Financial Crime World

Saudi Arabia’s Battle Against Money Laundering and Terrorist Financing: Strengthening Its Financial Crime Defenses

Amidst the boom of Saudi Arabia’s $1 trillion economy, the Kingdom faces a pressing challenge: combating money laundering and terrorist financing activities. In this report, we delve into the specific challenges Saudi Arabia encounters in its dynamic economic landscape and examine the steps taken to mitigate financial crime risks.

Saudi Arabia’s Economic Powerhouse

With oil and gas sectors contributing approximately 50% of the GDP and 70% of the exports, the Middle Eastern powerhouse boasts the largest economy in the region. Over the past decade, Saudi Arabia’s economy has seen exponential growth, nearly doubling in size. Beyond solely relying on its oil sector, Saudi Vision 2030 aims to diversify the economy and reduce its reliance on oil.

Money Laundering Challenges

Despite this growth, financial crime remains a significant concern. It is reported that around $10 billion is laundered within the kingdom each year. Certain sectors, like real estate and precious metals trading, pose particular vulnerabilities due to their cash-intensive nature. The expanding luxury goods market further adds to these risks, as luxury items may be used as a cover for illicit funds.

Enhancing Financial Crime Regulations

To tackle these challenges, Saudi Arabia has established a rigorous regulatory framework closely aligning with international standards, especially those set by the Financial Action Task Force (FATF). Relevant regulations include:

  • Anti-Money Laundering Law of 2003
  • Implementing Regulations to the Anti-Money Laundering Law of 2017
  • Anti-Money Laundering and Counter-Terrorist Financing Rules (AML/CTF)
  • Saudi Arabian Monetary Agency (SAMA) Recommendations
  • Rules Governing the Opening of Bank Accounts & General Operation Guidelines
  • Manual for Combating Embezzlement & Fraudulent Transactions
  • The Rules of Electronic Banking Services
  • Risk-Based On-Site Inspection Policy Framework & Procedures
  • Guidelines Manual for Banks in Saudi Arabia for Regulating Audit Committees

Institutional Backbone: Combating Illicit Finance in Saudi Arabia

The kingdom has built a formidable institutional framework to counter illicit finance, comprising several authoritative bodies regulating financial institutions and fintech companies:

  • Ministry of Anti-Money Laundering
  • Saudi Arabian Monetary Agency (SAMA)
  • Capital Markets Authority (CMA)
  • Communications and Information Technology Commission (CITC)
  • Saudi Central Bank
  • Saudi Arabia Financial Intelligence Unit (SAFIU)

Compliance with Anti-Money Laundering Regulations

Financial institutions must adopt a risk-based approach to ensure effective compliance with Anti-Money Laundering (AML) regulations. This involves several measures, including:

  1. Customer Due Diligence (CDD) Institutions must verify the identity of their clients by obtaining specific identification attributes, such as full name, address, date, and place of birth, and nationality. Acceptable identity documents include National Identification Cards, residence permits, and passports. Address verification can be done using utility bills or bank statements, not older than three months.

  2. Enhanced Due Diligence (EDD) When dealing with Politically Exposed Persons (PEPs) or clients perceived to have higher money laundering or terrorist financing risks, financial institutions must conduct more extensive due diligence measures, including identifying the source of funds, conducting on-site visits, and obtaining additional documents.

  3. Record Keeping Institutions must retain customer due diligence data for at least ten years.

  4. Transaction Monitoring and Oversight Continuous monitoring of transactions, documents, and data and employing appropriate technologies are essential. Annual testing of supervisory tools and documented test results are required for improvement.

  5. Reporting of Suspicious Transactions Institutions must report any suspicious transactions to the Saudi Arabia Financial Intelligence Unit (SAFIU) through established procedures approved at the board level.

Penalties and Enforcement Actions

The consequences for money laundering in Saudi Arabia are severe, including fines of up to 7 million riyals ($1.8 million) and imprisonment of up to 15 years. Recent crackdowns on financial institutions underscore the importance of robust AML/CFT compliance.

Future Perspectives

As Saudi Arabia continues its economic ascent and technology advancements in the financial sector, the fight against illicit finance remains a priority. Ongoing reforms, international cooperation, and enhanced regulatory oversight are all vital steps in combating money laundering and terrorist financing, contributing to global efforts to combat financial crime.