Saudi Arabia confronts legacy of corruption

Saudi Arabia confronts legacy of corruption

Businesspeople question whether arrests will really end abusive practices by the elite

© FT montage Photos: AFP, Dreamstime

(FT) –When Saudi Crown Prince Mohammed bin Salman spoke to his nation six months ago, he pledged to crack down on corruption. “I assure you that nobody who is involved in corruption will escape, regardless if he was minister or a prince or anyone,” he said.

But few people could have expected the sudden storm this month when a new anti-graft committee ordered the arrest of more than 200 suspects, including princes, prominent businessmen and former senior officials, on allegations related to at least $100bn in corruption.

The arrest of so many big names has been hailed within the country as proof “no one is above the law”. But others have raised questions about the motivations behind a probe that also targeted a member of the royal family once seen as a contender for the throne.

Critics of Saudi Arabia’s King Salman warn of the danger of ignoring the actions of the monarch’s own children, including the crown prince, who in 2015 reportedly bought a yacht for €420m. The Salman clan has extensive business interests, including media and financial services.

The government denies the probe has any political motivation and is focused entirely on stamping out graft. But, for decades, endemic corruption has acted as the means of securing the loyalty of thousands of al-Saud princes, who hold top jobs in the military, the security forces and bureaucracy.

Some entities managed to erect firewalls against corruption, such as state energy giant Saudi Aramco and the central bank, said one western consultant who has advised on corruption in the kingdom for decades. “For the rest, in a system where everyone is on a take, one can only be relative,” he said.

[perfectpullquote align=”left” cite=”” link=”” color=”” class=”” size=”16″]We are happy that our work is finally bearing fruit. It feels great to see the impact of your effort. But I’m certain that the issue is purely political and has nothing to do with reform or fighting corruption[/perfectpullquote]

Defence sales is the most infamous sector, the consultant said, although he also highlighted health, public works and telecommunications.

Executives estimate that anywhere between 10 per cent and 25 per cent of the value of government contracts is routinely skimmed, with the proceeds used to fund lavish regal lifestyles, channel money to loyal tribes and grease the palms of favoured functionaries. “This is how the kingdom of Saudi Arabia has balanced power historically,” said one executive.

Saudi business people also complain about powerful royals confiscating valuable land or forcing themselves into joint-venture arrangements with companies that become too successful. “This really grinds them down,” said the executive, who says businesses are also dismayed by opaque procurement procedures.

But businesspeople question whether this month’s highly politicised arrests, which have undermined investor confidence, will really help bring such abusive practices by members of the Saudi elite to an end. Despite generous monthly salaries, princes pursue other schemes to boost their wealth, using their influence to skim a percentage off the entire value of a contract.

In the mid-1990s, according to a US cable leaked to WikiLeaks, stipends ranged from $270,000 a month for close family members of King Salman, whose father was the founder of modern Saudi Arabia, to $800 a month for distant relatives. Funnelling work to their own companies is one of the main allegations against some of the senior princes under investigation, including Prince Miteb bin Abdullah, and his brother Prince Turki, sons of former King Abdullah, according to a Saudi official. One case regarding Prince Miteb includes the supply of bullet proof clothing to the ministries of defence and interior that were overpriced by 10 times

In another case, a little-known company won a 300m riyal contract to import medical evacuation helicopters. It was later found to be a front for a royal who was leading the government organisation that awarded the contract, a person who works with the anti-corruption commission said.

“We are happy that our work is finally bearing fruit. It feels great to see the impact of your effort,” the person connected with the commission said. “But I’m certain that the issue is purely political and has nothing to do with reform or fighting corruption.”

None of the accused are contactable to respond to the allegations, which could not be independently verified.

Some questionable business practises are both common and not, technically, illegal. Many plots of land were in the past distributed as royal gifts to prominent individuals only to be sold back to the government for handsome sums when authorities sought land to build public facilities, such as Riyadh’s international airport.

While fully eliminating corruption is unlikely, experts say limiting the presence of princes in government could help. King Salman has significantly decreased the number of family members in cabinet — today only the ministers of defence, the interior and the national guard are royals.

Some suggest that, even if corruption by the royals continues, the crackdown could still bring important dividends.

“Centralised corruption is better because you have one rent-seeker on top.” said Steffen Hertog, an expert on Saudi political economy at the London School of Economics. “That actor has an interest in keeping the whole system efficient and stable, and keeping it from collapsing.

Read more: Scandal in the House of Saudi