Analysts call for better financial reporting and stringent audits

Dubai: Corruption has become a significant part of Dubai's business landscape, business leaders said, and analysts called for improved financial reporting, stringent audits, transparency and enhanced corporate governance to reduce the level of corruption.

Most private sector officials said the latest crackdown on officials of two government-owned entities are the tip of the iceberg and comes as a wake-up call to the business community and to those who deal with them.

"Corruption has become an accepted norm in business dealings," Rizwan Sajan, chairman of Danube Group, told Gulf News. "Unless you bribe, you can't get things done. It's how things get done here."

"Today, it has become part of Dubai's business culture."

Property and construction sectors are leading the UAE's economic boom. However, high liquidity combined with solid demand are also driving corruption in these sectors.

"There's so much money in real estate and construction that people do not mind paying a bit extra for a better deal. As the margin and premium are so high, people don't have any problem in bribing," Sajan, whose company is a leading player in supplying building materials, said.

"How can a property be sold out before launch when you invite so many buyers? Obviously some people are paid off to block a large number of units so that others are forced to buy from the broker."

Internal investigations and stringent audits could help, they say.

Peter Riddoch, chief executive of Damac Properties, said: "In relation to the current reported investigations within the media, we do not comment on activities of our competitors. However when we see media reports of internal investigations in any industry sector, whether it be the real estate, finance, banking or any industry, it shows that the market is maturing and that increased transparency is indeed in place."

Market situation

Sajan said it would be difficult to control corruption, given the current scenario dominated by rising demand and high liquidity in the market.

"The situation could improve only once the market corrects itself," he said. "It won't be possible to eliminate corruption fully due to the strong line-up of projects, however, it could be brought down."

Strengthening the regulatory environment, improving financial reporting standards, stringent auditing and improving corporate governance could help improve the situation, economic analysts say.

"As Dubai is growing by leaps and bounds and its economy races against time, corruption is bound to arise," Sudhir Kumar, managing director of Realtors International - a property consulting firm, told Gulf News.

"Improved financial reporting standards, stringent audits and strengthening corporate governance could help plug the loopholes and reduce the scope of corruption.

"Also, the government should improve the regulatory environment that will help curb corruption."

"High value projects worth billions of dollars are being executed in Dubai that are racing against time. With high liquidity in the market, they are prone to bribery and corruption. However, the government's stand reflects its strong determination to stop this."

It's a positive development, he said.

"With the latest crackdown, the government is sending a strong message. It will help restore investor confidence," Kumar said.

Graft: How it works

In the property and construction sector, corruption works almost like a 'value chain'. "Starting from project tendering, contracting and sub-contracting - money changes hands through the back door," said a contractor, requesting anonymity.

"One of the biggest receivers of the kickbacks are the project consultants. Many project consultants take money before selecting the building materials samples. The same works with interiors fit-out contracts."

Construction industry insiders say sometimes cheques do not pass unless kickback monies are handed over or transferred to secret accounts. "Which sample of tiles or door locks will be used in a project is decided through these processes - it's so detailed," said another construction official.

Although architects' fees range anywhere from one to three per cent of the project value, a large number of consulting engineers make hefty money through kickbacks. Many officials take these as 'gifts' and not bribes - to justify them.