Saudi Official Says Graft Settlements Could Recover $100 Billion

Updated on
  • Corruption probe widens to include retired military officers
  • Suspects said to be offered chance to pay and avoid trial
Jaguar Growth Partners’ Gary Garrabant discusses the Saudi Arabian economy and the corruption in the Kingdom.

Saudi authorities estimate they may be able to recover between $50 billion and $100 billion from settlement agreements with suspects detained in an anti-corruption crackdown that has implicated prominent princes, officials and billionaires, a senior official said.

Suspects are being offered settlements to avoid trial, the official said, requesting anonymity to discuss the ongoing investigation. If they accept, talks are held with a special committee to work out the details. Payments are based on the amounts authorities believe suspects have amassed illegally, not their entire wealth, the official said.

Prince Alwaleed Bin Talal

Photographer: Mohammad Obaidi/Bloomberg

The purge, which saw royals and billionaires such as Prince Alwaleed bin Talal detained, shook the kingdom and reverberated abroad as diplomats, bankers and analysts sought to figure out its impact on wealthy clients as well as the struggle for power in the world’s biggest oil exporter.

Prince Miteb bin Abdullah was held in the crackdown and also fired from his post as head of the powerful National Guard, a move that reinforced speculation that King Salman was preparing the ground to hand over power to his son and heir, Crown Prince Mohammed bin Salman.

Read More: Saudi King Will Not Relinquish Throne, Senior Official Says

The purge has widened to the military. The senior official said 14 retired officers who worked at the Ministry of Defense and two retired National Guard officers had been detained on suspicion of being involved in financial contracts that were deemed corrupt. No active-duty officers have been arrested, he said.

The crackdown comes at a delicate time for Saudi Arabia, an absolute monarchy grappling with the worst economic slowdown since 2009 as well as political unrest in the region, stirred in no small part by Prince Mohammed’s aggressive foreign policy to counter Iran’s influence. In the past two years, the prince has thrust Saudi Arabia into war in Yemen and led a regional boycott of neighboring Qatar.

At home, his blueprint for the post-oil era has seen authorities cut subsidies and announce plans to sell stakes in state assets to the public, including oil giant Saudi Aramco.

The purge will likely impact already sluggish private investment, hitting economic growth in 2018, according to Ziad Daoud, a Dubai-based economist at Bloomberg Economics.

“This hit from investment to growth is potentially large. Investment globally tends to be volatile and subject to sharp changes in sentiment, and Saudi Arabia is no exception,” he wrote in a note.

While settlements in corruption cases aren’t uncommon globally, Saudi Arabia lacks the transparent institutional mechanisms that are used elsewhere to determine financial penalties. Authorities have said those accused will have access to legal resources.

Foreign Reserves

Funds recouped from the settlement talks are unlikely to provide much support to the central bank’s foreign-currency reserves, which have plummeted by about $260 billion from their peak in 2014, according to Jean-Michel Saliba, London-based economist at BofA Merrill Lynch.

The international holdings of Saudi private companies -- excluding banks and investment funds -- did not exceed $100 billion at the end of 2015, he wrote. “We would expect only a small fraction of that to be at risk within this probe.”

Saudi Arabia’s market regulator has frozen the trading accounts of people detained or investigated, people familiar with the matter have said. Saudi authorities allege at least $100 billion has been siphoned off over decades through corruption and embezzlement.

Khalid Bin Abdulaziz Al-Falih

Photographer: Simon Dawson/Bloomberg

The purge won’t harm foreign investment or the kingdom’s plan for an initial public offering of its oil company, Energy and Industry Minister Khalid Al-Falih said on Thursday.

“I am in touch with many foreign investors. Everybody understands that this is a very limited domestic affair,” Al-Falih told reporters on the sidelines of the Bonn climate conference. “The government is simply cleaning house for something that is way overdue.”

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE