Saudi Arabia’s inclusion in EU’s Dirty Money Blacklist and Fact Check to Refute Allegations

            In a recent move made by EU, a new list with high risk countries is going to be issued to include 23 more countries regarding money laundering and terrorism financing. The European Commission has said that they will continue to scrutinize countries on the basis of their anti-money laundering laws and terrorism financing, and if their laws are not good enough, then countries will be put on the list of high-risk countries. This latest list has come up with new counties on the list including Iran, Panama, Saudi Arabia and North Korea.

The European Commission has also said that these high-risk countries must face some strict rules and oversight in terms of their flaws in the system, which allows illicit financial flows. One of the significant countries to be included in this list is Saudi Arabia, which is quite shocking for Saudi Arabia in so many ways. It is important to mention here that a global watchdog named Financial Action Task Force (FATF) is already there to put countries on high risk list through its own system, and there is actually no need for any other country to do the same separately. But still, EU have decided to do this by their own methodology, and this list has targeted more countries as compared to FATF (Bodoni & Weber, 2019)

            During a press briefing in France, Vera Jourova, the EU Justice Commissioner said that “This is an invitation” for the named jurisdictions to address their “weaknesses”. It means that EU thinks that Saudi Arabia has a weak financial system, which cannot overlook its financial flows with regards to anti money laundering as well as terrorist financing. If this list would not have any adverse effects, then it would have been fine for Saudi Arabia, but fact of the matter is that due to inclusion in this list, now EU banks and clients dealing with Saudi Arabian banks and other entities will have to face various issues as security checks will be even stricter for the process to be done with these blacklisted countries. It is true that Saudi Arabia will not face any restrictions or sanctions of any kind, but their financial dealing in the EU region will be impacted in so many ways (Bodoni & Weber, 2019)

            The move made by EU is not welcomed by many parts of the world including countries in its own region. The most significant response came from Britain as they have said that they have great concerns on this list and its consequences as Britain trade relations and matters will be hugely affected due to this list. The special concern shown by Britain was about Saudi Arabia, as Britain has great trade relations and matters with Saudi Arabia.

The Britain companies may face several issues due to Saudi Arabia’s inclusion in this list. The decision was also regretted and criticized by the Saudi Government as well, and it was said in a statements issued by Saudi Press Agency that “Saudi Arabia's commitment to combating money laundering and the financing of terrorism is a strategic priority”. It has also been reported that European Commission was facing various pressures not to include Saudi Arabia in the list, but this pressure was not taken by EU, and they have decided to blacklist Kingdom of Saudi Arabia. It is a fact that Saudi Arabia is an oil rich economy, and it is one of the major importers to import weapons as well as goods by the EU.

Many top banks from Britain and EU have started their operations in Saudi Arabia and they are enjoying great financial success their including HSBC, Royal Bank of Scotland etc. It means that these banks will have to face adverse effects of Saudi Arabia being blacklisted by the EU. That’s why criticism is not only coming from Saudi Arabia, but from other regions of the world as well. (CNBC, 2019)

Here is the list of 23 countries blacklisted by European Commission:

Source: http://europa.eu/rapid/press-release_IP-19-781_en.htm

            It has been mentioned above that inclusion of Saudi Arabia has not been welcomed by Saudi Arabia as well as other prominent nations like Britain, because being an oil rich economy, the position of Saudi Arabia is very strong in the world, and its growing economy is coming up with great potential for other countries around the world.

Next part of this paper will criticize this decision made by EU on the basis of facts and statistics, and allegations will be refuted by providing enough evidence to prove that decision by EU is not only unfair, but it is unacceptable as well. The discussion will include relevant facts, information, and methodology by FATF and EU will also be overlooked in brief to see that why EU is not on the right side of the picture to do so for countries like Saudi Arabia, who have not been included on the FATF list.

Questions raised on EU Flawed List of High-Risk Countries

            It is a fact that a global body already exists in the world to look at anti money laundering as well as terror financing efforts made by countries. The Financial Action Task Force (FATF) has its complete focus on above mentioned issue. They review policies, efforts and laws developed by countries to combat money laundering and terror financing around the world. The role of FATF has been applauded and accepted by the world, and their list is deemed authenticated by member states. So, a serious concern and questions is raised by many countries that in the presence of FATF, why EU have made this parallel body of blacklisting countries. The European Commission has adopted its own mechanism and methodology to decide that which countries will be blacklisted and which will be excluded from the list.

Criticism from United States

            It has already been briefly mentioned that many countries have rejected as well as criticized the list of high-risk countries issued by EU, which has included U.S Virgin Islands as well as Saudi Arabia in the list. The fact of the matter is that these countries are not included on FATF list of high-risk countries, which are not able to stop money laundering and becoming a reason to finance terrorist around the world. The United States have rejected this decision made by EU as they feel that methodology adopted by EU has serious questions to ask, before making it an authenticated and reliable one.

A statement was issued by The U.S. Treasury Department, which asked American Banks to ignore this news and decision made by EU. The U.S. Treasury Department also said that they have serious and considerable concerns on the substance of this issues list of high risk countries, which has not only included U.S territories, but also included countries like Saudi Arabia (Rubenfeld & Michaels, 2019)

Criticism from United Kingdom

            The British government has also not welcomed the decision of EU to add more countries like an important country Saudi Arabia, in the blacklisted countries, which EU feels that they are not able to deal with money laundering and terrorist financing. The issue is criticized by Britain as well as many other EU countries, because their major banks have operations in Saudi Arabia. So, it will be difficult for these countries and their banks to deal with Saudi Arabian clients and companies, and these hurdles will increase a lot after Saudi Arabia being blacklisted. This decision by EU can have very long-lasting bad effects on the image of Saudi Arabia, who has been one of the growing economies in the world (Weber & Bodoni, 2019)

Criticism from Saudi Arabia

            The Kingdom of Saudi Arabia has been added in the list issued by EU on high risk countries with relation to terror financing and money laundering. The news was not taken positively around the world including Saudi Arabia, as the country has regretted this decision. Mohammed Al-Jadaan, the Minister of Finance said in a statement that Saudi Arabia has a strategic priority to fight against terror financing and money laundering and they are committed to do it consistently.

He also said that “We will continue to develop and enhance our regulatory framework to achieve this goal. We note the proposed revised list is subject to approval of both the European Parliament and Council of Ministers.”Saudi Arabia has also asked European Parliament members as well as EC officials to make a visit to Riyadh so that they can see the amount of efforts being put in by Saudi Arabia with a proper policy framework so that terror financing and money laundering can be stopped. The country has been making each and every effort to stop terrorism financing and money laundering and has partnered with various other countries in this regard.

The country has been coming up with policy and laws to stop these elements of becoming high risk countries, and one of the evidences came in 29018, when Saudi Arabia’s efforts were applauded by FATF. It was said that Saudi Arabia’s preventive measures and policies are good enough to combat terror financing and money laundering. Saudi Arabia is hoping to have a positive dialog with EU on this issue so that they can be excluded from the list of high-risk countries (Saudi Gazette, 2019)

List of High-Risk Countries Issued by FATF

            It is important to have a look at the high-risk countries which are included in the list of high risk & other monitored jurisdictions. According to FATF website, here is the list of these countries:

Source: http://www.fatf-gafi.org/countries/#high-risk

            The above list clearly shows that FATF has not included Saudi Arabia in the high risk or even monitored jurisdictions of the world. It means that Saudi Arabia has not been even put on the grey list by FATF, and then it is shocking to see that European Commission has done it without talking to government officials of Saudi Arabia. The fact to keep in mind that FATF is authentic global watchdog of terror financing and money laundering, then how EU is running a parallel system, which is blacklisting countries. EC should have consulted with FATF on the measures taken by Saudi Arabia to review its decision and see that how Saudi Arabia is making honest efforts to keep things on right track.

Long Term Measures and Efforts by Saudi Arabia to Combat Terrorism Financing and Money Laundering

Source:https://cranganore.com/2019/01/31/eu-points-to-saudi-money-laundering-issues/

            As it is mentioned above that FATF is a global entity to review the issue of money laundering and terror financing. So, FATF comes with time to time list of countries on high risk or on grey list, and efforts of these countries are also reviewed in detail to see that how efforts and policies are being improved by these countries so that they can stay out of the high-risk countries’ list. Saudi Arabia is also one of the countries, which have made considerable efforts with great preventive measures to make sure that they keep fighting with money laundering and terror financing.

These efforts make sure that Saudi Arabia does not play its part in terror financing, which strengthen terrorist organizations to conduct their terrorist activities around the world. A mutual evaluation report was issued by FATF to analyze and review the efforts and measures of Saudi Arabia. This report has reviewed different aspects in detail so that it can be seen by the world that how effectively Saudi Arabia is fighting against money laundering as well as terrorism financing.

Ratings of Saudi Arabia on Technical& Effectiveness Compliance

Source: (FATF, 2018)

Source: (FATF, 2018)

            Looking at these ratings issued by FATF, it is quite evident that Saudi Arabia is doing so many efforts, which are improving its effectiveness as well as technical compliance ratings. This compliance is with the standard and measures issued by FATF to combat with money laundering and terrorism financing on local and international level. When Effectiveness Rating are reviewed closely, it is evident that on most standards, Saudi Arabia has been able to obtain Substantial or Moderate ratings.

Only two areas of ratings are showing that Saudi Arabia has to increase its efforts; first in the process of Confiscation, and second coming up with financial sanctions. Saudi Arabia can improve these two areas of concerns with low rating. The results in terms of technical compliance ratings are also very encouraging for Saudi Arabia.

The great thing about this rating list is that Saudi Arabia has not been marked with a single measure deeming NC – non compliant, which means that when country is absolutely not complying with the given standard. C – Compliant as well as LC – largely compliant, are two major ratings, which can be observed in the above given figure of ratings. However, there are also areas of PC – partially compliant, and Saudi Arabia can work on these areas in future by taking more effective measures (FATF, 2018)

Legal System of Saudi Arabia with its Operational Issues

            Significant resources have been devoted by Saudi Arabia for supporting financial investigation which is divided over FIU and other agencies of law enforcement. FIU offers a single-layered and straightforward analysis on the basis of compiling and organizing information from present sources and databases. Several factors have caused it including IT systems which are not efficient at all. Due to it, precise financial analysis is not being conducted by SAFIU for supporting investigations effectively, particularly the ones which are present in the more complicated cases of ML. The access of FIU is not confined to some specific databases, but they must be manually searched by analysts and additional information can only be retrieved by FIU indirectly by some reporting entities through the supervisor.

            Specialized IT related tools are not present: investigation is initiated by a main trigger which is the availability of criminal records, instead of the detection of activity patterns or financial issues. Decisions for not following up on an SRT are not always based on right methodologies, with some specific SRTs archived based on transactions’ low value, even though the result of NRA will be utilized for deciding which SRT must be achieved.

In the outer areas of SAIFU, authorities of law enforcement along with other strong authorities over KSA regularly seem to utilize relevant information and financial intelligence as their investigations into terrorist financing, predicate offences, money laundering, and collaborating well. Agencies of law enforcement have an entrance to a diversity of databases and mostly, financial analysis is conducted. This way, trends are recognized to an extent.

            A legal framework is owned by Saudi Arabia that offers an eligible basis for prosecuting and investigating ML processes while displaying several positive factors: recently, ML investigations have expanded exponentially; investigations concerning finance are carried out alongside the research of proceeds-creating threats and offences; and activities which raise awareness have been assembled by the Public Prosecution for encouraging a continuous approach within OCAs and LEAs. Due to the strengthened awareness raising coordination, the number of ML threats and offences has been increased in terms of investigation.

            The Kingdom of Saudi Arabia is not efficiently limiting the proceedings of crime relative to the threats and risks. The attempt to confiscate and trace proceedings and instrumentalities of crime is not being routinely carried out by authorities, even though it is being done by them in some certain cases. In the cases where criminal funds are situated outside the limits of KSA, authorities haven’t been capable of repatriating criminal proceeds throughout the duration of 2013-16.

The number of such proceedings have confiscated and seized domestically in the Kingdom of Saudi Arabia have been rising, but still are low and not continuous with the risk profile of the nation. Deficiencies in the ability of KSA to investigate efficiently and prosecute the activity of ML are limiting the country’s ability to confiscate and trace criminal proceeds. The failure of conducting investigations which are coordinated with other nations is also binding the tracing of criminal assets, given the proceedings’ large proportion are predicted to leave the nation.

Preventive Measures taken by Saudi Arabia

            In KSA, CFT/AML preventive measures are well-established and strong. In November 2017, the new CTFL and AMLL further improved the legal foundation for preventive measures of CFT/AML; however, these laws were introduced quite soon before the visit of on-site for assessing the standard of implementation and effectiveness of new elements in DNFBPs and FIs.

            Most important FIs including financing companies, securities, and banks have a strong and strengthened understanding of the TF/ML risks that they face, and a competent standard of risk-based approach’s implementation due to the outreach efforts and supervision of the authorities along with risk assessments which were carried out at an institutional level. The preventive measures of CFT/AML are applied by them including the determination of beneficial ownerships, record keeping, and CDD. However, the submission of STRs doesn’t take place in a timely manner and the low number of STRs which are related with terrorist financing is an important concern.

            Several DNFBPs and exchangers don’t completely understand their risks of TF/ML and implement mitigating measures under an approach based on risks. The implementation and awareness of obligations of CFT/AML within institutions of reporting has actually increased immensely due to supervisory efforts in the recent years, but some areas still are at the starting stage and require more concentration for understanding the risks of ML/TF and obligations of CFT/AML. Application of these approaches on the basis of risks remain quite weak among class B and class A money exchangers. It can be said that a major concern is the reporting of STRs with reporting’s low level from DNFBPs including sectors related with higher risks.

Recommendations of EU forming the measures

            Countries should be criminalizing money laundering based on the Convention of United Nations against Illicit in Psychotropic Substances and Narcotic Drugs, 1988 and the Convention against the 2000 Transnational Organized Crime. Furthermore, the crime of money laundering should be applied by nations to every serious offence with the perspective to including the broad range of offences which are predicate. Reference might describe predicate offences to every other offence or to a threshold related to a penalty of imprisonment or classification of a serious offence applicable only to the predicate offence.

            It must be ensured by countries that knowledge needed for providing the money laundering’s offence is consistent with the standards which are set forth in the Palermo Conventions and Vienna including the theory that such a mental state might be inferred from the factual circumstances which are objective. Furthermore, it must also be assured that criminal liability and where it is impossible, administrative or civil liability should be applied to legal individuals. And legal persons must be subject to dissuasive, proportionate, and effective sanctions. Such efforts or measures must be without any prejudice to individuals’ criminal liability.

            It is important for financial institutions related to persons that are politically exposed, in addition to standard measures of due diligence. Financial institutions must have authentic systems of risk management for determining whether the consumer is an exposed person in terms of politics. They should achieve senior approval of management for developing business relationships with such consumers, take authentic measures for establishing the source of funds and wealth, and carry out enhanced monitoring of the relationship of business.

It is quite significant for financial institutions to gather sufficient information regarding the corresponding institution for understand fully the manner and nature of the business of respondent and analyze from information that is publicly available to determine the institution’s reputation and supervision’s quality. Furthermore, the financial institution should assess the anti-money laundering of the respondent institution and controls of terrorist financing.

Conclusion on Saudi Arabia’s inclusion in EU’s Dirty Money Blacklist and Fact Check to Refute Allegations

Overall, it can be said that Saudi Arabia has been making efforts to prevent money laundering and terror financing. Just like stated above, the most significant FIs which include securities and financing companies along with banks have a strong understanding of risks concerning ML/TF which they seem to face.

The preventive measures of CFT/AML actually are implemented by them including the analysis of CDD, record keeping, and beneficial ownerships. Different laws and policies are being devised by the nation to stop these elements from becoming countries with high risks. Recently, FATF appreciated the efforts which were made by Saudi Arabia. It was actually stated that preventive policies and measures of Saudi Arabia were sufficient for combating money laundering and terror financing. It is evident that the decision of FATF is unjust concerning the blacklisting of KSA.

References of Saudi Arabia’s inclusion in EU’s Dirty Money Blacklist and Fact Check to Refute Allegations

Bodoni, S., & Weber, A. (2019). EU Blacklists Saudi Arabia in Fight Against Money-Laundering and Terror Financing. Retrieved February 25, 2019, from https://www.bloomberg.com/news/articles/2019-02-13/saudi-arabia-panama-included-on-eu-list-of-high-risk-nations

CNBC. (2019). The EU's 'dirty-money' blacklist now includes Saudi Arabia and some US territories. Retrieved February 25, 2019, from https://www.cnbc.com/2019/02/14/eu-adds-saudi-arabia-to-dirty-money-blacklist.html

FATF. (2018). Mutual Evaluation of the Kingdom of Saudi Arabia - FATF. Retrieved February 25, 2019, from http://www.fatf-gafi.org/media/fatf/documents/reports/mer/MER-Saudi-Arabia-2018-Executive-Summary.pdf

Rubenfeld, S., & Michaels, D. (2019). U.S. Rejects New European Dirty-Money Blacklist. Retrieved February 25, 2019, from https://www.lopinion.fr/edition/wsj/us-rejects-new-european-dirty-money-blacklist-177930

Saudi Gazette. (2019). Saudi Arabia regrets EU money laundering list proposal. Retrieved February 25, 2019, from http://saudigazette.com.sa/article/559170/SAUDI-ARABIA/Saudi-Arabia-regrets-EU-money-laundering-list-proposal

Weber, A., & Bodoni, S. (2019). Saudi Business Is About to Get More Complicated for EU Banks. Retrieved February 25, 2019, from https://www.bloomberg.com/news/articles/2019-02-12/saudi-business-is-about-to-get-more-complicated-for-eu-banks