Saudi Arabia risk report

There is a moderate risk of corruption in Saudi Arabia's judiciary. While operating under the religious clergy, the judicial branch has significant autonomy from the executive branch (BTI 2018). However, this autonomy has recently been eroded Companies report moderate trust in the independence of the judiciary (GCR 2017-2018). Companies indicate that bribes and irregular payments in return for favorable judicial decisions are not common (GCR 2015-2016). Companies are not sufficiently satisfied with the efficiency of the legal framework when it comes to challenging regulations (GCR 2017-2018). The legal system is based on Islamic rules, known as Sharia law (ICS 2017). Efforts to codify these laws remain incomplete (ICS 2017). A number of judges have been removed in recent years for corruption and sympathy with extremist religious groups (BTI 2018). Judicial corruption is also a problem in relation to land disputes and cases involving the royal family's interests, in which case judges usually yield to royal pressure (BTI 2018)

Many disputes in Saudi Arabia are handled by administrative bodies rather than the courts (ICS 2017). The Saudi Board of grievances has jurisdiction over commercial disputes between private contractors and the government (ICS 2017). The same board also reviews foreign arbitral awards to ensure they comply with Sharia law; a process that can take years and of which the outcomes are generally unpredictable (ICS 2017). Judicial professionalism is limited in technical areas of commercial law (BTI 2018). In several cases, disputes have caused various problems for foreign investors such as having their ability to leave blocked and forcing them to remain in Saudi Arabia against their will (ICS 2017). In cases of alleged fraud, foreign investors may also be jailed to prevent their departure from the country while awaiting police investigation or trial (ICS 2017).

Enforcing a contract takes around the same amount of time as the average among OECD high-income countries, but it is significantly more costly (DB 2018).

Saudi Arabia has ratified the New York Convention of 1958 and is a member of the International Centre for the Settlement of Investment Disputes (ICSID).

The Saudi police force carries a low risk of corruption. Civilian authorities maintain effective control over the security forces (HRR 2017). Companies are confident in the reliability of Saudi police forces to protect them from crime and to uphold law and order (GCR 2017-2018). Companies should note that, aside from the civil police, the Commission for the Promotion of Virtue and Prevention of Vice (CPVPV, often referred to as the "religious police") has the authority to monitor social behavior, but its powers to enforce laws have been curtailed (HRR 2017).

Corruption in Saudi Arabia's public services is a moderate risk for companies. Companies indicate that bribes and irregular payments are not regularly exchanged when obtaining public services (GCR 2015-2016). The Saudi regulatory system is not transparent and bureaucratic procedures are cumbersome (ICS 2017). However, some organizations do engage stakeholders in the regulatory process (ICS 2017). There has been extensive reporting about abuse of power by local judges, notaries, and municipal administrations (BTI 2018). Regular public servants accused of corruption are fired somewhat frequently, but those with strong patronage links to the royal family can engage in corruption with impunity (BTI 2018). Saudi Princes are only very rarely removed from office; it takes a major offense for this to happen (BTI 2018). While the Kingdom is trying to modernize and is pursuing its "Vision 2030" project, there has been little change in the bureaucracy; bureaucratic stalling and corruption remain (BTI 2018). Large institutions, including the ministries of the interior and defense, remain unaccountable (BTI 2018).

In November 2017, dozens of princes, ministers, and other prominent business people were detained in the Riyadh Ritz Carlton following the creation of an anti-corruption committee following orders from Crown Prince Mohammad bin Salman (The Guardian, Jan. 2018). The authorities claim to have recouped in excess of USD 100 billion in allegedly illicitly gained funds from the detainees (The Guardian, Jan. 2018). The anti-corruption drive is said to be a dramatic change for the Kingdom; removing protections for powerful figures who benefitted from decades of corruption (The Guardian, Jan. 2018).

Starting a business takes ten steps and double the amount of time compared to the average among OECD high-income countries (DB 2018). Dealing with construction permits takes more steps, but significantly less time compared to the average among OECD high-income countries (DB 2018).

When establishing a business, companies should take note of the one-stop shop office at the Ministry of Commerce and Industry. All foreign investment projects in Saudi Arabia must initially obtain a license from the Saudi Arabian General Investment Authority

Saudi Arabia's land administration carries a moderate risk of corruption. Business executives generally find their property rights to be well protected (GCR 2017-2018). The legal system generally adequately facilitates the acquisition and disposition of all property (ICS 2017). However, there is no generally accepted public registry and powerful people have been known to be able to obtain land deeds and appropriate land in possession of less powerful owners (BTI 2018). Foreign corporate entities are allowed to purchase real estate according to the procedures set out in the foreign investment code (ICS 2017).

Expropriation occasionally happens, but there are no reports of expropriation without proper compensation (ICS 2017). However, judicial corruption does occur, particularly in cases concerning land disputes and land registration (BTI 2018). The National Anti-Corruption Commission alleged in January 2016 that a notary in the al-Muzahmiyya Governorate took bribes and issued as much as 800 land deeds illegally (BTI 2018); the Ministry of Justice has denied the allegation (BTI 2018).

Registering property in Saudi Arabia takes only two steps and less than two days, which is significantly better than elsewhere in the region (DB 2018).

There is a low risk of corruption in the Saudi Arabian tax administration. Companies report that irregular payments or bribes in relation to annual tax payments are very uncommon (GCR 2015-2016). Saudi investors are exempt from taxes but pay a religious tax (zakat) of 2.5 percent (ICS 2017). However, the tax system in the country favors Saudi companies and joint ventures with Saudi participation over foreign investors (ICS 2017).

Companies spend significantly less time and make significantly fewer payments annually compared to the average of OECD high-income countries (DB 2018).

There is a low risk of corruption in Saudi Arabia's customs administration. The border administration is transparent, and irregular payments in relation to imports and exports rarely occur (GETR 2016). However, customs procedures are considered burdensome (GETR 2016). The costs and required time to comply with border procedures generally exceed regional averages (DB 2018).

The country's e-Government Program, Yesser, Saudi Arabia has reduced barriers to trade by clarifying investment rules and regulations online and by offering online services.

Saudi Arabia's procurement sector carries a moderate risk of corruption; defense and security procurement is particularly corruption-prone (BTI 2018). Companies indicate that irregular payments and bribes are fairly uncommon in procurement processes (GCR 2015-2016). Companies also perceive favoritism in the decisions of government officials as fairly common, but diversion of public funds is perceived to be uncommon (GCR 2017-2018). Defense spending accounts for 30 percent of the government's budgetary allocations, but it lacks transparency and often exceeds such budgeted figures (GDACI 2015). Procurement does not appear to be based on a clearly defined national defense and security strategy (GDACI 2015). Ministers and other senior government officials appointed by royal decree are prohibited from being involved in business activities with their ministry or organization while employed there (ICS 2017). Investors are advised to exert caution when bidding on public tenders in Saudi Arabia and are recommended to use a specialized procurement due diligence tool.

A well-known corruption case in Saudi procurement involves the British defense company BAE Systems and Saudi government officials. The case revealed false accounting in the contract made between BAE and Saudi officials as well as substantial unofficial payments received by a senior Saudi official from BAE. For more information on the case, see the Guardian's collection of BAE-Saudi-related articles.

Corruption and a lack of transparency are problems in the Saudi Arabian natural resource sector, making it a high-risk sector for businesses. Even though Saudi Arabia is dependent on its resources, reporting requirements in the oil, gas, and mining industries are inadequate (NRGI 2017). Foreign companies' participation in oil extraction is restricted to the Neutral Zone gas reserves (NRGI 2017). There are unclear rules governing the licensing process and the sovereign wealth fund is badly governed (NRGI 2017). State-owned oil company Saudi Aramco has exclusive control of Saudi Arabia's oil and is the world's largest and most coveted and secretive oil company (Economist, Jan. 2016). The massive revenues from the sale of oil are redistributed through welfare programs and patronage, but it is unclear how this source of public wealth becomes a source of privilege for the royal family and its clients (FitW 2018).

Saudi Arabia has a comprehensive legal framework to address corruption, yet the authorities' efforts to curb corruption are modest and impunity for corruption offenses exists (HRR 2017). Saudi Arabian corruption laws are not uniformly enforced, and punishments are selective (BTI 2018). The National Anti-Corruption Commission primarily focusses on mid-level bureaucratic abuses and regularly complains about non-cooperation from other agencies (BTI 2018). The Commission has not yet held any senior figure accountable for abuse of position offenses (BTI 2018). The main anti-corruption laws are the Combating Bribery Law and Civil Service Law, which cover public-to-public and public-to-private bribery but not private-to-private bribery. However, employees of banks and "joint stock companies" can be considered public servants and may thus be liable under the framework (Baker McKenzie 2017). The laws criminalize abuse of authority and office for personal interest, active and passive bribery, and bribery through intermediaries. Gifts, facilitation payments, and hospitality are also criminalized, depending on their intent; there is no formal de minimis (Baker McKenzie 2017). Violations can result in prison sentences up to 10 years and fines of up to SRA 1 million (Baker McKenzie 2017). The briber can be excused if he or she reports the crime to the Ministry of the Interior before its discovery (Al Tamimi: DBiSA, 2016). Saudi Arabia's Monetary Agency has guidelines for detecting money laundering activities and enacted an Anti-Money Laundering Law; a person found guilty of money laundering can be sentenced to up to 10 years in prison and/or receive a fine of up to SAR 5 million, and illegal funds are confiscated. Corporate Governance Regulations provide for the independence of company board members as well as transparency and rules on disclosure. The Government Tenders and Procurement Law regulates public procurement and requires the publication of tenders and electronic tendering. The Anti-Concealment Law also addresses fair competition. Public officials are not subject to financial disclosure laws or conflict of interest laws (BTI 2018).

The country has ratified the United Nations Convention against Corruption (UNCAC).

The law does not provide for freedom of expression and the government frequently restricts free speech in practice (HRR 2017). Saudi Arabia's Basic Law of Governance describes the role of media as educative, unifying, and supporting government agendas, but the country does not have a freedom of information law (FotP 2017). Thus, Saudi media falls short of providing an accurate picture of the pervasiveness of corruption in the country. However, the country's citizens have increasingly turned to the internet and platforms such as Twitter to voice their opinions, thereby forcing traditional outlets to cover a wider range of stories (FotP 2017). Several major media outlets are owned by members of the royal family, and individuals are not permitted to publically criticize the royal family (FitW 2018). The government seldom interferes overtly, as most media outlets practice self-censorship (FotP 2017). The media environment in Saudi Arabia is considered "not free" (FotP 2017).

The government severely restricts the right to freedom of association (HRR 2017). Saudi officials frequently refuse to register political or human rights groups (FitW 2018). Reforms were made in late 2015 that should make it easier for Saudis to operate NGOs (BTI 2018).

• World Bank: Doing Business 2018.
• Bertelsmann Stiftung: Saudi Arabia Transformation Index 2018.
• Freedom House: Freedom in the World 2018.
• The Guardian: "Saudi Arabia Claims Anti-Corruption Purge Recouped USD 100 Billion", 30 January 2018.
• World Economic Forum: Global Competitiveness Index 2017-2018.
• US Department of State: Investment Climate Statement 2017.
• US Department of State: Human Rights Practices Report 2017.
• Baker & McKenzie: Anti-Bribery Laws Handbook 2017.
• Natural Resource Governance Institute: Saudi Arabia Profile 2017.
• Freedom House: Freedom of the Press 2017.
• Al Tamimi: Doing Business in Saudi Arabia 2016.
• World Economic Forum: Global Enabling Trade Report 2016.
• World Economic Forum: Global Competitiveness Report 2015-2016.
• Economist: "Transcript: Interview with Muhammad bin Salman", 4 January 2016.
• Transparency International: Government Defense Anti-Corruption Index 2015.