190731 Arif Naqvi
Arif Naqvi Image Credit: Reuters

The announcement that the Dubai Financial Services Authority is fining Abraaj for “serious wrongdoing” and “misusing investors’ monies,” is a solid first step in restoring confidence in the region’s investment sections. The DFSA should, at the very minimum, have fined Abraaj earlier, and the large financial penalty (Dh1.15 billion) should act as a deterrent to other companies that think the rules don’t apply to them.

And the financial sector needed to see Abraaj punished by the Dubai authorities. What Abraaj did was an embarrassment to the region’s financial service sector. That the company’s financial crimes were caught by the Bill and Melinda Gates Foundation, one of the world’s most well-known charitable funds, adds further insult to the injury.

The fall of Abraaj has also harmed the investment environment for small and medium companies in the region, which often rely on private equity investment to build and grow their brands. Some of the biggest private success stories in the UAE have come thanks to investors who used Abraaj’s services. The company’s absence has made it even more difficult for companies in the region to get the funding they need.

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But the punishment of Abraaj can’t stop with a fine. In other developed jurisdictions, commingling of funds, which is nothing short of a breach of a client’s trust, is a crime that will end a professional career. The DSFA should continue to look at what happened at Abraaj and find and prosecute the other individuals — beyond the corporate board room — that allowed these crimes to happen. Mustafa Abdul Wadood and Arif Naqvi should not be the only people held to account for the actions of Abraaj.

And the fine announced on Tuesday should have come earlier. The fine — while appropriate and necessary — was levied against two companies that are already in liquidation. The DFSA will likely never be able to recover the fines, which could have helped those who are financially impacted by these crimes or could have helped the DFSA expand their efforts to deter others. Fines work best when imposed against companies that are still capable of surviving them.

More needs to be done to prevent fraud and abuse in the financial system before it again erupts into a global scandal. Accounting practices and financial disclosures need to be aggressively investigated to ensure their compliance with all laws, and any action that could harm investors should be dealt with using severe penalties that include civil and criminal prosecution.