Introduction
“Drug trafficking, blackmail, fraud, counterfeiting, forgery, illegal arms sales, embezzlement, bribery, theft, smuggling, prostitution, graft, illegal insider trading, computer fraud, and tax evasion” (Saudi Arabian Monetary Agency 6) are just a few of the crimes that are supported by money laundering activities.
Money laundering is a carefully orchestrated attempt by criminals to hide the source of their “criminal” money. The sole intent of money laundering is to conceal the sources of illegal money and legalize it through legal financial activities (Saudi Arabian Monetary Agency 6). This way, it becomes difficult for authorities to trace “legal” money to specific crimes.
From the growth of the multibillion-dollar drug trade and the expansion of global terror networks, the extent of money laundering has deepened. Ordinarily, it would be incomprehensible to understand how criminals would move large amounts of money without the help of financial institutions, like banks.
In most financial systems, the existence of money laundering activities, question the integrity of financial institutions and banking systems (Saudi Arabian Monetary Agency 6).
Indeed, recent years have seen an increase in the penetration of criminal activities in banking systems and the consequent proliferation of money laundering activities in financial institutions (Saudi Arabian Monetary Agency 6). The growth of this phenomenon has caused many local and international lawmakers to rethink their strategies of curbing this crime (Cordesman 127).
In respect to the attempt to combat money laundering, the Saudi Arabian Monetary Agency (7) revised its anti-money laundering rules to prevent, detect, and control money-laundering activities within the kingdom. Conversely, these rules have forced Saudi banks to integrate new regulations with their internal banking procedures (Saudi Arabian Monetary Agency 7).
The introduction of new rules for curbing money laundering is just one measure among a raft of other measures that the Saudi Arabian Monetary Agency (7) (SAMA) has adopted to curb money-laundering activities. This paper digs deeper into the activities of SAMA by exploring how it strives to prevent money-laundering activities within the kingdom.
This paper uses the Saudi British Bank (SABB) as a case study to understand how SAMA and commercial banks in Saudi Arabia work to prevent money laundering. Relatively, through the initiatives of SAMA, this paper posits that SAMA has strived to prevent money-laundering activities at SABB (and other commercial banks) by introducing new banking regulations that aim to prevent the misuse of charitable organizations for funding criminal activities.
Similarly, SABB and other commercial banks in the kingdom must confirm the authenticity of financial transactions and their sources, as a requirement of SAMA’s anti-money laundering policies. Comprehensively, this paper demonstrates that through a revision of SABB’s management and control functions, SAMA’s regulations guide the activities of commercial banks in Saudi Arabia by providing a localized approach of how Saudi Banks should work to prevent money laundering.
Fixation of Terms and Conditions by SAMA
Through the authority vested by the Saudi government on SAMA, SAMA has the absolute authority over commercial banks to issue general rules regarding money-laundering activities. These rules include the fixation of terms and conditions that should regulate the activities of commercial banks, as they undertake financial transactions that may be susceptible to money laundering (Cordesman 128).
SAMA expects all Saudi banks to comply with its anti-money laundering rules and regulations by demonstrating high ethical standards as they undertake such duties. Through the formulation of such compliance rules, SAMA plays an active role in the prevention and engagement of Saudi Banks in money laundering activities.
Under the provisions of the Saudi banking law, SABB is responsible for the action, or inaction, of its employees in preventing or aiding money-laundering activities (Saudi Arabian Monetary Agency 7). The Saudi Arabian Labor law outlines a raft of penalties that punish bank employees when they engage in money laundering activities.
According to new guidelines introduced in 2003 by SAMA, SABB needs to use software programs to monitor customer activities and detect unusual transaction patterns. Furthermore, SAMA requires commercial banks to introduce anti-money laundering units in commercial banks, where employees collaborate with the organization to prevent money-laundering activities (Cochrane 2). SAMA also enacted auxiliary anti-money laundering laws to prevent the collection and exchange of unlicensed money at mosques (Cochrane 2).
The organization also recommends that commercial banks like SABB need to adopt better regulations to monitor alternative money remittance methods (Saudi Arabian Monetary Agency 7). Through such efforts, SAMA managed to consolidate more than 15 money exchange programs into one institution – Bank Al-Bilad (Saudi Arabian Monetary Agency 9).
SAMA has also established stricter movements of cash in the kingdom, not only to prevent the free movement of cash, but also precious metals, via Saudi borders. Besides these restrictions, SAMA adopted “FATF’s 40 Recommendations and eight Special Recommendations, and in 2004 joined the newly established Middle East and North Africa Financial Action Task Force (MENA-FATF), a regional body based in Bahrain” (Cochrane 4).
SAMA also requires commercial banks like SABB to integrate anti-money laundering training programs to their employee training programs, so that the employees understand how to detect, analyze, and prevent money-laundering activities (Saudi Arabian Monetary Agency 13). So far, SABB has done a commendable job in training its employees to abide by the existing anti-money laundering rules. SABB’s commitment manifests through the bank’s participation in the 17th training course (organized by SAMA).
Besides the initiative to introduce policy reforms in the banking system, SAMA has also engaged in public education regarding money laundering. The agency aims to be proactive to prevent fraudulent banking transactions by foiling money-laundering attempts, especially those that involve the use of PIN numbers and credit cards. The initiative also aims to involve the public to help the authorities detect and prevent money-laundering activities.
Therefore, SAMA encourages the public to report any suspicious financial activities that may amount to money laundering, or similar crimes. Lastly, SAMA also intends the public to protect its money from the activities of fraudsters who may want to steal financial information from them (Saudi Arabian Monetary Agency 13).
Broadly, since the inception of SAMA in 1952, the regulatory body has introduced a series of guidelines that outline the activities of Saudi commercial banks (Saudi Arabian Monetary Agency 13). These guidelines aim to perform customer due diligence, know the real identity of its customers, maintain a reliable record of files (and other documents involved in financial transactions), and notifying the relevant authorities about any money laundering activities (Cordesman 127). These guidelines are included in several regulatory provisions.
Money Laundering Through Terrorist Financing
Since Saudi Arabia is the Middle East’s largest economy, fears are rife, among many observers, that some of its wealthy organizations may be involved in financing terrorism activities (Al-Akhir 7). Despite the existence of anti-money laundering rules, many pundits still say there is little evidence showing how the kingdom complies with such rules (Al-Akhir 7).
In fact, Al-Akhir (7) says that the kingdom’s financial and banking systems exhibit a high level of secrecy that has made it impossible for the International Monetary Fund (IMF) and the FATF to assess correctly, the kingdom’s compliance with anti-money laundering rules. However, for some major banks, like SABB, their operations are relatively transparent.
According to the US State Department, for a long time, Saudi Arabia lacked any significant money laundering and anti-terrorist financing legislations, until 2003 when the Saudi government introduced substantial laws after the 2003 Al Qaeda attacks in Saudi Arabia (Al-Akhir 7).
The Saudi government introduced these laws as an obligation of SAMA to prevent money-laundering activities that support terrorism. Therefore, one objective of SAMA is to combat terrorism financing by ensuring that commercial banks comply with relevant UN resolutions, aimed at combating money laundering, and preventing the financing of terrorism activities. Therefore, through SAMA, SABB is required to comply with anti-money laundering regulations.
In addition, since SAMA is a member of the Financial Action Task Force (FATF) (an intergovernmental body that aims to promote policies for combating money laundering), SAMA also requires SABB to comply with FATF regulations (Saudi Arabian Monetary Agency 7).
Through this provision, SAMA requires that banks should report any individual, or organization, that they suspect engages in money laundering activities. SAMA also requires that commercial banks should refrain from entering any financial transaction with suspicious organizations or individuals (Cordesman 127).
The implementations of the above anti-money laundering measures have introduced favorable rankings in Saudi Arabia, as the most anti-money laundering compliant country (according to international laws that aim to prevent terror financing and money laundering) (Cordesman 127).
Notably, the adherence to the FATF anti-money laundering rules and the adherence to Sharia law outline the main policy frameworks that guide Saudi Arabia’s compliance with local and international anti-money laundering rules (Saudi Arabian Monetary Agency 13).
Saudi Arabia’s financial intelligence unit also does a good job to prevent terror financing that may occur through money laundering practices. The agency is well equipped and well resourced to detect, analyze, and prevent suspicious financial transactions that may strive to promote money-laundering activities.
Money Laundering through Charitable Organizations
Al-Akhir (7) says terrorists abuse Islam’s charitable culture to finance their activities. Indeed, terrorists abuse the fact that charitable giving is a key pillar of Islam. Therefore, of particular concern for the Saudi government (and SAMA) is the siphoning of funds from humanitarian activities and charitable organizations to support terrorism activities (Al-Akhir 7).
SAMA’s main mandate in this issue is to ensure that the appropriation of funds to those in need should occur without any contamination by third parties who may want to misappropriate such funds for criminal activities (Saudi Arabian Monetary Agency 9).
From this conviction, SAMA introduced counter money laundering units in commercial banks to oversee all charities, contributions, and donations that may be susceptible to interception by criminals (Saudi Arabian Monetary Agency 9). SABB has complied with this requirement by setting up monitoring units for evaluating charitable organizations.
The Saudi government introduced new rules related to money laundering activities through charitable organizations in 2003, and updated the same rules five years later (Saudi Arabian Monetary Agency 9). However, widespread misconceptions cast doubts regarding if the anti-money laundering rules apply to all Saudi charitable organizations or only a few of them (Cordesman 127).
According to American government officials, the rules apply to charitable organizations that operate within the kingdom, regardless of their local or international stature (Cordesman 127). However, authorities are more concerned about charitable organizations that use the kingdom as their base and have branches in other parts of the world.
The Islamic Relief Organization, Muslim World League, and the World Assembly of Muslim youth are some charitable organizations that have received special attention (Cordesman 128).
The new 2003 rules applied to these charitable organizations and prevented them from sending money abroad. Despite the existence of these rules, there are still some calls from international observers for the Saudi government to increase its oversight scope of international charitable organizations that operate in Saudi Arabia (Cordesman 127).
The government also introduced rafts of other recommendations in the banking system to prevent private charities and relief groups from abusing the banking system to support money-laundering activities (Al-Akhir 7). The new rules prevented such groups from transferring money abroad and having multiple accounts for disbursing money.
The government identified charities as the main institutions suspected of financing terrorist activities, through money laundering (Saudi Arabian Monetary Agency 7). Even today, the government still suspects charitable organizations of the same activities (Saudi Arabian Monetary Agency 7). The above efforts have been steered by the ministry of interior. The same department established the Financial Intelligence Unit (FIU) to ensure criminals do not redirect money meant for charity purposes to fund criminal activities.
Washington has been the greatest critic of Saudi Arabia’s money laundering policies because it says that charity organizations in Saudi Arabia have sent about $500 million to Al Qaeda (Cordesman 129). Such accusations have shifted the focus of Saudi’s money laundering policies from supporting the narcotics to terrorism concerns.
This shift in focus has also caused SAMA to refocus its efforts from general money laundering concerns to prevent terrorism financing through policy changes (Cordesman 129). However, the closely- guarded nature of the Saudi monetary system has made it extremely difficult to ascertain the amount of money that passes through Saudi Arabia.
Monitoring Cash Courier Regulations and the Prohibition of Hawala
Since 2005, the Saudi government, through SAMA, has introduced new custom regulation laws that aim to control the movement of cash, jewels, and precious metals through Saudi borders (Cordesman 127).
The new regulations stipulated that the government will not allow the movement of cash and gold that is worth more than 60,000 Saudi Riyals (about US $16,000) across Saudi Borders without SAMA’s approval (Saudi Arabian Monetary Agency 9). In the same year (2005), Saudi officials undertook a training program to train employees from SAMA on how to manage huge cash smuggles. The goal of this training program was to introduce SAMA officials to new procedures and regulations for interdiction, and investigation.
However, two years after the introduction of these training programs, observers have expressed a lot of concern regarding the enforcement of cash courier regulations (Cordesman 129). Indeed, even though SAMA enforced the laws surrounding the transfer of huge cash bundles in 2005, the Saudi government only expressed interest in implementing such rules in 2008 (Cordesman 129).
Albeit there have been a few prosecutions made, relative to these laws, officials of the Saudi government say there is not enough information to assess if these laws are preventing cash smuggling and money laundering activities, at all (Cordesman 129).
Money laundering also occurs through informal mechanisms such as the Hawala (an informal value transfer system of money, based on the performance of the money transfer network). SAMA prohibits any form of Hawala as a legal money transfer mechanism (Saudi Arabian Monetary Agency 12).
The criminalization of Hawala has attracted more customers to the mainstream banking system. This transition has been commendable to the Saudi government because it has brought informal banking systems into the mainstream financial system, thereby making it easier for the state to monitor financial transactions. Notably, this move has been termed a positive effort towards eliminating terrorism financing because all parties involved in financial transactions are required to identify themselves (Saudi Arabian Monetary Agency 13).
Collaboration with International Financial Institutions
SAMA has expressed an overwhelming sense of willingness to collaborate with other institutions (both locally and internationally) to stop money laundering. Through a statement written by SAMA’s governor, the agency has collaborated with other financial institutions to stop money laundering, and prevent terrorism financing (Al-Akhir 7).
In fact, through SAMA’s initiative, Saudi Arabia hosted the 15th General meeting of the Middle East and North Africa states (MENA) as a show of commitment by the government to prevent money laundering. Through such commitments, SAMA’s governor acknowledges that Saudi Arabia plays a key role in not only protecting its local financial systems against money laundering, but also protecting the global financial system against the same crime.
Comprehensively, the raft of recommendations provided by SAMA introduce new mechanisms to monitor all types of specially designated nationals, monitor all new accounts opened, and introduce new software for ascertaining the identities of new customers (to monitor any suspicious financial activities) (Merritt 32).
Some of these new policy interventions have been successful. For example, the new policy requirement aimed at scrutinizing account holders revealed that there were bank customers whose sole aim was to aid terror financing. Concerning this revelation, the 2009 International Narcotics Control Strategy reported that the Saudi government had frozen the accounts of people that it suspected were involved in aiding terror organizations (Merritt 32).
Illustratively, in July 2004, the FATF (in collaboration with the Gulf Cooperation Council) did an overview of SABB’s compliance to internationally recognized and regulatory frameworks for money laundering and ascertained that the bank was largely compliant with most SAMA and FATF regulations (Merritt 32).
Successes
Since 2007, a concerted effort by Saudi and US authorities led to the apprehension of several culprits who were involved in money laundering activities that aimed at financing terrorism activities (Cordesman 129). For example, state reports show that the Saudi government arrested more than 50 people for financing terrorism, through money laundering activities (Cordesman 129).
The government prosecuted about 20 people (Cordesman 129). Moreover, according to the Embassy of Saudi Arabia, the Saudi government arrested more than 40 people for aiding terrorism activities, through money laundering activities (Merritt 32). Some US officials who were involved in these arrests said that the arrests had a disruptive effect on terror networks (Merritt 32).
Conclusion
Even though money laundering has been an enduring problem in Saudi Arabia, this paper establishes that Saudi Arabia is among the leading countries in the Middle East, which has taken significant steps to combat money laundering, and prevent terrorism financing.
Alongside the recommendations provided by SAMA, Saudi Arabia has also implemented other anti-money laundering recommendations, as proposed by FATF. Comprehensively, the Saudi Arabian laws (as outlined by SAMA) do not condone any money laundering activities. Therefore, any such activity in the kingdom occurs as an outright contravention of Saudi laws.
Works Cited
Al-Akhir, Jumada 2012, Kingdom Backs All Efforts To Curb Dirty Money. Web.
Cochrane, Paul 2009, Saudi Arabia Toughens Money Laundering And Terror Finance Procedures. Web.
Cordesman, Anthony. National Security in Saudi Arabia: Threats, Responses, And Challenges, London: Greenwood Publishing Group, 2005. Print.
Merritt, Zina. Combating Terrorism: U. S. Agencies Report Progress Countering Terrorism and Its Financing in Saudi Arabia, But Continued Focus on Counter Terrorism Financing Needed, New York: DIANE Publishing, 2010. Print.
Saudi Arabian Monetary Agency 2003, Rules Governing Anti Money Laundering And Combating Terrorist Financing (AML-CTF). Web.