Fighting Dirty Money in the Desert Kingdom: The Evolving State of AML in Saudi Arabia

Fighting Dirty Money in the Desert Kingdom: The Evolving State of AML in Saudi Arabia

#AML #SaudiArabia

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August 8, 2023
5 Minutes

With vast oil wealth and a strategic geography, Saudi Arabia holds an influential position, both in the Middle East and globally. However, with growing prosperity also comes the spectre of illicit finance. In this blog, we explore how Saudi Arabia is fighting to keep dirty money from tainting the desert, Kingdom.

The New Saudi Economy: Growth, Diversification and Money Laundering Vulnerabilities

Fuelled by petrodollars, Saudi Arabia has undergone a remarkable economic transformation, emerging as a regional powerhouse. The statistics speak for themselves:

• $793 billion GDP in 2021, largest in the Middle East

• GDP more than doubling over the past decade

• 50% of GDP and 70% of exports still from oil and gas

• $19.3 billion in foreign direct investment in 2022

The forward-thinking Crown PrinceMohammed bin Salman has launched Saudi Vision 2030 – a blueprint to reduce reliance on oil and grow new industries like tourism, infrastructure, mining and financial services.

However, with rising economic activity comes rising money laundering vulnerabilities. Some concerning trends include:

• Estimates of up to $10 billion laundered annually in the Kingdom

• Cash intensity persisting in sectors like real estate and precious metals trading

• Luxury goods market expanding along with risks of misuse for money laundering

• Growing exposure to cross-border illicit finance with increasing global integration

As the Saudi economy progresses, effective anti-money laundering (AML) defences are critical for sustainable growth.

Inside the Machinery: Saudi Arabia’s AML/CFT Institutions and Framework

Saudi Arabia has built a formidable institutional machinery to counter illicit finance, comprising:

• Ministry of Interior – the apex AML/CFT authority responsible for financial intelligence, investigations, and coordination with other agencies

• Saudi Arabian Monetary Authority (SAMA) – the central bank and regulator for banks and financial institutions

• Capital Market Authority (CMA) – regulator of the securities and investment sector

• Public Prosecution Office – the prosecutorial authority for AML/CFT cases

• Saudi FIU – the financial intelligence unit under the Ministry of Interior that receives, analyses and disseminates STRs

This institutional network oversees implementation of Saudi Arabia’s AML/CFT framework that includes:

• 2017 AML Law – criminalises money laundering and sets compliance obligations for Financial Institutions (FIs) and Designated Non-Financial Businesses and Professions (DNFBPs)

• 2012 Counterterrorism Law – prohibits terrorist financing

• SAMA and CMA Regulations – sector-specific AML/CFT rules

• penalties up to SAR 5 million and imprisonment for non-compliance

The legal and regulatory structure broadly covers FATF recommendations but there are still gaps, for instance, regarding proliferation financing.

Pushing the Envelope: Notable AML/CFT Developments

While the base is strong, Saudi authorities are actively strengthening their AML/CFT regime through recently introduced laws and regulations:

• Increased money laundering penalties and expanded predicate crimes

• Aligned terror financing rules with FATF standards on targeted financial sanctions

• Increased supervision of non-profits to prevent terrorist abuse

• Regulated fintechs for AML/CFT through new payments law

• Criminalised proliferation financing

• Expanded scope to virtual assets and crowdfunding platforms

Such reforms address technical deficiencies noted in mutual evaluation reports and incorporate emerging risks. More work remains, but the commitment to progress is clearly visible.

Vulnerable Sectors in the Crosshairs

While risks exist across the board, certain Saudi sectors have faced enhanced AML scrutiny:

• Real Estate – The property market has been vulnerable given large cash purchases and foreign investors. For instance, in 2021, Saudi Arabia uncovered a $10 million money laundering scheme involving Chinese nationals buying luxury Riyadh apartments.

• Precious Metals and Stones – High-value gold and jewel trading also presents risks. In 2022, SAMA fined the Areej Gold Company SAR 8.9 million for failing to establish adequate AML transaction monitoring systems.

• Non-Profits – Saudi Arabia has over 50,000 NPOs managing billions in donations and transfers. Authorities are closely monitoring the sector to prevent terrorist financing abuse as per FATF standards.

• Fintechs – The fast-growing fintech space has introduced new illicit finance risks. SAMA penalised PayTabs, an online payment firm, SAR 400,000 in 2023 for deficient compliance controls.

Case Examples of AML Non-Compliance

Some recent cases of financial institutions falling short of AML/CFT obligations include:

• Ahli United Bank received a SAR 1.5 million penalty in 2021 for weak customer due diligence and transaction monitoring controls.

• Al Rajhi Bank was fined SAR 1.5 million in 2022 for gaps in its risk assessment framework and missed suspicious transactions.

• SAMA imposed a SAR 4 million penalty on Bank Albilad in 2023 for compliance infrastructure failings in staffing, systems and controls.

Such enforcement actions underscore the need for robust AML/CFT compliance.

The MemberCheck Formula for AML Success

As Saudi Arabia continues maturing its AML/CFT regime, financial institutions and DNFBPs must ensure full regulatory compliance. This requires going beyond a check-box approach through robust know your customer (KYC) procedures, transaction monitoring and risk-based due diligence.

MemberCheck offers advanced solutions including:

• Automated PEP, sanctions and adverse media screening

• ID document verification using AI

• Risk-based enhanced due diligence

• Real-time transaction monitoring

• Predictive risk scoring engine

By leveraging MemberCheck’s innovative platform, Saudi companies can cost-effectively manage evolving illicit finance threats. Contact us today to schedule a demo.

The Road Ahead for the Kingdom

Saudi Arabia has made commendable progress in AML/CFT, but risks remain in new technologies, complex international networks and growing economic diversity. Continued legislative reforms, effective regulation and cross-border coordination are critical to stay ahead of criminals.

Financial institutions and DNFBPs operating in the Kingdom must make robust AML/CFT frameworks a top priority. With visionary leadership and perseverance, Saudi Arabia can effectively safeguard its financial system integrity.

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