Sunday, May 16, 2010


The photo above was taken at the moment of the DIFX launch on September 26th, 2005. Pictured are the Governor, the CEO and the Chairman of the exchange touching the magic globes which launched the exchange. What you can’t see in the photo is me in the back of that room. I’m there with cell phone ear pieces in each ear communicating with my trading desk and with that of another firm engineering what would become the first trade on the exchange. It was kind of like the Wizard of Oz. There was Dr. Omar the Great and Powerful and I and my colleagues were the men behind the curtain. It was as a man behind the curtain that I got to know Dr. Omar.

Not that Dr. Omar would have any idea who I am. The few times I met Dr. Omar he gave me a handshake and a cold smile which said “kindly disintegrate” as if someone had obliged him to shake hands with a garbage man at the end of a long day of work. Dr. Omar had no desire whatsoever to shake the hands of the people who were actually doing the work that was keeping him in the spotlight. That’s what we were paid to do, we should get on with it. He has a point there. But I think it we also made him a little uneasy. The reason for this was that those of us down in the engine room of the DIFC Technocracy had much insight into what Dr. Omar was, and what he was not.

What he was, was a seducer.

Dr. Omar’s gilded tongue lured virtually the entire London banking community to Dubai and enabled it to eclipse Bahrain as the regions financial center. It was not a hard sell. Oil was on its way from $50 a barrel to over $150. Most of that money was going to Saudi Arabia and a fair amount to Kuwait, Qatar, and Abu Dhabi. These people were piling up money faster than even the Chinese. They were going to be in desperate need of some serious banking. Who better to do it than the London Banking community? But who wanted to live in those crazy places? Surely not Londoners.

What about the DIFC in Dubai? Well, in Dubai you have nightclubs which have liquor in them as well as a healthy complement of young ladies from Eastern Europe and Southeast Asia. Heck, it’s practically the East End. And what is this DIFC business anyway? Oh, it’s a legal zone with UK Law as opposed to Sharia? Now that’s an even easier sell. What’s that? Zero percent tax for the next 50 years? Outstanding! Our non-US nationals can relocate there and pay zero percent tax (Sorry Americans, you’re globally taxed. The war on terror is not going to pay for itself as it turns out.) Wow, the DIFC/Dubai is like The City, plus the East End, times the reciprocal of your tax rate!! Sign me up Dr. O. And just like that Dr. O built the DIFC into what is: the largest concentration of international financial expertise in the Middle East. By miles. As a seducer Dr. Omar did his job well and in spades.

What Omar was not was a technocrat.

He’s described this way in both the local and the international press. The story seems to be that during the crisis Sheikh Mohammed removed the “technocrats” to replace them with “loyalists.” Dr. Omar was neither of these. Dr. Omar may be guilty of having expensive tastes in cars. He may be guilty of some spectacularly poor investments. He may be guilty of being a bit haughty toward us unter-menschen down in the DIFC engine room. But, and I can say this from my interactions with him and his staff, he was totally innocent of any knowledge whatsoever of what it would take to make the DIFC a successful center other than as a real estate venture to which he was able to lure international banks as tenants.

He did not concern himself with the minutia of what precisely was necessary for the credibility of the legal system. He did not busy himself with what it would take to ensure the success of the DIFX or how it should interact with other exchanges in Dubai or the region. He also did not consider the possibility of locking in the commitment of the international banks to either the center or the DIFX by parting with equity in them. Rather he had the DIFC take a large equity position in one of the main supporters of the DIFC. This and other investments that Dr. Omar made ultimately came to grief to the great embarrassment of himself and Dubai.

I don't blame him for any of this. He did not have to be a technocrat because he lured acutal technocrats such as myself to the center and we did the boring job of haggling over the Personal Property Law and the DIFX exchange rules. He did what Dubai wanted which was rent real estate to banks so that other Emiratis could rent apartments to bankers.

But was he a criminal?

As I write this Dr. Omar is languishing in jail in Dubai. He has been arrested on the charge that he appropriated public funds for his own use. In their article the Abu Dhabi newspaper The National says that he disguised this misappropriation as “annual performance bonuses.” I’m troubled by this for several reasons. First of all it was not a big secret that Dr. Omar was paying himself a kings ransom for doing his work in the DIFC. I’ve written an earlier article on this and my chief source was an article that was published in Bloomberg in 2005 about Dr. Omar’s Ferrari collection. If you are secretly engaged in embezzling from the state and disguising your income you don't give interviews to Bloomberg about how you're taking delivery of your second Ferrari.

Second Dr. Omar worked for the state. Therefore any funds derived from his work were therefore “state funds.” It seems to me that “annual performance bonuses” that you spend on yourself are not therefore “misappropriations” they’re “appropriations.” You’re supposed to spend your bonus on yourself. That’s what it’s there for. You can’t criminalize something simply by putting quotation marks around it. If he spent a bunch of money on himself personally and called it “real estate investments” or he pulled an Abdullah Brothers and engaged in some “unauthorized transactions” then I could see it. But it seems to me that the transactions that Dr. Omar engaged in were all “authorized” if not entirely successful. The question to ask is “Did Dr. Omar put Dubai on the map as a financial center in the Gulf?” Yes he did. Is it reasonable to believe that Dubai would pay him based on his performance which was a success? Sure as you’re born.

So one of two things must be true: either Dr. Omar paid himself performance bonuses which were approved by people higher up in the Dubai hierarchy in which case they should be faulted not him, or there was no oversight of the DIFC compensation regime whatsoever in which case Dr. Omar was perfectly justified in paying himself whatever he saw fit and if Dubai is unhappy with this they have no one to blame but themselves. In either case, Dr. Omar should not be in prison. Unless there is something the Dubai authorities are not telling us about the deeds of Dr. Omar he should be freed.

I think the more likely explanation is that Dr. Omar’s investments lost a ton of money and he may not have fully understood some of the more complicated transactions into which he entered. He therefore may have not been totally candid with the Ruler with regard to the financial position in which the DIFC found itself. This is bad but if it is a crime there are any number of other people in Dubai who should be standing tall before the man. Chief among them Sultan Ahmed bin Sulayem the Chairman of Dubai World and the former Chairman of Nakheel who has set his son up in business with the creditors funds only to spin him out with no compensation, obliterated tens of billions of dollars of investor funds, and given Dubai it’s largest black eye so far.

But I am not advocating jail time for either Dr. O or bin Sulayem. Dubai has serious governance issues but this is more a lack of oversight than criminal activities on the part of the managers. In order to recover Dubai needs risk takers and entrepreneurs who operate within a predictable and well governed system. Throwing people in prison for overpaying themselves for doing what you asked them to do and using powers that you gave them is not the way forward. The way forward is to make it clear to the people who are the Stewards of Dubai in what incentive structure they operate then let them go without having to fear prison in the event that Dubai changes its mind. It would be an important step for Dubai to either better explain why Dr. Omar is in prison, or to free him.

In my opinion, since they cannot do the former, they must do the latter.


Rupert Neil Bumfrey said...
This comment has been removed by a blog administrator.
Ken said...
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Ken said...

You're talking like the crisis is over. It's soooo not over. It's just starting. Dubai will adapt on the fly.

Abu 'Arqala said...


Agree that Dr. O is probably paying the price for some miscommunication with the Ruler.

Perhaps, more importantly his prosecution serves to deflect potential criticism from the highest levels. It wouldn’t do to have folks start asking whether the guy with “The Vision” had thought it through. Or whether he was paying any attention during the implementation.

And, as usual, throwing a few senior executives to the wolves is proven to be fairly effective with one’s creditors in a distressed situation. A dramatic sign of penance and a bloody token that one will sin no more. Bankers do love rough street justice. At least that directed against borrowers.

But I don't see the fundamental difference between paying yourself a bonus and "withdrawing" a bit of gold or cash from "your" jewellery company.

There may be a difference of degree between these two acts but not one of kind.

In both cases the perpetrators were in a position where they had control over cash/assets that belonged to someone else.

In both cases they were unsupervised. Or perhaps more accurately did not submit themselves to supervision.

In both cases they appropriated those assets for their own use.

I’m sure both the Brothers and the good Doctor were convinced that the benefits they had bestowed on those who owned the assets justified their actions.

Ken said...

Thanks a lot for your comment. I guess I would say that the difference is that I think there is a lot more ambiguity in the governance rules of the DIFC vis a vis Damas. The DIFC is a singularity in the sense that it is a self legislating free zone owned by Dubai. Damas is a straight up corporation owned by its shareholders whose protection is the clear responsibility of the DFSA. The DFSA for that purpose as well as the Legisaltive branch of the DIFC have set out pretty clear standards for what does and does not constitute fraud. Sadly whether the Brothers Abdullah will in fact be held to those standards is not so clear. Thanks again for reading and for your comment.

Anonymous said...

The difference between the two is that one is related to the money which belongs to Dubai & its people while the other is related to Damas, a private-sector entity.

One example is murder and assassination. Point being: there is a difference between the two depending on the identity of the "victim". Surely if you try to kill a president, the implications are higher.

Thanks for the article. I wish you/we had more facts so that theories would not be necessary.

Ken said...


I agree that there is a difference in the victims. The other difference is that Sheikh Mohammed is going over the top to protect his funds while the shareholders of Damas have been left to the not so tender mercies of the Abdullah Brothers.

There isn't ever enough information in Dubai. This is why things like this can't be reported out of London on account of the libel laws. People on twitter yesterday were calling this a "gutsy" article. It would be if I were in Dubai but I'm in the US safely protected by the First Amendment.

SellyDan said...

Ask and ye shall recieve: Dr. O was released on bail on Wednesday. (Sourse: Reuters)

Anonymous said...

Anonymous said...


Mmmm, frankly I think his funds are his business.

I'm saying Dubai's funds are more important than Damas' funds, and obviously that would be the case anywhere.

In this case, I think it's completely justified that the ruler intervened in the case of someone who (allegedly) defrauded the government, and did not in the case of Damas.

For example, if someone hacks your email account, you are likely to actively intervene. If your colleague's account is hacked, you would perhaps be concerned, but still be less likely to actively pursue a solution.

Anyways, just a thought. I agree, the quality of information leaves a lot to be desired.

Anonymous said...

Excellent view point Ken, thanks to you Dr. O is now a free albeit a poorer man. He had to fork out the ill gotten bonus !! and deposit it with the Dubai treasury where of course it will be used for developmental purposes (one more man made island anyone)

Dubai is indeed a land of contrasts

The difference between Dr. O and other higher ups is the difference between these kids and the poor expats who get harassed by the traffic cops

Anonymous said...

To get into the belly of the beast Ken, we must focus on where the action was. DIFC had/has 2 parts. A real estate component run by the CEO of the place, and DIFC Investments. Dr. O apparently did a smashing job , as you indicate, promoting the real estate portion of the whole scheme. As for the DIFC Investment side...shall we simply say.."in over their Kandora's"??
This is where the trouble begins and ends...and where senior DIFCI staff and others were either put in jail, threatened, or otherwise faced hard ball state tactics. OVer $3billion bet on things as far flung as big German banks and Italian sounding CLothing Chains. Hmmm...What was all this about...what really happened here? Seeming Transparency, fair play and a "hands off" policy from the Ruler were in abundance on the way up. When the Hamour hit the fan, the word from the top was get every penny back, in whatever way possible. This last little phrase holds the key to the question of there a future for DIFC as an "international" financial destination?

Anonymous said...

After spending 9 years witnessing the rise of Dubai, Sheikh Mohamed with his "pseudo-vision" is no better than Dr Omar. The whole system is rotten.