Abraaj fined $315mln by Dubai watchdog

DUBAI: Dubai’s financial regulator imposed a record $315 million fine on Abraaj Group, the collapsed buyout firm that’s already facing legal action in the U.S., Bloomberg reported.

The Dubai Financial Services Authority, which oversees institutions at the Dubai International Financial Centre, imposed fines on Abraaj Capital Ltd. and Abraaj Investment Management Ltd. for “serious wrongdoing” and “misusing investors’ monies,” it said on Tuesday.

“The size of these fines reflects the seriousness” of the breaches, DFSA Chief Executive Officer Bryan Stirewalt said in the statement. “Senior management rode roughshod over their compliance function and the misconduct and deceit were pervasive and persistent.”

The penalty is a sign that the regulator is seeking to safeguard Dubai’s position as a business hub and reassure investors over its failure to take action sooner. Former managing partner Mustafa Abdel-Wadood last month pleaded guilty to conspiracy charges in the U.S., while five other employees, including founder and former CEO Arif Naqvi, have also been charged in the U.S.

The fine “sets the tone and provides a benchmark for how the DFSA will penalise delinquent institutions going forward,” said Tarek Fadlallah, CEO of the Middle East unit of Nomura Asset Management in Dubai.

Abraaj, which once managed about $14 billion, was forced into liquidation last year after being accused of mismanaging investor funds. Before that, it had been one of the world’s most influential emerging-market investors with stakes in health care, clean energy, lending and real estate across Africa, Asia, Latin America and Turkey. Abraaj backers included the Bill & Melinda Gates Foundation and the World Bank’s International Finance Corp.

The DFSA will “pursue the persons or entities who perpetrated this activity, including those who allowed this to happen through major corporate governance breaches, to the full extent of our powers,” it said.

Abraaj’s fine dwarfs an $8.4 million penalty against Deutsche Bank AG for “serious breaches” in 2015. The German lender was penalised for misleading the regulator, failures in internal governance and systems, client take-on and anti-money laundering processes.

The DFSA’s investigation into Abraaj started in January 2018. Here’s what it discovered: Abraaj Investment borrowed money just before financial reporting dates to show investors the cash balances they expected. Abraaj Investment changed reporting periods for a fund to disguise shortfalls. It lied about delays in paying proceeds from asset sales to investors. Abraaj Investment was fined $299.3 million.

The compliance department at Abraaj Group raised concerns about the company conducting unauthorised activities as early as 2009, but senior management at Abraaj Capital ignored the warnings. Abraaj Capital deceived the DFSA about its capital adequacy requirements and compliance with DFSA rules. Abraaj Capital was fined $15.3 million.