Who would be made liable in cases where the company failed to pay the government taxes or, failed to comply with the provisions of law or, the Articles of Association and Memorandum of Association, or has been found to be involved in fraudulent acts? Can the actual decision-makers of the entity running the business behind the corporate veil, can be brought into the scrutiny of law? The unique feature of a corporate entity as a separate legal entity or a legal person, allows it to function distinct from the shareholders or the members of the entity; an exception to other forms of business like sole-proprietorship or general partnerships where such entity is not recognized as a separate legal entity but, rather an extension of its owners. From the moment a company is incorporated, it is recognized as a separate body; whereby, a corporate veil of immunity is formed between the entity and the shareholders or the board members of the entity, shielding them from any kind of personal liability for the business carried out by the entity.
The entity as a separate body enjoys the same rights in law as that of a person, whereby, it can incur debts, possess its own liabilities and assets, enter into a contract, can sue or be sued, and so on. However, at the end of the day, the company is but a mere artificial person and requires the actual person to run effectively or take decisions. Therefore, as famously quoted by king Martin Luther, American Minister, and Activist, “The moral arc of the universe is long, but it bends toward justice.”
Therefore, Undoubtedly, the members of the company are held responsible and the courts can pierce through the veil to make them answerable for such civil or criminal offenses committed by them. The United Arab Emirates (UAE), being the land, which hosts major entities, acknowledges the exigency of having codified legislation in administering justice by holding such companies and their members involved in the acts which breach the rules and regulations of the company or the laws. A corporate liability or a corporate crime can arise when any member of the company is found to violate the duties that he owes or, involves in any kind of acts in contradiction to the rules and regulations of the company or, the relevant provisions of various federal laws governing the functioning of the entities.
Article 65 of the Federal Law Number 3 of 1987 on the Penal Code (the Penal Code), happens to be the foundation of the acts that constitute corporate criminal liability. Article 65 of the Penal Code stipulates that all the members bound to their responsibilities, of the corporate body can be held liable for committing any criminal offense as specified by the relevant law governing the entities, but it excludes any government agencies, their official departments, and the public organizations and establishments from the scope of applicability of criminal charges on their corporate persons. The list of the criminal activities for which a company can be held liable as per article 65 of the Penal Code includes bribery, corruption, money laundering, breach of trust, embezzlement of funds, the bounce of cheque, forgery, fraud, cybercrime, criminal acts by directors and labour complaints. The other relevant governing legislation which specifies the acts that can give rise to corporate crimes in UAE are as follows:
- Federal Law Number 9 of 2016 on Bankruptcy (the Bankruptcy Law), provides provisions governing the liabilities of the managers and directors of the company in circumstances, where a bankruptcy procedure has been commenced against the company or, it has been declared to be bankrupt.
- Federal Law Number 4 of 2000 on the Emirates Securities and Commodities Authority and Market (the ESCA Law), stipulates the criminal liability of the entities and their representatives in cases where any transactions have been made in contradiction to the rules and regulations as specified in the act.
- Federal Law Number 5 of 2012 on Combatting Cybercrime (the Cybercrime Law), regulates the matters related to security information technology and all online commercial and financial matters. It provides that, any person who gains unlawful or unauthorized access to any computer network or information technology to obtain confidential data or to tamper with such data, shall be penalized.
- Federal Law Number 4 of 2002 on Anti-Money Laundering and Combatting the Financing of Terrorism, hold any person or entity liable who launders money or, funds the terrorist or any other illegal organizations or, fails to report such acts of money laundering to the financial information unit of the central bank.
- Federal Law Number 8 of 1980 on Labor Law (the Labor Law), subjects any employer who hires an expatriate without a valid work permit or hires a foreigner without sponsoring him to be liable for a corporate crime.
- Federal Law Number 18 of 1993 on the Commercial Transaction Code, states that the directors of the company can be penalized on account of concealing information, destroying important documents or has failed to acknowledge the due debts during the time of bankruptcy.
- Federal Law Number 4 of 2012 on the Antitrust Crimes (the Antitrust Law), suggests that any corporate entity which violates the provisions of the Antitrust Law, fails to comply with the restrictive agreement or, abuses the dominant position and economic concentration shall be held liable for a corporate crime.
However, the legislation prescribing different kinds of corporate crimes is not limited to the above specified Federal Laws, as there are many other such different legislations that provide for the acts that constitute a corporate crime. In this article, we will get an insight into the provisions of Federal Law Number 2 of 2015 on the Commercial Companies Law (the Companies Law) stipulating the acts that can make a corporate entity or its members liable for corporate crimes. The Companies Law divides the nature of crimes into two categories:
- Crimes where reconciliation is possible (of Civil Nature);
- Crimes where reconciliation is not possible (of Criminal Nature).
Articles 339 to 360 of the Companies Law, provides for the crimes and penalties for where reconciliation is possible as follows:
- Non-compliance with the decision of the registrar with regards to the change of the name of the company – shall be imposed with per day a fine of UAE Dirhams one thousand (AED 1,000) on expiry of thirty (30) working days from the date of when the decision has been notified to the company.
- If the public joint-stock company has not listed its name in a financial market within the state shall be charged with a fine of UAE Dirhams two thousand (AED 2,000) on the expiration of the stipulated date for such listing.
- If the company denies the partner or the shareholder from having access to the minutes of meetings of the general assembly or the company’s register, documents, or any other such records pertaining to transactions between the company and the prominent parties for the purpose of inspecting; a fine of at least UAE Dirhams ten thousand (AED 10,000) and not more than UAE Dirhams fifty thousand (AED 50,000) can be imposed on the company.
- If the chairman of the Joint Stock Company has not complied with the provision stipulating the summoning of the annual general assembly of the company to meet within the duration as prescribed by this Law or, where the chairman issues an invitation of such meeting without the prior approval of the Ministry or any relevant authority or if any director has intentionally stopped such invitation from being passed on or, the convention of the general assembly from being held. He shall be subject to a fine of at least UAE Dirhams fifty thousand (AED 50,000) and not beyond UAE Dirhams one hundred thousand (AED 100,000).
- If the company’s chairman has not summoned the general assembly in cases where the company’s losses have reached half of its capital, a fine of at least UAE Dirhams fifty thousand (AED 50,000) but not more than UAE Dirhams one million (AED 1,000,000) shall be imposed on the chairman.
- The chairman of the joint-stock company or his representative shall be held liable for the corporate offence if they failed to adhere to the request of the Ministry or any other applicable authority to invite the general assembly. They shall be imposed with a fine of at least UAE Dirhams one hundred thousand (AED 100,000), but not more than UAE Dirhams three hundred thousand (AED 300,000).
- If the chairman of the joint-stock company has missed out on inviting one of the board members for board meetings, he shall be liable to
- or gives false information to mislead such inspectors or auditors shall amount non-compliance of their duties and shall be subject to a fine of at least UAE Dirhams ten thousand (AED 10,000), but not more than UAE Dirhams one ten thousand (AED 100,000).
- Any foreign or national company shall be held liable with a fine of at least UAE Dirhams fifty thousand (AED 50,000) but not more than UAE Dirhams five hundred thousand (AED 500,000), in the absence of existence of a record on the accounts. Where such non-maintenance of the record of account has not been for the period of time as specified by law, shall be imposed with hefty fines.
- Appointing a non-approved auditor to audit the accounts shall extract a fine of at least UAE Dirhams fifty thousand (AED 50,000) but not more than UAE Dirhams two hundred thousand (AED 200,000), on the chairman of the joint-stock company; the non-approved auditor who has done the auditing of the accounts shall also be subject to a fine of at least UAE Dirhams twenty thousand (AED 20,000) but not more than UAE Dirhams one hundred thousand (AED 100,000).
- The corporate liability shall be extended to even the Sharia controller and the members of the internal sharia control committee in companies that work as per the provisions of the Islamic sharia law, on their failure to function as determined under a decision by the cabinet.
- Any entity which withholds or delays the refund of the extra amount of money paid by the subscribers shall be subjected to a fine of at least UAE Dirhams five hundred thousand (AED 500,000) but not more than UAE Dirhams ten million (AED 10,000,000).
- If the percentage of contribution in capital of the company by the UAE Nationals or the UAE Directors is not as provided by the provisions of this law, then a fine of at least UAE Dirhams twenty thousand (AED 20,000) but not more than UAE Dirhams two hundred thousand (AED 200,000) shall be imposed on such entities.
- If the shares are not distributed as specified in the provisions of this law shall be imposed with hefty fines
- If the foreign company is not registered with the registrar or the competent authority shall extract a fine of at least UAE Dirhams one hundred thousand (AED 100,000) but not more than UAE Dirhams five hundred thousand (AED 500,000).
- pay a fine of at least UAE Dirhams fifty thousand (AED 50,000), but not more than UAE Dirhams one hundred thousand (AED 100,000).
- If the chairman, board member, executive officer, general manager or other employees of a company repudiates to not show the required documents or data to the auditors of the company or the inspectors from the Ministry, or any other such competent authority; or conceals
Performance of the commercial activity by the representative office, delay in amending the Memorandum of Association and Articles of Association to be in line with the provisions of this law, any kind of publication inviting the participation of the people in any shares, bonds, or other securities without the prior approval by the authority, or obtains money from such public subscriptions, or any other such violations of the provisions of this law shall extract hefty fines on the companies or on the members who failed to fulfil their duties with regards to the same. Although the members of the company enjoy immunity from any kind of legal actions against them by the virtue of the corporate veil, the court can pierce through the corporate veil to bring them to the light of justice, if such members are found subject to the below-mentioned cases as specified:
- Adding any untrue statements into the company’s Memorandum of Association or the Articles of Association or, to the bond papers or, to the catalogue of shares or, approving of documents consisting of such untrue statements with complete knowledge of the same, shall extract on the person liable of such corporate offence a period of imprisonment between six (6) months to three (3) years or, a fine of UAE Dirhams two hundred thousand (AED 200,000) but not beyond UAE Dirhams one million (AED 1,000,000)
- Any person who is found Overestimating the value of the contributions made by the shareholder then that of its actual value, with wrongful intention shall be made subject to imprisonment for a period between six (6) months to three (3) years and also shall be imposed with a fine of UAE Dirhams five hundred thousand (AED 500,000) but not more than UAE Dirhams one million (AED 1,000,000)
- The manager or the board members have a duty to abide by the law and the company’s Memorandum of Association and Articles of Association, also, the auditor of the company has a duty to approve such distribution in line with the law; therefore, any unlawful distribution of profits or interests to the shareholders shall be made liable to be punished by imprisonment between a period of six (6) months and three (3) years and a fine of UAE Dirhams fifty thousand (AED 50,000) but not more than UAE Dirhams five hundred thousand (AED 500,000) shall be imposed.
- The manager, board member, auditor, or liquidator are under a duty to provide correct financial statements and reports; therefore, it shall be punishable by law to not disclose the true financial position of the company by inserting false figures in the balance sheets or by providing wrong statements of the profit and losses or, by omitting the relevant materials in such documents. They shall be made subject to both imprisonment and a hefty fine.
- If any inspector appointed by the competent authority, purposefully mentions false incidents in his inspection reports or, omits any such relevant material prejudicing the inspection; or if any chairman, board member, general manager or executive officer of the company refuses to provide with all the necessary documents or information to the inspectors shall be liable to face severe punishment by law. The fine can amount to between UAE Dirhams ten thousand (AED 10,000) but not more than UAE Dirhams one hundred thousand (AED 1,000,000) and also can be imprisoned for a period between three (3) months to two (2) years.
- If the liquidator causes any kind of intentional damage to the company or the members of the company shall face a punishment of imprisonment for a period between three (3) months to three (3) years and also a fine of UAE Dirhams fifty thousand (AED 50,000) but not more than UAE Dirhams five hundred thousand (AED 500,000)
- A person shall be held liable for the violation of the provisions of law if he sanctions or proposes to sell the shares or the bonds or any other such receipts in contradiction to the law and shall be subject to punishment by imprisonment for a period of three (3) months to two (2) years and a fine of UAE Dirhams one hundred thousand (AED 100,000) but not more than UAE Dirhams five hundred thousand (AED 500,000) shall be imposed.
- As per the provisions of this law, the board members of the joint-stock company are not allowed to get a loan for themselves, or for their family members, from the company where he is a board member unless it’s sanctioned by law to do so; the chairman, board members, general managers and executive officer are also obligated by law to not grant sanction of such loans or guarantee any security to the board members or his family members. These acts can amount to a corporate offense, thereby, punishable by law with an imprisonment period of three (3) months and a fine of UAE Dirhams one hundred thousand (AED 100,000) but not more than UAE Dirhams five hundred thousand (AED 500,000)
- Any person or the chairman, board member, or any other employee of the company, who discloses the confidential matters of the company or makes an intentional attempt to cause damage to the functioning of the company by using the information obtained, shall be held liable for a corporate offense and made subject to imprisonment for a period of six (6) months and a fine of UAE Dirhams fifty thousand (AED 50,000) but not more than UAE Dirhams five hundred thousand (AED 500,000) shall be imposed.
- Any employee, chairman, or board member who takes part in any kind of transactions, either directly or indirectly in order to manipulate the prices of the securities issued by the company can extract a heavy fine of UAE Dirhams one million (AED 1,000,000) to UAE Dirhams ten million (AED 10,000,000).
The Judicial Proceedings:
Article 7 of Federal Law Number 35 of 1992 of the Criminal Procedural Law (CPL), sanctions on the public prosecution a special jurisdiction to commence criminal proceedings. The police along with the prosecutor plays the primary role of lodging the criminal complaints, gathering evidence, taking the statements of the witnesses and carrying out all such orders given by the public prosecutor. The police conduct the criminal investigation, which is recorded in an official file of cases. This case file is shared between the police and prosecutor for the purpose of recording their parts of the investigation; after the completion of the investigation, the case file is passed on to the prosecutor, who will then assess if there is any stand for issuing a prosecution order against the accused, accordingly, either refer the matter to the court or discharge the complaint. In most cases, the criminal complaint will be referred to the Court of First Instance, except for cases where it’s the matter involves extradition, it will be referred to the Court of Appeal. Crimes that are committed abroad but fall under the purview of the jurisdiction of the UAE Criminal Courts shall be submitted to the Court of the Capital; cases involving national security shall be heard by the Union Supreme Court. If the accused is not convinced with the judgment of the Court of First Instance, he can then further appeal the decision of the Court of First Instance to the Court of Appeal within a period of fifteen (15) days from such decision and where the public prosecutor is not convinced with such decision, may also appeal within a period of thirty (30) days. By the virtue of articles, 22 to 29 of the Penal Code allows the plaintiff to file an application of interim measures, whereby, a civil suit can be filed to claim damages that might be incurred as a consequence of the criminal proceeding.
Cases involving punishment of a monetary fine or if permitted by law can be settled by plea bargaining, whereby, the defendants can negotiate with the prosecution, by accepting that they are guilty in return to receive a lenient sentence for the offences committed without being referred to the prosecution officers. However, the limitation period to lodge such criminal complaints shall be twenty (20) years for cases involving felonies, five (5) years for cases involving misdemeanours and one (1) year for cases involving contraventions. The time period shall be calculated from the date of acquiring the knowledge of such crime or whenever such crime has occurred, whichever is earlier.
Cassation Number 75 of 2019 – Penal:
In this following case, the managing partner of the company in his capacity has sponsored a foreigner whose resident visa has expired to stay in the country. The court has issued a judgment, taking into consideration Article 65 of the Penal Code and also the provisions of the Companies Law and has held the company’s manager for an offence of corporate liability, thereby, rejecting his objection as to that the company should be held liable and not him. The foreigner who stayed in the country without a valid resident visa also was charged as per the provisions of the Federal Law Number 6 of 1973 on the Entry and Residence of Aliens.
Cassation Number 49/2003 and 68/2003:
The Court of Cassation has passed an order stating that where the offence committed by the employee’s negligence during the course of his work or in the name of the corporate entity, if not done intentionally, then it shall not amount to corporate liability. In this corporate world, where the legislations governing corporate crimes are wide, it is easy to miss out on the acts that can constitute a corporate offence; therefore, it is necessary for all the companies and their members to be aware of all the provisions stipulating on the acts constituting a corporate liability. Non-compliance with such provisions of law can lead to severe punishments. The only way to mitigate such risks is by being aware of the laws and ensuring the functioning of the company is in line with the provisions of the law.