May 25, 2020
Mike J. Masoud [note] Mike Masoud, CPA, CACM, CFE, MBA is the Sr. Director of The American Anti-Corruption Institute (AACI) in the Middle East and Africa. You may reach him at Mike@THEAACI.com [/note]

Last month, The AACI published a conservative blog about the NMC Health Plc scandal entitled: Who Defrauded Whom? On May 6, 2020, the Financial Times story about the NMC Health Plc disgrace came striking and included many serious details. [note] NMC Health collapse leaves battle lines drawn – Scandal at former FTSE 100 company has damaged reputations of London and the UAE, May 6, 2020, Financial Times, https://www.ft.com/content/4dbbe048-a426-4551-9c4f-3968235adcdb [/note] In April 2020, The Financial Reporting Council, Britain’s accountancy watchdog, has launched an investigation into EY’s, one of the Big Four audit firms, audit of the private hospital operator NMC Health’s 2018 accounts. [note] Read more on the Guardian Newspaper, May 4, 2020, https://www.theguardian.com/business/2020/may/04/watchdog-investigates-ey-audit-of-scandal-hit-nmc-health [/note]

As of today and based on the Financial Times story and other news outlets, more than $4.2bn is at stake. I believe the magnitude of the fraud scandal will be more than $6bn. According to Freeh Group, the independent consulting firm that was appointed by the NMC Health to examine the Muddy Waters’ allegations, presented its initial findings to the board. False accounting, forged invoices, and kickbacks were among Freeh Group’s findings. [note] Read more on Financial Times, May 6, 2020, https://www.ft.com/content/4dbbe048-a426-4551-9c4f-3968235adcdb [/note]

What Went Wrong?

NMC Health Plc, an Abu-Dhabi based health operator, was listed on FTC in 2012. Since then, the company’s share price increased threefold while the market increased by 20% over the same period. But what led to such a scandal? It is too early to have a definite and complete answer. Several investigations are going on at many levels in Abu Dhabi, London, and probably Washington D.C. Though, I allege the following may have existed in the company:

1- One or more board members dominated the board of directors.

2- Shetty, the founder of the company, “appointed” one or more board members as he and his UAE’s significant shareholders control the company.

3- More than one of the company’s senior management is probably engaged in illegal activities: fraud and corruption.

4- The auditor may have committed gross negligence. The $4.2bn is material by any count.

5- The internal control systems were fragile and ineffective. I am confident that management overrode of controls prevailed in the internal culture of the company.

6- The governance of the company failed. The investigations shall reveal the extent of the irregularities, fraud, and corruption that occurred over the years.

7- I do not think the company had any effective corruption prevention policy. I also do not believe that there was any whistleblower policy.

8- The internal audit department failed in fulfilling its duties.

9- The regulators in both the UAE and the UK failed to meet their duties and protect the public interests.

10- I think that bribes, kickbacks, and probably racketeering prevailed in the company.

11. The tone at the top was, most likely, corrupt.

Many details shall be uncovered over the few weeks and months. We shall learn more about what happened inside the board room and the executive branch.

Damages of Corruption

In my opinion, NMC Health Plc is a classical corruption scandal. Damages are financial and non-financial. While the financial costs shall exceed $6bn, I think the non-financial damages on both the UAE and UK are significant. Sophisticated investors shall think twice before they invest in the UAE. Who can guarantee there is not another mega scandal in the making? I believe the UAE and UK relevant regulators failed in monitoring and overseeing NMC Health Plc.

Relevant Principles of Fighting Corruption

I call on all the concerned parties and authorities to conduct a thorough and comprehensive investigation to understand what happened, why, how, and when. The following are relevant principles of fighting corruption that must exist if there will be justice and effective investigation:

1- The Rule of law
2- Independence of Judiciary
3- Authority and Responsibility
4- Certainty of Punishment

Many watchdogs and relevant parties closely monitor the revelations of this scandal. What is at stake is more than money: it is primarily the public confidence in the UAE and the UK rule of law and independence of judiciary!