Financial Crime World

Saudi Arabia’s New Anti-Money Laundering Law: Key Terms and Regulations

The Saudi Arabian Monetary Authority (SAMA) has recently issued a draft translation of the implementing regulation for the country’s Anti-Money Laundering (AML) Law. This article outlines the key terms and regulations as outlined in the draft.

Definitions

To better understand the AML Law in Saudi Arabia, it is essential to understand the following definitions:

  • Person: Includes any natural or legal person.
  • Transaction: Covers various dispositions of funds and properties, including depositing, withdrawing, transferring, and other financial activities.
  • Economic resources: Refers to assets that may be used to obtain funds, goods, or services, including equipment, vehicles, intellectual property, and other items.
  • Correspondent relationship: Defines a relationship between two financial institutions, including current or other accounts, cash management, international funds transfers, and other related services.
  • Financial group: Consists of a company or other entity that exercises control and coordinating functions over other entities and branches subject to AML policies.
  • Legal arrangements: The relationship established by a contract between two parties, such as trusts, that does not result in a legal person.
  • False declaration: Provides fake information on the value of currency or negotiable instruments or other false information required by the General Directorate of Customs.
  • Controlled delivery: Allows the competent authority to allow illicit or suspicious funds to enter the country for identification and detection purposes.

Covered Activities and Transactions

Financial institutions and designated non-financial businesses and professions (DNFBPs) must identify, assess, and document their money laundering risks in writing, regularly updating this information, and keeping it readily available for supervisory authorities. The following activities are covered:

  • Acceptance of deposits and other repayable funds, including private banking.
  • Lending, financial leasing, or other forms of financing.
  • Money or value transfer services.
  • Issuance and management of payment instruments such as credit and debit cards, checks, traveler’s checks, payment orders, and banker’s drafts.
  • Issuance of financial guarantees and commitments.
  • Securities transactions and trading.
  • Foreign exchange transactions.
  • Provision of financial and investment services.
  • Individual and collective portfolio management.
  • Safekeeping and administration of cash or liquid securities on behalf of others.
  • Concluding life insurance contracts and other investment-related insurance.
  • Investing, administering, or managing funds on behalf of others.

Covered Commercial and Professional Activities

Real estate brokerages, dealing in precious stones, metals, or gold, and providing legal or accounting services are included in the scope of the new AML regulations.

  • Real estate brokerage: Involved in transactions for their client concerning the buying and selling of real estate.
  • Dealing in gold, precious stones, or precious metals: When engaging in cash transactions with a customer above SAR 50,000, whether carried out in a single operation or several linked transactions.
  • Attorneys and legal or accounting professionals: In the exercise of their professional activities, when they prepare, execute, or conduct a transaction for customers involving any of the listed activities.

Supervisory Authorities

The following authorities are responsible for supervising financial institutions and DNFBPs in Saudi Arabia:

  • Saudi Arabian Monetary Authority (SAMA).
  • Capital Market Authority.
  • Ministry of Commerce and Investment.
  • Ministry of Justice.
  • Ministry of Labor and Social Development.
  • Any other authority mandated by law to monitor or supervise financial institutions or designated non-financial businesses or NPOs.

Reporting and Competent Authorities

The following authorities are responsible for receiving and acting upon Suspicious Transaction Reports (STRs) and other information regarding potential money laundering activities:

  • Public Prosecution.
  • Ministry of Interior.
  • Presidency of State Security.
  • Supervisory Authority.
  • General Directorate of Customs.
  • General Directorate of Financial Intelligence.
  • Any other authority assigned to apply the provisions under this Law.

Criminal Liability

The money laundering offense applies to the person who committed the predicate offense and participated in the money laundering crime.

Due Diligence Measures

For Financial Institutions and DNFBPs

Financial institutions and DNFBPs must:

  1. Identify, assess, and document their money laundering risks in writing, keeping reports updated, and making them readily available to supervisory authorities.
  2. Consider customer and beneficial owner risk factors, risks related to countries of operation, and the nature of products, services, and transactions offered.
  3. Conduct ongoing due diligence on all business relationships.
  4. Apply due diligence measures to existing customers and business relationships based on materiality and risk.
  5. Consider submitting a suspicious transaction report to the Director of Financial Intelligence if they are unable to comply with due diligence obligations.

Specific Due Diligence Measures

  1. Identifying and verifying the customer’s identity: Using reliable documents or data, and taking steps to ensure the authenticity of the documents provided.
  2. Identifying and verifying the identity of any person acting on behalf of the customer: Determine if the person has the authority to act on behalf of the customer and if they are who they claim to be.
  3. Identifying and verifying the beneficial owner: Establish the identity and any potential ownership structure of the ultimate owner of the funds or assets being used in the transaction.
  4. Understanding the purpose and intended nature of the business relationship or account: Ensure that the purpose of the relationship is legitimate and aligns with the client’s profile and risk assessment.

Relying on Another Financial Institution or DNFBP

Financial institutions and DNFBPs may rely on another financial institution or DNFBP to perform due diligence measures, provided they ensure that:

  1. The relied-upon party is regulated and supervised.
  2. They obtain all necessary information.
  3. They take reasonable steps to ensure the relied-upon party applies appropriate standards.

Politically Exposed Persons (PEPs)

Definition and Coverage

  1. Politically exposed person (PEP): Individuals who hold prominent public functions in the Kingdom or a foreign country or individuals with a senior management position in an international organization, including heads of state or government, senior politicians, senior government or military officials, senior executives of state-owned corporations, and important party officials, as well as directors or deputy directors and members of the board or equivalent function of international organizations.
  2. PEPs, their close associates, and family members: Obligations under Article 8 apply to PEPs, their close associates, and family members up to the second degree.
  3. Close associates: Natural persons known to have joint beneficial ownership of a legal entity or legal arrangement or who are in a close business relationship with the politically exposed person, or who have the beneficial ownership of a legal entity or legal arrangement that is known to have been set up for the benefit of a politically exposed person.

Obligations for Financial Institutions and DNFBPs

Financial institutions and DNFBPs must obtain senior management approval before establishing or continuing a business relationship with a politically exposed person from a foreign country and take reasonable measures to reduce the potential risks associated with PEPs.