Saudi Arabia is not currently on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Saudi Arabia was undertaken in 2018. According to that Evaluation, Saudi Arabia was deemed Compliant for 19 and Largely Compliant for 17 of the FATF 40 Recommendations. It was deemed Highly effective for 0 and Substantially Effective for 4 of the Effectiveness & Technical Compliance ratings.
EU Commission’s list of AML/CFT deficient countries
On 13 February 2019, the EU Commission adopted a new list of 23 third countries that had been identified as having strategic deficiencies in their anti-money laundering and counter-terrorist financing frameworks as defined under the Fourth and Fifth Anti-Money Laundering Directives. Saudi Arabia has been included on this list. This list currently includes all countries currently on the FATF AML deficiency lists together with 11 additional jurisdictions.
It is noted that to date the EU Member States have declined to adopt this list. However, as this country has been identified as having AML deficiencies by the EU Commission, we have rated it accordingly.
US Department of State Money Laundering assessment (INCSR)
Saudi Arabia was deemed a Jurisdiction of Concernx by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -
The Kingdom of Saudi Arabia is a rapidly expanding financial center in the Gulf region and the second largest source of remittances in the world. There is no indication of significant narcotics- related money laundering. Bulk cash smuggling and money transfers from individual donors and Saudi-based charities have reportedly been a significant source of financing for extremist and terrorist groups over the past 25 years. Despite serious and effective efforts to counter the funding of terrorism originating within the Kingdom, Saudi Arabia is still home to individuals and entities that continue to serve as sources of financial support for Sunni-based extremist groups. Saudi Arabia has publicly imposed targeted sanctions on more than 20 Hizballah- affiliated individuals and companies since May 2015. Funds are allegedly collected in secret and illicitly transferred out of the country in cash, often via pilgrims performing Hajj and Umrah. The government has responded in recent years and increased policing to counter this smuggling. Recent regional turmoil and sophisticated usage of social media have facilitated charities outside of Saudi Arabia with ties to extremists to solicit donations from Saudi donors. Some Saudi officials acknowledge difficulties in following the money trail with regard to illicit finance, in large part due to a preference for cash transactions and regulatory challenges posed by hawala networks, which are illegal and dismantled upon discovery.
There are no international sanctions currently in force against this country.
The Arab League (comprising 22 Arab member states), of which this country is a member, has approved imposing sanctions on Syria. These include:
Cutting off transactions with the Syrian central bank
Halting funding by Arab governments for projects in Syria
A ban on senior Syrian officials travelling to other Arab countries
A freeze on assets related to President Bashar al-Assad's government
The declaration also calls on Arab central banks to monitor transfers to Syria, with the exception of remittances from Syrians abroad.
The Arab League has also boycotted Israel in a systematic effort to isolate Israel economically in support of the Palestinians, however, the implementation of the boycott has varied over time among member states. There are three tiers to the boycott. The primary boycott prohibits the importation of Israeli-origin goods and services into boycotting countries. The secondary boycott prohibits individuals, as well as private and public sector firms and organizations, in member countries from engaging in business with any entity that does business in Israel. The Arab League maintains a blacklist of such firms. The tertiary boycott prohibits any entity in a member country from doing business with a company or individual that has business dealings with U.S. or other firms on the Arab League blacklist.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 49
World Governance Indicator – Control of Corruption 66
Companies operating or planning to invest in Saudi Arabia face a high risk of corruption. Abuse of power, nepotism and the use of middlemen (wasta) to do business are particularly common. There is an overlap between business and politics, and the latter is generally based on patronage systems. The Combating Bribery Law and the Civil Service Law criminalize various forms of corruption, including active and passive bribery (baksheesh) and abuse of functions, but the government enforces these laws selectively. No law regulates conflicts of interest, and some officials engage in corruption with impunity. The royal family and social elite heavily influence the oil and petrochemicals sectors. Gifts are regulated under Saudi law, but facilitation payments are not addressed. For further information - GAN Integrity Business Anti-Corruption Portal
Saudi Arabia has an oil-based economy with strong government controls over major economic activities. It possesses about 16% of the world's proven petroleum reserves, ranks as the largest exporter of petroleum, and plays a leading role in OPEC. The petroleum sector accounts for roughly 87% of budget revenues, 42% of GDP, and 90% of export earnings.
Saudi Arabia is encouraging the growth of the private sector in order to diversify its economy and to employ more Saudi nationals. Over 6 million foreign workers play an important role in the Saudi economy, particularly in the oil and service sectors; at the same time, however, Riyadh is struggling to reduce unemployment among its own nationals. Saudi officials are particularly focused on employing its large youth population, which generally lacks the education and technical skills the private sector needs.
In 2015, the Kingdom incurred a budget deficit estimated at 13% of GDP, and it faces a deficit of $87 billion in 2016, which will be financed by bond sales and drawing down reserves. Although the Kingdom can finance high deficits for several years by drawing down its considerable foreign assets or by borrowing, it has announced plans to cut capital spending in 2016. Some of these plans to cut deficits include introducing a value-added tax and reducing subsidies on electricity, water, and petroleum products. In January 2016, Crown Prince and Deputy Prime Minister MUHAMMAD BIN SALMAN announced that Saudi Arabia intends to list shares of its state-owned petroleum company, ARAMCO - another move to increase revenue and outside investment. The government has also looked at privatization and diversification of the economy more closely in the wake of a diminished oil market. Historically, Saudi Arabia has focused diversification efforts on power generation, telecommunications, natural gas exploration, and petrochemical sectors. More recently, the government has approached investors about expanding the role of the private sector in the healthcare, education and tourism industries. While Saudi Arabia has emphasized their goals of diversification for some time, current low oil prices may force the government to make more drastic changes ahead of their long-run timeline.
Agriculture - products:
wheat, barley, tomatoes, melons, dates, citrus; mutton, chickens, eggs, milk
crude oil production, petroleum refining, basic petrochemicals, ammonia, industrial gases, sodium hydroxide (caustic soda), cement, fertilizer, plastics, metals, commercial ship repair, commercial aircraft repair, construction
Exports - commodities:
petroleum and petroleum products 90% (2012 est.)
Exports - partners:
China 13.2%, Japan 10.9%, US 9.6%, India 9.6%, South Korea 8.5% (2015)
Imports - commodities:
machinery and equipment, foodstuffs, chemicals, motor vehicles, textiles
Imports - partners:
China 13.9%, US 12.7%, Germany 7.1%, South Korea 6.1%, India 4.5%, Japan 4.4%, UK 4.3% (2015)
Investment Climate - US State Department
Saudi Arabia offers a relatively attractive and stable market for investment, particularly for investors able to overcome initial barriers imposed on foreigners. Despite political upheaval across the Middle East and North Africa and the transition to a new king in 2015, Saudi Arabia’s real GDP grew by 3.35 percent for CY2015. However, an extended period of sustained low oil prices have clouded the Kingdom’s economic outlook, prompting the Saudi Arabian government (SAG) to post a $98 billion budget deficit, draw down on its vast foreign currency reserves, suspend payments to some foreign contractors, explore privatizing major state-owned enterprises like Saudi Aramco, and move forward on a transformational economic plan to diversify the Saudi economy.
At the same time, Saudi Arabia’s economic challenges may offer significant opportunities for foreign investors, as improving the Kingdom’s investment climate remains an integral part of the SAG’s new efforts to liberalize the country's trade and investment regime and diversify an economy overly dependent on oil exports. The SAG took a number of positive steps to encourage foreign investment throughout 2015, including opening the Saudi stock market to qualified foreign investors, developing plans to privatize the Kingdom’s civil aviation, technology, and healthcare sectors, removing the barrier to full foreign ownership of retail and wholesale businesses within the country, and publishing a new companies law that lowers some barriers to starting a new business. The government continues to encourage investment across nearly all economic sectors, prioritizing investments in industry, manufacturing, transportation, education, health, communications technology, life sciences, and energy; as well as in four "Economic Cities" that are at various stages of development.
The Saudi Arabian General Investment Authority (SAGIA) governs and regulates foreign investment in the Kingdom and works to foster investment opportunities across the economy, particularly in energy, transportation, health, life sciences, and knowledge-based industries (see www.sagia.gov.sa). SAGIA also maintains and periodically reviews the list of activities excluded from foreign investment. The Saudi Industrial Development Fund (SIDF), an entity within the newly reorganized Ministry of Energy, Industry, and Mineral Resources, is one important source of financing for investors.
In theory, foreigners are permitted to invest in all sectors of the economy, except for specific activities contained in a "negative list" that currently excludes three industrial sectors and 12 service sectors, among them real estate investment in Mecca and Medina, some subsectors in printing and publishing, audiovisual services, land-transportation services excluding intra-city transport by trains, and upstream petroleum. The complete “negative list” can be found at www.sagia.gov.sa. In practice, older laws remaining on the books prohibit or otherwise restrict foreign investment in some subsets of economic sectors not on the “negative list,” including many areas of healthcare.
Investors are not required to purchase from local sources or export a certain percentage of output, and their access to foreign exchange is unlimited. In order to benefit from waivers from Saudi customs duties, however, foreign manufacturers must prove that no local materials are available. There is no requirement in place for shares of foreign equity to be reduced over time, and investors are not required to disclose proprietary information to the SAG as part of the regulatory approval process, except where issues of health and safety are concerned. Other than hiring quotas and training requirements for Saudi citizens, the government does not currently impose conditions on most forms of investment, such as locating in a specific geographic area (except for some restrictions on the distribution of retail outlets and the location of industrial activities), committing to specific percentages of local content or local equity, substitution for imports, export requirements or targets, or financing only by local sources. In 2015, however, the SAG signaled its intention to begin enforcing offset requirements for foreign investments exceeding 400 million Saudi riyals (SR) ($107 million), a policy that had previously applied only to the defense industry.
The SIDF will grant additional incentives and better loan terms to foreign investors who set up their manufacturing facilities in the underdeveloped provinces of Jizan, Hail, and Tabuk. American and other foreign firms are able to participate in SAG-financed and/or -subsidized research-and-development programs.
Overall, Saudi Arabia continues to offer an attractive but often challenging climate for American investors. At the same time, a series of long-deferred major socio-economic reforms—known collectively as the SAG’s “Vision 2030” initiative—could significantly alter the status quo in the coming year.
Other Useful Links