong Grammar.

But Brown sent an email to Joyce on August 19, 2007, which is expected to be relied on in Joyce’s defence in the Federal Court. Evidence for the plaintiff and the defence is yet to be heard in the proceedings, where the emails are expected to be presented in their full context.

On its face, Brown appears to acknowledge in the email the status of Plot D17, and that Sunland’s founder and executive director, Soheil Abedian, was informed. At this point, Sunland and Prudentia were negotiating a joint venture on the development plot.

”Thanks Matt,” Brown wrote, ”I got your message and yes Soheil is aware that Prudentia are still in negotiations with Nakheel and have not purchased the site. Jeff [Austin, Nakheel’s director of planning and development] and Anthony [Brearley, a Nakheel lawyer] have also made this clear. The fact they have not purchased D17 yet is better because [it will] allow us and Prudentia to agree to JV terms before we proceed to buy the site.”

In that email, Brown also told Joyce: ”I have informed Soheil of your prior relationship with Prudentia and your desire not to get involved.”

While it did not mention the old-school connection, this email may suggest that Joyce wanted to remain at arm’s length from the deal. Brown wrote that Sunland would instead continue to deal ”with Anthony, Marcus [Lee] and Jeff”.

But 10 days later, on August 29, in a 5.56am email to Joyce, Brown was ”extremely” disappointed to hear that Nakheel was negotiating to sell the plot to a Russian group, ”considering the time and effort that we and our JV partner has put into the purchase of this plot”. Again, this calls into question Sunland’s claim that it did not know Prudentia had secured no rights over the plot.

In Sunland’s statement of claim in the Federal Court, Brown alleges that Joyce told him by phone on the same day as this email that other potential buyers, including Russians, might offer a much bigger price for the plot.

Sunland alleges this was to pressure it to proceed with the purchase.

The time of this alleged call is unclear but in Joyce’s reply email to Brown, at 6.58am, he wrote that he doubted ”our guys would negotiate with another party without at least informing you” – unless it was the work of Nakheel Sales without Dubai Waterfront’s knowledge.

Prudentia and Angus Reed, in their defences lodged in the Federal Court, say they never suggested they owned Plot D17 or had sealed an option to buy it.

And they insist Sunland was fully aware of this.

Rather, they argue, Nakheel had merely regarded Prudentia as a ”preferred negotiator”. On August 10, 2007, Nakheel’s Jeff Austin had confirmed in a letter to Reed that it would be happy ”to grant you preliminary development and planning approval”.

”We also confirm that we would be happy to entertain discussions with your joint venture partner provided [they] are a proven developer like Prudentia,” Austin wrote.

Joyce’s defence in the Federal Court says a draft sale agreement had been sent to Prudentia on August 15 and Dubai Waterfront did not want to appear to be involved in ”gazumping” by dealing directly with the ”secondary developer”, Sunland.

In any event, the joint-venture negotiations collapsed and Sunland decided to buy Plot D17 alone.

A document tendered in court in Dubai, dated September 18, 2007, shows its board agreed on the purchase and to enter a memorandum of understanding with Prudentia.

The next day, David Brown and Angus Reed signed the deal, which included a strict confidentiality clause between the two parties. Sunland agreed to pay the consulting fee.

In return, Prudentia handed over its ”right to negotiate” with the master developer.

It has also been alleged that Marcus Lee, who was Dubai Waterfront’s head of commercial operations, had intervened to lower the price of Plot D17 to push the purchase along. Under this deal, it is alleged, Prudentia would take a ”land uplift” fee – the difference between the lower price and the market price.

But an internal Nakheel email on August 27, 2007, appears to clear Lee on this count. Nakheel’s then director of sales and marketing, Manal Shaheen, sent the email to her CEO, and to Joyce and Lee. Shaheen told them that her team had found the price of 125 UAE dirhams ($A37) a square foot was too high. She wrote that Lee’s ”business report should say market price which is 110 and then give me to sign”.

Lee is expected to rely on this exchange to support his consistent position: that he merely did his job according to instructions of his superiors at Nakheel. When he later recommended a price of 120 UAE dirhams a square foot, he will argue that it was approved by his superiors.

Shaheen’s email suggests that Nakheel was informed. Nakheel has not come to the defence of Lee, who says he never gained nor stood to gain from the land sale.

Nor has Nakheel defended Joyce, who says he was paid nothing in connection with the Sunland deal.

Sunland is yet to develop Plot D17. Prudentia and Reed, in their defence in Australia, claim this means it has lost the opportunity to reduce its alleged loss by about 24 million dirhams ($A7.16 million).

DUBAI (AFP) — Faced with a sudden economic slowdown, Dubai is trying to combat the fraud cases that surged during the past years of rapid economic growth in a bid to boost its status as a regional business hub.

malika-smilegroot

(Malika, we won’t forget you, don’t worry !!)

But the clean-up drive has stirred controversy as several former executives of major firms, suspected of embezzling sums which total hundreds of millions of dollars, have been held for months without charge.

The economic boom of the past several years appears to be the main culprit.

“It was a boom market. Everybody gets greedy and you have corruption,” economist Eckart Woertz of Dubai-based Gulf Research Centre told AFP. “You have the opportunity to cash in some bribes, and you do it.”

The economy of Dubai, which is part of the oil-rich United Arab Emirates, had been growing at a breakneck speed.

The main engine has been the real estate sector, after foreigners were allowed to own freehold property in 2002, while oil prices shot up last year to unprecedented records, creating a massive cash surplus in the region.

But the global financial crisis threw the spanner in the works of Dubai’s economy, as a liquidity shortage and weak confidence applied the brakes on growth in the realty sector.

Most of the recorded and alleged corruption cases are linked to this sector.

Earlier this month, seven men appeared in court in two trials against former business executives charged with demanding bribes — the first corruption trials since the fraud cases surfaced last year.

One case involves four former executives from Sama Dubai, a property developer belonging to the vast Dubai Holding conglomerate, and an executive from Damac Properties.

The other case embroils two former sales executives at the government-controlled giant property developer Nakheel, according to press reports.

Bribes in the case of Sama Dubai executives amounted to 8.35 million dirhams (2.28 million dollars), while they amounted to 5.14 million dirhams (1.4 million dollars) in the Nakheel case.

Nakheel, contacted by AFP, declined to comment on the case.

In February, police reportedly arrested three other senior managers at Nakheel — the company which shot to world fame for its projects to develop three palm-shaped islands and a world map-shaped cluster of islands off Dubai.

The longest-serving top executive in police custody is former Deyaar chief  executive, Zack Shahin, an American of Lebanese origin, who has been held since March 2008 without formal charges.

Dubai’s prosecution charged in late February that Shahin and other suspects had embezzled more than 98 million dirhams (27 million dollars).

An Internet website called “Save Zack Shahin” says the man has been tortured in custody and it has posted photos of him in hospital.

But the largest corruption case appears to be an alleged scheme to defraud the Dubai Islamic Bank of 501 million dollars, over which seven persons have been charged, according to court documents.

Two of the suspects are still at large.

The alleged fraud was committed between 2004 and 2007 and involved two former DIB executives and five businessmen linked to a trade finance company and a real estate project in Dubai.

Meanwhile, the Dubai prosecutor’s office has issued an arrest warrant against a top executive of Dynasty Zarooni, according to a local daily.

Al-Shaali law firm, which is acting on behalf of investors in Dynasty Zarooni projects, told AFP it has lodged complaints worth a total of nearly 82 million dollars.

The clampdown has rocked the business environment in the emirate.

But “it is to their credit that the (Dubai) authorities have decided to forcefully attack this problem, despite any negative publicity,” said Ali Shihabi, CEO of Rasmala investment bank.

“The traditional Arab approach is to sweep such issues under the covers or ignore them completely … These actions against corruption will strengthen the quality of the business environment in Dubai,” he said.

Some UAE newspapers have been active in reporting corruption cases.

But the freedom to cover the cases could be curtailed by a proposed media law which would penalise the press for publishing “misleading news that could harm the national economy” in the Emirates.

“I would seriously advise them against it (passing the law) … It won’t achieve the aim of impeding negative reporting… You will have blogs,” said Woertz of the research centre.

Matt Joyce had the world at his feet. Now he is staring at a Dubai cell wall
Rick Feneley (Morning Herald – Sydney)

UNTIL his arrest for suspected bribery last month, Matt Joyce was in command of the world’s biggest waterfront development, the most audacious project yet in Dubai Inc’s high-rise fantasia.

Joyce, the Australian managing director of the state-backed Dubai Waterfront, boasted of its vital statistics in a recent interview. Stretching 30 kilometres, it would cover 14,000 hectares, making it twice the size of Hong Kong Island.

dubai-waterfront

It would dwarf the emirates’s famous World and Palms developments. It would reclaim six islands and involve shifting enough sand to fill Wembley Stadium three times every month. And it would become home to 400,000 people within five years.

“We have the luxury of creating this city on a blank canvas,” said Joyce, who would oversee the construction of yet another space-age Atlantis rising from the Arabian Gulf. But Dubai’s blank canvas has become murky. Few of the world’s property bubbles became as inflated as Dubai’s, and few have burst so explosively in the global meltdown. Joyce, 43, the former Sydney-based chief of the respected property group St Hilliers, was among five senior executives made redundant from Dubai Waterfront last month.

Then, on January 25, he and two Australian colleagues were taken in for questioning as part of a year-long crackdown on fraud and corruption among state-backed property developers and banks. One of the Australians, a 55-year-old man from Brisbane, was released. But Joyce and another Melbourne man, 44, are still being held without charge. Both have families in Dubai.

Last night, Sydney time, the prosecution was in court applying to extend their custody for another 15 to 30 days. Their Australian lawyer, Martin Amad, was there and told the Herald: “No charges have been laid and both men strenuously deny the allegations.” He said they were confident that authorities would soon determine their innocence based on documentation they had supplied. He would not name Joyce’s colleague.

The men are among more than 20 executives in jail as part of Dubai’s fraud and corruption investigation. All are yet to be charged, but some have spent almost a year behind bars. Dubai police have given no details on who the Australians allegedly bribed.

Joyce’s lawyer in Dubai, Salem Al Sha’ali, had told the Gulf News:
“The suspected transaction cannot be considered a bribe. The figure isn’t exact and the amount was given back because the deal didn’t go through. It’s a big misunderstanding.”

Mr Amad said the quote, as reported, was inaccurate and he insisted there was no transaction and no deal. “No bribe was paid.

A former work colleague of Joyce’s, from Australand in Sydney, described him as “straight and decent”. “If there’s anything there, it would be totally out of character,” he said.

For the 16 months before his shift to Dubai, in April 2006, Joyce was chief executive at St Hilliers in Sydney. It is well known in the industry that he parted on unhappy terms, although his termination contract prevents St Hilliers from revealing the reasons. Joyce joined Dubai Waterfront, whose parent company is the government-owned Nakheel. Nakheel is the biggest developer in the United Arab Emirates and has projects worth about $US80 billion ($124
billion).

Asked how the Australians were being treated in jail, Mr Amad said they had no complaint. They were “anxious to be released” but there was slim chance overnight of bail. Joyce had been made redundant shortly before his arrest. Asked if there were fears that the men were being made scapegoats for the broader corruption inquiry, Mr Amad said he could not comment. “It is not an argument we are putting forward.”

Regardless of the case against the Australians, Dubai Inc is on trial in the eyes of the investment world, and the fraud crackdown has signalled the Emirate’s determination to send a clear message that it is a good place to do business.
Dubai property values are in free-fall. Some forecast they will drop by as much as 50 per cent this year.

Along with thousands of redundancies, local police reported at least 3000 cars abandoned outside Dubai international Airport in the four months to January. Many had keys in the ignition. It seems debt-ridden and jobless foreigners are fleeing Dubai. Nakheel insists Dubai Waterfront is forging ahead.

Unlike the other emirates, Dubai has little oil to speak of. It has only its real estate, built on the whims of its rich and its rulers. Only on this can it guarantee its future as a global financial hub.