Due diligence guide: Saudi Arabia tightens controls to combat money laundering

A regulatory step to enhance financial transparency

In a significant regulatory step aimed at enhancing financial transparency and protecting the national economy, the Saudi Ministry of Commerce has issued a guide on “Customer Due Diligence” and identifying the “Beneficial Owner.” This guide serves as a practical tool to help businesses understand and implement regulatory obligations related to combating money laundering and terrorist financing, in line with international best practices.

International context and national efforts to combat financial crimes

These measures come within the context of growing global efforts to combat financial crime, spearheaded by international organizations such as the Financial Action Task Force (FATF). These organizations emphasize the importance of identifying the beneficial owners of companies and other legal entities, as international reports have shown that criminals often exploit complex corporate structures and shell companies to conceal their identities and legitimize illicit funds. The lack of knowledge regarding the true owner of a legal entity creates loopholes that can be exploited for money laundering, terrorist financing, tax evasion, and other illegal activities.

This step reflects the Kingdom of Saudi Arabia’s firm commitment to enhancing the integrity of its financial system, which aligns with the goals of Vision 2030 to build a prosperous and sustainable economy and a safe and attractive investment environment. By implementing rigorous transparency standards, the Kingdom strengthens the confidence of local and international investors and reinforces its role as a leading regional financial center committed to global standards.

The importance of identifying the true beneficiary and their impact

The guide clarifies that the “beneficial owner” is always the natural person (individual) who owns or exercises effective and ultimate control over the client (company or legal entity), whether directly or indirectly, or the person on whose behalf the transaction is conducted. Identifying the beneficial owner is a cornerstone of due diligence procedures, as it reveals who ultimately benefits from the assets or controls the decisions.

The guide requires businesses to take reasonable measures to verify the identity of these individuals using reliable and independent documentation and data. This includes examining complex ownership structures that may involve multiple layers of companies in different jurisdictions, which are often used to conceal the ultimate owner.

Mechanisms for determining the true beneficiary according to the guide

The guide provides a clear framework for identifying the true beneficiary, encompassing several levels:

• Ownership threshold: Identifying any natural person who owns or controls 25% or more of the shares or stocks of a legal entity.
• Control by other means: If no person meets the ownership threshold, the person exercising control must be identified through other means, such as the ability to appoint or dismiss board members.
• Senior management: If all possible means have been exhausted and the true beneficiary has not been identified, the identification of the person holding a position of responsibility in senior management is pursued.

The guide stressed that these measures are not limited to commercial companies only, but also include other legal arrangements such as trusts (endowments), associations and civil institutions, thus ensuring comprehensive coverage of various entities that may be misused.

Expected impact on the business sector

This guide is expected to have a significant positive impact on the Kingdom's business environment. Domestically, it will raise companies' awareness of the risks of financial crime and equip them with the necessary tools to protect themselves from involvement in suspicious transactions, thereby enhancing their reputation and credibility. Internationally, the implementation of these standards will strengthen the Kingdom's position as a reliable trading partner committed to international law, facilitating investment flows and deepening its integration with the global economy.