AI-Based Investment Scams in the UAE: Legal Framework and Practical Remedies for Victims

Artificial intelligence (AI) increasingly influences global finance, commerce, and digital services. In the United Arab Emirates, a country known for its ambition in digital transformation, AI has been widely adopted in various sectors, including finance. However, this openness to innovation has also allowed unregulated players to exploit the “AI label” to promote high-yield investment schemes without legal grounding or transparency.

Frequently, these schemes target investors through online platforms claiming to use proprietary algorithms or “predictive robots” capable of generating guaranteed profits. In reality, many such platforms operate outside the legal framework, leading to significant financial losses for investors, both residents and expatriates. As a response, the UAE has implemented stricter regulations through laws such as Federal Law No. 34 of 2021 on Cybercrime, and the creation of the Virtual Assets Regulatory Authority (VARA) in Dubai.

This article explores the typical fraudulent mechanisms used in AI-based scams and analyzes the legal protections and remedies available under Emirati law.

I. Fraudulent Mechanisms Leveraging AI: Technical Illusions and Legal Violations

A. The Illusion of Predictive Power Through Artificial Intelligence

Many companies, often registered in offshore jurisdictions, claim to offer algorithm-based investment solutions with success rates allegedly exceeding 90%. They use complex technical language to mask the absence of verifiable results and regulatory approval.

Under the Securities and Commodities Authority (SCA) regulations, any entity offering investment products to the public must obtain a license and submit audited performance documentation. Article 3(2) of the Regulation on the Promotion of Financial Products mandates that promotional content include transparent, provable results. In the absence of such, the offering may be deemed misleading or illegal.

Furthermore, Federal Law No. 4 of 2000 on the SCA, reinforced by Cabinet Resolution No. 13 of 2021, empowers the regulator to suspend unauthorized services and refer operators to criminal investigation. These legal instruments show the UAE’s commitment to preventing abuses hidden behind technological jargon.

B. Misuse of Smart Contracts and Blockchain Credibility

Certain promoters misuse blockchain technology by invoking "smart contracts" to give the impression of automated, secure execution. In reality, these contracts are often not deployed on-chain and lack enforceable mechanisms.

Although Federal Law No. 46 of 2021 on Electronic Transactions and Trust Services recognizes digital contracts as legally binding, their validity depends on transparency, mutual consent, and accessibility of terms. When used deceptively, smart contracts become tools of fraud rather than instruments of trust.

According to Article 11 of Federal Law No. 34 of 2021 on Cybercrime, any person using electronic systems to deceive and unlawfully obtain funds is subject to imprisonment of up to five years and fines reaching AED 1,000,000. These penalties underline the serious legal risks associated with fraudulent use of AI and blockchain concepts.

II. Legal Protections and Practical Tools Against AI Investment Fraud

A. Warning Signs and Legal Grounds for Action

Several red flags can help identify scams: lack of physical presence in the UAE, unlicensed operation under VARA or SCA, unverifiable profit histories, or the absence of audit certifications. Investment schemes promising fixed returns in exchange for crypto transfers must be treated as regulated financial products.

Under Article 4 of the Financial Services Regulatory Law, unlicensed marketing of financial instruments constitutes a breach punishable by sanctions or prosecution. Victims should act swiftly by:

• Requesting a formal copy of the contract

• Verifying the governing jurisdiction

• Demanding performance evidence audited by a licensed firm

In case of refusal, a legal notice (mise en demeure) should be issued, followed by a police report through services such as Dubai eCrime. Early action can mitigate damage, especially for foreign nationals trapped on UAE territory with high living costs and no access to funds.

B. The Role of Nextcap in Dispute Management

Legal counsel plays a central role in evaluating AI-related contracts, identifying fraudulent components, and initiating proceedings. Lawyers based in the UAE are best positioned to:

• Examine smart contracts deployed on public blockchains

• Verify licensing with the VARA, SCA, or DED

• File complaints before economic police or civil courts

• Pursue injunctions or restitution through DIFC or ADGM courts if applicable.

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These specialized jurisdictions allow for expedited processes in financial fraud cases, especially when parties have agreed to submit to common law arbitration or court systems.

By engaging a qualified attorney early, investors can prevent irreversible losses and ensure that all technological or contractual claims are assessed under proper legal scrutiny. Firms like Nextcap, in coordination with Emirati legal partners, provide full legal support from contract review to litigation, protecting investors in a fast-moving digital economy.

Akram Cheik, Lawyer