Saudi Arabia

Researcher + Peer Reviewer1332: There is no public knowledge about the procedures of asset disposal, nor of the controls that might be in place.

Saudi Arabia does not have a formal weapons export industry. When it transfers weapons from its own arsenal, it usually does so for political purposes. The annual report of the Saudi Arabian Monetary Agency (SAMA) only gives a figure for expenditures on the Military Industries Corporation, not its revenues. All funding for defence and security comes from the central government budget (primarily financed with oil revenues), not from disposal of military assets from the armed forces or ministry of defence. There is no information on what is done with decommissioned or “old” weapons and how these are disposed.

There is no evidence of any controls over Saudi weapons transfers beyond what would be enforced by the supplier country for reasons of export of sensitive technologies or exports to regimes under international sanction. [And from the cases outlined in question 21, even these controls are unlikely to be observed]. According to an NGO working to stop arms exports to Sudan “Saudi Arabia self-reported a limited amount of arms sales to Sudan in 2005, but Sudan reported having received a [more] significant amount of weapons” and “Saudi Arabia did not explain the nature and extent of its arms sales to Sudan.” The Saudi-made Al-Shibl armored vehicle (manufactured by Military Industries Corporation, under Ministry of Defence ownership) was also deployed by the Yemeni government during the 2011 uprising there, but whether this item was sold or given to the government in Sanaa is unknown.

In the past, oil was bartered to purchase weapons from Western manufacturers, the Al-Yamamah deal with BAE being one of the largest. This could qualify as a form of asset disposal on behalf of the Saudi Ministry of Defence, which lacked sufficient hard currency to pay for the weapons in cash. There was certainly no independent scrutiny of this deal by either party.

According to the government reviewer, &quoute;there is a procedures manual for selling of government property, it includes, the announcement of a public auction when selling any equipment and tools that are dually used by both civilian and military sectors&quoute;. Score increased to 1 to reflect the criteria that, &quoute;There is little public knowledge about the procedures of asset disposal, nor of the controls that might be in place. The subject is unlikely to be referred to in defence and security documents.&quoute; However there is no evidence to support the government reviewer's selection of score 4: &quoute;There are strong controls over asset disposal. Planned disposals are known in advance and are published publicly. The financial results of disposals are also publicly available.&quoute;

Researcher + Peer Reviewer1332: There is no evidence that asset disposals are scrutinised by an oversight body of any form.

There is no indication of independent and/or transparent scrutiny of Saudi arms transfers. Saudi Arabia does not have a weapons export industry, nor do its defence or security institutions enage in income-generating activities. The annual report of the Saudi Arabian Monetary Agency (SAMA) only gives a figure for expenditures on the Military Industries Corporation, not its revenues.

Although the military and defence establishment is one of four ‘sectors’ legally subject to audits by the General Auditing Bureau (GAB), the GAB has little or no effective leverage over either the Ministry of Defence or the Ministry of Interior, as the princes that oversee these two ministries in particular have substantial independent power that rivals that of the King. So while the GAB is independent, it is also relatively powerless vis a vis the defence and security institutions. There is no evidence that the GAB has effectively undertaken an audit of any aspect of the Ministry of Defence, to include asset disposal.

Although the Saudi state has certainly shipped (and on at least one occasion sold) weapons from its own domestic arsenal, it does not supply comprehensive details on these transfers (including income). According to an NGO working to stop arms exports to Sudan “Saudi Arabia self-reported a limited amount of arms sales to Sudan in 2005, but Sudan reported having received a [more] significant amount of weapons” and “Saudi Arabia did not explain the nature and extent of its arms sales to Sudan.” The Saudi-made Al-Shibl armored vehicle (manufactured by Military Industries Corporation, under Ministry of Defence ownership) was also deployed by the Yemeni government during the 2011 uprising there, but whether this item was sold or given to the government in Sanaa is unknown.

In the past, oil was bartered to purchase weapons from Western manufacturers, the Al-Yamamah deal with BAE being one of the largest. This could qualify as a form of asset disposal on behalf of the Saudi Ministry of Defence, which lacked sufficient hard currency to pay for the weapons in cash. There evidence this or subsequent arms deals have been scrutinised by an audit body that is generally regarded as independent. Nor with audit reports that are available to the public within a reasonable time frame.

Researcher + Peer Reviewer1332: The percentage of defence and security expenditure dedicated to secret items is impossible to know; budgets from the Ministries of Defence and Interior do not provide detailed breakdowns of spending. The annual report of the Saudi Arabian Monetary Authority (the Saudi Central Bank) includes information on appropriations for major sectors (education, health, municipalities, etc) and public institutions (one of which is associated with the Ministry of Defence - the Military Industries Corporation), but these figures do not add up to the estimate of total expenditures - so a great deal of budgetary information is obviously missing. Secret defence and security spending may account for a significant portion of this.

Researcher + Peer Reviewer1332: It is unlikely that the Shura Council’s Committee on Security Affairs is given full information on spending on secret items, as breakdowns on other specific areas of the defence budget are not made available to them. Although the committee can question representatives from defence and security agencies, it does not have responsibilities or privileges relating to any ministerial budgets. Budgets are negotiated bilaterally between the Ministry of Finance and the relevant ministry (in this case, the Ministries of Defence and Interior), with little or no input from the Shura Council.

The King most likely does have visibility of most secret expenditures. The Ministries of Defence & Interior also have a great deal of independence from the King, so there is likely some secret spending of which even he does not have knowledge - this structure is a holdover from the early organization of the various security and defence institutions. The first Saudi king distributed the most powerful agencies of government according to factions that developed among his large number of sons. Therefore these agencies (primarily the Saudi Arabian National Guard/SANG and the Ministries of Defence and Interior, but also the major regional/city governorships) evolved into quasi-independent power centers or fiefdoms. These factions have persisted through generations, and as the budgets of these powerful agencies grew, their senior leadership used these budgets and other agency assets to distribute patronage and favors to their respective client bases.

It would be a major goal of the powerful princes in charge of these ministries to maintain some secrecy over their spending for precisely this reason, so as not to reveal their patron-client distribution networks to the King. This is likely why the different agencies (SAMA, GAB, Nazaha) are not given access to these budgets, because they would be become additional sources of institutional knowledge the King could use to exert pressure or oversight over the most senior princes.

There is no reference to budgetary oversight under the list of responsibilities of the Shura Council's Defence and Security Committee. [Majlis website].

Researcher + Peer Reviewer1332: The General Auditing Bureau (GAB) technically has authority to audit the accounts of all government bodies, but these are not provided to the Shura Council’s Committee on Security Affairs or subject to broader debate before the Council. The only reference to the jurisdiction that the General Auditing Bureau has over the Ministries of Defence or Interior are an exemption granted to each ministry extending the time allotted for responding to GAB inquiries (from 15 days for other ministries/agencies to three months for the MOD). The GAB’s annual reports are not made publicly available, and are only accessible to a small number of government officials.

The GAB has no practical leverage over the Ministries of defence or Interior, which are completely unaccountable to any auditing body or authority other than the King. Additionally, the individual sectors of the defence and security establishment are considered the fiefdoms of senior members of the Royal Family (the Saudi National Guard is under the direct control of the King, whereas the next most senior prices are customarily in charge of the various military service branches, internal security services, intelligence services, etc (Hertog, 2011)).

There is likewise no mention of the Anti-Corruption Commission/Nazaha ever having undertaken an investigation of defence ministry activities. The investigative arm of the General Auditing Bureau (the Auditing and Investigation Commission) legally has the right to review the documents of other government agencies, but in practice, the Ministries of Interior and Defence are exempt from this and other oversight mechanisms, and the Board of Grievances, which is tasked with hearing cases brought by the GAB against government ministries, typically refuses to hear about half of these cases. (Influential princes are tasked with heading defence and security agencies as part of the grooming process prior to being named Crown Prince, so the King is the singular official with any authority over their actions).

Response to Government Reviewer, no evidence found that this includes secret programs.

Researcher + Peer Reviewer1332: There is no evidence of any legislation (Royal Decree, Council Resolution or otherwise) either legalizing or governing the operations of off-budget expenditure. Purchases of weapons and military equipment are exempted from Saudi procurement law, specifically The Government Bids and Procurement Law, issued by Royal Decree in 2006 as part of Saudi Arabia's accession to the World Trade Organisation. As a result, official policy on military expenditure is not well-defined, and procurement is often determined on a “case-by-case basis.” However, substantial off-budget military expenditures have occurred in the past with both France and the UK, including the Sawari deal that provided French equipment to the Saudi Navy, and the £43 billion Al Yamamah oil-for-arms deal signed in the mid-1980s with the UK Government and BAE.

U.S. Department of Defence publications and leaked U.S. State Department cables confirm that ‘most’ or ‘much of’ Saudi defence equipment procurement is conducted “off-budget” and therefore not subject to the typical procedures enshrined in law (such as the procurement law referred to above). A cable sent from the U.S. embassy in Riyadh (obtained by Wikileaks) reported that siphoning funds from ‘off-budget’ projects was widely understood as a mechanism for members of the Royal Family to supplement the official stipends they receive from the state, and that such off-budget funds were not subject to Ministry of Finance oversight or control, and that the majority of such off-budget funds were controlled by the Minister of Defence.

Considering the lack of detail in the publicly available defence budget (a top-line figure) and the reportedly scarce detail provided to members of parliament and auditing agencies, it is likely that off-budget spending is substantial and not subject to sufficient oversight.

Researcher + Peer Reviewer1332: The data available on this is quite dated. The Al Yamamah oil-for-arms deal signed in the mid-1980s with the UK Government and BAE was an off-budget deal whihc involved illicit economic activity as per criteria 1. U.S. Department of Defence publications and leaked U.S. State Department cables stated that ‘most’ or ‘much of’ Saudi defence equipment procurement is conducted “off-budget” and therefore not subject to the Ministry of Finance. One cable sent from the U.S. embassy in Riyadh in 1996 (obtained by Wikileaks) also reported that siphoning funds from ‘off-budget’ projects was widely understood as a mechanism for members of the Royal Family to supplement the official stipends they receive from the state, and that the majority of such off-budget funds were controlled by the Ministry of Defence. One of the largest such ‘off-budget’ projects is the Ministry of Defence’s Strategic Storage Project (multi-site storage of refined hydrocarbons) which, according to the U.S. embassy cable was not subject to any oversight by the Ministry of Finance, and was transacted through the National Commercial Bank, which frequently distributes ‘loans’ to Royal Family members with the implicit understanding that these will not be repaid.

However, the late King Abdullah post- Al-Yamamah attempt to reign in off-budget expenditures at the Ministry of Defence. This attempt coincided with a drop in oil prices, and since oil was used to pay the UK for the arms themselves, this generated support for the King’s efforts to bring the Ministry of Defence more under the oversight of the Ministry of Finance. There is no evidence that subsequent major purchases have been off-budget, but since no information on the Saudi defence budget is publicly released, there is not a clear indication either way.

Researcher + Peer Reviewer1332: The Saudi document classification system largely mirrors the U.S. system in its various designations, which include Saudi Restricted, Saudi Secret, Saudi Very Secret, and Saudi Top Secret. There are no clear provisions for classifying information - but military analysts and regional observers claim that almost any material vaguely related to military or security matters is classified. This includes information on personnel decisions (transfers, promotions), the Roles of unit officers, unit designations, etc. This is largely done to maintain separateness among the various defence and security branches - as ‘coup-proofing’ (countering the threat of opposition from a politically powerful and cohesive military) is a key concern for all the Gulf monarchies.

There was a recent twitter leak of a handful of classified documents from Saudi ministries – and although none of them contained genuinely sensitive security information (on military operations, etc.) they revealed extensive spying on the private communications of Saudi citizens and high-level communication between cabinet ministers, which would most likely be classified by most states.

Sometime between 2001 and 2005, the Majlis as-Shura reportedly requested an amendment to article (4) [of an unspecified law] related to security classification, though other than this vague reference, not other details are available. It is nevertheless a reasonable assumption that the Council of Ministers and the newly-created Council of Political and Security Affairs have access to classified documents, but that there is probably some effort by the senior princes that oversee the various related agencies (Ministry of Interior, Ministry of Defence, and Saudi Arabian National Guard/SANG) to keep the content of some reports secret from one another.

A review of the existing document classification system would have to come from a government entity that could exert authority over these rival agencies, which would be limited to the King (and even then, the King's authority is not without its limits). There is no evidence that such review is under consideration.

Score 1 selected to reflect that there are informal classifications of information which are justified on the basis of protecting national security, yet there are no legal mechanisms in place to regulate them and in practice there is evidence of individuals or agencies influencing decisions. Government Reviewer asserts that score 2 would be relevant and asserts that information is classified according to its degree of confidentiality. However score 2 criteria requires that there are provisions made in law for the classification of information, none were found.

Researcher + Peer Reviewer1332: The Ministry of Defence owns the Military Industries Corporation/MIC (aka Military Industries Organisation) which operates a few manufacturing enterprises, including the Armored Vehicle and Heavy Equipment Factory (known as AVF); a textile operation that manufactures military uniforms; and a facility that manufactures the Heckler & Koch G36 assault rifle under license from Germany. The annual report of the Saudi Arabian Monetary Agency includes a figure for annual state spending on MIC, which was about $730 million in 2013, a 38% increase from 2012.

There is no public information on the finances or operations of the Military Industries Corporation other than the single figure representing central government expenditures on the corporation, as appears in the annual report of the Saudi Arabian Monetary Agency/SAMA. Because there is no additional information, it is difficult to determine whether MIC functions as a profit-generating enterprise for the armed forces or operates more as a public sector company under the authority of the Ministry of Defence.

There is also no information on the business practices or governance of the MIC, although they have apparently (in the past) employed private sector consulting firms for business purposes. The cached website of “House of National Consulting,” a Saudi financial services and market firm, lists MIC as a client.

RESPONSE TO REVIEWERS: Agree the Saudi situation does not align directly here. As Peer Reviewer 2 has noted, it is the ruling family who control the arms of government as well as the raw material wealth and business interests. There is increased risk that individuals can benefit themselves inappropriately if defence-owned businesses do not uphold the same standards of governance as public commercial companies however, including making details of business operations and finances transparent. Score maintained to reflect lack of transparency and oversight.

Researcher + Peer Reviewer1332: The Saudi Arabian Monetary Agency (Saudi Central Bank) does publish a topline figure for government spending on the Military Industries Corporation, which is under the authority of the Ministry of Defence, though there are no public reports of MIC revenues or other figures, and it does not appear to be a subject of inquiry by the Shura Council or other government bodies (such as the General Auditing Bureau, Nazaha, etc.). Based on the client list of a Saudi-owned financial services firm called HNC Company, both the Military Industries Corporation and the Saudi National Guard have retained the firm’s services, which include internal auditing, although it is unclear whether this was the service for which the company was retained. There is no official reference to audits being required or conducted on MIC or its affiliated operators, including the Armored Vehicle and Heavy Equipment Factory.

Still other companies partially owned by the Saudi Government that participate in defence-related commercial activities could be under the jurisdiction of the Ministry of Defence - but the opacity of the security and defence establishment in Saudi Arabia makes it impossible to know for sure. For instance, the Saudi Government is a major shareholder (along with the other countries of the Arab Organization of Petroleum Exporting Countries) in the Arab Shipbuilding & Repair Yard (ASRY), which does repair work for foreign naval vessels. Though whether ASRY shares are held by the Saudi Ministry of Defence or some other Saudi government body is unclear. ASRY was the subject of a major corruption probe carried out by the Bahraini Government in 2007 in which criminal charges were brought against a number of the shipyard’s executives, although the company also recently initiated an e-Procurement program that was audited by a local affiliate of Ernst & Young, and the company does have an audit division that oversees a range of compliance programs dealing with labor and environmental regulations. (Nonetheless, several multinational auditing firms have been implicated in corruption scandals related to Saudi defence procurement, so retaining the services of an auditing firm is not necessarily an indicator of transparency or good governance).

Researcher + Peer Reviewer1332: Saudi law technically includes a prohibition against public employees (of any ministry) engaging in commercial activity. A translation of the code of conduct states that defence and security personnel are not allowed:

“To work in trade or industry directly or indirectly, including financial management, or acting as president or a manager or member of the administrative board, or as a consultant or an employee at a company or a commercial establishment, or to make business transactions or any kind of speculation, or to establish ties with any company or agency, or to undertake any action that contradicts their official job or which could influence their performance of their duty in any way. This does not affect the officer’s right to purchase shares in [private] limited companies.”

However, there are a range of circumstances that may weaken this law, including the ability of public employees to accept posts in commercial companies if they are appointed (or seconded) by the government, and if they only engage in part-time work outside official business hours.

There is no public information on penalties for military personnel found to be engaged in unauthorized private enterprise specifically. According to Law of the Internal Security Forces issued by Royal Decree No. 30 dated 4.12.1384 (part 9) disputes (regarding pension entitlements, appointment, promotion, transfer, etc.) and violations by military personnel, are not under the jurisdiction of the Board of Grievances, but are subject to internal military disciplinary boards. These boards are granted the power of independent judicial boards with jurisdiction to try internal security personnel for any offences or crimes they may commit. (This is true for both military personnel and internal security personnel). The accused does have the right to appeal the disciplinary board’s ruling to the Board of Grievances.

There is evidence of unauthorized private enterprise by defence personnel in the form of intermediary or ‘consultant’ services provided to commercial defence firms. The EADS case involving military and civilian personnel in the Saudi National Guard is the most recent case. Additionally, some military officers benefit financially from participation in private commercial projects linked to arms sales. Brigadier General Ibrahim Mishari is a former project officer for the US- Saudi Peace Shield Deal and current head of the Economic Offset Secretariat (EOS), which acts as a liaison between the Saudi government, foreign defence contractors and the Saudi private sector. When Mishari retired from the military in 1999, he founded his own company called Aquad for Commerce, which currently owns large stakes in two offset-generated ventures: the Arabian Shrimp Company, in which Mishari owns 18.3%, and the Saudi Communications Development Company, in which he owns 50%. Mishari also owns a 45% stake in DevCorp, a private venture capital firm that manages a $35 million investment fund financed by offset obligations incurred by the defence firms Raytheon and Thales. Mishari’s shares in these companies may not be technically illegal, and they may have been “authorized” by the government, but it is difficult not to see a conflict of interest.

Many individual members of the Royal Family, including those at the Ministries of Defence and Interior, have large financial stakes in a range of commercial firms involved in defence activities like aircraft maintenance and the provision of basic components (such as batteries or pipes) used in weapons systems. There are no requirements to disclose the assets of Royal Family members - who frequently possess significant financial stakes in semi-public and commercial operations over which they may have significant influence through their appointments within the government. Nazaha, the anti-corruption body, has drafted regulations that would require ministers to disclose their assets, however at the time of research this legislation was awaiting approval by the King.

Available information comes primarily from fee-based business intelligence publications. One large regional business database (Zawya) shows dozens of Saudi princes, including current and former MOD and MOI officials, with financial stakes in large conglomerates, petrochemical companies, mining operations, service sector operations, etc. Among these is an aviation services company whose shareholders include BP and Kamal Adham, the former director of the General Intelligence Directorate of the Ministry of Interior. Other entities such as Saudia, the national air carrier that until recently was under the formal jurisdiction of the Ministry of Defence and Aviation and whose chairman was the late defence Minister Prince Sultan, also have shares in operations that are semi-commercial. Saudia has a 10% share in the Aircraft Accessories & Components Company, whose other shareholders include the Boeing Industrial Technology Group and BAE, as well as a 25% share in Alsalam Aircraft Company, whose other shareholders include the Boeing Industrial Technology Group, and which does significant contracting work for BAE.

Score selected to reflect the criteria that there is some evidence of unauthorised private enterprise. The government outlaws such unauthorised private enterprise, but there is evidence that the sanctions for breaking these laws are weak or often not enforced.

Researcher + Peer Reviewer1332: No evidence was found of statements made by Defence Ministry personnel in relation to corruption, with the exception of Prince Bandar’s statement proclaiming his innocence in relation to the Al-Yamamah bribery scandal. It is very likely that officials from the MOD purposefully avoid any reference to corruption, as the kingdom’s largest bribery scandals have emanated from the MOD (primarily the £1 billion+ in bribes emanating from the decade-long Al-Yamamah arms deal with BAE as detailed in the Guardian news article above).

Former Crown Prince and Defence Minister Salman (now King) did meet with officials from anti-corruption bodies on at least one occasion, but these were officials from the Maldives, no details on the meeting were provided, and the meeting was not said to pertain to Salman’s position as Minister of Defence. Representatives of the defence establishment have also distanced themselves from even the most innocuous anti-corruption activities. This is evident from cases such as a conference on ‘administrative’ corruption convened in 2013 by the Institute for Public Administration, which included pre-prepared comments/papers from the Ministries of Interior, Justice, Finance, Civil Service, and Culture and Information (as well as representatives from numerous NGOs and official anti-corruption agencies) – but made no mention of the MOD or defence at all.

Researcher + Peer Reviewer1332: Saudi Arabia does have a code of conduct governing both civilian government employees and members of the military. The code contains provisions concerning bribery of military members, including prohibiting serving members from taking part in equipment procurement activities or serving as a consultant or an employee for a commercial company [translation of lengthy code is included in Q47].

However, in practice there are very few recorded cases of Saudi defence or security personnel being involved in corruption investigations, and only one where personnel were prosecuted on bribery charges. The only cases I could find were a 1978 case involving Hyundai where the military general disclosed the bribe and so was not penalized [details below] and the 2011 SANG-EADS case [also below] which was only reported in one French publication.

In 1978, a Saudi Army General reported the intent of two Hyundai executives to bribe him in exchange for securing Hyundai’s bid to work on construction of a Saudi military base. The executives were intercepted with two suitcases containing $1 million in bribe money, which the Saudi military general was allowed to keep because he reported the bribe to one of his superiors before the exchange was made. (The two Hyundai executives were sentenced to two years in jail). (Kirk, 1994)

The single reported case of actual Saudi officials from defence or security being punished for bribery-related offences is that in 2011, six officials from the Ministry of Interior (including a high-ranking official in charge of much of the ministry’s equipment procurement, including that related to infrastructure security for Aramco and other Saudi parastatals) were arrested as the result of a behind-the-scenes corruption investigation launched at the behest of the late King Abdullah. However, after a few initial reports there was no further mention of these arrests, including whether they faced trial and/or any punishment. Furthermore, these officials were from the Ministry of Interior and conducted procurement for the Saudi Arabian National Guard/SANG – they were not part of the Ministry of Defence. The latter ministry, which was ruled by the powerful Prince Sultan from 1963-2011, would have been beyond the jurisdiction even of the King except in the most exceptional circumstances.

There are plenty of reports of high-ranking ministry officials having been involved in bribery – see the Barclays case; the BAE-Al Yamamah case; and Lockheed Martin case - though none of these appear to have resulted in prosecutions.

Article 21 of the Anti-Bribery Law (Royal Decree M/36, 1992) requires that the Ministry of Interior announce and publish verdicts resulting from corruption and bribery prosecutions, however I was unable to find any verdicts related to military or security personnel, and reports in the non-Saudi press are never based on official government statements issued by the Ministry of Interior or other government branches.

Researcher + Peer Reviewer1332: The protections offered to whistle-blowers through the country’s main anti-corruption body – Nazaha – are very weak, and there are no regulations or protections written specifically for whistleblowers within the MOD. Although Nazaha does operate a ‘hotline’ that citizens can use to report violations, complainants must issue a signed statement along with evidence of their allegation. Because Nazaha does not report on the content of the complaints it receives, there is no way of knowing if the hotline has ever been used to report on corruption within the Ministry of Defence. There are certainly no [publicly known] instances of an employee from the Ministry of Defence reporting a violation to Nazaha or any other government body.

The primary method of appeal against retaliation for whistleblowers is to submit a complaint to the Prosecution and Investigation Commission and have judgments issued by the Board of Grievances. But this is an after-the-fact remedy, and so is unlikely to encourage reporting. Some large parastatal firms in Saudi Arabia (such as the Saudi Basic Industries Corporation, which is 70% owned by the government) have relatively robust statutes pertaining to whistleblower protection, but these are the exception, and do not appear to extend to those working within government ministries.

The US State Department 2013 Human Rights Report raises concerns that although complainants are required to self-identify, Nazaha requires that the individual who files the complaint not make his or her accusation public or cause it to be reported in the media, claiming this can hurt the reputation of the individual accused. This gives the commission a great deal of discretion in terms of pursuing complaints, and when individuals do make such accusations public, the repercussions can be severe. In 2013 a man from Jazan province who accused a deputy governor of corruption was sentenced to a three-year prison term and a four-year travel ban for “distorting the reputation” of the Deputy Governor, who the man alleged failed to pay promised compensation to citizens dislocated by fighting along the border with Yemen.

Despite the lack of protections, Nazaha’s head reported that his agency receives about 100 calls per day. The Law for Combatting Bribery (which established Nazaha) also provides for monetary compensation for those who report violations. Corruption allegations can also be reported to the Board of Grievances within the Ministry of Justice, and abuse by security forces can be reported at police stations or to the government’s Human Rights Commission. The researcher considers it unlikely that citizens would report police abuse to the police themselves. The researcher has also identified risk associated from the practice of distributing compensation for victims of disasters, accidents, violence, and even government malfeasance to petitioners at regular meetings held by local officials and members of the Royal Family.

Finally, evidence suggests that the public has little trust in Nazaha's capacity. Anonymous comments voiced in online platforms about the efficacy of Nazaha indicate that citizens see it as a potential tool for rival businessmen to target one-another, or to highlight just enough cases of small-scale bribery to relieve some pressure on the government. In a comment board for a story on road construction in Saudi Arabia that appeared in the Iraq-based newspaper Al-Shorfa, a reader states “they [Saudi Arabia] have established an anti-corruption agency called Nazaha “integrity” in order to prosecute the small spoilers or their potential competitors.” A non-scientific poll conducted by Al-Mekkah newspaper in Saudi Arabia in 2014 reported that 86 percent of citizens did not consider Nazaha as an effective instrument in fighting corruption.

Researcher + Peer Reviewer1332: The criteria for assignments, including promotion and demotion are not publicly available, and it is unclear whether personnel are rotated regularly, how they are vetted, or if they are subject to independent oversight. Many significant defence procurement decisions are taken unilaterally by influential individuals whose positions are based purely on lineage and have nothing to do with merit or background. Such was the case with then-Deputy Defence Minister Prince Khalid bin Sultan, whose conclusion of independent arms deals with the Chinese government for the Silkworm Missile System (made without consulting former Defence Minister Prince Salman or the late King Abdullah), combined with the poor performance of troops under his command in skirmishes with Houthi rebels, are believed to have led to his dismissal after less than two years in office (Al-Akhbar).

The Saudi Royal Family, like the other Gulf monarchies, has used various tactics - including appointments in the defence and security establishment - to balance the influence of various factions within the Royal Family and to keep the military from becoming a potent actor in domestic politics. However, a few factors have led to some improvement in personnel decision-making, including sustained interaction with international military forces, the increasing prestige of military service for members of the Royal Family and non-Royal elite families, better quality military colleges within the Kingdom and the increasing number of military officials educated in top U.S. and European defence universities.

However, according to recent reports the persistence of corruption scandals within the MOD and MOI led the late King Abdullah to employ foreign consulting firms to oversee the bidding process for defence contracts, suggesting that appointment and oversight of personnel in defence procurement, contracting, financial management, and commercial management is insufficient. Apart from this, there is no evidence of recognition that certain positions may be at more risk of corruption.

Researcher + Peer Reviewer1332: No recent official figures were found during research. Information on manpower within many of the kingdom’s defence and security institutions is classified, and therefore not available to the public.

A number of experts have produced similar estimates generally regarded as accurate. Active duty troops are believed to number approximately 224,500, with an additional 100,000+ in the Saudi National Guard (SANG). The number of secret police and intelligence personnel is also classified, and not publicly available. Figures on the number of employees within the Ministry of Interior vary, but the estimated number of police officers, security agents and informants is 600,000; when one includes civilian bureaucrats within the Ministry of Interior the figure rises to 750,000. There are believed to be about 20,000 religious police in the kingdom. This force is widely considered to be overstaffed, and academics have also noted a strong opinion that the mutawwa’in provides a government jobs program for the vast number of unemployed religious conservatives [Cordesman & Al-Rohan, 2007, p242]. As a previous peer reviewer noted for the 2013 Index, the creation of 60,000 new jobs in the security forces was announced by the King during the Arab Spring uprisings, which may also give some clue as to the size of the internal security sector.

Researcher + Peer Reviewer1332: Pay rates and allowances are recorded in the Saudi Government’s National Center for Documents & Archive (NCDA), and are frequently referenced in the state-owned media in the context of arbitrary pay hikes and allowance increases, although such figures are not exhaustive. However, it remains unclear what specific salary information (or information for what range of employees) is available, because the records are not electronic, only housed on-site in the NCDA. The website links go to guidelines for personnel issues related to promotion, retirement, etc. but do not include salary data.

The website of the NCDA is currently under construction, but previous images of the civil service regulations page (which include links to information on promotion rules, retirement guidelines, Saudization regulations and other personnel and workforce-related issues) is available through web archive services.

Information on promotion, training and salaries of individual personnel is housed in the Ministry of Interior’s National Data Center (also called the National Information Center), which maintains some private sector employment records as well.

Researcher + Peer Reviewer1332: In technical terms, the system of personnel payment is routine. Many Saudi Government ministries employ multinational government services firms to design systems for payroll processing and other administrative functions.

The Ministry of Interior contracted with TCS (Tata Consultancy Services), which utilizes the well-known Oracle E-Business Suite of applications to administer payroll and other personnel management tasks.
The system of payments is not published however, other than through the promotional literature produced by corporations that administer the payroll program. It is unclear what (if any) similar service is utilized by the MOD. However, given the importance of the police and military to the security of the regime, it is extremely unlikely that they would be willing to risk their loyalty through improperly administering the payroll system.

On the other hand, there are effectively significant pay disparities between officers of similar rank, as there is a substantial minority of the officer corps comprised of princes that receive large monthly stipends in addition to their regular salary. In this way, there may be said to be a degree of inconsistency and a lack of transparency in the pay system. No media reports of late payments have been found, making it likely that payments are generally received on time.

Researcher + Peer Reviewer1332: Many of the highest positions in the officer corps and civilian defence administration are held by princes, a condition that has intensified as the sheer size of the royal family (estimated to include about 15,000 princes and princesses) has increased dramatically. Clearly these appointments are neither independent nor objective, though it is true that members of the Royal Family are likely to have access to better education (including military education). In the lead up to King Abdullah’s death in early 2015, high-level positions in defence and security were increasingly assigned to his closest allies within the Royal Family. Subsequent appointments follow this same pattern. Now that Crown Prince Salman has become King, he appointed his young son (Prince Mohammed) as defence minister. Prince Mohammad, believed to be in his late-20s/early 30s, is inexperienced in military and government affairs; has never held a significant official position; and has never studied outside of the kingdom.

Although many scholars note that tribal and family connections remain a very real factor in recruitment and promotion throughout the ranks, mid-level positions in the armed services are less dominated by princes and senior command positions require meeting a uniform set of training and educational standards (Cordesman). The two branches of the military with the largest princely presence are the Royal Saudi Air Force and the Royal Saudi Land Forces. Although the majority of senior generals are from outside the Royal Family, these positions are still largely held by individuals from prominent families with a history of loyalty to the royal family. The Saudi Royal Family, like the other Gulf monarchies, has used personnel decisions to balance the influence of various factions within the Royal Family as well as between the palace and influential non-Royal elite families.

Beyond meeting basic qualifications for appointments, personnel decisions are frequently based on patronage - and many promotions are likewise awarded according to personal loyalty rather than merit. Under Prince Sultan’s tenure, he and his closest advisors were said to have had near-absolute discretion over military appointments, while the senior princes in charge of the various defence and security establishments have authority over appointments within their particular spheres of influence. Personal relationships with these princes are the real source of authority for individual officials, rather than the formal duties assigned to their position.

Researcher + Peer Reviewer1332: There is no evidence of independent oversight of defence and security personnel promotion. Although there are substantial written regulations pertaining to promotion (including the calculation of seniority, etc.) from the most basic ranks, Laipson et al have pointed out these are not publicly available and furthermore, there are no published criteria for higher-level promotion decisions.

Evidence shows that promotions for high-ranking military and civilian defence and security officials are decided by the Military Service Council, composed of the King, the Ministers of Interior, Defence, and Finance, as well as the General Intelligence Chief and the Secretary General of the Council for Political and Security Affairs (all senior princes and royal appointees), in addition to three non-Royal Family members, who are also appointed by royal decree.

Under Prince Sultan’s tenure, he and his closest advisors were said to have near-absolute discretion over important military appointments, while senior princes in charge of the various defence and security establishments have authority over appointments within their particular spheres of influence (Cordesman). Analysts have cited slower-than-normal promotion and turnover rates as a persistent problem, possibly owing to the persistence of nepotism and corruption in the decision-making process.

RESPONSE TO PEER REVIEWER 1: Agree with comments, although it is important to note that no recent verifiable evidence could be found in the public domain and it appears that the system continues to allow appointments to be bestowed for reasons other than merit. Discussion updated. Score changed from 0 to 1.

Researcher + Peer Reviewer1332: There is no conscription. Conscription was periodically proposed during the second half of the 20th Century to alleviate manpower problems, but the military’s loyalty to the ruling regime is based in large part on the tribal and religious makeup of the armed forces. Conscription would mean the inclusion of Shiites, reactionary neo-Wahhabi elements, and individuals from geographic areas that have long standing grievances against the Al-Saud monarchy, and is therefore unlikely to be implemented.

Researcher + Peer Reviewer1332: As there is no conscription in Saudi Arabia, either compulsory or voluntary, this question scores an N/A.

In terms of postings for enlisted recruits in general however, it must be noted that they are not necessarily based on objective criteria. Postings in different branches of the military and security services are often based on tribal identity, such as an elite group within the Saudi National Guard (the Royal Guard Regiment) that is drawn primarily from a small number of tribes, notably the Otaiba and Qahtani - both from the Nejd region.

Those families that were forcibly integrated into the new kingdom under Ibn Saud are generally not allowed to enlist in the Saudi National Guard. Identity-based assignments guarantee loyalty and prevent the rise of a cohesive military identity that might present a viable threat to the royal family. Preferred postings are likely awarded to recruits from prominent families. Service in certain branches - especially the Saudi National Guard - generates a sort of reciprocity from the Royal Family, and individuals that have served in these units are more likely to enjoy access to special privileges and royal favours subsequent to their service.

Researcher + Peer Reviewer1332: There is no evidence of ‘ghost soldiers’ or other non-existent soldiers on the payroll. The government has indicated that the existence of ghost soldiers is not possible as the Ministry of defence assigns all new employees and soldiers a number during the appointment or recruitment process that is linked to their national ID number, and that individual salaries are deposited directly by the Ministry of Finance. It is not clear what specific payroll system is in place, however many Saudi ministries employ multinational government services firms to design systems for payroll processing and other administrative functions. The Ministry of Interior contracted with TCS (Tata Consultancy Services), which utilizes the well-known Oracle E-Business Suite of applications to administer payroll and other personnel management tasks.

Although the size of the Saudi military is large by Gulf standards, it is still quite small, with only around 225,000 active duty troops and an additional 100,000+ in the Saudi National Guard (SANG). It would be difficult for large numbers of ‘ghost soldiers’ to go unnoticed in such a small force, especially given the rivalries and mutual surveillance that operates between the different defence and security bodies. The Saudi Royal Family has traditionally kept a tight reign on the military – creating corporate and technological divides (such as incompatible communications networks) between the various branches in order to prevent them from becoming independent centres of political power and breeding grounds for anti-regime sentiment. Additionally, the individual sectors of the defence and security establishment are considered the fiefdoms of senior members of the Royal Family (the Saudi National Guard is under the direct control of the King, whereas the next most senior prices are customarily in charge of the various military service branches, internal security services, intelligence services, etc). It is likely that each senior member keeps close tabs on the size of the services under the control of family rivals, which would also make the phenomenon of ghost soldiers difficult to hide.

RESPONSE TO GOVERNMENT REVIEWER: Comments accepted. Discussion updated however as the number of civilian and military personnel is not accurately known a score of 4 is not possible.

Researcher + Peer Reviewer1332: Although there is no government-wide published policy on payment systems that indicates separation between chains of command and payment, given the importance of the police and military to the security of the regime, it is extremely unlikely that they would be willing to risk the loyalty of these individuals by trusting their compensation to the arbitrary behaviour of individual officers and managers (Hertog, 2011; Quinlivan, 1999).

The system of personnel payment appears routine throughout most of the government. Many Saudi ministries employ multinational government services firms to design systems for payroll processing and other administrative functions. The Ministry of Interior contracted with TCS (Tata Consultancy Services), which utilizes the well-known Oracle E-Business Suite of applications to administer payroll and other personnel management tasks. According to Government Reviewer's comment sin other questions that electronic payment system is used in the MOD also - further reducing this risk.

Researcher + Peer Reviewer1332: Saudi Arabia does have a fairly robust code of conduct governing both civilian government employees and members of the military [defined in the law as ‘serving individuals,’ though translated elsewhere as ‘law enforcement officials’]. The Saudi Government has, at various points, confirmed that this law applies to members of the military. A translation of the code of conduct states that defence and security personnel are not allowed:

“To work in trade or industry directly or indirectly, including financial management, or acting as president or a manager or member of the administrative board, or as a consultant or an employee at a company or a commercial establishment, or to make business transactions or any kind of speculation, or to establish ties with any company or agency, or to undertake any action that contradicts their official job or which could influence their performance of their duty in any way. This does not affect the officer’s right to purchase shares in [private] limited companies.”

“To take part in the procurement of missions, requirements and military equipment, as well as government properties and real estate for the purpose of speculation or for personal gain.”

“To accept any work that falls outside the scope of their military work with any member of any trade establishments, whether [the work is to be carried out] in person or through an agent or deputy.”

“To carry out any work, paid or unpaid, for another party, including outside business hours, except with special formal authorisation by the Chief of the General Staff.”

Shortcomings of the code of conduct are primarily in its implementation (as demonstrated by the recent EADS scandal involving the bribery of an officer of the Saudi National Guard). Other lacunae include rules governing asset disclosure, which are only applied to some government officials. According to the head of Nazaha, those in senior positions (to include ministers) are only subject to disclosure requirements if they “deal with public funds and make decisions related to public funds.” Nor are post-separation activities restricted through the application of a ‘cooling off period’ or other similar regulation. There was also no information available on whether the code was distributed officially among military members, nor how widely. Lastly, observers that witness violations are only directed to report these to their immediate supervisor, not to an independent ombudsman or other external agency, making oversight scattered.

In 2013, TI-DSP spent a week in Riyadh at the invitation of the then Deputy Minister – this was initiated after a former Procurement Chief in the Ministry of Defence had arranged for a TI-DSP multi-country study on the Codes of Conduct in Defence Ministries and Armed Forces to be translated into Arabic and printed, without any changes from the English version.

Researcher + Peer Reviewer1332: Prosecution for violations of the code of conduct by those in the defence and security establishment is extremely rare. The handful of reports of sanctions or prosecutions of those in the defence or security establishment appear in the non-Saudi press, and are never based on official government statements (except to allow members of the Royal Family to proclaim their innocence, as was the case with Prince Bandar and the Al-Yamamah scandal).

Recent cases include luxury cars and villa rentals provided to members of the Saudi military by a subcontractor of the European defence giant EADS. Intelligence Online [subscription required] reported that in four months in 2011 six “top-ranking officials” were arrested, including Saud Al Semari, a key procurement official who negotiated several large defence equipment deals on behalf of the Saudi Ministry of Interior. There have been no official Saudi statements on this case – nor have details appeared in the media. Intelligence Online also reported that – in response to persistent corruption in Defence and Interior – the bidding processes for large government tenders would be directly overseen by professional management and consulting firms – primarily from the US, with the winning bid chosen from a short-list handed over to the royal cabinet. If this is indeed the current strategy for managing defence procurement, it strongly suggests that violations of the code of conduct are not meaningfully addressed in the Ministries of Defence or Interior.

Prosecutions in non-defence related matters appear to be on the rise, and are reported on in the national media. Recent investigations involving the misuse of funds and bribery in the ports authorities, public hospitals, the Saudi Railway Organization, the Petroleum Ministry, the Social Affairs Ministry, and municipal governments have all appeared in the Saudi national press. According to article 21 of the anti-bribery law (Royal Decree M/36, 1992), the Ministry of Interior is required to announce and publish the verdicts resulting from corruption and bribery prosecutions.

Researcher + Peer Reviewer1332: The 2007 Combatting Corruption Bill did include increased funding for training and technology for &quoute;all agencies&quoute; tasked with investigating and prosecuting corruption, as well as providing a framework for state support to academic institutions to carry out research on corruption in the kingdom and for religious institutions to incorporate anti-corruption themes in their public outreach campaigns. The Institute of Public Administration, which is responsible for the training of state employees, implements an anti-corruption training curriculum developed by the Anti-Corruption Commission.

However, there is no indication that such training is undertaken on a regular or consistent basis. Police training does not include anti-corruption elements, according to the instruction list for Civil Defence Institute within MOI (available at http://www.moi.sa/).

Ad-hoc workshops have been organized for employees of the Ministry of Interior, including a 2014 workshop on implementing the recently ratified UN Convention Against Corruption. However, there is no evidence that military personnel or civilian employees within the Ministry of Defence have participated in such activities, or that such public campaigns and research funding channels have specifically targeted defence personnel.

TI-DSP has had various engagements with Saudi Arabia, including three visits. In 2013, TI-DSP spent a week in Riyadh at the invitation of the then Deputy Minister – this was initiated after a former Procurement Chief in the Ministry of Defence had arranged for a TI-DSP multi-country study on the Codes of Conduct in Defence Ministries and Armed Forces to be translated into Arabic and printed, without any changes from the English version. In 2014, TI-DSP furthermore participated in a counter-terrorism conference organised by the Naif Arab University of Security Sciences (NAUSS), who agreed a research MOU with TI-DSP. Also in 2014, TI-DSP was also invited to address the NAUSS graduation ceremony, which included numerous Saudi security and defence officials. TI-DSP has had a dialogue with Nazaha (the Saudi anti-corruption agency) for a number of years.

Researcher + Peer Reviewer1332: According to article 21 of the anti-bribery law (Royal Decree M/36, 1992), the Ministry of Interior is required to announce and publish the verdicts resulting from corruption and bribery prosecutions. In practice, the handful of reports of sanctions or prosecutions of those in the defence or security establishment that appear are published in the non-Saudi press, and are never based on official government statements (except where members of the Royal Family have stated innocence, as was the case with Prince Bandar and the Al-Yamamah scandal).

Recent cases include luxury cars and villa rentals provided to members of the Saudi military by a subcontractor of the European defence giant EADS. Intelligence Online reported that in four months in 2011 six “top-ranking officials” were arrested, including a key procurement official who negotiated several large defence equipment deals on behalf of the Saudi Ministry of Interior. There have been no official Saudi statements on this case – nor have details appeared in the media. This case was unprecedented - there is no evidence pointing to other incidents involving the arrest of anyone prominent from the MOI or MOD either before 2011 or since.

Researcher + Peer Reviewer1332: The Code of Conduct for Civil Servants (to include military and police personnel) prohibits the acceptance of gifts if there is the intent to bribe, though measures to discourage this are clearly ineffective. Civil servants are likewise legally required to report gifts, regardless of their value.

Surveys of individuals doing business in the kingdom report widespread use of agents and facilitation payments – though these payments are likely to be disguised as ‘consultancy fees’ or payments for marketing or other services rather than facilitation payments. Privately-published business guides report that anti-bribery statutes are generally not enforced with respect to facilitation payments.

Researcher + Peer Reviewer1332: The armed forces do not address corruption as a strategic issue. To date, no high-ranking officer or member of the upper echelons of the civilian defence and security bureaucracy has mentioned corruption in the context of operational effectiveness or doctrine. Indeed, they do not issue public statements on the issue corruption at all.

Since the conclusion of the previous GI assessment for Saudi Arabia in 2013, there have been no government initiatives that targeted corruption in the defence establishment, with the exception of a behind-the-scenes effort by the late King Abdullah to wrest control over procurement away from officials at the Ministry of Defence and entrust it to private consultants hired to oversee the process. In any case, the Kingdom lacks a formal defence doctrine, and so it is even less likely that corruption would make its way into formal training or planning documents.

Researcher + Peer Reviewer1332: The 2007 Combatting Corruption bill did include increased funding for training and technology for the relevant government agencies tasked with investigating and prosecuting corruption, as well as providing a framework for state support to academic institutions to carry out research on corruption in the kingdom and for religious institutions to incorporate anti-corruption themes in their public outreach campaigns.

There is no evidence that military personnel or civilian employees within the Ministry of Defence have participated in such activities, or that such public campaigns and research funding channels have specifically targeted defence personnel. Regular police training does not include anti-corruption elements, according to the instruction list for the Civil Defence Institute within MOI (the Civil Defence Institute is the disaster and emergency response force, though their instructional training seems to mirror the major aspects of police work, available at http://www.moi.sa/). I could only find evidence of one instance of such training, which was an ad-hoc workshop organized for employees of the Ministry of Interior in 2014 on implementing the recently ratified UN Convention Against Corruption. It was held in coordination with the United Nations Office on Drugs & Crime.

Futhermore, given the extent and scale of several very high profile bribery scandals that have taken place in the MOD, it is a reasonable assumption that military commanders are aware of the problem and are turning a blind eye to it. This is further supported by the fact that there have been no cases of prosecution of any individuals from the MOD (other than the 2011 reports of arrests of individuals that handled defence equipment procurement for the MOI).

Researcher + Peer Reviewer1332: There is no evidence of any defence or security professionals being trained to monitor corruption risk. Corruption and bribery that takes place at the border in relation to import/export customs, human trafficking, wildlife smuggling, etc. would be the natural place to look for trained officials observing the behavior of border guards, as these are not politically sensitive forms of exchange in the way that defence procurement is. These are also likely to involve petty bribes and low-to-mid ranking officials, not the large sums captured by influential elites involved in defence contracts. Nonetheless, I see no indication that corruption monitoring by trained professionals takes place in this or any other context.The single exception is an ad-hoc workshop in 2014 organized for employees of the Ministry of Interior on implementing the recently ratified UN Convention Against Corruption.

Researcher + Peer Reviewer1332: There is no evidence of any guidelines or staff training on addressing corruption risks in contracting whilst on deployed operations or peacekeeping missions. The only evidence of any personnel training relevant to defence or security personnel under any conditions is an ad-hoc workshop in 2014 organized for employees of the Ministry of Interior on implementing the recently ratified UN Convention Against Corruption.

Researcher + Peer Reviewer1332: There are a large number of PMCs employed in Saudi Arabia. The most well-known is the U.S.-based firm Vinnell, which has had a contract to train the Saudi National Guard (SANG) for more than two decades. (Vinnell trainers went into battle with the SANG at Khafji during the first Gulf War, and the SANG contract is the company's most lucrative operation.) Other PMCs with Saudi Government contracts include Aegis; Booz Allen Hamilton (Saudi Marine Corps, Saudi Armed Forces Staff College); Braddock, Dunn and McDonald Inc. (Saudi Air Force); Cassidian (Saudi border guards); Dyncorp (Royal Saudi Land Forces); G4S (providing security during annual pilgrimage); General Dynamics (Royal Saudi Land Forces); Military Professional Resources Inc.; O'Gara Protective Services (personal protection for late Prince Sultan and other Royal Family members); SAIC (Saudi Royal Navy and Saudi Royal Air Defence); and Shield Risk Consulting. Saudi Arabia has ratified the International Convention against the Recruitment, Use, Financing and Training of Mercenaries (adopted 4 December 1989 by UN General Assembly; into force 20 October 2001). However, critics observe that the 31 states to sign and/or ratify the convention are those which host substantial PMC operations (not the countries where the PMCs are legally incorporated); the convention pertains primarily to traditional freelance mercenaries - not the large, organizationally sophisticated firms that comprise the sector today; and the convention includes no monitoring or enforcement mechanisms.

Saudi Arabia has also provided financing for the deployment of private military contractors to conflict zones, including funds to send Military Professional Resources Inc. to train Bosnian Muslim troops in order to secure the latter's support for the peace accords (MPRI is the same PMC that trained the Croatian troops that committed atrocities against Bosnian Muslims). Some large, high-profile contracts are under some form of monitoring, but not from the Saudi government. In the case of Vinnell and the Saudi Arabian National Guard, this oversight comes from the U.S. Government, which solicited Vinnell for the contract on behalf of the Saudi Government.

Existing anti-corruption legislation (including the anti-bribery law and the law establishing the anti-corruption commission) does not pertain to the activities of private companies, but only to the complicity of public officials. Violations by private companies would be prosecuted as breaches of contract.

The Saudi Ministry of Interior (MOI) does have one law germane to PMSCs - the Law of Civilian and Private Security Guards, although it primarily pertains to labor regulations. The law - adopted by the Council of Ministers in 2005 - requires that expatriates serving as guards be replaced with Saudi nationals within 90 days. However, this law applies primarily to the large number of individuals hired to act as security guards for private sector firms and high-profile businessmen, not for government ministers or members of the royal family. For example, it is unlikely that the above-mentioned O'Gara contract (which provides protective services to high-ranking Royal Family members) would be subjected to the Law of Civilian and Private Security Guards. These PMSCs are likely subject to the authority of whatever ministry or government agency hired them (in the case of the SANG - Vinnell would be responsible to King Abdullah; the various military branches, to the Minister of Defence, and internal security organizations to the Minister of Interior).

This being said, no evidence has been found of any known case of corruption in relation to any of the above-listed entities in Saudi Arabia.

Researcher + Peer Reviewer1332: Saudi Arabia does have legislation covering government procurement, specifically the Government Bids and Procurement Law, issued by Royal Decree in 2006 as part of Saudi Arabia's accession to the World Trade Organisation, and became party to the WTO’s Government Procurement Agreement in 2007, which covers issues related to transparency and fair bidding practices. However, purchases of weapons and military equipment are explicitly exempted from these procurement laws, according to Article 47, which states:

“Weapons and military equipment and their spare parts by direct purchase from manufacturers [are exempted from public tender]. The best offer serving public interest shall be selected by a ministerial committee formed for this purpose by a royal decree of at least three members in addition to its chairman. It shall then bring its recommendations before the President of the Council of Ministers for approval.”

As a result, official policy is not well-defined, and military procurement is often determined on a “case-by-case basis. Major procurement decisions can be executed on the personal initiative of single members of the Royal Family, as was the case when Prince Khalid bin Sultan (then-Deputy Defence Minister) made a large purchase of missiles from China in 2013. The purchase – which was apparently made without the knowledge of other officials in the Defence Ministry – eventually led to his resignation, but it demonstrates the degree to which major decisions are often not part of a formal process

There is, however, legislation that prohibits the use of agents or intermediaries in defence procurement, Council of Ministers Resolution No. 1275 (1975). However, reports are that this is not strictly observed in practice. Nearly all surveys of individuals doing business in the kingdom report widespread use of intermediaries and facilitation payments, and US Government publications advising commercial entities doing business in the kingdom indicate that the Saudi Ministry of Commerce employs a very narrow definition of what constitutes “armaments” - allowing for the participation of agents in a variety of defence and security-related contracts. Furthermore, only civil servants can be prosecuted for influence peddling - which may explain why the most infamous arms brokers in Saudi Arabia were private citizens (such as Adnan Khashoggi, Wafic Said, and Ghaith Pharaon) not government functionaries.

Even in the case of non-military procurement, the process retains major shortcomings. The government does not use a centralized system for procurement, which allows individual procuring agencies a high degree of control over the acquisition process, and special tendering and direct contracting are common.

Researcher + Peer Reviewer1332: The Ministry of Defence has a five-year plan, as well as an annual budget and basic procurement plan, but these are not made publicly available, and there is no public disclosure law (or right to information law) that requires such information to be made public. Actual defence procurement spending commonly exceeds the amount budgeted if oil revenues exceed projections, and important acquisition decisions (including large, strategic purchases) are often made informally. These features make it unlikely that any procurement plan or process - even if disclosed - would mirror what actually took place.

Major procurement decisions can be executed on the personal initiative of single members of the Royal Family, as was the case when Prince Khalid bin Sultan (then-Deputy Defence Minister) made a large purchase of missiles from the Chinese in 2013. The purchase – which was apparently made without the knowledge of other officials in the Defence Ministry – eventually led to his resignation, but it demonstrates the degree to which major decisions are often not part of a formal process.

Researcher + Peer Reviewer1332: There is no indication of any defence procurement oversight operating in Saudi Arabia. The Shura Council does include a Committee on Security Affairs, though the council’s membership is appointed by the King and has no effective control over defence activities, including procurement oversight. The only reference to the jurisdiction that the General Auditing Bureau has over the activities of the Ministries of Defence is an exemption that extends the time the ministry is allotted for responding to GAB inquiries (from 15 days for other ministries/agencies to three months for the Ministry of Defence).

As referenced in the previous GI assessment of Saudi Arabia, a US-based firm founded in 2010 called Colorado Accounting & Financial Services claims to have been the lead advisor on a contract to establish an internal auditing body within the Saudi Ministry of Defence. The company’s brochure records the contract details as: “Development of Financial Advisory Department for Ministry of defence and Aviation in Saudi Arabia. The new department was created for effective control of internal auditing, treasury management, budgeting and forecasting and creating training programs for the Ministry of defence accounting staff.” However, there is no additional evidence of this department currently operating within the Ministry of Defence.

According to the Basic Law of Governance of 1992, each government agency (including the Ministries of Defence and Interior) should be subject to an internal auditing process, and there are staff auditors within the Ministry of Defence that review contractor’s financial records and payments made to them by the government. Evidence suggests that these staff auditors may only be active on civilian aviation projects however – not military arms sales.

Saudi Government Tenders and Procurement Law does stipulate that all procurement must be put up for public tender, with certain exceptions, which includes the direct purchase of military equipment. In such cases the procurement decision is made by a ministerial committee formed by royal decree, which consists of one “chairman” and at least three additional members, who report directly to the King (Dentons Global, 2014).

Recent reports that the late King Abdullah has chosen to employ foreign consulting firms to oversee the bidding and procurement process for defence contracts suggests that existing oversight mechanisms are nonexistent or inadequate. This is likely due to the fact that leadership in the Ministries of Defence and Interior are typically granted to very powerful senior princes, and thus the ministries’ activities (especially procurement) are unlikely to be subject to genuinely independent internal or external oversight.

RESPONSE TO GOVERNMENT REVIEWER: Unfortunately there is not enough evidence that demonstrates this to raise the score.

Researcher + Peer Reviewer1332: The Government Bids and Procurement Law of 2006 requires government authorities to announce the results of public tenders and procurement if their value exceeds one hundred thousand riyals, but the same law states that “[p]rocurement of arms, ammunition, military equipment and ordnance as well as procurement relating to internal security and national defence shall be exempted from announcement.”

The Ministry of defence & Aviation (MODA) has a five-year plan, as well as an annual budget and procurement plan, but these are not made publicly available, and there is no public disclosure law (or right to information law) that requires such information to be made public. Some tenders are available through the websites of the individual service branches, as well as through various business intelligence sources (such as ME Tenders.com and tendernews.com ), but some sources published within the kingdom often consist of a single line item labeled “military equipment” not a breakdown of actual items to be purchased. Further, the information available through these fee-based intelligence sources frequently changes up to the time the contract is signed, so clearly even well-connected individuals with government contacts do not have access to authoritative information.

Researcher + Peer Reviewer1332: According to anecdotal evidence, contractors must sign a statement declaring that no intermediary is involved and that the price paid does not include any commissions to be paid to any such intermediaries. Bids are also prohibited from individuals who have been imprisoned for criminal acts in the course of contracting or those that have declared bankruptcy (minors and persons not legally competent are also prohibited from submitting bids, as are government employees, with certain exceptions) according to article 13 of the Government Procurement Implementing Regulations (2004).

I was able to locate a company prospectus for a logistics firm (Bahri Shipping) that had recently been contracted by the Saudi Ministry of Defence to transport military equipment. The prospectus lists some details of the contract, including reasons that the contract might be revoked. The prospectus states that: “MoD may terminate the agreement in the event that it is found that the Company (directly/indirectly) offered a bribe to an official employed by the MoD.” This language seems very narrow – as it obviously does not cover the private citizens that may be hired to act as ‘fixers.’ It is these individuals (see examples above) that have traditionally been the biggest beneficiaries of corrupt payments. In the case of Bahri Shipping, furthermore, it could be seen as unusual that a member of the shipping company’s board of directors also sits on the board of the insurance company that is contracted by the shipping firm to provide coverage for its military cargo.

Nonetheless, nearly all surveys of individuals doing business in the kingdom report widespread use of intermediaries and facilitation payments, and U.S. Government publications advising commercial entities doing business in the kingdom indicate that the Saudi Ministry of Commerce employs a very narrow definition of what constitutes “armaments” - allowing for the participation of agents in a variety of defence and security-related contracts. Nor are defence companies required to secure bank guarantees in order to be awarded contracts with the Saudi Ministry of Defence – which is a unique exemption, as other companies that sell to the government must secure financial backing.

Researcher + Peer Reviewer1332: Saudi Arabia does not really have a coherent national defence and security strategy from which discrete procurement requirements could be derived. Saudi academics and political analysts often criticize the government’s lack of a formal defence policy, and as recently as 2010, the private security contractor Vinnell Arabia LLC (a subsidiary of Northrop Grumman Technical Services) was contracted by Saudi Arabia for the purpose of drafting its official military doctrine. There is no parliamentary or other representative body with even nominal independence that is able to audit any such strategic documents, regardless of where or how they may be drafted.

The Ministry of defence does has a five-year plan, as well as an annual budget and procurement plan, but these are not made publicly available, and there is no public disclosure law (or right to information law) that requires such information to be made public. Some tenders are available through the websites of the individual service branches, as well as through various business intelligence sources (such as ME Tenders.com and tendernews.com ), but some sources published within the kingdom often consist of a single line item labeled “military equipment” not a breakdown of actual items to be purchased. Further, the information available through these fee-based intelligence sources frequently changes up to the time the contract is signed, so clearly even well-connected individuals with government contacts do not have access to authoritative information.

The military's arms budget itself is dictated by annual oil revenues, not defence strategy or comprehensive budgetary planning, and actual spending commonly exceeds planned expenditure if oil revenues exceed projections. It has long been conventional wisdom that major purchases are executed more for their political benefit than their strategic value. Large purchases appear to provide a way of solidifying a range of alliances with important foreign partners such as the US and UK, which provide security guarantees and diplomatic support in return for continued Saudi defence spending.

Researcher + Peer Reviewer1332: The Ministry of Defence does have a five-year plan, as well as an annual budget and basic procurement plan, but these are not made publicly available, and there is no public disclosure law (or right to information law) that requires such information to be made public. Actual defence procurement spending commonly exceeds the amount budgeted if oil revenues exceed projections, and important acquisition decisions (including large, strategic purchases) are often made informally. These features make it unlikely that any procurement plan or process - even if disclosed - would mirror what actually took place.

Research indicated that defence purchases are very likely to be determined by the dynamics of inter-family rivalries or security guarantees and alliances with Western states rather than clearly identified defence requirements. Senior princes have used the procurement budgets of the defence and security agencies over which they have control to limit and check one another’s influence, often resulting in redundant acquisitions and limited interoperability of weapons systems. Large procurement budgets are also a major source of patronage for senior princes, who may design their purchases to maximize the commissions they are able to dole out to their influential political clients (Hertog, 2011).

This is a holdover from the early organization of the various security and defence institutions. The first Saudi king distributed the most powerful agencies of government according to factions that developed among his large number of sons. Therefore these agencies (primarily the Saudi Arabian National Guard/SANG and the Ministries of Defence and Interior, but also the major regional/city governorships) evolved into quasi-independent power centers or fiefdoms. These factions have persisted through generations, and as the budgets of these powerful agencies grew, their senior leadership used these budgets and other agency assets to distribute patronage and favors to their respective client bases.

It is conventional wisdom that defence acquisition decisions are derived more from political calculations than strategic value. Large purchases are seen as a way of solidifying alliances with a range of important foreign partners which provide security guarantees and diplomatic support in return for continued Saudi defence spending. Even marketing and consulting firms recognize this as the impetus for procurement decisions. In a recent report aimed at aerospace and defence companies, IHS Global Insight (part of the Janes Defence Group of Companies) stated, “Gulf states have historically bought friendships and support through materiel acquisition….[w]arming ties with new suppliers (e.g. India, South Korea and Singapore) plus Eastern powers (Russia, China) point to broadening supplier relations as global power balance shifts.” And continues with, “Materiel procurement is typically used as a means of cementing relations and achieving broader aims. Political alignment is therefore vital for successful business.”

Researcher + Peer Reviewer1332: Some elements of the process are suggestive of a degree of competition, but these seem largely superficial. For example, tenders are available through the websites of the individual service branches (such as the SANG, available here: http://www.sang.gov.sa/Govermentpeper/Pages/default.aspx) and by law tenders must be published in the official gazette (Umm Al-Qura), two local papers, the website of the tendering authority, and be posted for at least 30 days prior to bidding deadline. However, a significant portion of military tenders are exempted from these requirements, and the commercial advisory agencies of foreign governments that sell large quantities of defence material to Saudi Arabia advise their national firms that military procurement is exempted from competitive regulations that govern non-defence procurement, and that decisions are typically made on a case-by-case basis.

There is no reference to competition in the legislation that deals specifically with military procurement. Saudi Arabia does have legislation covering government procurement, specifically the Government Bids and Procurement Law, issued by Royal Decree in 2006 as part of Saudi Arabia's accession to the World Trade Organisation, and became party to the WTO’s Government Procurement Agreement in 2007, which covers issues related to transparency and fair bidding practices. Purchases of weapons and military equipment are explicitly exempted from these procurement laws according to Article 47, which states, “Weapons and military equipment and their spare parts by direct purchase from manufacturers [are exempted from public tender]. The best offer serving public interest shall be selected by a ministerial committee formed for this purpose by a royal decree of at least three members in addition to its chairman. It shall then bring its recommendations before the President of the Council of Ministers for approval.” As a result, official policy is not well-defined, and military procurement often appears to be determined on a case-by-case basis. There is no mention of competition. Given that defence procurement is exempted from the basic law on government procurement outlined above, it is unsurprising that it is not referenced in the competition regulations.

Even in the case of non-military procurement, the process retains major shortcomings. The government does not use a centralized system for procurement, which allows individual procuring agencies a high degree of control over the acquisition process, and special tendering and direct contracting are common.

RESPONSE TO GOVERNMENT REVIEWER: Unfortunately no evidence was found to support this. For example, to award score 4, the questionnaire requires clear evidence that less than 10% of the total value of Saudi Arabia's defence contracts was single-sourced. Score maintained.

Researcher + Peer Reviewer1332: Each agency has its own tendering authority – and there do not appear to be any regulations governing them beyond the general code of conduct that covers all civil servants (generally interpreted as including military personnel). There is no central tender board, which might exercise oversight over individual agency boards, nor does the General Auditing Bureau or Nazaha appear to have investigated any tendering board or procurement decision made by a defence of security agency.

The tenders themselves are typically available through the websites of the individual service branches (such as the SANG website) and by law tenders must be published in the official gazette (Umm Al-Qura), two local papers, the website of the tendering authority, and be posted for at least 30 days prior to bidding deadline. Tenders are also available through various fee-based business intelligence sources (such as ME Tenders.com, and tendernews.com) but some sources published within the kingdom consist of a single line item labeled “military equipment” not a breakdown of actual items to be purchased.

A significant portion of military tenders are exempted from even these requirements, and purchases of weapons and military equipment are wholly exempted from The Government Bids and Procurement Law of 2006. The exemption (Article 47) states, &quoute;Weapons and military equipment and their spare parts by direct purchase from manufacturers [are exempted from public tender]. The best offer serving public interest shall be selected by a ministerial committee formed for this purpose by a royal decree of at least three members in addition to its chairman. It shall then bring its recommendations before the President of the Council of Ministers for approval.”

Clearly there are major shortcomings in the conduct of tender boards, as the publication Intelligence Online reported that the late King Abdullah was transferring responsibility for managing the bidding processes for large defence tenders to foreign consulting firms, with the winning bid chosen from a short-list handed over to the royal cabinet.

Researcher + Peer Reviewer1332: Competition Regulations were issued by Royal Decree on 22 June 2004 (entering into force on 31 December 2004); and the decree also established the Competition Protection Council (CPC), housed within the Ministry of Commerce and Industry. However these regulations make no mention of defence procurement. Given that defence procurement is exempted from The Government Bids and Procurement Law of 2006, it may in practice also be exempted from this competition law, which allows for exemptions at the discretion of the CPC.

Article 47 of the Government Bids and Procurement Law states, &quoute;Weapons and military equipment and their spare parts by direct purchase from manufacturers [are exempted from public tender]. The best offer serving public interest shall be selected by a ministerial committee formed for this purpose by a royal decree of at least three members in addition to its chairman. It shall then bring its recommendations before the President of the Council of Ministers for approval.”

Practices that are specifically prohibited under the 2004 competition decree (in Article 4.6 and 4.7) include colluding in tenders or ‘bid-rigging.’ Declared joint bids are allowed, so long as the intent is not to violate the principle of competition. Punishments include fines of $1.3 million for each violation, up to $6.5 million. However, anecdotal evidence from non-defence contracts suggests that it is common practice for large contractors to establish temporary subcontractors under the names of local agents or employees, and use these to bid for projects. These temporary contractors then assume liability for any violations of the contract terms, leaving the large contractor unscathed in the event of complications. This is certainly a form of collusion that is difficult to identify or punish.

There is likewise a requirement that consortia or partnerships between firms submitting a bid for a government tender must have been in existence prior to their submission of a bid - which could also discourage collusion. Thus far, the CPC has pursued a small number of cases, including several cases against medical supply companies - but none involving defence contracts. There is no evidence of collusion in defence procurement. Although the language of the decree states that the law “shall apply to all entities operating in the Saudi markets and various activities thereof,” the law also provides for exemptions at the discretion of the CPC.

Researcher + Peer Reviewer1332: The Ministry of Defence has - for several decades - employed a large number of international consultants and commissioned a large number of studies designed to evaluate the efficiency and cost effectiveness of their various projects (particularly defence-related construction). Many of the Kingdom's defence contracts are government-to-government agreements that are administered by civilian defence officials from the U.S. and U.K. stationed in the Saudi Ministry of Defence and act as primary contract monitors. On the U.S. side, the Joint Advisory Division (JAD) of the U.S. Military Training Mission (USMTM) provides U.S. personnel that serve as principal assistants to Saudi personnel in the Foreign Procurement Department. On the U.K. side, similar services (including contract monitoring) are performed by several hundred personnel under the U.K. Ministry of Defence Saudi Arabian Projects Office (MODSAP) and the Saudi Arabia National Guard Communications Project/SANGCOM. They supply information to the Saudi MOD staff in the MOD's Foreign Procurement Department (FPD) and the Planning, Budget and Follow-up (PBF) Department.

The Kingdom maintains a large number of technical and vocational schools that train Saudi citizens in areas like contract management and procurement, and many individuals employed by the Saudi Government have completed similar courses through the US International Military Education & Training program. Despite these formal training programs, there is no evidence that Saudi procurement staff have ever lodged complaints against defence contractors that resulted in punishment or sentences for the contractors or defence officials that may have been colluding with them.

According to reports (sources above), in 2011 the (late) King Abdullah overhauled the bidding processes for large government tenders in response to persistent corruption in Defence and Interior. Instead of being handled by these ministries, the bids would be directly overseen by professional management and consulting firms – primarily from the US, with the winning bid chosen from a short-list handed over to the royal cabinet. If corruption was endemic to the bidding process, there is no reason to expect that Saudi contract monitors in the Ministries of Defence or Interior were better equipped to keep corruption out of the contract implementation and monitoring process. Senior Saudi officials certainly have sufficient leverage to hold defence contractors to account, but they are more likely to use such leverage for personal enrichment.

It is more likely that complaints against contractors are settled informally, such as appeared to be the case with the UK MOD’s official offset liaison office. This office claimed to have completed the required offset projects according to the provisions of the Al Yamamah arms deal concluded in the mid-1980s. However, after informal protests by unnamed Saudi officials, the UK’s offset office claimed to have come to “a gentleman’s agreement” with the Kingdom that “the program will continue to run and run.”

In some cases the training institutes that offer courses in contract management to Saudi public servants are also affiliated with the kingdom's major defence suppliers, and there is a great deal of back-and-forth movement between private sector defence contractors and government agencies. (So there is opportunity for conflicts of interest to develop). For example, under a previous offset commitment incurred by BAE, the company set up the Saudi Development and Training Company to train Saudi citizens in management and other areas to prepare them for government and private sector jobs. The company is today 100% owned by BAE. The Saudi Government also (apparently) employs overseas labor recruiters to locate personnel to work in procurement on behalf of the Ministry of Defence. This is suggested by the website of a Filipino recruiting agency called East Transglobal Manpower Consultants, Inc., which publicized a job in Saudi Arabia regarding defence procurement (although this may be on behalf of a private contractor operating in the country).

There is no evidence of staffing or rotation in the Saudi MOD's Foreign Procurement Department (FPD) or the Planning, Budget and Follow-up (PBF) Department.

Researcher + Peer Reviewer1332: The Board of Grievances (BOG) has jurisdiction over contract disputes where a public sector entity (like the Ministries of Defence or Interior) is party to the contract. Anecdotal evidence (primarily case lists on the websites of law firms operating in Saudi Arabia) demonstrates that foreign defence contractors regularly pursue disputes through the BOG, and that these cases have been decided in the contractor's favor. (Although none of these cases indicated that corruption or bribery were the basis for the complaint - even with a high-profile defence corruption case such as the Al-Yamamah scandal, there is no evidence of a complaint being filed with the BOG).

However, firms pursuing complaints involving defence contracts or other similarly sensitive forms of procurement may not be afforded the same rights at the BOG as firms engaged in non-defence procurement. In one case, a legal team reported that their client (a non-defence contractor) was unable to review documents submitted as evidence by the complainant (a government agency) because they were considered ‘internal government documents’ that should not be available for ‘public’ view. The legal team expressed surprise at this limitation, which they expected only in cases that involved the Ministry of Defence or other similarly ‘sensitive’ agencies.

In addition to the BOG, plaintiffs can petition the King directly to hear their complaint (or seek to have a senior prince bring up the issue with the King). Although rare, this avenue has been used by a small number of very large contractors, and anecdotal evidence indicates that these disputes can be resolved to the contractor's benefit. In theory, contractors can also appeal to the King if they feel the BOG decision was in error, in which case the King forwards the appeal to the Council of Ministers, which decides whether to ask BOG to re-hear the case. This appeal process is rarely invoked. BOG decisions are published, but are not widely disseminated.

Various indices still report that contractors find the dispute resolution process cumbersome. Furthermore, Saudi government entities are prohibited from using arbitration to resolve disputes with private contractors unless they get special permission from the Council of Ministers (a result of a negative ruling against the government in a dispute with the Arab American Oil Company/ARAMCO in the 1960s). In practice, several government contracts have included arbitration clauses at the recommendation of the Council of Ministers.

Researcher + Peer Reviewer1332: According to the Government Procurement Law of 1966, companies that are found to be in violation of bribery statutes (or have employed an intermediary in armaments contracts) will have their contract suspended and be prohibited (temporarily or permanently) from bidding on future government contracts. Provisions are also made for a five year blacklist following findings of deceit, fraud or manipulation. However, I have not been able to find any cases where this penalty was enforced in defence contracts, despite numerous cases where bribery and the use of intermediaries was later revealed in corruption investigations carried out in other jurisdictions.

The only evidence of these punishments is in relation to non-defence contracts and suppliers. For example, Tyco – a major oil and gas services supplier registered in Delaware and headquartered in the UAE – was found guilty in 2012 of paying nearly $500,000 in bribes to several employees of Saudi Aramco. Although Tyco was assessed fines and penalties of $26 million by the US Department of Justice (which carried out the investigation and prosecution) the only penalty the company faced in Saudi Arabia – where it had executed $42 million in contracts with Aramco over the period in which the bribes were paid – was a temporary suspension from conducting business. Just a year after the case was decided, the firm (renamed Pentair) was again signing major service contracts with Aramco.

In another recent case, Saudi municipal employees and one businessman were given jail time after being found guilty of a kickback scheme involving defective building materials that exacerbated the damage from major flooding in 2009 and 2011. Historically, the Saudi Government has prohibited domestic suppliers from providing parts for use in Saudi defence and/or security equipment.

defence contractors that have been convicted of corruption in deals with Saudi Arabia in non-Saudi courts (usually in the country where their operations are headquartered) have not paid fines or faced other disciplinary actions from the Saudi Government. However, the Saudi judicial system has apparently been used to pursue claims against suppliers for inadequate payment of commissions to middlemen.

According to a 2002 report by Transparency International, &quoute;Corrupt payments in the form of commissions were so institutionalized in defence procurement in Saudi Arabia that allegations of insufficient payment of commissions were the subject of a 1997 High Court Writ (A No. 1828). Aerospace Engineering Design Corporation (with reputed Saudi interests but incorporated in Panama) sued Rolls Royce plc for their alleged failure to pay contracted commissions on the sale of aero-engines to the Royal Saudi Air Force. The writ (which was strenuously defended and subsequently withdrawn) alleged that commissions had only been paid up to 8% of the whole price whereas the contracted commissions were at a rate of 15% up to certain base prices and 100% on prices above base.

RESPONSE TO GOVERNMENT REVIEWER: The only provisions found in this law are listed in Paragraph 1 and all available evidence has indicated these are rarely applied in practice. Score maintained.

Researcher + Peer Reviewer1332: There is no due diligence on offsets required by the Saudi Government, and offset policy is characterized by concepts like &quoute;best-endeavours” clauses. In response to independent inquiries regarding the fate of an offset-generated shrimp farm, the Saudi offset authority reported that it maintained only “minimum information” on projects after their initial startup, and directed further inquiries to the project's commercial backers, which include the defence firm Raytheon (which in turn suggested contacting the Saudis) and the investment firm DevCorp, which did not respond (inquiry conducted by author of “The Art of Selling Weapons: defence industry”). Contractors and foreign government officials routinely complain of non-responsiveness on the part of Saudi Arabia's offset bureaucracy, the Economic Offset Program (EOP). In these instances, contractors and foreign officials report that they ordinarily proceed with the proposed offset project without specific Saudi Government approval.

The process is made more problematic by the successful efforts of defence firms to have offset agreements characterized as proprietary business contracts and thus protected from disclosure or meaningful reporting requirements.

The Saudi government certainly has, in the past, followed-up on offset contract performance, although probably not with formal audits (Smith, 2007). For example, the UK MOD’s official offset liaison office claimed to have completed the required offset projects according to the provisions of the Al Yamamah arms deal signed in the mid-1980s. However, after informal protests by unnamed Saudi officials, the UK’s offset office claimed to have come to “a gentleman’s agreement” with the Kingdom that “the program will continue to run and run.”

Because offset-generated financing and/or technology transfer benefits are likely to go to parastatal industries or to the commercial enterprises of elites with close ties to the royal family, the government does have a built-in incentive to monitor performance and maximize offset-generated benefits - even if these benefits accrue to regime cronies, not the broader economy.

Although Saudi Arabia does have provisions to penalize contractors for non-fulfillment of offset agreements, no such penalties have ever been imposed. Additionally, contractors' projections of the economic impact - especially in terms of jobs for Saudi nationals - have proven extremely inflated, though this does not seem to have caused the government to reassess its approach to offsets.

Saudi Arabia previously focused its offset projects on civilian production, but (like the other GCC states) has recently revived its efforts to increase domestic production of defence material using technology and equipment transferred under its offset program. This policy change may increase the government's commitment to oversight of the program. However, the majority of previous offset-generated investment has gone to finance non-defence related commercial enterprises for the benefit of influential merchants and large conglomerates. Some arms brokers - including Wafic Said - admit to having made their fortunes under the auspices of the Saudi offset program.

Researcher + Peer Reviewer1332: The Saudi government is known to be involved in offset contracts and programmes, but does not make any details of them transparent. The government used to maintain an official website that contained details of previous offset programs, and the government’s offset bureaucracy has previously released reports detailing figures (such as the number of jobs created, the dollar value of offset-generated projects, etc.) on an ad-hoc basis. However, there is no annual reporting requirement, and the website is no longer active.

There is some information available through a website maintained by the British Offset Office, which profiles some projects in Saudi Arabia funded through the office's Project Financing Initiative, which is capitalized by BAE in fulfillment of its offset obligations. However, these profiles are only updated to 2012, after which the website only provides news items related to regional conferences on project finance and related topics. The most recent project profile is here: http://www.britishoffset.com/global-pipe-company/

As detailed in the previous question, it appears that the government does not collect information on the subsequent performance of offset projects after they are established (much less make such details public) - note too that the above site, rather than being a Saudi government website, is a promotional site maintained by the UK's MoD. The Saudi government website, where (presumably) they would include details such as the rules governing investment is still 'coming soon,' which I believe has been the case for several years now: http://www.offset.org.sa/

A Saudi academic was able to get details on projects directly from the Saudi Economic Offset Office, though this is only current through 2005.

Researcher + Peer Reviewer1332: There is no indication that offsets are subject to any regulation beyond very basic non-performance penalties (and there is no evidence of actual enforcement of this principle). However, offset contracts may be an increasingly decisive factor in the procurement decision-making process itself, as many contracts are based on political rationales to begin with, and access to sensitive technologies that come along with licensed or collaborative production of defence material is of increasing importance to Saudi Arabia. Witness the recent coproduction element included in the Eurofighter Typhoon deal with BAE, in which Saudi Arabia was willing to pay a much higher contract price in exchange for a commitment by BAE to establish domestic facilities for the production of spare parts and performance of basic maintenance and upgrades.

However, as Saudi Arabia’s offset requirements are understood to be extremely arbitrary (beyond the 30% contract value requirement) and there is little available information on offset performance, it is difficult for firms to compete on the basis of offsets. Pre-production offsets (where potential bidders perform offsets in the hopes of gaining preferential consideration of their bids) have become a common feature of defence sales to the Gulf, which indicates that offsets are indeed a critical part of the procurement decision-making process. The application of offset ‘multipliers’ by Saudi Arabia and other Gulf states (wherein firms are granted additional credit toward satisfying their offset obligations in exchange for agreeing to collaborate in sectors the procuring country deems preferable) also indicates the increasing importance of offsets in the overall procurement process. This increasing importance has not been met with more rigorous regulation.

Researcher + Peer Reviewer1332: Although the use of agents and intermediaries in defence procurement is explicitly illegal in Saudi law, all evidence points to the widespread use of intermediaries that are extremely well-compensated.

Saudi Arabian Royal Decree M/2 (1978) mandated the use of domestic Saudi agents by foreign firms while also expressly prohibiting the agents in defence-related sales. This law (commonly known as the Service Agents Law) was repealed in its entirety in 2001, which would seem to indicate that the prohibition against the use of agents in defence procurement was no longer in effect. However, Council of Ministers Resolution No. 1275 (1975) also explicitly bans the use of agents or commissions in agreements to provide defence-related goods or services to the Saudi government, and this law has not been repealed.

Resolution 1275 further states that any company that has concluded a defence contract with the Saudi government is prohibited from paying any commission to any intermediary, sales agent, representative, or broker, regardless of whether the contract has been concluded between the foreign entity and the Saudi Arabian government directly or via a third-party state. Such firms must file a form with the Ministry of Commerce attesting to the fact that their contract deals with armaments, that no intermediary is/was involved, and that the contract price does not include any commissions to be paid to any such intermediaries.

If they are proven to have paid any such commissions, existing law demands that they refund the amount paid to these brokers to the Saudi Government (since presumably the cost of these commissions was passed on to the Government). However, various court cases heard outside Saudi Arabia indicate that this is rarely (if ever) enforced in contracts for armaments or any other types of government procurement. The only compliance programmes likely to impact such companies are those imposed by their own home governments or foreign governments that have some jurisdiction over their business operations (such as the US FCPA or the recently passed UK bribery act).

Nearly all surveys of individuals doing business in the kingdom report widespread use of intermediaries and facilitation payments, and US Government publications advising commercial entities doing business in the kingdom indicate that the Saudi Ministry of Commerce employs a very narrow definition of what constitutes “armaments” - allowing for the participation of agents in a variety of defence and security-related contracts. Furthermore, only civil servants can be prosecuted for influence peddling - which may explain why the most widely publicised brokers in Saudi Arabia were private citizens (see examples above) not government functionaries. In place of procuring an agent, it is common for foreign defence firms to establish branch offices by obtaining a license from the Foreign Capital Investment Committee in the Ministry of Industry & Commerce. (This form of local operation is only available to defence firms).

The most well-known intermediaries are private citizens, though princes are probably the largest beneficiaries of arms deals in dollar terms. There is evidence that much of the Royal Family’s wealth comes from re-directing a small percentage of the state’s procurement contracts. For example, in the long-running BAE inquiry, it was revealed that the head of the Saudi air force, Prince Turki bin Nasser (along with his relatives and business associates) ran up over £60m in charges for shopping, plane tickets and vacations, paid by BAE. A Saudi intermediary related the process to a Guardian newspaper journalist in 2012: in which the broker claims that on his Saudi deals he gives more than half of the contract price back in bribes.

There is some evidence that King Salman may be cracking down on the use of foreign intermediaries, though this does not necessarily reflect a crackdown on Saudi intermediaries. An arms shipment to Lebanon from France (financed by Saudi Arabia) was delayed over concerns about a French company that Saudi officials characterized as an intermediary.

RESPONSE TO GOVERNMENT REVIEWER: Unfortunately this provision is outlining exemptions where the government may bypass standard competitive tendering requirements, rather than establishing controls over the use of agents or brokers. Score maintained.

Researcher + Peer Reviewer1332: No financing details dealing with defence procurement are released by the Saudi Government, either before or after the signing of contracts. Details on offset-related financing or co-production terms may be made available through government-sponsored promotional materials (such as those produced by the PR and communications firm Marcopolis; see source above). Such package details are often viewed as forms of foreign direct investment and publicized as examples of economic diversification and other positive developmental milestones. But this is not mandated by Saudi law or procurement regulation, and is completely arbitrary. Financing details (such as the oil barter terms that accompanied the Al Yamamah deal) are either only available from the selling country government or reported in arbitrary detail in fee-based industry intelligence publications. Much of the Saudi Government's procurement takes the form of very large contracts that morph into open-ended government-to-government purchasing agreements that continue for years as agreements over spare parts, maintenance, upgrades, and other details are added. This was the case with most of the kingdom's purchases from the U.S. and U.K. (such as the Peace Shield deals, Al Yamamah, and now Al Salaam).

Researcher + Peer Reviewer1332: Saudi government procurement law holds contractors accountable for the performance of their subcontractors, but there is no evidence that subcontractors must sign the same “no bribery” affidavit that is required of prime contractors. Anecdotal evidence from non-defence contracts suggests that it is common practice for large contractors to establish temporary subcontractors under the names of local agents or employees, and use these to bid for projects. These temporary contractors then assume liability for any violations of the contract terms, leaving the large contractor unscathed in the event of complications. There is certainly no evidence that such anti-corruption programmes actually operate in the defence sector.

Researcher + Peer Reviewer1332: It is conventional wisdom that defence acquisition decisions are based more on politics than objective defence requirements. One retired U.S. military officer states this explicitly, “[Saudi Arabia] maintain[s] an inventory of many types of Western equipment, really a mishmash of equipment, often purchased based more on political rationale, or for corrupt personal reasons”. There is an evident tendency to purchase large numbers of duplicative weapons systems, such as operationally similar fighter jets from the US and UK (the Typhoon and the F-15), and similar armored personnel vehicles from Canada, Serbia and Germany. The SIPRI trade register shows the US, France, UK and Germany to be the largest suppliers of arms to Saudi Arabia for the past 3 decades.

The assessor's analysis is that defence purchases are seen as a way of solidifying alliances with a range of foreign partners such as the US, UK and France, which have been the kingdom’s largest arms suppliers (and who also provide security guarantees and diplomatic support in return for continued Saudi defence spending), but also increasingly with smaller weapons-producing states such as Germany, Canada, and Spain. This spread of purchasing may also be driven by a desire to hedge against future shifts of global politics.

Marketing and consulting firms have also identified this as the impetus for procurement decisions. In a recent report aimed at aerospace and defence companies, IHS Global Insight (part of the Janes Defence Group of Companies) stated, “Gulf states have historically bought friendships and support through materiel acquisition….[w]arming ties with new suppliers (e.g. India, South Korea and Singapore) plus Eastern powers (Russia, China) point to broadening supplier relations as global power balance shifts.” And continues with, “Materiel procurement [in the Gulf states] is typically used as a means of cementing relations and achieving broader aims. Political alignment is therefore vital for successful business.”