The Saudi Corruption Probe: What a Swiss Compliance Officer should know and do about the topic - Banking blog

Ch-blog-saudi-corruption-probe

The known facts

The Saudi Arabian Crown Prince (Prince Mohammed Bin Salman) created an Anti-Corruption Committee on 4 November 2017. Subsequently, the Attorney General (Sheikh Saud al-Mojeb) ordered the arrests of several high profile individuals in Saudi Arabia. The targeted individuals include approximately 200 people, including high-ranking princes, as well as a number of the Kingdom’s most prominent business men and former senior officials. The Attorney General is allegedly investigating systematic corruption and embezzlement going back decades and mentioned an expected offense sum of at least USD 100bn.

In an article published by the Saudi “Arab News” on 24 November 2017, the Crown Prince estimates that from the 1980s until today “roughly 10 percent of all government spending was siphoned off by corruption each year, from the top levels to the bottom.” According to the article, it was King Salman who ordered an investigation in early 2015 which finally led to the production of a list of 200 names, of which now 95 percent had already agreed to settle, signing over cash or shares in their businesses to the Saudi State Treasury. So far only one percent (of the 200, i.e. probably two individuals) were able to prove their innocence. Of the 200 detained persons, half of the names are yet known and available through dedicated database providers.
 

Interpretation from a Swiss compliance point of view

Saudi Arabia is a monarchy where lines are frequently blurred between public and private sector. Thousands of princes and princesses maintain both public and private roles in the business community. The 200 detained individuals were allegedly at the top of the Saudi economy. The probability of a large amount of contracts with Saudi involvement being directly or indirectly affected by the current investigation is therefore high.

There are strong economic ties between Switzerland and Saudi Arabia. Around 113 Swiss companies are doing significant business in Saudi Arabia. The volume of trade exchange between the two countries reached USD 2.75bn in 2016. It must therefore be assumed, that a significant part of this business may also be affected, directly or indirectly, by the current investigation.

While the investigation seems to be based on overwhelming evidence with 95 percent of the detained 200 persons already aiming for a settlement with the government only three weeks after being confronted with the claims there are also voices that question the legitimacy or purpose of the raid. From an outside perspective the facts as they are presented do not allow yet to judge on the legitimacy of the persons and businesses under investigation.

Consequences from a compliance perspective

Many things are still unclear at this stage and there is also a risk of over-reacting. Nevertheless, the extent of the allegations and the potential implications are substantial. It is therefore clear that any Swiss based business (not only banks) that has ties to the Saudi market must carefully analyse the situation.

Management should aim to be prepared for regulators querying their business interactions in Saudi Arabia and know their exposures. Name matching against known suspects is one helpful element but does not sufficiently mitigate the risks involved. Even more important is to establish whether the previous assessment of corruption risk in relation to the business with Saudi Arabia was and still is adequate in light of the recent developments. Particular topics for consideration and if necessary re-assessment can be:

  • Bid-processes and awarded contracts;
  • Business licenses in Saudi Arabia;
  • Dealings with Saudi regulators;
  • Third-party due diligence recordings regarding integrity and conduct; and
  • Identity of the controlling persons and beneficial owners of contracting parties.

Specifically for banks, additional topics could be:

  • Identification and KYC profiling of PEPs; and
  • Adequate transaction monitoring.

While none of this is really new to any diligent company with a functioning compliance role it can still be noted that the legal and reputational risk associated with bribery and corruption has increased significantly in Switzerland over the past six years. Reasons are, inter alia, the tightened Swiss laws against corruption (January 2016), the UK Bribery Act (June 2011),and finally the FCPA enforcement initiative of the US DoJ (April 2016). The increasing number of large volume leaks around offshore structures (Bahamas leaks, Panama Papers, Paradise Papers) has helped further to direct public attention to the topic.

It is therefore advisable to have a careful analysis and assessment of the exposure in place prior to any future inquires of regulators or prosecutors.

Ch-profiles-nic-carrington-110

Nic Carrington - Partner, Deloitte Forensic Leader, Zurich

Nic is the Deloitte Forensic Leader in Switzerland. He has advised on cases involving white collar crime and corruption, including FCPA related matters, anti-money laundering compliance and investigations, procurement fraud, conflicts of interest issues and accounting irregularities. Nic is a Qualified Accountant and a Certified Fraud Examiner.

Email

Djoseph

David Joseph - Partner, Forensic, Zurich

David has more than twenty-five years of experience in auditing and advising financial institutions, and has led a large number of national and international economic crime and fraud investigations across the world. He has led major regulatory compliance reviews for Swiss financial institutions. He works with the financial services advisory team, working mainly on banking and insurance/reinsurance clients, and with Swiss and international regulators. He has a lead role in the FATCA advisory business.

Email

Rwyss

Ralph Wyss - Partner, Forensic, Zurich

Ralph is a Swiss attorney at law and PhD (law) with more than 20 years of professional experience in the Swiss financial services industry. He is a well-known AML and compliance expert in the Swiss marketplace.

At Deloitte, he works in our Forensic practice. He is the AML topic leader in Switzerland and a member of the financial services industry leadership team. Ralph is the author of the Deloitte point of view “Compliance 2025: DNA evolution in the Financial Services Industry”.

Email

Ch-profile-emely-rappit

Emily Rappitt - Director, Forensic, Zurich

Emily is qualified Chartered Accountant and a Director in the Forensic group in Zurich, with over 16 years of successfully leading and managing highly complex corporate investigations and regulatory reviews.

Her specialist areas are financial crime, fraud, bribery & corruption and economic sanction investigations, and consulting clients on their potential vulnerabilities to fraud, bribery & corruption and financial crime.

Emily has provided investigation management and forensic accounting support for FSI clients and other industry sector clients across the Globe.

Email

Comments

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.

Categories