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Saudi Arabia RISK & COMPLIANCE DATE: May 2017

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Saudi Arabia RISK & COMPLIANCE DATE: May 2017 Saudi Arabia RISK & COMPLIANCE DATE: May 2017 KNOWYOURCOUNTRY Executive Summary - Saudi Arabia Sanctions: None FAFT list of AML No Deficient Countries Not on EU White list equivalent jurisdictions Higher Risk Areas: Failed States Index (Political)(Average score) Compliance with FATF 40 + 9 Recommendations Medium Risk Areas: US Dept of State Money Laundering assessment Corruption Index (Transparency International & W.G.I.)) World Governance Indicators (Average score) Major Investment Areas: Agriculture - products: wheat, barley, tomatoes, melons, dates, citrus; mutton, chickens, eggs, milk Industries: crude oil production, petroleum refining, basic petrochemicals, ammonia, industrial gases, sodium hydroxide (caustic soda), cement, fertilizer, plastics, metals, commercial ship repair, commercial aircraft repair, construction Exports - commodities: petroleum and petroleum products 90% Exports - partners: US 14.3%, China 13.7%, Japan 13.7%, South Korea 9.9%, India 8.2%, Singapore 4.3% (2012) Imports - commodities: machinery and equipment, foodstuffs, chemicals, motor vehicles, textiles Imports - partners: China 13.5%, US 13.2%, South Korea 6.7%, Germany 6.5%, India 6.3%, Japan 6% (2012) Investment Restrictions: 2 The government encourages investment in transportation, education, health, information and communications technology, life sciences, and energy; as well as in four "Economic Cities" that are in various states of development. The Economic Cities are to be new, comprehensive developments in different regions focusing on particular industries. The foreign-direct-investment law, revised in 2000, permits foreigners to invest in all sectors of the economy, except for specific activities contained in a "negative list," currently three industrial sectors and 13 service sectors. The list includes real-estate investment in Mecca and Medina, some subsectors in printing and publishing, audiovisual and media services, land-transportation services excluding inter-city transport by trains, and upstream petroleum. 3 Contents Section 1 - Background ..................................................................................................................... 5 Section 2 - Anti – Money Laundering / Terrorist Financing ............................................................ 7 FATF status ................................................................................................................................................ 7 Compliance with FATF Recommendations ....................................................................................... 7 Key Findings from latest follow-up Mutual Evaluation Report (2010): .......................................... 7 US Department of State Money Laundering assessment (INCSR) ................................................ 9 Key Findings from other US State Department Reports: ................................................................ 12 International Sanctions ........................................................................................................................ 18 Bribery & Corruption ............................................................................................................................. 19 Section 3 - Economy ........................................................................................................................ 24 Banking ................................................................................................................................................... 25 Section 4 - Investment Climate ........................................................................................................ 27 Section 5 - Government ................................................................................................................... 48 Section 6 - Tax ................................................................................................................................... 49 Methodology and Sources ................................................................................................................ 51 4 Section 1 - Background Saudi Arabia is the birthplace of Islam and home to Islam's two holiest shrines in Mecca and Medina. The king's official title is the Custodian of the Two Holy Mosques. The modern Saudi state was founded in 1932 by ABD AL-AZIZ bin Abd al-Rahman Al SAUD (Ibn Saud) after a 30- year campaign to unify most of the Arabian Peninsula. One of his male descendants rules the country today, as required by the country's 1992 Basic Law. King ABDALLAH bin Abd al- Aziz ascended to the throne in 2005. The king instituted an interfaith dialogue initiative in 2008 to encourage religious tolerance on a global level; in 2009, he reshuffled the cabinet, which led to more moderates holding ministerial and judicial positions, and appointed the first female to the cabinet. The 2010-12 uprisings across Middle Eastern and North African countries sparked modest incidents in Saudi cities, predominantly by Shia demonstrators calling for the release of detainees and the withdrawal from Bahrain of the Gulf Cooperation Council's Peninsula Shield Force. Protests in general were met by a strong police presence, with some arrests, but not the level of bloodshed seen in protests elsewhere in the region. In response to the unrest, King ABDALLAH in February and March 2011 announced a series of benefits to Saudi citizens including funds to build affordable housing, salary increases for government workers, and unemployment entitlements. To promote increased political participation, the government held elections nationwide in September 2011 for half the members of 285 municipal councils. Also in September, the king announced that women will be allowed to run for and vote in future municipal elections - first held in 2005 - and serve as full members of the advisory Consultative Council. During 2012, Shia protests increased in violence, while peaceful Sunni protests expanded. The country remains a leading producer of oil and natural gas and holds about 17% of the world's proven oil reserves. The government continues to pursue economic reform and diversification, particularly since Saudi Arabia's accession to the WTO in December 2005, and promotes foreign investment in the kingdom. A burgeoning population, aquifer depletion, and an economy largely dependent on petroleum output and prices are ongoing governmental concerns. 5 6 Section 2 - Anti – Money Laundering / Terrorist Financing FATF status Saudi Arabia is not currently on the FATF List of Countries that have been identified as having strategic AML deficiencies Compliance with FATF Recommendations The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Saudi Arabia was undertaken by the Financial Action Task Force (FATF) in 2010. According to that Evaluation, Saudi Arabia was deemed Compliant for 4 and Largely Compliant for 26 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 2 of the 6 Core Recommendations. Key Findings from latest follow-up Mutual Evaluation Report (2010): The Kingdom of Saudi Arabia (KSA) established its Anti Money Laundering (AML) / Combating the Financing of Terrorism (CFT) regime officially with the issuance of the Anti- Money Laundering Statute in 2003 and its Implementing Regulations in 2005. The legal AML framework is quite robust; however, the CFT legal framework is not as developed. In addition, the effectiveness of the AML and CFT systems needs improvement. Legal framework The legal AML framework in KSA is composed of Shari’ah law and the Anti Money Laundering Statute (AMLS). This framework effectively criminalizes money laundering as required by the FATF Recommendations and international conventions, although criminal liability of legal persons is missing. A confiscation and freezing framework was set up, but its effectiveness needs to be much improved. KSA should also protect the rights of bona fide third parties. Regarding terrorist financing (TF), it is clear that KSA is committed to prosecute terrorist financiers as terrorists. However, KSA was already encouraged in 2004, after it was assessed by the FATF to enact a freestanding terrorist financing offence in line with the United Nations (UN) Terrorist Financing Convention. This has still not been done. In addition, despite the fact that the Kingdom has established a mechanism to implement United Nations Security Council Resolution (UNSCR) 1267(1999); UNSCR 1373(2001) has yet to be implemented. On international cooperation, KSA has signed, ratified and implemented the UN Vienna Convention. However, the UN Palermo Convention has not fully been implemented, while the UN Terrorist Financing Convention has not been implemented. The general framework for mutual legal assistance is sound on paper, but is relatively untested and, therefore, lacks 7 experience, which does not enhance effectiveness. Law enforcement The KSA Financial Intelligence Unit (SAFIU) is a well equipped and well resourced organisation that receives and disseminates relatively few Suspicious Transaction Reports (STRs). Nevertheless, at the time of the on-site visit, SAFIU faced a backlog of about 30% of STRs over the last two years that were waiting to be analysed and made available to law enforcement entities. This backlog accumulation requires constant management attention and monitoring so that STRs are processed in a timely manner. The non-profit sector is a well organised sector. Non-profit
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