Corruption in Dubai Reaches Epic Proportions

If any one was wondering how Dubai's property market just kept getting more and more expensive, it would seem baksheesh was the reason. In yet another blow to confidence in Dubai's markets, four employees of Dubai-based real estate developer Sama Dubai have been arrested and are being questioned by Dubai's Public Prosecution on allegations of bribery and mistrust. One of the people being held is Abdulsalam Almarri, chief executive of Sama Dubai's The Lagoons project.

Spokespeople for Sama Dubai weren't available to comment, saying that the company's executive chairman - Farhan Faraidooni - is sensibly out of the country. Sama Dubai is part of state-owned Dubai Holding, the conglomerate owned by Dubai's ruler Sheikh Mohammed bin Rashid al Maktoum.

Sama Dubai. The Lagoons Project.

The arrests at Sama Dubai are part of a widening police dragnet among senior corporate executives in the emirate, in what is a concerted effort by government officials to crack down on corruption.

Dubai Holding's real estate companies are at the forefront of this boom. Tatweer, which is developing the emirate's $110 billion Dubailand project, and Dubai Properties, are also part of the same group. The Sama Dubai arrests follow a series of corporate scandals beginning in April.

Earlier this week, Dubai-based Palm developer Nakheel said that an existing employee and a former employee are being questioned on suspicion of bribery.

Dubai government officials stated that Egyptian national Karim Masaad, who Nakheel had previously said had resigned as a sales executive a month ago, is being questioned in connection with alleged wrongdoing while working for the developer. Masaad is the second person held by Dubai authorities in the Nakheel investigation. Walid Al Jaziri, Nakheel's general manager for sales, is also being questioned.

Earlier this month, Adel Al Shirawi, the former chief executive of Islamic-mortgage lender Tamweel (TAMWEEL.AI) and deputy chairman of Istithmar World, was arrested on suspicion of embezzlement and the recent arrests suggest that Dubai's ruler Sheikh Mohammed bin Rashid Al Maktoum wants to clean up the emirate's reputation to ensure foreign investment continues to flow into the emirate.

In a rare statement, Sheikh Mohammed's office earlier this week warned that "there will be no tolerance shown to anybody who tries to exploit his position to make illegal profits."

"Transparency is a problem in the U.A.E. but right now the government is increasing its regulatory role," said Marius Maratheftis, Standard Chartered Bank's head economist in Dubai.

Real estate stocks in Dubai have taken a beating following the arrests and the Dubai Financial Market's Real Estate and Construction index has fallen more than 14% since mid-April. Deyaar has fallen 20% since April 16, while Tamweel's shares have declined about 11% since Aug. 14.

"There is a short-term negative goodwill impact on Dubai as the (probes) show lack of corporate governance," said P. Krishna Murthy, chief executive at Al Rostamani Group's financial services division.

"The financial impact is more worrying but can only be calculated after complete information is available. Markets will be happy with more transparency and if corporate earnings are not hit," he added.

Sama Dubai is developing eight projects across the Gulf region and North Africa, including the estimated $17.7 million The Lagoons project in Dubai and the Mediterranean Gate project in Morocco. It also has projects in Bahrain, Oman, Qatar and Tunisia.

Dubai corruption cases timeline:

• April 16
• Deyaar Development CEO Zack Shahin is jailed in Dubai, Zawya Dow Jones reports
• April 17
• Deyaar announces Shahin's resignation
• Shahin is being held at the Dubai Prosecution's jail, a Dubai police official says
• Deyaar chairman says Shahin is being investigated for 'financial mishandling' and the investigation will have no impact on the profitability of the company
• April 20
• Deyaar says it accepts the resignation of two more boardroom officials amid the ongoing financial investigation
• April 21
• Speaking from jail to Zawya Dow Jones, Shahin says he's innocent and that others are to blame for alleged wrongdoing at Deyaar
• April 23
• Ganesan Krishna Kumar, the managing director of advertising agency Masterbrand (ME) Ltd, is being detained to answer questions concerning allegations of embezzlement at Deyaar
• April 28
• The investigation into alleged financial wrongdoing at Deyaar widens with confirmation that a third person, Charbel Boutros, has been detained by Dubai police
• April 29
• Shahin will be held by Dubai authorities for at least another two weeks, a Dubai Public Prosecution official says
• Lebanon's Prime Minister Fouad Siniora is monitoring the status of Zack Shahin, a U.S. passport holder of Lebanese origin, a Lebanese government spokesperson tells Zawya Dow Jones
• Dubai's assistant chief prosecutor Khaled Zarouni says a fourth person, Jose Mebar, has been taken into custody in the ongoing investigation into financial wrongdoing at Deyaar
• May 1
• Deyaar's shares are down almost 4% since April 16
• May 20
• Merrill Lynch cuts its rating on Dubai Islamic Bank, which owns 41% of Deyaar, to neutral from buy
• June 9
• British banker Charles Ridley is being held by Dubai Police as part of a bribery investigation involving a former Dubai Islamic Bank vice president
• June 11
• Dubai Islamic Bank confirms that its former vice president Rifat Al Islam Usmani is being investigated as part of a bribery probe
• June 12
• The Central Bank of the United Arab Emirates calls for national and international banks operating in the Persian Gulf state to report suspicious bank account movements
• June 15
• Omair Mooraj, managing director and head of Islamic banking at U.S. investment bank JP Morgan Chase & Co., is being detained as part of the fraud investigation at Dubai Islamic Bank
• July 15
• Dubai-based National Properties, a National Bonds Corp. subsidiary, is transferring all assets under its management to Deyaar. The transfer also involves management, a move seen as part of a clean-up act at Deyaar
• July 21
• U.A.E. Minister of State Khalifa Bakheet Al Falasi faces charges in the emirates for breach of trust and fraud in a case filed by a Lebanese woman
• Aug. 14
• Adel Al Shirawi, the former chief executive of Tamweel, and Feras Kalthoum, the mortgage lender's former head of investments, are being held by police in Dubai as part of a financial probe
• Al Shirawi currently is vice chairman of Dubai government-controlled Istithmar World and also sits on Tamweel's board of directors. Kalthoum is Istithmar World's chief financial officer.
• Aug. 15
• Nakheel says one of its employees is being questioned on suspicion of bribe-taking
• Aug. 17
• Deyaar Names Markus Giebel as the new CEO
• Aug. 18
• A statement issued by the office of Dubai's ruler Sheikh Mohammed bin Rashid Al Maktoum warns "there will be no tolerance shown to anybody who tries to exploit his position to make illegal profits"
• Aug. 19
• Dubai government officials say Egyptian national Karim Masaad, who Nakheel said resigned as a sales executive a month ago, is being questioned in connection with alleged wrongdoing while working for the developer
• The officials say Walid Al Jaziri, Nakheel's general manager for sales, is also being questioned
• Aug. 21
• Four employees of Dubai-based real estate developer Sama Dubai have been arrested and are being questioned by Dubai's Public Prosecution on allegations of bribery and mistrust.