Rectify Threats of Money Laundering in Saudi Arabia with AML Measures

The Kingdom of Saudi Arabia (KSA) is an integral part of the Gulf Corporation Council (GCC) and is well-known for hosting around 38% of the 29 million expatriate population in the Gulf region. After the USA, it is the second largest provider of outward remittances, which accounted for 4.3% of its annual GDP in 2021. 

These extensive amounts of global outward remittances make the country vulnerable to money laundering and terrorism financing activities. To rectify the threats of money laundering in Saudi Arabia, its financial sector must ensure adherence to Anti-Money Laundering (AML) measures. The AML regulations and laws in Saudi Arabia stress the implementation of internal policies, ensuring the development of a risk-based approach.              

Background of Money Laundering in Saudi Arabia – A Quick Glimpse 

Saudi Arabian financial institutions have been recognizing money laundering practices since the 1990s. This country is the key promoter of economic diversification around the globe. However, it faces severe threats of money laundering due to extensive external transactional activities. Money laundering in Saudi Arabia is the practice of concealing the original source of illicitly acquired funds. 

The transactional activities involving these illicit funds allow the imposters to commit various criminal activities, such as cash smuggling, identity theft, corruption, and the sale of illegal weapons. Additionally, the Saudi Arabian Monetary Agency (SAMA) has discussed the three critical stages of money laundering, which are discussed below:

1. Money Laundering Placement: Imposters initiate money laundering practices by introducing funds into the legitimate financial sector through bank deposits and currency exchanges. 
2. Money Laundering Layering: In this stage, the origin of funds is disguised through multiple transactional activities between various bank accounts. 
3. Money Laundering Integration: lastly, the illegal funds are integrated into the legitimate financial structure through investment in capital markets and real estate.          

Prevailing Risks of Money Laundering in Saudi Arabia 

Due to its strong financial framework, the Kingdom of Saudi Arabia is susceptible to several risks, some of which are discussed below:

• Money launderers exploit the real estate sector as they use illicit funds to purchase high-value assets. 
• A large amount of cash transactions within the financial structure promote money laundering in Saudi Arabia. 
• As a supporter of exponential trading practices, imposters find opportunities to transfer illicit funds through trade-based money laundering practices.
• Saudi Arabia envisions expanding its economic activities by 2030, raising the money laundering threats in the region. 
• The evolution of cryptocurrency exchanges and digital banking practices enables the imposters to effectively conceal the origin of illegal funds in real-time.      

Scope of AML Regulations in Saudi Arabia 

Several AML laws have been introduced under the Saudi Arabia Cabinet Decision No. 80/1439, aiming to combat the threats of money laundering in Saudi Arabia. Some of the most critical articles under this regulatory body are discussed below:

Article 27This article clearly states that whoever violates the AML laws will be subjected to imprisonment, comprising three to fifteen years, with a fine of up to 7 million Riyals.  Article 31 This article suggests that the legal entity engaged in money laundering practices is prohibited from conducting any licensed business activity and will be ordered to close all its offices globally.   Articles 33 to 37 These articles state that the legal court is ordered to confiscate the proceeds of all the illegal funds. Additionally, the court is also allowed to confiscate all the funds that are owned by the imposters in order to recover the lost amount during money laundering operations.

Best Practices for Fulfilling AML Requirements in Saudi Arabia 

Saudi Arabia AML checks stress the risk assessment of all the customers and beneficial owners that are accessing the country’s financial services for either transactional or other business practices. To combat the risk of money laundering in Saudi Arabia, financial institutions must evaluate the channels used for managing financial products and services. 

Articles 14 and 18 of AML laws require financial institutions to undertake internal policies in order to combat money laundering practices. Additionally, AML laws suggest the implementation of customer due diligence practices prior to initiating new business ventures. 

Upon the suspicion of malicious transactional activities, financial institutions must examine inconsistent financial behaviors with enhanced due diligence (EDD) measures. These require the institutions to screen the entities against several criminal watchlists in order to evaluate their previous risk profiles and financial activities.     

Concluding Remarks 

Saudi Arabia is at a high risk of confronting money laundering operations due to its extensive international remittance activities. These activities make the country vulnerable to exploitative financial crimes and related activities. Money laundering in Saudi Arabia arises in the form of extensive smuggling and illicit trading practices.

Therefore, KSA needs to implement effective anti-money laundering measures in order to identify and combat the harms associated with such transactional practices. AML laws assist the country’s regulatory bodies in maintaining financial stability and economic guidance in the country.