Complex Made Simple

$7.1bn lost because of cheques. Here’s what the UAE is doing to fix it

Central Bank of the UAE records a total of 515,000 bounced cheques, about 4.3% of the total value of the cleared cheques during the Jan-May period.

However, UAE legislators have always been well known for being proactive in recognizing market practices and practical issues.

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What’s the damage?

Bounced cheques worth $7.1 billion were reported in the UAE during the first five months of 2018, according to official figures.

The Central Bank of the UAE recorded a total of 515,000 bounced cheques, about 4.3% of the total value of the cleared cheques during the period.

This compared to a total of 546,000 bounced cheques worth $7.8 billion in the same period last year.

Local state news agency, WAM, reported that the number of cheques that passed through the UAE’s cheque clearing system exceeded 12 billion during the first five months of 2018, with a total value of around $161 billion.

The value of the cheques that were circulated from January to the end of May represented around 39% of the total value of the cheques circulated in 2017, which reached $408 billion.

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It’s about to get better

In a move to adjust the volume of cases which places stress on the Police, Public Prosecution and Criminal Courts, and to address the severity of penalties in low value claims, the UAE legislators have first, created a new process to address minor crimes such as bounced cheques in an expedited manner by the establishment of “One Day Courts”; and second, amended the circumstances in which certain, bounced cheques are to be punishable by detention.

With regard to the One Day Court, laws have been enacted which provide that certain simple crimes (including bounced cheques) be dealt with expediently and a decision on such crimes be issued within 24 hours.

These courts have been established in the Emirates of Abu Dhabi, Dubai, and Ras Al Khaimah and appear to have been successful in significantly lessening the load on the Criminal Courts which will have the impact of allowing those more serious crimes to move through the system.

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“Criminal Orders”:

This law allows the Dubai Public Prosecution to issue criminal orders to sentence offenders of certain “simple crimes” to fines only (without detention).

Objections may be filed to challenge such orders within 7 days.

Such objection will refer the matter to the Criminal Courts and the normal procedures shall be applicable.

The Dubai Public Prosecution activated a new penal order system this year according to Stephenson Harwood, an international law firm, that allowed some offenses, including bounced cheques, to be dealt with fines rather than the court system. In practice, the bouncing of a cheque of approximately $50,000 or less is categorized as a “simple crime” holding the penalty of a fine not exceeding $1,350 to $2,700. Accordingly, the drawers of bounced cheques for a value of the same value can be sentenced by the Dubai Public Prosecution directly, without being referred to Courts.

It is not difficult to see the reasoning behind this taking into account the majority of cheques for an amount of $50,000 or less would typically be personal cheques (for rent for example) or cheques drawn by Small and Medium Enterprises (SMEs) for small business transactions where a more limited penalty can be said to be suited to the crime taking into account the value.