In the wake of Saudi Arabia’s controversial anti-corruption campaign, the kingdom’s businessmen and princes, worried their funds will be confiscated by Crown Prince Mohammad Bin Salman, are finding it increasingly hard to transfer money out of the country because of what amounts to unofficial capital controls, sources have told Alaco, the London-based business intelligence consultancy.
The restrictions come amid persistent concerns over the state of the economy which, although buoyed by last year’s recovery in the price of oil, has seen a marked downturn in foreign investor confidence. It follows a spate of alarming moves by MbS, as the heir to the throne is known, to consolidate power and raise funds for his ambitious plans to create an enterprise-driven economy.
From around mid-2017, coinciding with MbS taking the reins of power, wealthy Saudi citizens who have looked to relocate nine-figure sums in safe havens to the West out of concern for their financial security have increasingly come under pressure from the authorities not to move the money out of the country.
Alaco sources speak of occasions when individuals have received calls from people who profess to be officials unconnected with their bank, asking them why they are planning to transfer such large volumes of funds abroad. The calls send a clear message that the regime disapproves of the transactions.
More recently, Alaco sources have said that the supposed officials have also intervened when six-figure sums are about to be transferred. Such is the climate of fear amongst businessmen and royals planning to move their money, many decide the risk of doing so is not worth taking.
Others have also drawn attention to the apparent curbs. In an opinion column for Bloomberg last August, Karen Young, of the American Enterprise Institute, said there were concerns that the Saudi government was “leaning on banks and asset managers to discourage outflows, a kind of informal capital-control regime”.
And a Reuters report in September said some commercial bankers believe private capital flows out of the country “may actually have decreased because the central bank began monitoring them more carefully” after a recent controversial crackdown on corruption.
MbS’s attempts to liberalise the country have gone down well with Saudi youth tired of stultifying conservative Islamic strictures. But the Crown Prince’s relentless pursuit of power, and his desire to crush dissent and reject of any pretence of respect for the rule of law, have left the country’s elite in a state of nervous exhaustion.
Hundreds of members of the Saudi elite were rounded up in late 2017 and forced to hand over some $100 billion of assets in return for their freedom, as part of a professed anti-corruption campaign that has looked to all intents and purposes like a naked shakedown of the country’s wealthiest people. Seasoned observers believe the haul was vastly exaggerated and made up mostly of illiquid assets, such as jets, performance cars, property, land and shares in private companies.
The campaign, which even according to the government’s figures raised only a fraction of what MbS had hoped for, officially ended last week. Many of those who have since been released from detention after agreeing to financial settlements are subject to travel bans. Their assets in the country are either frozen or under constant scrutiny. Nearly 60 people are facing criminal charges a year after the original round-up.
Alaco sources say former detainees, their families, and many of those implicated in the anti-corruption blitz believe they are under state surveillance; the authorities said to be looking for signs of what might be deemed ‘unpatriotic’ activities, such as schemes to transfer their money out of the country.
Alaco has been told that businessmen, particularly those still under investigation for alleged corruption, are so paranoid about being bugged that they leave their mobiles in their cars when meeting associates and advisers in restaurants, concerned the phones have been turned into eavesdropping devices.
Yet despite the informal capital controls and the general climate of fear, Alaco sources have said some rich Saudis are still trying to outfox the authorities by transferring money abroad in small increments or switching funds to accounts in Saudi Arabia’s Gulf ally Dubai, which are not under the same degree of scrutiny. Some banks had been assisting clients by providing them with bank drafts which they are able to redeem once outside the country, but officials have begun to clamp down on the practice.
The financial pressure on the Saudi elite is only likely to intensify as the economy weakens. Though temporarily bolstered by a rebound in the price of oil, the kingdom is suffering from weak growth and productivity issues. The latter was made more acute by a poorly executed plan to increase the number of Saudis working in the private sector. The intent was to have Saudis replace low-skilled foreign workers, hundreds of thousands of whom were pressured into leaving the country. Hundreds of thousands have done so, though Saudis have not been willing to take up their jobs.
Bolstered by the oil receipts, MbS, who had pledged to curb social spending in order to finance reforms aimed at promoting private sector growth, is back to big-budget expenditure. He seemingly wants to retain broad-based domestic support at a time when his international critics have raised serious questions over his credibility. Some even called for his overthrow, following the murder of Jamal Khashoggi, the writer.
He also seems determined to the press ahead with plans to encourage commercial enterprise. But with a downturn in foreign direct investment, the Crown Prince must find other means of raising capital to help fund the projects he envisages. The part-privatisation of the country’s prized asset, Saudi Aramco, was postponed, leaving many among the Saudi elite wondering whether the barely concealed seizure of their assets a year ago will not be the last such action.
Some, it seems, won’t be hanging around to find out. Recently, two prosperous Saudi families reportedly bought dozens of Maltese passports under the island’s cash-for-citizenship scheme, granting them EU residency rights at stroke. The likes of Malta, Cyprus and other small states making hay by putting naturalisation up for sale could soon been doing even brisker business.
Ambrose Carey is a director at Alaco, a London-based business intelligence consultancy.
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