Customer Due Diligence Guide: A Saudi Step Towards Enhancing Transparency
Enhancing financial transparency: A strategic step towards Vision 2030
In a significant step to enhance the integrity and transparency of the financial and commercial sector, the Saudi Ministry of Commerce has issued a guide on “Customer Due Diligence” and identifying the “Beneficial Owner.” This guide aims to provide a clear framework for businesses to understand and implement their regulatory obligations related to combating money laundering and terrorist financing, in line with best practices and international standards.
This measure comes within the framework of the Kingdom's ongoing efforts to develop its legislative and regulatory environment, an integral part of the Saudi Vision 2030 objectives, which seek to build a prosperous economy and attract reliable foreign investment. A robust financial system, resilient against financial crimes, is a cornerstone for achieving these goals, as it enhances the confidence of both local and international investors in the Saudi market.
International context and commitment to FATF standards
These guidelines are largely based on recommendations issued by the Financial Action Task Force (FATF), the international organization that sets global standards for combating money laundering and terrorist financing. FATF recommendations emphasize the need for financial institutions and designated non-financial businesses and professions to implement customer due diligence (CDD) measures, of which identifying and verifying the beneficial owner is a central component. The Kingdom’s adherence to these standards not only enhances its international standing as a responsible financial center but also facilitates its integration into the global financial system and maintains its correspondent banking relationships worldwide.
Who is the real beneficiary and why is it important?
The guide defined the “beneficial owner” as the natural person who owns or exercises ultimate effective control over the client (whether a company, corporation, or other legal entity), or the person on whose behalf the transaction is conducted. The guide explained that criminals often seek to conceal their identities and illicit funds behind complex ownership structures and shell companies, making the identification of the beneficial owner a crucial tool for uncovering these networks.
The guidelines emphasize the need to identify any natural person who owns a controlling interest of 25% or more of the shares or voting rights in the legal entity. If the beneficial owner cannot be identified through ownership percentage, the person exercising control should be sought through other means, such as the ability to appoint or dismiss senior management. As a last resort, the identity of the person holding the position of senior management officer should be determined.
Expected impact on the business sector
This guide is expected to have a wide-ranging positive impact. Domestically, it will contribute to raising awareness and compliance among companies, protecting them from unintentional involvement in illicit activities and reducing operational and legal risks. Regionally and internationally, this step enhances the Kingdom's reputation as a leader in combating financial crime and underscores its commitment to protecting its financial system from exploitation, thereby supporting regional economic stability and contributing to global efforts to combat the financing of terrorism and the proliferation of weapons.
The guide stressed that understanding the customer's ownership structure and verifying the identity of the true beneficiaries using reliable and independent documentation and data is the cornerstone of building a secure business relationship and effectively managing customer-related risks.
