The Dubai Financial Services Authority (DFSA) has imposed financial penalties of $299,300,000 and $ 15,275,925 on Abraaj Investment Management Limited (AIML) and Abraaj Capital Limited (ACLD), respectively.

The DFSA investigation, which commenced in January 2018, spanned multiple jurisdictions and found that AIML, a Cayman Islands company now in provisional liquidation:

  • carried out unauthorised financial services, including fund management, within and from the DIFC;
  • actively misled and deceived investors in Abraaj funds over an extended period;
  • misused investors’ monies in various funds to meet its own operating and other expenses, which included payments to entities connected to some members of AIML staff, and to meet ever-increasing cash shortfalls; and
  • concealed this by providing misleading financial information to investors and making false statements about the use of money drawn down from investors and distributions.

Among the methods AIML used to deceive investors were:

  • borrowing money just prior to financial reporting dates to produce temporary bank balances at a level expected by the investors;
  • changing the reporting period for a fund to disguise shortfalls;
  • deflecting demands from various parties to provide updated financial information and bank statements; and
  • lying about delays in making distributions of exit proceeds to investors.

At the time AIML entered into provisional liquidation, two funds managed by it had a combined shortfall of at least $180m. With regard to ACLD, a DIFC company also in provisional liquidation, the DFSA investigation found that it:

  • failed to maintain adequate capital resources;
  • deceived the DFSA about its compliance with various rules, including capital adequacy requirements; and
  • was knowingly concerned in AIML’s unauthorised financial services activities.

As a result of this misconduct, ACLD also breached the Regulatory Law as it:

  • failed to observe minimum standards of integrity and fair dealing;
  • failed to ensure its affairs were managed effectively and responsibly; and
  • failed to deal with the DFSA in an open and cooperative manner.

Internal correspondence showed that Abraaj group’s compliance function raised concerns about the group carrying on unauthorised financial services within the DIFC as early as 2009, but ACLD’s senior management ignored this. Before taking any further action to enforce payment of the fines, the DFSA said it will consider the firms’ circumstances at that time and the corresponding implications of enforcing the fines for fund investors.