The disclosures at Damas International represent a wake-up call for investors in the UAE and underline why standards of corporate governance need a closer look, now more than ever. Unknown to many shareholders, the dynastic heirs of the business - the three Abdullah brothers - were able to withdraw money from a publicly traded company like it was a personal bank, the regulator said.
They also failed to disclose conflicts of interest on multiple occasions. For instance, they did not disclose to the company that they were the owners of a building in Sharjah that Damas bought for Dh84 million (US$22.8m). This kind of activity is a strong deterrent to the global institutional investors that the UAE needs to grow and thrive in the years ahead. Investors need transparency and a guarantee that the rule of law will prevail in jurisdictions where they deploy their cash.
It is for this reason that the Dubai Financial Services Authority (DFSA) should be applauded for taking such unprecedented actions against Damas. Not only did it impose strong penalties on the individuals involved and take the unique action of dissolving the board of directors, but the DFSA and Damas agreed to make changes designed to prevent anything similar from happening in the future. Damas will now have a full-time compliance officer and will have to make systemic changes to the company so that if something similar does happen again, it raises red flags.
The question now is how will the lesson learnt from this case be applied across the board in the Emirates, especially outside the Dubai International Financial Centre. The actions announced yesterday shows that the DFSA has teeth, but it also prepares the groundwork for Damas to focus on the core area of business it has been doing since the beginning of the 20th century: retail sales of gold and jewellery.