Tuesday, May 31, 2011

Emerging Signs of Change to Oman’s Audit Law?

Recently, Royal Decree No. 27/2011 amended the name of the ‘State Audit Institution’ to be titled henceforth the ‘State Financial and Administrative Audit Institution’ (“SFAAI”). While the true significance of this amendment is still emerging – will this merely be a name change, or is it a sign of more fundamental changes to come? – now is an opportune time to reflect on the existing state audit law, which reinforced the independence and widened the audit mandate of what is now called the SFAAI.

The State Audit Law issued by Royal Decree No. 55/2000 (the “Law”) decreed the financial and administrative autonomy of the SFAAI, bifurcating it from the Diwan of the Royal Court. The stated objectives of the institution, which was established to audit state public funds and monitor the performance of entities under its control, are as follows:

• to secure public funds and provide a framework for the efficient management of the funds;
• to make internal financial controls conform with applicable financial regulations;
• to expose any financial irregularities in state organizations that fall under the SFAAI’s purview;
• to highlight intrinsic weaknesses in the financial system and to propose remedies to guard against these weaknesses; and
• to audit entities subject to the Law and to ensure that public funds are economically and efficiently employed.

The Chairman and the Vice Chairman of SFAAI are appointed by a Royal Decree. The Chairman, in turn, appoints other members of the institution. In discharging its functions, the SFAAI is authorized to seek external professional assistance where required, as its state audit functions have to be conducted in accordance with internationally accepted standards. The SFAAI must convey audit reports identifying any breaches of financial regulations to the relevant entities along with recommendations for remedial measures. The Chairman of the SFAAI also must submit a summarized audit report to HM Sultan Qaboos, highlighting any failures of the relevant entities to implement the SFAAI’s recommendations.

The SFAAI also conducts special audits at the specific request of the government – for example, special audits of government-controlled companies in the oil and gas sector or of pivotal financial institutions or government socio-economic programmes. The government and other entities that are subject to state audit by the SFAAI are as follows:
• all Ministries and government agencies that constitute the Administrative Apparatus of the State;
• all companies in which the government controls 51% or more of the shares;
• government pension funds;
• public authorities and other bodies which receive financial grants from the government or in which the government owns shares; and
• publicly or privately owned companies which have been granted concessions by the government for a public utility or for exploiting the country’s natural resources.

As the government’s financial watchdog, the SFAAI is empowered to identify systemic weaknesses and to take remedial steps to address them, rather than narrowly restricting its focus to irregularities in individual transactions. The Royal Decree changing its name could presage a further expansion of the SFAAI’s administrative mandate beyond its present financial functions. We shall watch with interest for further developments in this field.


Monday, May 23, 2011

Investment Management in Oman

As the Sultanate continues its drive to diversify the national economy, the past few years have witnessed both the growth of existing companies and a flourishing of new ones. With expanding industries, a robust and conservative capital markets infrastructure and increasing trade, Oman stands poised to offer an array of attractive investment opportunities. Not surprisingly, a number of investment funds and investment managers, both domestic and international, are showing increased interest in Oman.

In order to establish or manage an investment fund, it is necessary to comply with the rules and procedures of the Omani laws and regulations that govern the capital markets sector. This article provides a brief overview of the legal and regulatory framework for the investment management sector and answers a pair of frequently asked questions.

The Legal and Regulatory Framework

The Capital Market Law, established by Royal Decree No. 90/1998, provides the legal framework for, among other things, the Muscat Securities Market, the authorities of the Capital Market Authority, and general regulation of Omani capital markets activity. With regard to investment funds, the Capital Market Law prescribes general organizational and operational requirements, while more detailed requirements are set forth in the Executive Regulations of the Capital Market Law issued by Ministerial Decision No. 1/2009.

However, we note that this legal framework is currently best suited to conventional investment funds such as mutual funds. Certain provisions of the Executive Regulations – for example, requiring subscriptions to a fund to be fully paid up front or requiring equal terms for all investor classes – could make it more challenging for some alternative investment funds, such as private equity funds or hedge funds, to operate in Oman. As the Omani authorities continue their drive to enhance the nation’s capital markets, we will continue to monitor the development of this legal framework.

Which kinds of capital markets activities require a license in Oman?

The Capital Market Law states that the following securities-related activities require a license from the Capital Markets Authority:

• promotion and underwriting of securities or financing of investment in securities;
• participation in the establishment, or in increasing the capital, of companies using securities;
• depositing, clearance, and settlement of securities transactions;
• the establishment and management of securities portfolios and investment funds;
• brokerage in securities; and
• management of trust accounts and custodianship of securities.

Note that establishment and management of investment funds are included on the above list and require a license from the Capital Markets Authority.

Are there general rules on a fund’s investment allocations?

The Capital Markets Law and the Executive Regulations prescribe an array of investment rules. Among these, the most general are:

• an investment fund shall invest at least 75% of its capital to achieve its main investment objectives;
• an investment fund that invests in securities:
o shall not hold more than 10% of the outstanding securities of any single issuer;
o shall not allow its investments in the securities of any single issuer to exceed 10% of the net asset value of the fund (this provision does not apply to index funds); and
o shall not borrow more than 10% of its net asset value; and
• an investment fund investing in real estate shall not borrow more than 30% of its net asset value.


Wednesday, May 18, 2011

Oman’s Anti Money Laundering and Combating Terrorist Financing Law

As a bastion of stability and security in a sometimes volatile region, and with a robust regulatory and business environment, the Sultanate of Oman tends not to experience major problems with respect to money laundering or terrorist financing. However, as noted in a report by the U.S. Department of State, Oman’s long, rugged coastline remains susceptible to regional criminal activity including terrorism, maritime piracy, smuggling and the traffic and sale of illegal drugs.

Oman’s Anti Money Laundering and Combating Terrorist Financing Law (the “AML-CTFL”), which was promulgated as Royal Decree No. 79/2010, has established a framework for classifying, investigating and punishing money laundering and terrorist financing offences.

What is ‘money laundering’?

Under the AML-CTFL, a money laundering offence will be deemed to have taken place when a person handles funds knowing that such funds are derived, directly or indirectly, from the proceeds of a crime or from participation in criminal activity.

Acts of money laundering could include the conversion, transfer or deposit of such proceeds, with the intent to conceal or disguise the origin of the proceeds, or the possession or use of such proceeds.

What are ‘proceeds of crime’?

For the purposes of the AML-CTFL, proceeds can encompass a wide variety of assets, including currencies, commercial paper, securities and any property or tangible or intangible asset that has financial value.

When we talk about the ‘proceeds of crime’ in connection with money laundering, we are referring to proceeds which were derived – even indirectly – from crimes, including terrorism, illegal drugs, piracy, bribery, corruption, kidnapping, human trafficking and embezzlement.

Terrorist financing

The AML-CTFL singles out terrorist financing, which is deemed to take place when a person raises funds or provides funds, directly or indirectly, knowing that such funds will be used, wholly or partly, to finance terrorist activity or a terrorist organization. This financing can take place in Oman or abroad.

With both money laundering and terrorist financing, it is interesting to note that the links to the activity do not need to be direct in order for the offence to be convictable; however, the person committing the offence must have knowledge of the underlying illegal action.


Thursday, May 12, 2011

Peaceful Strikes Under Omani Law

Although the Sultanate has avoided the degree of social unrest that has arisen elsewhere in the region, protests including employee strikes have occurred in Oman during the past few months. It is not well known that Omani law provides a framework for conducting peaceful strikes, which employers and employees alike would benefit from understanding more precisely.

This article sets out the procedures to be followed by employees to ensure that their strike is carried out lawfully and their demands are made legitimately, as well as the steps available for employers to try to resolve any disputes with their employees in cooperation with authorities in a fast and efficient manner.

The statutory basis for strikes

Ministerial Decision No. 294/2006, as amended (“MD 294/2006”), which was promulgated by the Ministry of Manpower pursuant to Article 107 (bis) of the Labor Law, regulates several aspects of employer-employee relations, including the procedures for holding peaceful strikes. MD 294/2006 states that employees may hold a peaceful strike to demand “the improvement of working conditions and circumstances”. It should be noted, however, that strikes are prohibited in establishments that provide essential public services.

The required procedure

MD 294/2006 sets out the following procedure for employees to hold a strike. First, the employees’ labor union or representatives must provide to the employer, at least three weeks prior to the planned date of the strike, written notice of the employees’ intention to hold the strike. The notice must indicate the employees’ reasons for holding the strike as well as the employees’ demands. This same notice also must be furnished to the Ministry of Manpower and to the relevant local government authorities.

Resolving the strike

MD 294/2006 provides that, upon receiving notice of the planned strike, the Ministry shall attempt to form a committee consisting of representatives of the employees, the employer and the Ministry itself, with the goal of resolving the employees’ demands and ending the dispute. The strike must cease and the employees must return to work upon the employer’s and employees’ representatives agreeing to take part in the committee and commencing negotiations. Upon commencement of the negotiations, the committee must reach an agreement within four weeks; otherwise, the dispute shall be referred to the court system.

However, MD 294/2006 is not clear on its face as to whether either party – the employer’s representatives or the employees’ representatives – is obligated to come to the table and join the committee to negotiate. For example, if the employees could ‘opt out’ of joining the committee, they might not have to end their strike and return to work. If workplace strikes continue in Oman, this likely will be an important area to watch for further clarification from the legislative or judicial system.


Friday, May 6, 2011

Precautionary Measures

The below article was featured in


An issue which often causes a lot of concern is injunctive relief.

From time to time, bank accounts may be frozen and other precautionary measures put in place by the Omani court. Application is often made to the Judge in charge of Emergency Measures, which is an ex parte, paper application which involves no court hearings.

A typical scenario works like this: a Claimant sues a Defendant and becomes worried that the Defendant may have meagre assets against which to enforce a final, non-appealable court judgment.

This fear is perhaps justified given that it may take one or two years from the date of filing a case to actually obtaining a court judgment which can be enforced.

In such circumstances, the Claimant applies in writing to the Judge in charge of Emergency Measures, explaining the circumstances, and the traditional request is for all the bank accounts of the Defendant in Oman to be frozen, so that monies can flow into those accounts, but not out.

The Judge makes a decision on this application without informing the Defendant.

Indeed, it is often the case that the Defendant's first knowledge of an injunction being granted is when a representative of the Defendant attends the Bank to perform a routine transaction and is alerted by the Bank that an injunction has been put in place by court order.

However, the injunction can be challenged by the Defendant, but to do so, a fresh court case has to be filed against the Claimant, and in the meantime, the injunction remains in place.

A Claimant may also seek an injunction as regards property in the hands of a third party. For instance, if A sues B and comes to know that C is about to pay a large sum of money to B, a request might be made to the Judge in charge of Emergency Measures to injunct the monies so that C has to retain them and cannot pay them over to B.

Lawyers are often asked what is the standard of proof required to convince a Judge to issue an injunction order? The answer, unsatisfactory as it is, is that what is required is whatever documentary evidence and skilled written argument it takes to persuade the Judge! From experience, it does seem that the Judges are especially concerned about litigant parties who could be perceived to be a "flight risk" or who have strong ties with overseas countries, especially with countries outside the GCC region. It could well be that the Judges are mindful that an Omani court judgment may not be enforced by countries outside the GCC.

So, what is the first thing to do if your assets are injuncted? The starting point is for a lawyer to go to court to peruse the file and to obtain a copy of the injunction order.

The next step is to file a court case against the beneficiary of the injunction.

There are a number of statutory provisions which provide technical, procedural reasons as to why the injunction should be cancelled by the judiciary.

By way of example, Article 375 of Royal Decree 29/02 (as amended) states: "The judgment debtor should be notified of the attachment minutes and the relevant order within ten days from the date of levying it, otherwise it shall be considered null and void."

Accordingly, the Courts have a right to cancel the injunction if a Court official does not serve the injunction order on the affected party within 10 days after the Judge in charge of Emergency Measures signed that order.

In conclusion, the area of injunctive relief and precautionary measures under Omani law is an intricate and complex subject. It is also little-known that a party can still apply to the Omani courts for injunctive relief even when the contract in question states that any dispute will be settled by arbitration. This is because courts always have the right to make injunction orders because an injunction request is considered to be an ancillary request, which is separate and distinct from the issue of which body has jurisdiction over the substantive dispute.

-James Harbirdge, Partner (Oman)