More tales of imprisonment and Catch 22 in Dubai

Readers,

Another cautionary tale of the draconian laws in Dubai and the obscene powers available to the banks in the UAE to imprison expats, from the BBC online. [TWI - thx for the link!]

The Catch-22 aspects of the UAE's immature laws with regard to debt and the absence of a personal bankrupcy law are scary indeed. More on that to come soon.



Dragon's advice on the UAE remains, as before, "Best Avoided"

BBC News

Homeless in Dubai

18 July 2010 Last updated at 03:45 ET Help
Nicholas Warner is British and sleeping on the street in Dubai. He got into a dispute with his bank, Emirates NBD, initially over whether his credit card repayments had been made.

He went on holiday at Christmas and the bank says that by leaving the country without its permission while they were in a dispute, he got reclassified as a so-called "debt skipper" - one of the many expats who leave Dubai in a hurry with large debts, never to return.

When he arrived back at Dubai airport, he was arrested. His passport was seized by police on the authority of the bank.

Although he was released and tried to negotiate with the bank he got into further difficulties.

He had been working as a strategy adviser for an alternative medicine company, but his employer decided it was safer to let him go while he sorted everything out.

Emirates NBD is refusing to let his passport be released until the debts are paid. Nicholas has no way of paying them without a job. And he cannot get a job without being able to show he's in the country legally. For that, he needs his passport.

Read more:
Destitute in Dubai: One man's story

PS: The Dragon is still on leave, like everyone else. Expect delays and occasional champagne-induced poor typography...

Draconian debt laws in the UAE. A Tale of Warning - Part One.

The UAE, and Dubai in particular, still peddle a life style vision of hedonistic pleasure to foreign expats (when not busy arresting and imprisoning them for saucy things like kissing and texting).

Middle talented service sector Brits, for example, seemed to be able to come over and live the lifestyle: posh new flat, new car, no taxes, and loads of relatively cheap restaurants, bars and nightclubs.

Bright Lights. Bright Opportunities!! From http://makkah.files.wordpress.com


They work in publishing, marketing, sales, account management, promotions, advertising, real estate.... Yeah, all those areas of employment heavily hit by Dubai's meltdown.

The problem is a lot of them believed the hype. They found themselves spending all that money on rents, loans to pay the rent in advance as demanded, car loans, going out. You know.

Then they got into the credit cards and personal loans too. Maybe even bought a place off plan. Ooops.

The UAE response to debt: Stop, Go to Jail. Go directly to jail. Do not pass go. Do not collect $200.


When such people get laid off, a whole new lifestyle kicks in. The UAE don't have a personal bankruptcy law, you see. And if you can't get another job to service your debts, the banks you owe money to can (and do) block your right to leave the country. If you can't pay your debts you get thrown in jail, for quite some time.

See the story of the guy who escaped by boat to India, and the facts about debt in Dubai

"Welcome to Debt City". By Tom Huntley
...
Ford also left behind an anguished “open letter” to friends and creditors that neatly encapsulates the predicament of many expats in Dubai who took out loans during the flush times and now find themselves out of work and unable to keep up with the payments on their seaside villas and luxury cars.

“I am not running away from debt, I am purely protecting those dearest to me and getting out of a country which, due to the lack of structured bankruptcy laws and a banking system which has zero flexibility on loan repayments, drives people to make horrible decisions,” he wrote in an open letter to local media.

He promised to repay all of his creditors.

Dubai authorities won’t say precisely how many people have been jailed for their debts, but local news accounts put the number at about 1,200 — more than 40 percent of the total prison population.

Even trickier to gauge is how many others took Ford’s route and simply fled. Judging by the number of apparently abandoned BMW’s and Mercedes gathering dust on city streets and the ensuing chatter on expats’ discussion boards, the number is not insignificant.

This situation has created a whole subclass of expats in the UAE who are in the hole (only a little bit, say $15k), unemployed, and therefore desperate. Hey, OK, so the banks lent them money. But 2 years in prison? How does that help pay their debt anyhow?

UAE Ministry of Tourism Photo: Everyone agreed the Ministry's new expat marketing campaign - though true - wasn't going to work.


So here's the sort of thing that's going on, and worryingly, Oman and our expat Governments' Representatives seems to be assisting the UAE to continue to imprison minor debtors.

Here's a cautionary tale folks. It's a true story. Some names have been changed.

PART ONE: The Fall From Grace

Dragon,
...
Roughly 5 months ago, NBD (National Bank of Dubai) put a case against me for missing 2 payments on a loan, this was due to loosing my job, as so many other people when the credit crisis hit. I was working in a construction related job.

I never once broke contact with the bank and as far as I am aware I would only be in serious default for missing 3 payments. I found another position and continued to pay, even paying a little more so I would eat away at the arrears and showing a determination to resolve my problem.

When NBD joined with Emirates Bank that they applied the case [law], this meaning a travel ban. They informed me of this situation by text message, not by letter or call..the arrears totalled 9000 dirhams which I paid immediately, therefore having a normal running loan account.

They insisted I have my salary paid into NBD but this was a problem due to commitments to Citi Bank ...

As time went on the [new] company I was with had difficulties, and a number of us where let go. But they also requested the residence visa back. This would have meant I could not go to the border to get a tourist visa due to the [travel ban], therefore I would eventually over stay, making it impossible to get another job with residency as all over stayers must be cleared and therefore I would be arrested.

Also as I must be a residency holder to have the loan in the first place, another reason I would not be able to clear the [travel ban]

So no matter what, he's screwed and will be arrested and put in jail for a debt - in this case - he was up to date with repaying!! What can our poor UAE expat do? What would you do?

These UAE laws are monstrous and barbaric. People guilty of nothing more than doing what was expected and encouraged by the Dubai authorities are being sent to prison in droves. With NO intervention by their embassies.

Why? In the west this would NOT be a cause for prison, but a negotiated settlement with creditors. Just like other bankrupt people or corporations (like Dubai World & Nakheel perhaps?) it's just a negotiation. It's not like the banks thought an expat Nakheel marketing guy was 'sovereign backed' when they loaned him money either, eh, Sh. Maktoum?

Coming in Part 2: The Escape... to Oman

Dubai ruler bounces a $3.5bln cheque, but probably will avoid the jail time...

After Dubai got its hands on another $5bln loan from Abu Dhabi controlled banks, international investors had assumed that the money would be in part used to repay the huge debts coming due from Nakheel, the real estate development arm of Dubai World. Many were speculating on Nakheel debt earlier this year, as it was selling for 65cents in the dollar while a payout would bring in $1.15. Easy money, it seemed according to the National, as in seemed inconceivable that Abu Dhabi or MAktoum would allow such a default.

Oops. Wrong.



Dubai World instead announced a further restructuring (ie sacking people, more loans, selling assets and and pulling back on projects) and that it was 'asking' Nakheel and Dubai World bond holders to wait for their money until May next year, even though it is due in December. The announcement [thanks for the link Muscato! LOL] has sent CDS rates for Dubai and the entire region sharply higher and seriously blown what little remaining confidence was left in Dubai being willing and able to meet its obligations. The $10bln Dubai previously borrowed from the UAE Central Bank [=Abu Dhabi] is already gone it seems.

If the Nakheel bond is not repaid in December as promised by Dubai's leaders, it will be a default, despite the spin being put on it by Dubai's press.

Ironic then that the Dubai based Gulf News at the same time are still showing a neat little video from July by local lawyer Hassan Arab on how the UAE courts view bounced cheque suspects, helpfully explaining the legal implications in Dubai of a bounced check in the Emirate:

Any bounced cheque .. is a crime.. As per Penal Code 401, the punishment for a bounced cheque is either a fine of a minimum of 1000 dhirams [~US$250] or a period of 1 month to 3 years in prison'

Dubai has suffered from exteremely poor legislation dealing with bankruptcy and insolvency, with no possibility under the law for personal bankruptcy. This is what prompted many expats to flee their debts over the past 9 months, as it is treated as a crime in true Victorian style. Defaulting on a Sukuk bond is essentially the same as bouncing a cheque, except ... er... well... its different. Bouncing cheques is what ordinary people do, while restructuring and defaulting debts is what big insolvent corporations do.

But what's good for the expats of Dubai is, of course, not something the rulers of Dubai feel applies to them. So the likely Nakheel default will not be leading Sh. Maktoum to see the inside of a Dubai prison, a fate many expats have suffered despite their losses being insignificant compared to defaulting on a $3.52bln loan. Nakheel has another $3.6bln loan coming due in May next year too, on top of various other syndicated loans.

The suggestion of a default sent entire European stock markets down around 3% in a day, as the ramifications of Dubai failing to pay its debts would impact the world financial system.

Welcome to Dubai folks, where everything is just peachy! Please bring cash. The cheque's in the mail, by the way.


Photo: Hogarth's depiction of a Georgian debtors prison.