Saudi Arabia's Slow Motion Purge
On 4 November, more than 200 Saudi princes, ministers and businessmen were imprisoned in the Ritz Carlton hotel in Riyadh on charges of corruption. Whilst approximately two dozen have reached settlements with the Saudi authorities, exchanging large payments and admissions of guilt for freedom, Alwalid bin Talal, one of KSA’s richest men and an investor in multiple western companies, is reportedly still contesting the charges. On 6 January, 11 more princes were arrested for protesting against the removal of state subsidies for their utility bills, although this move appears more a reactive one rather than a continuation of the Crown Prince Mohammed bin Salman (MbS)’s anti-corruption initiative.
MbS and his allies have tried, with some success, to frame the crackdown as bringing an end to a culture of corruption among the elite, and wasita, the use of well-connected and often royal intermediaries to obtain contracts and other economic benefits. However, accusations that the arrests are politically motivated are hard to ignore. The Supreme Anti-Corruption Court (SACC) was established by decree on the very day of the arrests, and is staffed by appointees of MbS. Meanwhile, stories of MbS’s own largesse, with his reported recent purchases of a chateau, da Vinci painting and yacht collectively worth over USD 1 billion, undercut his claims to be a warrior against the corruption of the Saudi elite. Developments in Alwalid bin Talal’s case, who unlike several other high-profile individuals arrested, has so far refused to acknowledge any guilt or pay a USD 6 billion settlement reportedly demanded from him, will put MbS’ claim to be promoting the rule of law under scrutiny, and stress test the integrity of KSA’s judicial system.
The arrests form part of a wider push by MbS to sideline his rivals and increase his control over Saudi politics, security services and media, potentially in response to his own concerns about political opposition. In June, MbS ousted Muhammad bin Nayef as crown prince and heir to the throne and, with the arrests in November,
sacked Prince Mutaib bin Abdullah as head of the Saudi National Guard, an elite internal military force originally established as a counterweight to the regular army, removing two key rivals to power. November’s arrests included Alwalid bin Talal, whose Rotana Group is the Arab world’s largest entertainment company, and Walid alIbrahim, founder of the Middle East Broadcasting Center, which owns Al Arabiya, a KSA-based satellite television channel. Both represent media alternatives to the Saudi Research and Marketing Group, a KSA-based publishing company directly owned by MbS that has recently been diversifying into digital media.
Approximately two dozen arrests have now resulted in negotiated settlements; for example, Prince Mutaib bin Abdullah was released following a payment reported to be over USD 1 billion. The Saudi leadership’s preparedness to reach large dollar settlements with many of the accused underlines the fact that, while not in imminent economic peril, the Kingdom does have fiscal constraints: prolonged low oil prices have made significant inroads into the Kingdom’s reserves. The IMF predicts real GDP growth of just 0.1-percent for 2017 and in its October Article IV report has emphasised the need for a large, sustained fiscal adjustment in the coming years. The boldness of the arrests, with the detainees held in a hotel that only days earlier had hosted an international investor conference, has unnerved investors, and state-owned Saudi investment funds have channelled large volumes of liquidity to support Tadawul, the Saudi stock exchange, since November.
The arrests form part of a wider push my MbS to sideline his rivals and increase his control over Saudi politics, security services and media.
Whilst the arrests are unlikely to be the harbinger of a new era of transparency in KSA, recent economic difficulties have impressed upon the leadership, particularly MbS, the necessity of an overhaul of the Kingdom’s economy. This can be achieved through spending cuts; privatisation, such as the planned stock exchange listing of state oil company Saudi Aramco; and, increased foreign investment, which MbS considers integral to the success of his Vision 2030 reform programme. Saudi authorities have therefore made efforts to restrict the direct effects of the arrests on their companies; for example, the Council of Economic and Development Affairs, a cabinet of the Saudi government charged with achieving Vision 2030, an ambitious development plan to reduce the Kingdom’s dependence on oil, announced that the companies of individuals subject to investigation could continue to operate in KSA with confidence. Apple and Amazon reportedly held talks on investing in Saudi Arabia in December, and on 1 January, the ceiling on ownership of shares in Saudi companies by single qualified investors was raised from 5- to 10-percent in the Kingdom’s attempt to bolster its non-oil growth with the help of foreign investors.
The freezing of more than 2,000 bank accounts following the arrests, and the Saudi authorities’ liaison with banking authorities in Switzerland, Kuwait and the UAE, has helped to underline marked improvements in anti-money laundering and counter-terrorist financing systems since its previous attempt to join the Financial Action Task Force (FATF), a global body to combat money laundering and terrorist financing, and increased the Saudis’ prospects of admission to full membership in June 2018. Between 2010 and 2015, KSA had the highest number of terrorist financing convictions globally, although concerns about the political nature of many of November’s arrests could still give pause to the mutual evaluation committee conducting the investigations.
Although the majority of arrests have not resulted in court cases, the detention of so many of KSA’s prominent businessmen and the freezing of their assets has impacted many foreign counter parties and banks, highlighting the importance of tracing beneficial ownership, source of wealth and politically exposed persons. MbS’ reassurances to foreign authorities notwithstanding, some parallels have been drawn with President Xi Jinping’s crackdown on corruption in the People’s Republic of China, which resulted in convictions of several executives of the Chinese subsidiaries of foreign companies.