Compliance is a concept that has been introduced into Saudi Arabia based on an assessment that was done by the FATF concerning the level of corruption found in contrast to ineffective law enforcement in financial transactions within Saudi Arabia. Compliance is a complicated part of a firm, which requires a number of different approaches that include a compliance culture, as well as risk mitigation. As the number of regulations in response to the assessment increase, Saudi Arabian firms are seeking to utilize compliance officers and processes that allow for compliance as a part of their practices. As a result of the efforts of the government, vast improvements have been observed by the FATF, as well as changes in the focus that firms have on the issue of compliance. Compliance has become a significant factor in doing business in Saudi Arabia, which has decreased money laundering and terrorist financing, while improving the integrity of business within the Kingdom.

            Compliance can be far more complicated than simply adhering to regulatory expectations. In a white paper by Deloitte (2015) for the EMEA Center for Regulatory Strategy, the concept of compliance is discussed in terms of judgment-based supervision, which means looking Beyond just the expectations and using judgement in order to determine whether conduct is reflective of the right thing to do in any given situation. The concept of judgement-based supervision is not necessarily a new idea, but it is increasing in prominence in various sectors throughout international business, and as a result, behaviors were being supported that assume that the staff will be responsible for doing the right thing at all times. Therefore, compliance is more than just doing what is expected based on regulatory systems, but also based on complying with what falls into line with expectations of society and of universal expectations for what is considered to be the right solution to problems. Deloitte (2015) suggests that this leads to a positive move toward reinforcing the idea of accountability in business practices.

               The overall assessment of the Kingdom of Saudi Arabia by the FATF (2018) had key findings that showed interagency cooperation and policy coordination as a significant strength in the Kingdom. National risk assessments and a robust process provided wide ranges of information concerning terrorist funding and money laundering. However, investigations were not supported through sophisticated financial analysis, and much of the information was available but not being used efficiently.  effective investigation and prosecution we’re not being used consistently, and confiscation of proceeds from the crimes that took place we’re also not being effectively utilized. However, the FATF (2018) also found that Saudi Arabia had demonstrated dynamic responses to the terrorism threats within its own Nation, had a strong and established legal framework that have processes available for targeting financial sanctions (TFS)  when needed, and had intensive supervision over sectors that were considered high risk, which was already resulted in significant improvement in terms of compliance.

              Compliance has become a central factor in doing business in Saudi Arabia. According to an article in Thomson Reuters (2017), events such as the US Patriot Act, the financial crisis that occurred in 2008, the level of political turmoil in the Middle East, as well as the rise of terrorism have all had an effect on the changes that are taking place in Saudi Arabia concerning compliance. In addition, as the Kingdom of Saudi Arabia was working toward becoming a member of FATF, the need for compliance standards had significantly increased. According to FATF (2020), by 2018, Saudi Arabia had developed a plan to work toward anti-corruption with a focus on money laundering and terrorist financing. The Kingdom had adopted policies and practices for Mutual Evaluation, with enhanced follow-up processes that helped to tackle the severe issues concerning corruption. The FATF (2020) had recommended national cooperation and coordination, and by 2020 Saudi Arabia had largely met the requirements for those recommendations. Of the 40 recommendations, Saudi Arabia became compliant on 17 and largely compliant on 21 with partial compliance on two other recommendations.

               Examples of business practices and culture suggest the nature of compliance and compliance culture in Saudi Arabia. In an example of how a Saudi Arabian strategy for risk management and compliance is embedded in a business culture, the Saudi Central Bank (2021) discussed maintaining business practices that support the roles and responsibilities of compliance. Maintaining a compliance culture is one of the ways in which the Saudi Central Bank has determined to create an atmosphere in which compliance is not only expected but is a part of the behavior that the associates within the bank consistently display. This includes a culture of communication in which different levels of management are able to participate in making sure that the right decision is made so that risks can be mitigated, and crises handled in a timely manner. However, according to Al-Mutairi and Dingwall (2019) culture in Saudi Arabia may be slower to transform.  The behavior of street-level Saudi food inspector agents, as an example, shows that members of society expect that certain types of irregular behavior is expected within the Saudi culture. Therefore, while firms work toward anti-corruption, a laissez-faire culture concerning compliance at the small business level can have an effect on whether or not larger concerns are sufficiently addressed.

            Regulatory change in Saudi Arabia has been happening rapidly though, and one of the reasons is because of changes in the approach to economic development, along with a need for fighting corruption and reducing financial crime. Shepherd (2021) writes that financial institutions and organizations who are currently working inside of the Kingdom of Saudi Arabia are looking at competencies and skills concerning the functionality of their compliance systems. Compliance teams are under greater scrutiny to determine if they have the ability to manage compliance with anti-money laundering, anti-bribery, and anti-corruption compliance in a system that is now focused on working toward eliminating these criminal activities within the nation. Saudi Arabia Vision 2030 is focused on mitigating corruption as a key aspect of its reforms.

            The program that has been put into place by Saudi Arabia Vision 2030 outlines reforms intended to transform and diversify the economy, while also addressing social issues and practices with an intention of creating a greater Society (Shepard, 2021). According to Shepherd (2021), a zero-tolerance policy has been put into the programs that have been developed by the government in Saudi Arabia, with protections for whistleblowers and opportunities for employees to make reports concerning observations of corruption inside their organizations. Compliance and risk management is now an important part of the various businesses that exist within Saudi Arabia, and firms need to understand that the anti-corruption campaign must be managed internally because of the level of corruption sweeps that take place in terms of enforcement.

            Therefore, compliance is a significant part of the requirements that should be taken into consideration when going into business in Saudi Arabia. Documentation of compliance with regulatory systems must be undertaken, because non-compliance has serious risks, with the potential for financial penalties and damage to the reputation of a firm. Obeying rules and managing risk is vital within Saudi Arabia, and with the extensive networks that most firms have that reach out into the international markets, it is clear that high levels of concentration on compliance is critical. Improvements have taken place, and the diligence with which the government continues to work toward compliance has shown decreases in undesirable behavior.

References

• Al Elsheikh, A. A. A., & Tanega, J. (2011). Sukuk structure and its regulatory environment in the Kingdom of Saudi Arabia. Law and Financial Markets Review, 5(3), 183-200.
• Deloitte. (2015, April 02). The changing role of compliance. Retrieved from https://www2.deloitte.com/sa/en/pages/financial-services/articles/gx-the-changing-role-of-compliance.html
• Financial Action Task Force (FATF). (2018, September).  anti-money laundering and counter-terrorist financing measures Kingdom of Saudi Arabia, Mutual evaluation report. retrieved from https://www.fatf-gafi.org/media/fatf/documents/reports/mer/MER-Saudi-Arabia-2018.pdf
• Financial Action Task Force (FATF). (2020). Saudi Arabia’s progress in strengthening measures to tackle money laundering and terrorist financing. Retrieved from https://www.fatf-gafi.org/publications/mutualevaluations/documents/fur-ksa-2020.html
• Saudi Central Bank (2021)Risk and compliance. Retrieved from https://www.sama.gov.sa/en-US/About/Pages/RCD.aspx
• Shepard, D. (2021, May 04). Saudi Arabia anti-corruption and your compliance.Retrieved from https://www.refinitiv.com/perspectives/financial-crime/saudi-arabia-anti-corruption-compliance/
• Thomson Reuters. (21 May 2017). The evolving role of compliance in the Kingdom of Saudi Arabia. Retrieved from https://mena.thomsonreuters.com/en/videos/evolving-role-of-compliance-in-saudi-arabia.html