What every international business person should absolutely remember that there is no country in the world which makes bribery and corruption legal by statute. That means if and when a government decides to clamp down on what may have been a long-standing accepted business practice, of which you have been an active participant, there is nowhere to hide and very few places to hide. Witness GlaxoSmithKline PLC (GSK) in China in 2013 and 2014 where the Chinese subsidiary unit President returned to China to be criminally charged and convicted. He was summarily deported back to the UK where GSK almost as quickly summarily terminated him from his employment.

For further evidence one might look to the Chinese government takedown of a wide range of corrupt government officials.  By 2016 some 200,000 officials were given what was called “light punishment”, while more severe penalties were taken against a further 80,000. This campaign also went after wealthy Chinese who had fled the country and ‘persuaded’ them to return to face criminal charges.

Now we have the omens of a potentially equally seismic event, this time from Saudi Arabia. David D. Kirkpatrick, reporting in the New York Times (NYT) said “A midnight blitz of arrests ordered by the crown prince of Saudi Arabia over the weekend has ensnared dozens of its most influential figures, including 11 of his royal cousins, in what by Sunday appeared to be the most sweeping transformation in the kingdom’s governance for more than eight decades. The arrests, ordered by Crown Prince Mohammed bin Salman without formal charges or any legal process, were presented as a crackdown on corruption.”

Significantly from many US, UK and other western companies this dragnet also included “the kingdom’s richest investor, Prince Alwaleed bin Talal, and the most potent remaining rival to the crown prince’s power: Prince Mutaib bin Abdullah, a favored son of the late King Abdullah. Prince Mutaib had been removed from his post as chief of a major security service just hours before the arrests announced late Saturday night. All members of the royal family were barred from leaving the country, American officials tracking the developments said on Sunday.”

Only hours before the crackdown, the Saudi King had ordered the establishment of an anti-corruption commission and named his son, Crown Prince Mohammed Bin Salman Al Saud, to head it. Hinting this was one step in the potential opening up Saudi Aramco to investors through an initial public offering (IPO) of 5% of the company’s value as stock, the Governor of the Saudi Arabian General Investment Authority said the “arrests were ‘a vital step in creating a fair and level playing field for all potential investors.”

While many commentators have pointed to the political nature of these arrests, the reality is that doing business in Saudi Arabia has long been fraught. Even with Robert Gates account of King Abdullah’s respect that US companies would not engage in bribery and corruption in arms sales to the Kingdom during Gates tenure as Secretary of Defense, the country ranked 62nd out of 176 on the most recent Transparency International – Corruption Perceptions Index (TI-CPI), with an overall score of 46.

Mohammed Alyahya, quoted in the Financial Times (FT), said “the clear message that corruption would no longer be tolerated in an era of economic hardship.” He added, “Large-scale corruption has been the biggest obstacle for local business and foreign investment, with billions a year skimmed off the government budget,” said Mr Alyahya. “So you have to tackle the bigwigs if the Vision 2030 reform programme is going to work,” he added, referring to Prince Mohammed’s flagship reform drive.”

Whatever you might think about these moves, political, power-grabbing or other, they all have significant implications for any US company which has done business with any of those arrested. The anti-corruption commission may well dispense a form of Saudi Arabian due process and justice. (Remember GSK, assessed a $498MM fine at a closed trial.) At that point, those arrested would no longer be simply accused but would be convicted of corruption. If your company has used any of those arrested as an agent, representative, fixer or other third party facilitator, now is the time to make that determination and account for every dollar spent with those charged to-date. If the Saudi’s obtain information and share it with US authorities, you need to be out ahead of that point, not waiting for the Department of Justice (DOJ) to come knocking.

What if your company received monies from one of the Saudi princes as an investor? You might want to consider the allegations made against those who accepted funds from the 1MDB investment fund and Jho Low about now. Remember the movie The Wolf of Wall Street which was allegedly financed by ill-gotten gain? It might be that the DOJ’s forfeiture group wants to talk to you about what monies you received and the source.

In either instance, whether your company paid monies out to or received monies from any of those charged, now is the time for your company to find out is now. Now might also be a very good time to audit the books and records of your Saudi Arabian subsidiary so that you know what is in those books and records. If you have other agents in Saudi Arabia, I would suggest that you send your audit team to see them, much, much sooner rather than later.

The Saudi anti-corruption follows the path laid out in China. This means in an authoritative regime, things can turn on a dime. If you have been a part of systemic corruption, because it was expected as the only way to do business, welcome to the 21st Century. You may well find yourself like GSK, some half a billion dollars the poorer but wiser. Of course, that was only the fine and penalty, not the overall cost to the company in investigation, remediation, loss of income and reputational damage. The only protection is a robust compliance program. If you detect something in any of these investigations, the time to remediate is now, not later. One other thing we learned from the Chinese corruption crackdown, western companies are not going to get a free pass. You have information you need to use it now.


This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2017