I have been asked by a Fund client to advise whether they should raise the bar for due diligence for Saudi investors following the horrific killing of Jamal Khashoggi in Istanbul. My gut feeling was “no” but obviously I needed to undertake some research to substantiate my view.
Fortunately, two recent publications considered progress made by Saudi Arabia on AML and TF. The first, published in September 2018 by the Financial Action Task Force (FATF) and MENA FATF was a mutual evaluation of the Kingdom. Key conclusions were:
• The good news is that Saudi Arabia’s legal and regulatory framework has undergone fundamental changes which, at a legal level address the deficiencies identified by FATF in 2010. Among financial institutions, there is a good understanding of identification and KYC requirements. The bad news is that Saudi Arabia is not effectively investigating, and prosecuting individuals involved in large scale or professional Money Laundering activity. A staggering 70%-80% of suspect cases of laundered money leaving the country are not investigated;
• The news is better on Terrorist Risks, which FATF find substantially compliant; good news considering over 3,000 Al Qaeda and Isis terrorists left the country since 2000. Odd then, that the press is reporting today that Treasury Secretary Steve Mnuchin is still heading to Saudi Arabia to (apparently) discuss Terrorist Financing!
Secondly, on 9 October 2018, the Basel Institute on Governance released its latest AML Index which ranks 129 countries for AML and TF. Saudi Arabia ranks at 81 out of 129 (129 (Finland) being the lowest risk). So Saudi Arabia, does not stand out as over risky; particularly as the Index places the USA only one place higher at 82!
The conclusion therefore is that Saudi Arabia should still be treated as a “grey list” jurisdiction with a particular emphasis on enhanced due diligence on high net worth individuals not represented by a manager registered with the Saudi Capital Markets Authority.