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Al-Mirsal

Insights and commentary on legal developments in the Middle East

How new UAE Competition Law will impact businesses

By Omar Shah, William Seivewright, Adeola Adeyemi and Alia Dajani on Posted in Regulatory

UAE competition Law

The expiration date is looming for the six month transitional period granted to the Federal Law No. 4 of 2012 (the “Competition Law”) On 23 February 2013, the new Competition Law came into force in the UAE, prohibiting certain types of restrictive agreements and abuses of dominance, and introducing merger control. The 23 August 2013 marks the end of this transitional period. In the run up to August, no penalties are likely to apply for non-compliance with the Competition Law.

Getting Clarity on Competition Law

The full impact of the Competition Law will only be clear once the Implementing Regulations (the “Implementing Regulations”) are published. Implementing regulations will be published sometime during the summer of 2013 and will provide more detail on a number of important points, including:

  • The jurisdictional thresholds and duration of the initial merger control review period
  • The scope of the de minimis exception applicable to certain restrictive agreements; and
  • The exemption procedure for certain restrictive agreements and/or practices of dominant establishments

Similarities To EU Structure

The structure of the Competition Law is similar to the regime in the EU in that it broadly covers three distinct areas: (i) merger control; (ii) restrictive agreements; and (iii) abuse of dominance. The provisions on restrictive agreements and abuse of dominance in particular are similar to the equivalent EU provisions.

How will new UAE Competition Law impact businesses?

  • FILING: One of the most important effects of the introduction of the new Competition Law is that enterprises planning international or domestic mergers must now start considering whether filing is required in the UAE. Although the jurisdictional thresholds have yet to be announced, the regime enshrined in the Competition Law provides for a mandatory filing requirement and for the transaction to be suspended pending clearance.
  • TIMING: One key unanswered question is the maximum time period in which a Ministerial resolution can be issued to end the initial (Phase I) review of a merger: this should normally be about four weeks/one month to comply with international best practice and not unduly delay international transactions.
  • EXEMPTIONS: The Competition Law is also notable by the broad categories of entities which will be exempted from its application. These include state-owned entities (although the level of state ownership or control for the exemption to apply has not been defined) and SMEs (the term SME has not been defined) but also the following industries: telecommunications, financial services, cultural activities (readable, audio and visual), pharmaceutical, utilities, waste disposal, transportation, oil and gas and postal services.

The Penalties

The penalties for breaching the merger control provisions can be between 2% and 5% of relevant annual revenue (or between AED 500,000 and AED 5 million where revenue calculations are not possible). Fines of between AED 50,000 and AED 500,000 also apply for gun-jumping. Fines for abuse of dominance and restrictive agreements are between AED 500,000 and AED 5 million. Fines can be doubled for repeated violations of the Competition Law. In addition, establishments can be “shut down” (such term is undefined) for a period of between 3 and 6 months.

Complying with new UAE Competition Law

Establishments operating in the UAE must now make sure that they are fully compliant with the legislation when the transition period expires on 23 August 2013. Practical steps that can be taken at this stage include:

  • in the context of mergers and acquisitions, considering in good time the potential for making a notification in the UAE and the need for an appropriate condition precedent in sale and purchase agreements;
  • reviewing all existing agreements and practices to ensure compatibility with the Competition Law;
  • ensuring that all new agreements are negotiated and concluded on terms that are in line with the terms of the Competition Law; and
  •  more generally, ensuring that there are robust compliance policies in place – this includes training staff as to the do’s and don’ts going forward.

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K.A.CARE Sheds Light on Renewable Energy Program

By Craig R. Nethercott, Salman Al-Sudairi and Mahmoud Abdel-Baky on Posted in Project Development and Finance, Renewables

The King Abdullah City for Atomic and Renewable Energy (K.A.CARE) has recently published its consultation white paper for the “Proposed Competitive Procurement Process for the Renewable Energy Program.” The paper outlines the Competitive Procurement Process (the CPP) contemplated by K.A.CARE for solar, wind, geothermal and waste to energy projects in the Saudi Arabia. The publication of the white paper (which is noted to be under development) is an important step in the much anticipated development of renewable energy in the Kingdom where increasing domestic hydro-carbon consumption is competing with the export value benefits of hydrocarbons. K.A.CARE is expecting to receive feedback from interested parties on the white paper.

K.A.CARE is establishing a government-backed entity, the Sustainable Energy Procurement Company (SEPC) which shall be responsible for administering the procurement rounds and managing the Power Purchase Agreements (PPA) awarded under the CPP.  The form of the proposed PPA will be published by K.A.CARE for comment by interested parties shortly – but is expected to provide for a term of 20 years and will be entered into with SECP (with government guarantor endorsement – the details of which are to be clarified).  K.A.CARE will be requesting public feedback on the form of the PPA.

The CPP will consist of an introductory round (5-7 projects of various technologies) for identified sites followed by additional rounds over a two to three year window that will target 7000 MW of capacity (with each project being no less than 5 MW).  K.A.CARE has announced a renewable energy target of 54GW of renewable energy (wind, solar, geothermal and waste to energy projects) by 2032. 

Proposals will be assessed on price and non-price factors with a discount applying to the PPA price proposal by up to 30 percent for non-price factors.  The non-price factors are aligned with K.A.CARE’s broader objectives of developing an indigenous renewables industry in Saudi Arabia and are focused on domestic training, job localisation and research and development.  Proposals will be evaluated over four stages (namely completeness, mandatory criteria (5MW or more, commercial operation within two years, bid concentration limits, resource assessment and financial strength), rated criteria (financial capability, experience, development status and local content) and price evaluation/selection).

The white paper contemplates the establishment of  the SETF – Sustainable Energy Training Fund (which will be funded by a 1 percent of gross revenues surcharge). The SETF training fund will provide support for training programs, the training of Saudi nationals on specific projects and provide grants to educational institutions for the development of renewable energy skills.  In addition to the training surcharge there will be a 1% surcharge for a Sustainable Energy Research Fund which may be accessed for in Kingdom research and development, with a focus on commercialisation.

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Middle East and Africa Technology, IP and Sourcing Focus

By Justin Cornish, Alice Marsden and Brian Meenagh on Posted in Outsourcing, Regulatory, Technology

electronic microchipLatham & Watkins’ Middle East Technology, IP and Sourcing team has just published the sixth edition of Middle East and Africa Technology, IP and Sourcing Focus.

This edition includes a white paper on preparing a statement of work for a technology or sourcing transaction, guidance on US Trade Controls for companies operating in Qatar, Saudi Arabia, South Africa and the United Arab Emirates, a primer on Data Protection in Saudi Arabia and a round-up of the latest note-worthy telecommunications announcements from regulators in Bahrain, Qatar, the United Arab Emirates and Saudi Arabia. Please contact Justin Cornish, Alice Marsden or Brian Meenagh if you would like to automatically receive this newsletter in future.

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Data Protection in the Kingdom of Saudi Arabia: A Primer

By Omar Elsayed on Posted in Intellectual Property, Regulatory, Technology

Although some surveys of privacy law suggest otherwise, privacy requirements do in fact exist in the Kingdom of Saudi Arabia (KSA)and are very relevant to companies operating there or seeking to provide services to customers in KSA.

Background

The paramount body of law in KSA is the Sharīʿah. The Sharīʿah is comprised of a collection of fundamental principles derived from a number of different sources, which include the Holy Qu’ran and the Sunnah, which are the witnessed sayings and actions of the Prophet Mohammed.

Prohibited acts under Sharīʿah are punishable by specific penalties set out in the Holy Qu’ran or the Sunnah. However, where the Holy Qu’ran and the Sunnah are silent in that regard, a judge may use his discretion to determine the appropriate penalty. Such penalties may include imprisonment, monetary compensation and/or deprivation of certain rights. In determining the severity of a penalty, a judge will take into consideration the damage suffered by a victim and whether such damage is actual or consequential. In general, however, only actual proven damages are awarded by Saudi Arabian adjudicatory bodies.

Previous decisions of the Saudi Arabian adjudicatory bodies generally do not establish a binding precedent for the decision of later cases and the principle of stare decisis is not accepted in KSA. In addition, enacted legislation and the decisions of the various Saudi Arabian adjudicatory bodies are not generally or consistently indexed and collected in a central place or made publicly available.

Data Protection under Sharīʿah Principles

Sharīʿah principles protect each individual’s right to privacy and prohibit any invasions thereon. Under Sharīʿah principles, disclosure of secrets is prohibited except inter-alia where the owner of the relevant secret agrees to such disclosure or if the public interest requires so. The Holy Qu’ran and the Sunnah do not stipulate a penalty for disclosure of secrets; however, as explained above, such disclosure may be punishable by a penalty that a judge, in his discretion, deems appropriate and equitable. Such penalty may include a fine, imprisonment or deprivation of certain rights such as suspension of a practicing license.

Data Protection under Saudi Arabian Law

In general, there is no specific data protection law in KSA. Therefore, in the absence of specific provisions on data protection, Saudi Arabian courts and adjudicatory bodies will interpret Data privacy violations under general Sharīʿah principles, which are, as explained above, often expressed in general terms and afford courts and adjudicatory bodies considerable discretion. We understand, however, that a new personal data protection law is under review by the Shura Council.

Cyber Data Protection

The KSA Anti-Cyber Crime Law punishes any person that illegally:

  • accesses the computer of another for the purpose of deleting, destroying, altering, or redistributing its information by a fine not exceeding 3,000,000 Saudi Riyals (approximately US$ 800,000) and/or imprisonment for a period not exceeding four years;
  • accesses the bank or credit information of another or information pertaining to its owned securities by a fine not exceeding 2,000,000 Saudi Riyals (approximately US$ 533,333) and/or imprisonment for a period not exceeding three years; and
  • interrupts data that is transmitted through a computer or an information network by a fine not exceeding 500,000 Saudi Riyals (approximately US$ 133,333) and/or imprisonment for a period not exceeding one year.

Employee Data Protection

KSA laws do not stipulate any procedures which employers must follow for the transfer of employee data outside of KSA. However, given general Sharīʿah principles and the proposed personal data protection law, multinational employers in KSA would probably benefit from including provisions in their employment contracts whereby the employees consent to the use or disclosure of their data to third parties to the extent such disclosures are anticipated or possible.

Patient Data Protection

The KSA Healthcare Practice Code requires that a health practitioner safeguard the secrets of patients which he comes across while carrying out his profession except inter-alia where written approval of the relevant patient is obtained. Violators of such confidentiality requirements can be subject to a fine not exceeding 20,000 Saudi Riyals (approximately US$5,333) and other disciplinary penalties such as the suspension of practicing license. Such penalties may be increased based on the severity of the relevant breach or its reoccurrence.

Telecom Data Protection

The KSA Telecommunications Law restricts the disclosure of information that is intercepted during its transmission. Violators of such restrictions can be subject to a fine not exceeding 5,000,000 Saudi Riyals (approximately US$1,333,333). In addition, the Telecommunications Law restricts providers of telecom and internet services from disclosing information regarding their subscribers to third parties or from allowing individuals to monitor the communications of their subscribers.

Registration and Export of Personal Data

There are no specific requirements in respect of collection, registration or export of personal data under KSA legislation. It is, however, advisable to obtain the consent of the data subject prior to any export of their personal data to avoid breach of the general Sharīʿah principles.

 

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The Emergence of Egyptian Sukuk

By Mahmoud Abdel-Baky on Posted in Capital Markets, Islamic Finance

Following widespread debate and commentary on the first draft of the Egyptian sukuk legislation (the sukuk legislation), the Egyptian cabinet has approved a second draft of the sukuk legislation to be presented to the Egyptian Shura Council for parliamentary discussion. The legislation is a significant change in legal direction for Egypt that has only embraced Islamic finance to a limited degree to date.

The first draft of the sukuk legislation was subject to widespread criticism, including that the sukuk legislation may facilitate privatisation of some parts of the public sector in Egypt.

The sukuk legislation allows joint stock companies and companies limited by shares, governmental and quasi-governmental entities, municipalities, banks regulated by the Egyptian Central Bank and international and regional institutions to issue sukuk subject to certain conditions.

“Sukuk” is defined as nominal securities having equal value issued in Egyptian pounds or foreign currency in a public or private offering tradable until its maturity representing an undivided ownership interest in: (i) title to a property, beneficial interest or services; (ii) assets of an investment project; (iii) capital of a murabaha; (iv) manufacturing cost of a property; or (v) purchase price of a Salam product.

“Governmental sukuk” is defined as sukuk issued by the government, public entities, municipalities or other public juristic persons.

Sukuk shall be issued in one of many forms of sukuk defined in the sukuk legislation. The forms of sukuk are divided into five main categories and each main category is divided into sub-categories as follows:

  • financing sukuk – includes murabaha sukuk, Istisna’a sukuk and Salam sukuk;
  • ijara sukuk – includes ownership title sukuk, beneficial interest sukuk and services ijara sukuk;
  • istithmar sukuk – includes mudarabah sukuk, investment wakala sukuk and musharaka sukuk, which includes, profit musharaka sukuk, muzara’a sukuk, musakat sukuk and mogharasa sukuk;
  • investment funds and portfolios sukuk; and
  • any other sukuk approved by a central Shari’ah committee to be established pursuant to the provisions of the sukuk legislation.

Interestingly, the last category permits the addition of new qualifying structures as may be approved by the central Shari’ah committee.

The central Shari’ah committee will be composed of seven members, each of which shall have certain qualifications including three years of work experience at a Shari’ah committee. The central Shari’ah committee will fall under the umbrella of the Egyptian cabinet of ministers and its members will be appointed directly by the prime minister. The decisions and fatwas of the central Shari’ah committee will be final and binding upon all parties involved in sukuk issuances.

The powers and authorities given to the central Shari’ah committee are broad and far-reaching. They interestingly go beyond the traditional role of a Shari’ah committee and include the power to monitor the trading of sukuk and distributions made thereunder to ensure compliance with Shari’ah in addition to supervising from a Shari’ah perspective projects that have been financed through sukuk issuances.     

Private institutions such as banks and corporations are generally allowed to have their own Shari’ah committees to exercise the same powers and authorities that are given to the central Shari’ah committee. However, it is contemplated that decisions of such independent private institution Shari’ah committees shall be approved by the central Shari’ah committee.

The sukuk legislation is moving through the legislative process and we shall detail any significant developments on Al-Mirsal.

 

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LIBOR No More – The Wheatley Review and LIBOR Changes

By Craig R. Nethercott and Chirag Sanghrajka on Posted in Arbitration, Banking and Finance, Litigation and Arbitration, Regulatory

The second half of 2012 saw a number of major financial institutions censured for the alleged manipulation of submissions made to the British Bankers’ Association (BBA) for the compilation of BBA LIBOR. In addition to direct enforcement action against those alleged to have participated in such manipulation, regulators have also taken significant steps to reform LIBOR itself and the method by which it is determined.  GCC financial institutions and borrowers will be concerned to ensure that these reforms are sufficient to restore confidence in LIBOR as one of the most commonly referenced benchmarks for financial transactions in the region.

The proposed reforms to LIBOR were set out by Martin Wheatley, Managing Director of the Financial Services Authority and CEO-designate of the Financial Conduct Authority, in the Wheatley Review published on 28 September 2012.  These reforms will substantially change the way in which LIBOR is determined, and include:

  • the introduction of a statutory regime for the regulation of submissions made by banks for the compilation of LIBOR;
  • the transfer of responsibility for compiling and distributing LIBOR from the BBA to a new independent administrator;
  • the addition of new governance and oversight functions for the new independent administrator, including implementation of a code of conduct for submitting banks, surveillance and scrutiny of submissions, publication of submission-related information and periodic reviews of market requirements;
  • the discontinuation of LIBOR for currencies and tenors for which there is insufficient trade data to corroborate submissions;
  • the publication of submissions by individual submitting banks after 3 months to reduce the risk of potential manipulation of LIBOR; and
  • the inclusion of a wider range of submitting banks in the LIBOR compilation process.

The Wheatley Review has been endorsed in full by HM Treasury and draft legislation has been published for implementation of a number of its proposals.  In the interim, both GCC financial institutions and borrowers may wish to consider:

  • if the terms of their financing documentation reference BBA LIBOR specifically, whether there is clear “successor page” wording which allows for any successor LIBOR to the BBA screen rate to be used in the absence of the BBA screen rate; and
  • whether the terms of their financing documentation reference currencies or tenors of LIBOR that are to be discontinued, in which case it may be prudent to commence discussions with counterparties to agree an alternative reference rate.

Please contact Craig Nethercott or Chirag Sanghrajka with any questions.

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Hong Kong – Getting Set for Sukuk

By Craig R. Nethercott on Posted in Capital Markets, Hong Kong, Islamic Finance, Regulatory

Following a public consultation process, Hong Kong has commenced the legislative process for the introduction of tax changes to permit the issuance of Sukuk.

The proposed legislation was published in a Legislative Council Brief on December 28, 2012, which seeks to establish a level playing field for the taxation of conventional bonds and Sukuk (referred to as “alternative bond schemes” or “ABS” in the legislation) and details tax exemptions for qualifying structures.

The legislation contemplates four qualifying structures, namely: a “lease arrangement” – Ijarah, “profits sharing arrangement” – Musharakah and Mudarabah, “purchase and sale arrangement” – Murabahah and “agency arrangement” – Wakalah. The term of any Sukuk (or ABS) is currently limited to 15 years.

The proposed legislation will now move through a process of consideration and debate by the Legislative Council in Hong Kong. The Asian financial markets are of increasing interest to Middle East issuers and investors and Hong Kong is seeking to establish a framework to compete with Singapore and the more established Malaysian market for Sukuk.

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Thomson Reuters Foundation Presents 2012 TrustLaw Impact Award to Latham & Watkins, Equality Now and the Royal Bank of Scotland

By Anthony Pallett on Posted in Pro Bono

Latham & Watkins and the Royal Bank of Scotland collaborated with Equality Now to research and analyze legislation implemented to combat the demand for prostitution and the associated issue of human trafficking, specifically sex trafficking, in multiple jurisdictions across the MENA region. The project involved an analysis of applicable legislation in Benin, Côte d’Ivoire, Ghana, Mali, Nigeria, Senegal, Egypt, Israel, Kuwait, Lebanon, Morocco, Bahrain, Jordan, Oman, Qatar, Saudi Arabia, and United Arab Emirates with a view to identifying gaps in the applicable legislative framework.

Thomson Reuters Foundation recognized the ground-breaking pro bono project in its 2012 Awards, presenting the firm, together with Equality Now and the Royal Bank of Scotland, with the TrustLaw Impact Award for the team’s work “to reform local legislation on sex trafficking of women and girls in sub-Saharan Africa and Middle East/North Africa.” The TrustLaw Awards recognize “the best pro bono projects undertaken jointly by lawyers with NGOs or social entrepreneurs.”

Click here to watch a video produced by the Thomson Reuters Foundation showcasing the project with commentary from Monique Villa, CEO of the Thomson Reuters Foundation, and Yasmeen Hassan, Global Director at Equality Now.

The Latham & Watkins cross-office team included attorneys from the firm’s Dubai, Abu Dhabi, Doha and London offices. Dubai partner Anthony Pallett, who led the Latham team, said: “We are delighted to have contributed to this important project, working alongside the committed and talented lawyers at Equality Now and the Royal Bank of Scotland. Our research is designed to benchmark the legislative framework in the target countries against international standards, identify gaps in the relevant laws, and highlight reform priorities. We are immensely proud to have been part of this landmark research initiative and honored to receive this award.”

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GCC Family Businesses Investing in US Commercial Real Estate

By Salman Al-Sudairi, Ahmad Anani, Christopher Lester and Kai Schneider on Posted in Banking and Finance, M&A/ Private Equity, Real Estate

GCC-based family businesses are increasingly looking towards the US commercial real estate market for potential investments. Latham & Watkins recently hosted a seminar in our Abu Dhabi, Dubai, Doha and Riyadh offices to discuss how GCC investors typically structure US commercial real estate investments and what US tax considerations businesses should keep in mind. A panel of four-US based real estate specialists (Richard Kleinman, Associate Director, LaSalle Investment Management, and Latham partners Michelle Kelban, Nathaniel Marrs and Alan Van Dyke) discussed these issues as well as addressed the current state of the US commercial real estate market during a one hour seminar. The program is available for viewing on-demand. If you have questions on this or other GCC family business programs please contact Salman Al-Sudairi, Office Managing Partner, Riyadh; Ahmad Anani, Senior Counsel, Doha; Christopher Lester, Counsel, Abu Dhabi; or Kai Schneider, Partner, Dubai.

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Basel III Implementation Update

By Tariq Fedda on Posted in Banking and Finance

The Basel Committee on Banking Supervision has issued a Report to the G20 Finance Ministers and Central Bank Governors on Basel III Implementation.  The implementation period for Basel III capital requirements starts from 1 January 2013 and includes transitional arrangements until 1 January 2019.  At the time of the report, 8 of the 27 member jurisdictions of the Basel Committee have issued their final set of Basel III related regulations (being Australia, China, Hong Kong SAR, India, Japan, Saudi Arabia, Singapore and Switzerland), 17 members have published draft regulations, and two members are currently in the process of drafting regulations but have not yet published them. This means there is now a high probability that just six of the 29 global systematically important banks will be subject to Basel III regulations from the globally agreed start date.

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