A top Emirati lawyer has added his voice to calls for an end to criminal penalties for bounced cheques, a mission that gained steam after new laws in Dubai last year brought bad cheques involving property transactions under civil jurisdiction.
"The failure of a business should not be a criminal offence," Habib al Mulla, the founder and executive chairman of Habib al Mulla and Company, said last week at a conference in Dubai. "Indeed, the failure to pay post-dated cheque is in my view no more than the failure to perform a contract and it, too, should not be made criminal. I say it loud and clear: outdated laws have to be outlawed."
But few observers believe the widespread practice of writing post-dated cheques as security for loans and for rental and contract payments - and facing criminal penalties when they bounce - is likely to end soon.
Criminal prosecution for bounced cheques has its roots in the UAE's early trading culture, when merchants had little to rely on except cheques to ensure payment and prevent fraud. But a number of executives in the UAE have ended up in jail over the past two years as cheques bounced simply because their businesses took a turn for the worse in the aftermath of the financial crisis. The downturn and attendant increase in bad cheques has also clogged the criminal courts.
Local and federal governments have made progress on the issue in recent years with the establishment of credit bureaus such as Emcredit in Dubai. Bureaus help banks gauge the risk of lending instead of relying on police to collect in the event of default. Observers say more fundamental reform is needed, however, to help the economy recover by removing disincentives for companies to set up in the UAE.
"There are rules and regulations that need to change," Selim Edde, an executive at Cisco in Dubai, said recently. "There are two or three pins, very simple ones. We all know what they are. This cheque business is a terrible business. If I'm a banker, I don't do my due diligence. I rely on the cheque. The police will act as my regulator."
Clyde & Company, an international law firm, said in a legal update last month that a decree last year establishing a special judicial committee in Dubai to resolve all complaints involving bounced cheques written to developers "should serve to curb reliance" on post-dated cheques. The committee has been hearing cases since January.
At the same time, the firm said it was "unlikely to see an end to the practice of collecting [post-dated cheques] in the near future, particularly by banks, and landlords of short-term leases".
Mr al Mulla pointed to three cases last week that he said illustrated the problem: businessmen unjustly detained over bounced cheques and debts they were not responsible for. In one, he said a businessman was detained at the Dubai International Airport over a former employee's unpaid Dh152 (US$41.38) Etisalat bill. In another case, he said a man working in Abu Dhabi had faced criminal charges over a cheque he wrote three years before, when he was chief executive of a property company in Dubai.
"Suddenly he's wanted for a criminal case for a bounced cheque that was in a chain of instalments that was issued when he was CEO of the company a few years ago," he said. "He's going behind bars until he pays that debt."
Decriminalising bounced cheques was one of a number of ways in which Mr al Mulla said Dubai could change to strengthen an economic recovery that was already under way. Educational systems needed improvement, he said, especially in the lower grades. And executives needed to be awarded positions based on merit rather than connections.
"We have never had a proper objective framework for the appointment of top-level executives," he said. "Appointments have primarily been on the basis of connections and who knows who, which don't necessarily have the best outcome. This must change and be replaced by an objective and transparent appointment system."