Getting the Saudi Fight Against Corruption Right

11.09.17
Saudi Press Agency
World News /09 Nov 2017
11.09.17

Getting the Saudi Fight Against Corruption Right

Kuwaiti billionaire Maan al-Sanea should have seen it coming after Saudi Crown Prince Mohammed bin Salman vowed to root out corruption.

Embroiled in one of the kingdom’s largest financial scandals and collapses that involved a bitter $22 billion battle with a prominent Saudi merchant family, cost some of the world’s biggest banks billions of dollars, and is being slugged out in courts across the globe, Mr. Al-Sanea was low hanging fruit. He was arrested in October when police raided his Saudi mansion two weeks before Prince Mohammed’s frontal assault on the kingdom’s political and economic elite.

Mr. Al-Sanea’s arrest failed to set off alarm bells. Members of the ruling family and business community as well as senior officials likely saw it as a one-off incident. Together with Mr. Al-Sanea, they also grossly underestimated Prince Mohammed’s brashness and ruthlessness and ignored his warning in June that “no one who got involved in a corruption case will escape, regardless if he was a minister or a prince.”

Mr. Al-Sanea, the ruling family and business community had good reason to be complacent: they, like the crown prince and the Salman branch of the family, were all part of a system and a way of doing business that went back to the founding of Saudi Arabia.

That is why rather than creating a large number of enemies and opening himself up to accusations of selectively targeting people in a bold move that appeared to be more about grabbing power than rooting out corruption, Prince Mohammed may have been well-advised to make his anti-corruption stand differently.

The crown prince’s anti-corruption committee, established hours before the first arrests and announcement of dismissals of prominent princes, officials and businessmen were made, has projected itself as an enforcement agency with the powers to arrest, freeze assets and impose travel bans rather than a regulatory body that would introduce legislation designed to fundamentally alter an ingrained system.

Rooted in a system that until the late 1950s made no distinction between the budgets of the state and the ruling family, Saudi laws still only barely delineate the dividing lines between them nor do they contain anything that would amount to a code to prevent conflict of interest or regulate the way members of the ruling family do business with the state. In fact, business deals often amount to insider baseball in a country in which the family’s finances and sources of revenue are a closely held secret. In fact, if revealed, the Fortune 500 billionaire’s list could well look very different.

Members of the ruling family and associated businessmen initially often made their money by representing foreign companies and receiving huge commissions on government contracts. They often took loans from banks which they failed to pay back. National Commercial Bank, where numbered accounts of princes were managed by senior management, nearly collapsed at the beginning of this century because of unpaid loans.

Life magazine editor Noel F. Bush on a visit in 1943 during which he travelled in the country with its first king, Ibn Saud, portrayed a ruler who operated on the principle of ‘the state is mine’ and doled out welfare to his subjects. It is a system that has since repeatedly been upgraded but whose fundaments remain in place.

“Our unemployment rate would drop rather significantly if the billions we squandered on kickbacks and lavish personal enrichment schemes dressed up as public-works projects were spent instead on the development of small to medium enterprises, vocational training and 21st-century education reforms…In Saudi Arabia, senior officials and princes become billionaires as contracts are either enormously inflated or, at worst, a complete mirage,” wrote Jamal Khashoggi, a Saudi journalist who recently moved to the United States in anticipation of the crown prince’s crackdowns.

Mr. Khashoggi cited the example of an airport built “in the wrong location simply to benefit the princes who own the land. They received the land for free from the government and then got extravagant compensation for the property.”

Prince Mohammed’s plans to diversify and streamline the economy, loosen strict social codes to further his economic reforms, and, in a world in which autocracies can no longer primarily rely on repression, cater to social and job aspirations of a majority young population while avoiding political change as he tightens his grip on power, which may well be the most far-reaching upgrade of the system.

No doubt, Prince Mohammed’s tackling of corruption and targeting of prominent people strikes a popular cord with many Saudis who have long been unhappy with the arbitrary privileges members of the ruling family were able to accrue to further their business and financial interests.

Nonetheless, the impression that the most recent wave of arrests constituted a power grab rather than a systemic tackling of corruption is reinforced by the fact that the crown prince’s dealings as well as that of his attacks on the ruling family remain beyond scrutiny.

The $500 million purchase by Prince Mohammed of the Serena, the world’s 15th largest yacht, raised eyebrows when it was disclosed in 2016 by The New York Times at a time that the crown prince had imposed austerity measures as a result of which many in the kingdom were struggling to make ends meet. The 32-year old crown prince never clarified how he had amassed his wealth.

Nor is it clear how his father, King Salman, funded the use of two offshore companies in the British Virgin Islands to take out mortgages on his London homes worth $34 million to finance a yacht. Similarly, this week’s publication by the International Consortium of Investigative Journalists (ICIJ) of the Paradise Papers disclosed offshore holdings by several other members of the monarch’s branch of the family.

The New York Times moreover reported that a major Saudi investment firm founded by one of the king’s sons, and now chaired by another, owned a significant stake in a conglomerate that does extensive government business, including in a shipbuilding partnership with a French defense contractor. A smaller firm founded by another of King Salman’s sons operated in sectors regulated and/or funded by the state such as health care, telecommunications and education.

To be clear, offshore assets are not illegal nor are members of the ruling family barred under Saudi law from benefitting from doing business with a state that was named after the family. Equally clear, however, is that Saudi Arabia may benefit more from a reformer who exudes transparency, lives up to his vow that all are equal under the law, and tackles corruption structurally rather than punitively.

To achieve that, Prince Mohammed may be better served by an anti-corruption committee that is less vindictive and more focused on developing and enforcing a set of laws, rules and regulations that ensures rule of law by institutionalizing anti-corruption norms, policing conflicts of interest, and introducing transparency into the finances of the state as well as the ruling elite.

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