On 28 November 2023, Federal Decree Law No. 42 of 2023 on Combatting Commercial Fraud (the Commercial Fraud Law) came into force, repealing Federal Law No. 19 of 2016. The Commercial Fraud Law aims to combat the trade of counterfeit goods and all types of commercial fraud, whilst establishing procedures to create a legal environment conducive to the protection of intellectual property rights and establishes the Supreme Committee for Combating Commercial Fraud to regulate the market. There have been significant legal developments within the UAE, enhancing the regulation of the domestic market for both suppliers and customers. Violations by suppliers of the Commercial Fraud Law may lead to financial, administrative, and criminal penalties. All suppliers operating in the UAE must ensure that they are aware of their obligations and prohibitions under the Commercial Fraud Law.
Key Provisions
Commercial Fraud is defined as any deception to the customer “by any means by altering or changing the nature, amount, type, price, essential characteristics, origin, source or validity of the commodities or submitting incorrect or misleading commercial data on the promoted products...”. The Commercial Fraud Law applies to entities carrying out any form of economic activity within the UAE, including free zones and the term “customer” is defined as the individual or “legal person”, which would include companies, that purchases the goods.
The Commercial Fraud Law provides a broad definition of “goods” as “any natural material or animal, agricultural, industrial, transformational or intellectual product, including basic and luxury products and raw, manufactured and semi-processed materials.”
Prohibitions
The Commercial Fraud Law has expanded the prohibitions associated with the trade of Adulterated, Spoiled or Counterfeit Goods (collectively referred to as “Prohibited Goods”).
Prohibited Goods are defined as:
- “Counterfeit goods” are defined as any goods bearing, without permission, a trademark similar or identical to a registered trademark;
- “Adulterated goods” are defined as goods which have undergone a change which alters their material characteristics, including advertising or promotions which are contrary to the goods offered; and
- “Spoiled goods” are defined as those that are no longer fit for use or consumption.
The definition of “supplier” is also far reaching and captures “any natural or legal person who imports, exports, re-exports, manufactures, produces, markets, trades, promotes, merchandises, sells, possesses, stores, transports or displays the Goods for his own account or for the account of others.” Businesses, including manufacturers and sellers, associated with any activities offering or selling Prohibited Goods are at risk of violations under the Commercial Fraud Law.
The Commercial Fraud Law continues to regulate the possession of Prohibited Goods. Any business involved with storing, transporting, possessing, including through an intermediary, or the distribution of Prohibited Goods shall be in violation of the law. This includes the possession of materials for, or the intention to, adulterate or counterfeit goods. Suppliers should implement checks and review any contracts with third parties to apportion any risk and ensure the authenticity of the goods handled.
Importantly, the law reinforces the obligations of suppliers when advertising and labelling goods to ensure that a customer is not misled. Suppliers are prohibited from promoting or displaying, including posters or publications, of Prohibited Goods and this includes any description that contains false, deceptive or misleading data.
The Commercial Fraud Law reinforces labelling requirements of suppliers to provide written information on or with the product to show the components and the instructions for use, maintenance or storage. Suppliers are obliged to submit commercial books to the Ministry, or competent authority, itemising the commercial data of the goods owned or possess, with supporting invoices when requested. Steps should be taken by suppliers to ensure that processes are in place to maintain their records.
- Withdrawal from the market
A supplier in possession of Prohibited Goods is required to voluntarily (or by order of the Ministry) withdraw the Prohibited Goods from the markets and stores, and notify the Ministry, or competent authority. The law clarifies the procedure that a supplier must adhere to:
- Withdraw the goods from the market and stores.
- Announce the withdrawal of goods from the market.
- Pay any costs or expenses incurred by the competent authority associated with the withdrawal, disposal or return of the goods.
- Refund the value to the customer or replace the goods at the supplier’s own expense.
There are very few exemptions or defences available where a supplier knowingly was in possession of Prohibited Goods.
2. Penalties
The consequence of any violations can have financial and reputational damage, and potentially include imprisonment. In addition, the implicated business may be closed for a period of up to six months.
Importantly, the manager of the company will be held liable for any violations committed by an employee and will be jointly liable with the company to settle any penalties imposed. A manager may also be subject to financial and criminal sanctions where the manager was aware of the violations but failed to prevent the breaches by the company.
More significantly is the range of financial penalties which now range from a minimum of AED 5,000 through to AED 1 million, with individuals facing imprisonment of up to two years.
Recommendations
The provisions of the Commercial Fraud Law demonstrate further oversight and control over domestic suppliers, to ensure fair trading conditions for all. Whilst we await the enactment of the implementing regulations, we predict they will provide some additional clarity for entities to ensure compliance.
The immediate steps for companies to take to ensure compliance under the law are:
- Ensuring that you and your employees of the company are aware of the obligations, and prohibitions, under the law.
- Considering processes in place for collating commercial data of goods owned, and in possession, and ensuring that these are maintained.
- Reviewing existing procedures to ensure compliance such as labelling requirements.
- Reviewing contracts with third parties to ensure compliance and reporting obligations to avoid any risks associated with Prohibited Goods.
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