Saudi Arabia and its banking supervisor have a long history of vigorous action against criminal activity involving the monetary system. As a result, it does not have an appreciable illicit drug problem and is not a significant drug transit country. However, the country has been affected by terrorist attacks, notably in May 2003 and in November 2003, and as a result, Saudi authorities have focused heavily on systems and measures to counter terrorism and the financing of terrorism. This has involved the creation of new legislation, new systems and new organizations to detect and prosecute those involved in terrorist financing, along with action to increase the requirements for financial institutions on customer due diligence, the establishment of systems for tracing and freezing terrorist assets, and an increase in the regulation and transparency of charitable organizations. This legislation implemented the recommendations of the Financial Action Task Force (FATF), an inter-governmental body which develops and promotes policies, at both national and international levels, to combat money laundering and terrorist financing. In particular, FATF produces a set of recommendations which define best international practice as regards procedures to combat money laundering and terrorist financing. These procedures are known as the FATF 40 + 8 Recommendations.
Once these processes were in place, Saudi Arabia invited a team of assessors from FATF member countries to conduct an evaluation of the country's procedures against money laundering and terrorist financing. An evaluation of this kind involves the member country being examined by the FATF on the basis of an on-site visit conducted by a team of three or four selected experts in the legal, financial and law enforcement fields from other member governments. The purpose of the visit is to draw up a report assessing the extent to which the evaluated country has moved forward in implementing an effective system to counter money laundering and to highlight areas in which further progress may still be required.
In preparing the detailed assessment, assessors reviewed relevant anti-money- laundering and counter-terrorist financing laws and regulations, supervisory and regulatory systems in place to deter money laundering and terrorist financing, and criminal law enforcement systems. The evaluation team visited Riyadh in September 2003, and had meetings with senior officials from all of the major government departments. In addition the team met with the Saudi Arabian Monetary Agency (SAMA), which is the Kingdom’s central bank, and with representatives from the commercial banking, insurance and money exchange and remittance sectors.
The evaluation team produced a report which was submitted to, and accepted by, the FATF plenary session on February 27, 2004. The report concluded that the systems and legislation in place in Saudi Arabia met the general obligations of the FATF 40 + 8 Recommendations.
The report summarized the steps which Saudi Arabia has taken to combat money laundering and terrorist financing. Its content and conclusions can be summarized as follows:
(a) Legal System
The evaluation concluded that the laws of Saudi Arabia met the FATF standards. The country has, and has had for some time, comprehensive rules covering anti-money-laundering and counter-terrorist financing requirements for the banking sector. Until the implementing regulations to the Anti Money Laundering Law (2003) are issued, the 2003 SAMA AML/CFT Rules for banks are the only rules that apply to the insurance sector regarding customer identification. The Insurance Law (2003) will allow, for the first time, the incorporation of new insurance companies within the Kingdom, and the Capital Markets Law (2003) will create a new securities sector with an independent and specialized supervisor separate from SAMA. These laws require the establishment of independent regulatory systems, which must ensure that appropriate money-laundering procedures are required of firms seeking to establish themselves under these new laws. Separate rules exist for the money exchange business.
The evaluation team conducted their evaluation as of the date of their visit. The visit occurred shortly before the coming into force of the Implementation Rules made under the 2003 AML Law. These rules completed the legal structure of Saudi Arabia's anti-money-laundering legal system, and addressed the issues raised by the evaluators. In particular, the regulations make clear that terrorist financing using lawfully acquired funds is contrary to the Anti Money Laundering law (see Recommendations below).
The legal system of Saudi Arabia is based on Shari'ah. Money laundering and terrorist financing are offenses under Shari’ah law, and successful prosecutions have been brought for both money laundering and terrorist financing in the Shari'ah courts based on violations of Shari’ah law.
The Saudi courts will also assist the courts of other jurisdictions in the fight against money laundering and terrorist financing. The Anti Money Laundering Law requires Saudi courts to recognize a property
confiscation order issued by a foreign authority, providing that the property would be subject to a confiscation order under Saudi Law. The country also has mechanisms for coordinating the execution and freezing of assets required by relevant UN Security Council Resolutions, and SAMA has issued a series of circulars to all commercial banks and exchange houses to inform them of their freezing obligations under UN Security Council Resolution 1267 (1999). Both the Anti Money Laundering Law and the Implementation Rules for the Vienna Convention provide a basis for the receiving and executing of foreign requests to confiscate, freeze and seize or trace criminal assets. Should a foreign request require an investigation that requires access to bank account information, the relevant information would be obtained from the commercial bank by SAMA.
b) Investigation and Enforcement Procedures
The investigation team found that the country's investigation and enforcement mechanisms were substantive and effective. Law enforcement agencies operate under the responsibility of the Ministry of Interior, which sets policy through the Permanent Committee for Combating Terrorist Financing (PCCTF) and the Mutual Legal Assistance Committee (MLAC). The Bureau of Investigation and Prosecution is operationally autonomous from the Ministry of the Interior and since 2001 has responsibility for conducting criminal investigations and prosecuting cases on matters under its jurisdiction. These include the investigation of money laundering and terrorist financing. Article 11 of the AML Law (2003) mandated the creation of the Saudi Anti Financial Crime Unit (SAFCU) as the central intelligence gathering body for the country. SAFCU has 27 permanent employees from a range of legal, financial and investigative backgrounds who work with a number of specialists who are to be seconded to the unit. There are plans to establish sub-branches of SAFCU in each of the 13 provinces of Saudi Arabia.
There has been a requirement to report suspicious transactions directly to the police since 1975. Prior to the creation of SACFU, financial institutions reported suspicious transactions to the local offices of the Directorate for Combating Drugs (DCD).
(c) International Cooperation
The evaluation team found that Saudi Arabia's legal structures regarding international cooperation were sound. Saudi Arabia is a signatory to a range of conventions, treaties and bilateral agreements that provide for general international cooperation particularly within the Middle East and Gulf Cooperation Council regions. The MLAC acts as a central point for the receipt of, and response to, foreign requests for legal cooperation on ML inquiries. In instances where it may be unclear what type of assistance can be provided the Board of Grievances has the overall authority for resolving any requests to enforce foreign judgements.
The assessors found that the Saudi system of regulation of charities was more thorough and more effective than anything they had otherwise encountered, and should be a model for other jurisdictions. From 2003 charities have been required to operate only one main consolidated account for each organization, to hold the account in Saudi Riyals, not to transfer money outside Saudi Arabia, not to make cash disbursements and not to carry out transactions through ATM or credit cards. The effect of this is that all transactions with or through charities are identifiable both as to donors and as to recipients, and information as to such transactions is promptly available to SAMA and to the FIU.
(e) Non-Bank Financial Institutions
Non-Bank Financial Institutions (NBFIs) are subject to strict registration requirements: accountants, from the Saudi Society for Certified and Public Accountants; solicitors and notaries, from the Ministry of Justice; precious metals dealers, from the Ministry of Commerce; domestic charities by the Ministry of Labour and international charities by the Ministry of Islamic Affairs.
(f) Cash transactions
SAMA has been engaged for many years in a project to move the Saudi economy to a fully bank-payment-based model. Significant steps have been taken to discourage large cash transactions and to encourage the use of bank transfers in order, inter alia, to improve the ability of the law enforcement authorities to monitor cash transactions. Saudi Arabia also monitors the physical movement of cross-border transportation of cash. The import or export of currency in excess of SR 10,000 must be declared at the border, or point of entry, and a record is maintained of declarations and investigations carried out if there are doubts as to the source of the money. Saudi Arabia applies strict controls on the movement of Saudi currency. Saudi banks are encouraged to buy any excess Saudi riyals that they may have accumulated in other countries, and persons leaving Saudi Arabia with large amounts of cash are encouraged to deposit the funds in a bank (and thus transfer the funds by wire or convert them to another currency) before departure. Consequently there is very little cross-border transportation of currency.
The mutual evaluation team found that Saudi Arabia was not fully compliant with the FATF recommendations in only two of the areas surveyed.
First, the team was not satisfied that the drafting of the definition of terrorist financing in the criminal law which proscribes it was sufficiently clear. Although there is no doubt that engaging in terrorist financing is contrary to the law and is a criminal offense, the team suggested improvements in the definition of terrorist financing which would bring the drafting into line with established international practice. The implementing regulations of the money-laundering and terrorist-financing laws adopted by Saudi Arabia have removed any ambiguities in this respect.
Second, there is an issue as to transmission of originator information on wire transfers between banks, which appears to be common to many FATF member countries. Saudi Arabia is ready to proceed in this area in conjunction with global international payment systems (SWIFT). This is expected to occur in the near term once SWIFT is ready for Saudi Arabia.
The report also commented that requests for information addressed to Saudi Banks must be routed through SAMA, and that this added an extra step to, and could therefore delay, the process of providing effective legal assistance in AML/CFT inquiries or prosecutions. However this view is not accepted by Saudi Arabia. As the central bank and bank regulator, SAMA has great legal and moral authority over regulated banks, and its involvement in the process has always ensured that requests for information or cooperation are dealt with expeditiously.
Aside from these issues, the measures put in place by the country were found to be in line with best international practice.