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Strategies for complying with anti-corruption rules in Saudi Arabia


1. Introduction

Government contracting can be highly rewarding in Saudi Arabia, given the wide-ranging opportunities in defense, education and healthcare. At the same time, however, companies doing business there need to be mindful of the anti-corruption rules and practices of not only their home jurisdictions, but also the Saudi legal framework. Moreover, investors must be conscious of the particularities of Saudi culture and politics, where the head of a company with whom they are negotiating may be a member of the Royal Family, or where an intermediary in a government contract may be one of ‘the monarchy’s thousands of princes. Investors doing business in Saudi Arabia must understand this local context in order to avoid the unwitting payment to a “government official.”

2. Recent steps towards eliminating corruption

The need to understand Saudi Arabia’s anti-corruption laws has become especially important in recent years, as that nation has pressed ahead with a campaign aimed at eliminating and punishing corruption and bribery at all government levels. Among the measures taken to realize this goal were the formation of the Violations Review Committee of the Government Tenders and Procurement http://www.achaten-suisse.com/ Law, establishment of the National Anti-Corruption Commission and passage of the Combating Bribery Law.

2.1 Combating Bribery Law

The Combating Bribery Law (CBL) seeks to counter both the offering, soliciting and receiving of bribes among Saudi public officials in Saudi Arabia. Under the CBL, a public official is deemed to have received a bribe if the official has solicited, accepted or received, for himself or a third party, a promise or gift in exchange for:

  • The performance of any of his duties;
  • Abstaining from carrying out his duties;
  • Violating the functions of his duties;
  • Performing or abstaining from his duties as a result of a request, recommendation or mediation;
  • Exercising real or alleged influence to obtain from any public authority any act, decision, contract, license, job, service or other benefit or advantage; or
  • Lobbying a governmental authority on the basis of his position.

A “public official” is broadly defined as any of the following:

  • A person employed by the State or any of the public administrative authorities, regardless of whether the employment is permanent or temporary;
  • An arbitrator or expert appointed by the Government or any entity having judicial specialization;
  • A person assigned by a governmental authority or any other administrative authority to perform a specific assignment;
  • A person employed by a joint stock company or company in which the State has a holding; and
  • Chairmen and directors of companies provided for in the preceding paragraph (Art. 8.5 CBL).

Foreign investors attempting to ascertain whether their Saudi counterpart is deemed to be a “public official” under the CBL may encounter difficulty. For example, the chairman and directors of a company in which the State “has a holding” are deemed to be public officials, but determining whether a company is partially or wholly publicly owned is not as straightforward. It is easy to determine when contracting with large, listed companies, such as Saudi Arabia Basic Industries Corporation (SABIC), whose public records disclose the Saudi government’s 70 percent shareholding, but it is more complex when contracting with smaller, unlisted companies, particularly if the only way to get a complete picture of ownership is by piecing together several dozen formational and governing documents published over many years, or when one has to sort out a complex web of company and subsidiary company structures.

2.2  National Anti-Corruption Commission

The National Anti-Corruption Commission (Nazaha or the Commission) has jurisdiction over all governmental bodies and agents, as well as over private businesses where the Kingdom owns 25 percent or more of its capital. All governmental bodies, as well as all businesses that are 25 percent Kingdom-owned, are required to disclose the financial details of their projects, contracts and general operations to the Commission, which is charged with:

  • Receiving and analyzing the reports and statistics from entities falling under ‘its jurisdiction in order to identify areas where corruption could take place and implement preventative measures.
  • Receiving complaints of corruption from citizens and communicating “detected violations” to investigative bodies that fall within its jurisdiction, such as the Minister of Health, the Minister of Municipal and Rural Affairs, the Minister of Education and the Ministry of Water and Electricity.
  • Supervising the investigations and advising the Saudi authorities to take precautionary measures against persons guilty of engaging in corruption.

The Commission has undertaken several investigations into prominent government contracts, including a deal between the Saudi Railways Organization and a Spanish train manufacturer and a contract between a multinational construction company and a hospital in Mecca.

The Commission has published various ads calling on Saudi citizens and residents to report acts of corruption. The ads state that “keeping silent and just watching administrative and financial corruption makes you part of this corruption.”

2.3 Violations Review Committee

Article 78 of the Government Tenders and Procurement Law (the Procurement Law) directs the Minister of Finance to form a committee of advisors comprised of at least three members from relevant government authorities, including a legal advisor and a technical expert, to review compensation claims submitted by contractors and suppliers as well as reports of deceit, fraud and manipulation, in addition to decisions of withdrawal of works. This committee is charged with hearing statements of grievant contractors and suppliers and those accused of fraud or other violations, including their defenses and views of the government authorities. If a contractor or supplier prevails in his claims, the committee must issue a decision awarding compensation.

3. Recommended practices

A foreign company or investor doing business in Saudi Arabia can avoid running afoul of anti-bribery laws by implementing the following practices regarding government contracting:

  • Thoroughly review the constitutional documentation of companies and agents with which whom are doing business. If even a single share of a Saudi company is owned by the Saudi government or by a public institution, the CBL will apply and the individual with whom you are contracting may be deemed to be a public official.
  • Conduct a thorough due diligence before engaging an agent. Review the agent’s commercial registration certificate and confirm the identities of each of the agent’s owners, managers and directors to confirm that none are governmental officials. You should proceed with caution if your research discloses that the agent has family or business relationships with key governmental officials. Similarly a governmental official’s insistence on using the particular agent should, in the absence of legitimate reasons, raise a red flag.
  • Before executing agency agreements, ensure that local agents provide written confirmation that they do not employ or make payments to public officials and that their anti-bribery and corruption policies and practices are at least as rigorous as ‘your firm’s own policy and practices. Such measures will not only minimize the risk of prosecution for an offense, but will also provide the affirmative defense that you had adequate procedures in place to prevent persons associated with your company from undertaking bribery.
  • Include adequate warranties in agency contracts that impose a burden on local agents to comply with anti-corruption laws. Parties may wish to incorporate language such as the following:
    • The Agent warrants that neither it, nor any of its employers, officers, directors, agents, distributors, representatives or any other individual otherwise under the Agent’s control shall pay, offer, promise to pay (or authorize to pay or offer money or anything else of value to any foreign official (i.e., any officer or employee of a foreign government or any department, agency or instrumentality thereof) in order to wrongfully influence the official to misuse his official position in order to obtain or retain business.

By implementing the above recommendations, investors can focus on the business in which they have developed their expertise, and reap the benefits of government contracting in Saudi Arabia, without running afoul of anti-corruption laws and regulations.

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Strategies for complying with anti-corruption rules in Saudi Arabia

The Battle Against Corruption Has Gone Global, in a Big Way

Handcuffed man with euro banknotes

Global corporations and sophisticated international business people have long been aware of the risk of corruption and the potential liability that risk creates under the US Foreign Corrupt Practices Act (FCPA).  This liability is both civil and criminal, corporate and personal, and can result in millions — and in some cases billions– of dollars in fines and penalties, not to mention years of imprisonment in federal penitentiaries for corporate executives.  The ever increasing mobility of corporate employees and executives has increased this risk as they have face-to-face encounters with different cultural and legal expectations of customers, government officials, and colleagues around the world.

For a long time, the US Department of Justice was a lone wolf, actively pursuing corruption around the world committed by US and foreign businesses and business people.   In recent years it was joined by the Securities and Exchange Commission which moved from occasional enforcement of the FCPA to creating a dedicated unit focused on pursuing corruption committed by publicly traded corporations.

But the United States doesn’t want to be alone, and has pushed for international adoption of anti-corruption sanctions through international organizations like the Organization for Economic Cooperation and Development (OECD) and by putting pressure on its allies.  This effort has succeeded in a big way — in recent years, anti-corruption legislation has been adopted or invigorated around the world , not just among close US allies like in the United Kingdom, Canada, and Australia, but also in the so-called BRIC economies of Brazil, Russia, India, and China.

Moreover, the traditional American approach of focusing on public corruption—the payment of bribes to public officials for business advantage—is being supplanted, even in the US, by efforts to pursue all forms of  corruption, whether the bribe is paid to a public official or a private person.  Meanwhile many nations are also pursing corporations for the related misconduct of maintaining inaccurate corporate financial records to hide corporate bribery.  In short, the fight against corruption has been taken up by many nations, using many tools, and fighting many forms of bribery.

Money under table (2)

But corporations and those involved in international business should not despair.  Despite the complexity of the various schemes around the world, the focus on different prosecutorial tools, and enforcement priorities, it is not difficult to build a single, simple, straight-forward global policy to prevent, deter, and detect corruption that not only recognizes the practical reality of international business, but can actually increase opportunity and profitability.

Exchange

For more on global anti-corruption laws click here.  To see the Dentons Global Anti-Corruption Team click here.

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The Battle Against Corruption Has Gone Global, in a Big Way