The European Union has proposed a bill to blacklist the kingdom for a lack of effective regulations to battle money laundering and the financing of terrorism.

The European Union (EU) proposed a bill to blacklist Saudi Arabia over its absence of firm money laundering and counter terrorism financing regulations, designating Saudi Arabia as a ‘high risk’ country.

Saudi Arabia hit back at its inclusion in the list, which consists of multiple countries, despite legislative measures it has taken to combat money laundering and the financing of terrorism. 

The proposed bill is expected to have implications for doing business with Saudi Arabia, as well as complicating relations between the kingdom and the EU.

European banks have deep ties with Saudi Arabia. In 2015, the Royal Bank of Scotland carried out nearly $169 million in transactions with Saudi Arabia, according to its records. 

If all 28 European Union member states ratify the bill, European banks will be obliged to put more controls in place on any transactions with Saudi Arabia, and conduct additional checks on payments originating from blacklisted countries.

The negative impact is expected to hit hardest in the country’s economic sectors, notably banks and foreign investments. 

This comes at a time when Saudi Arabia is struggling with a financial crunch due to lower oil revenues. Its budget shows a significant drop in its monetary reserves over recent years.

In November 2017, in a bid to bolster funding for Crown Prince Mohammed bin Salman’s Vision 2030 economic plan, several hundred businessmen and members of the country’s elite were detained over accusations of embezzlement, returning large amounts of wealth to the monarchy.
Some criticised the move as a power purge by the young crown prince to consolidate his wealth and power, rather than an effective strike against financial corruption.

It comes as bad news for the kingdom’s economy that the crackdown has pushed more businesses to send money outside Saudi Arabia.

Qatar is the culprit

Within Saudi Arabia however, a scapegoat may have already been chosen.

Writing for Al Hayat, one of Saudi Arabia’s most widely read newspapers, a staunch monarchy loyalist pins the blame on Qatar.

“The European Union’s negative stance against Saudi Arabia is not surprising,” he states.

The issue, he asserts, is rooted “in the kingdom’s absence from Brussels, and the activity of its opponent within the organisation.”

Saudi Arabia has been absent from the EU for a number of years, not appointing an ambassador for until a year ago. Moreover, it has a minimal presence in European research centres.

Hazam adds that Qatar has painted “Saudi Arabia as unstable within the European Union."

The EU however, says the blacklisting action was taken in spite of criticism by countries within the bloc over future economic relations with the named countries, specifically Saudi Arabia. 

Saudi Arabia’s reaction to the bill is “ironic, to say the least”, says Muslim Abu Omar, an international legal expert speaking to TRT World. 

“This represents a major public relations setback for Saudi Arabia,” he says.

“While building legitimacy for their blockade against Qatar, they often took the moral high ground by alleging that Qatar was an active terrorism financier. To see the tables turn, with Saudi Arabia itself charged with terrorism financing is a public relations disaster for the monarchy, which already struggles with image issues after the killing of Khashoggi in late 2018.”

This is hardly news for some. As far back as 2009, in a memo written by the former secretary of state Hillary Clinton, since released by Wikileaks, Clinton noted: “[D]onors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide… Saudi Arabia remains a critical financial support base for Al Qaeda, the Taliban, LeT [Lashkar e-Tayyaba], and other terrorist groups, including Hamas, which probably raise millions of dollars annually from Saudi sources.”

The European Union’s 28 member states have one month to confirm the blacklist, which can be extended to two months, or rejected by a majority vote. 

However, EU Commissioner for Justice Vera Gurova, who proposed the list, said she was confident nations would not block the list, while speaking at a press conference.

"Europe cannot be a laundromat for dirty money which sponsors crime and terrorism," she said.

Where did it really start?

In September 2018, Forbes highlighted an international report criticising Saudi Arabia for its failure to crack down on money laundering and international terrorism financing. 

The report contradicted claims made both by Riyadh and Abu Dhabi, which pin the same charges on Qatar. 

Published by the Financial Action Task Force (FATF), an intergovernmental body based in Paris, on September 24, the report states: “Saudi Arabia is not effectively investigating and prosecuting individuals involved in larger scale or professional [money laundering] activity… [it is] not effectively confiscating the proceeds of crime.”

The report goes on to state: “The almost exclusive focus of authorities on domestic offences means the authorities are not prioritising disruption of [terrorist financing] support for threats outside the kingdom.”

According to Forbes Magazine, money laundering proceeds in Saudi Arabia are estimated to be between $12 to $32 billion annually, with criminals making the bulk of their wealth in corruption, counterfeiting, piracy and drug trafficking.

But the profits don’t stay there. They go elsewhere.

An estimated 70 percent to 80 percent of laundered money leave the kingdom, according to Forbes, which noted that Saudi authorities “failed” to recover any illegal revenues from overseas between 2013 and 2016.

The same report pointed to more than 1,700 terrorist financing investigations conducted by Saudi Arabia, ending in at least 1,100 convictions.

The report criticised Saudi Arabia however, stating that cases were “selectively” chosen, with few convictions for terrorist financing offences, but rather terrorism-related crimes.

What can Saudi Arabia expect?

Saudi Arabia is expected to suffer deep effects if the bill is passed. 

The blacklist would likely scare away investors working with EU-related financial institutions, who Crown Prince Mohammed bin Salman relies on to realise his Vision 2030 reform package.

Saudi Arabian citizens around the world accounted for the second-highest volume of outflow remittances globally, at a total of $37 billion in 2017. Saudi Arabians using European financial institutions are likely to see more inspections of their finances, with possible delays or disruptions to their transactions.

Officially, Saudi Arabia has said little.

The Saudi Press Agency has emphasised Saudi Arabia’s role as a  “key partner in the international coalition against Daesh.” 

It added that it was “regrettable that it was included in the proposed list of ‘high-risk’ countries for money laundering and terrorist financing” despite the kingdom’s introduction of “many laws and procedures relating to combating money laundering and terrorist financing”.

But Ahmed al Kholifey, Governor of Saudi Arabia’s Central Bank took a different tone, stating that he does not believe being added to the list will have any consequences for now, according to a report by Al-Arabiya TV.

Source: TRT World