Business Corruption

According to Bertelsmann Foundation 2010, foreign companies have identified government procurement as an area in which senior officials or elite individuals have a personal stake and bribes are often requested by officials. It is also reported that such bribery is often disguised as 'commissions'. However, new procurement legislation in 2006, combined with the introduction of electronic tendering at a number of ministries, has reportedly improved transparency within government procurement, according to the US Department of State 2011. Despite this progress, Freedom House 2010 reports that rent-seeking and corruption are not uncommon in government procurement processes. In order to mitigate the corruption risks associated with public procurement in Saudi Arabia, investors are advised to exert caution when bidding on public tenders, and are therefore recommended to use a specialised public procurement due diligence tool.

Read more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.

Political Corruption

According to several sources, including the Bertelsmann Foundation 2010 and the US Department of State 2008, Saudi royal family members and members of the Saudi political elite with personal ties and stakes in the Saudi economy are perceived to abuse contracts and profit illegally from contract awards. The strong public perception of corruption in Saudi public procurement may stem partly from the widely publicised corruption scandal involving Britain's biggest and most influential arms company, BAE Systems, and Saudi officials. The BAE case is very complex and has a long history behind it. In short, the case dates back to the Al-Yamamah arms deal with the Saudi government in the mid-1980s. In November 2004, a British investigation by the Serious Fraud Office (SFO) was initiated and focused on suspected false accounting in the Al-Yamamah defence contract, which provided for the sale of military aircraft and related services worth around GBP 40 billion. The media reported the existence of a secret fund established by BAE to channel benefits to Saudi agents in the contract. Media alleged that unofficial payments exceeding GBP 1 billion had been paid to a senior Saudi official in relation to the contract, and that the UK Ministry of Defence was involved in covering up the payments. BAE has repeatedly denied any wrongdoing. In December 2006, the investigation of BAE's Saudi deals was stopped after alleged threats from the Saudi ruling family and the intervention of then British Prime Minister Tony Blair. Tony Blair claimed 'national security' was at stake. For more information on the BAE scandal, see the British newspaper, the Guardian's comprehensive collection of BAE-Saudi-related articles, or watch this one-hour Frontline documentary on the BAE case.

According to the US Department of State 2011, the awarding of major government contracts has become more transparent in recent years. Defence contractors report that, since the exposure of the BAE scandal (although not the official reason), there has been a change in the bidding process, and there is now an open bidding process for defence contracts. Nevertheless, in 2008, Arab News requested an investigation into corruption involving contracts for the construction of roads, revealing a project for which the government paid about USD 186 million and ultimately performed for only USD 4.9 million. However, according to the US Department of State 2010, there was no investigation of the case.

Read more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.

Frequency

World Economic Forum: The Global Competitiveness Report 2010-2011:
- Business executives give the diversion of public funds to companies, individuals, or groups due to corruption a score of 5.1 on a 7-point scale (1 'very common' and 7 'never occurs').

- Business executives give Saudi government officials' favouritism towards well-connected companies and individuals when deciding upon policies and contracts a score of 4.6 on a 7-point scale (1 'always show favouritism' and 7 'never show favouritism').