By Arab News
By Qaisar H. Metawea
When foreigners desire to do business in any country, they should take appropriate measures to be aware of its relevant laws and regulations, in order to conduct business properly and avoid doing any thing that violates the laws and regulations of such country. They should also obtain the required licenses and permits from the relevant authorities that are necessary to establish the business. Failure to abide by the laws of a country by foreigners or citizens can make them subject to punishments.
Saudi Arabia has enacted laws and regulations, in order to conduct business legally by Saudis and foreigners. However, it is very common in Saudi Arabia that businesses are owned and operated by foreigners but registered in the names of Saudi individuals or entities. Some Saudis allow foreigners to use their names or licenses or entities without any consideration but in most cases Saudis share profits with the foreigners who run, operate and effectively own the businesses. Surprisingly, many Saudis and foreigners are not aware that they are committing a crime under the Anti Covering-up Law and that they are subject to punishment. Even if some of them are aware of the illegality of covering up, they may not be aware of its serious punishment.
Thus, it is important to highlight that the Anti Covering-up Law clearly prohibits a non-Saudi from operating or investing in any activity which he has not been licensed by virtue of the Foreign Investment Law or other regulations. Also, any person, who enables a non-Saudi to invest in any activity which the non-Saudi would otherwise be prohibited to invest in or to operate, whether through the use of his name or license or commercial register or in any other way, shall be considered as covering up under the Anti-Covering-up Law.
The punishment for covering up under the Anti-Covering-up Law is a custodial sentence of no longer than two years and with fine of no more than one million Saudi riyals, or either one of these two sanctions. Further, any party involved in the cover-up may be banned from traveling until a final judgment is delivered in the case. In case a conviction judgment is issued, a non-Saudi party shall be deported from Saudi Arabia and shall not be allowed to return to work thereafter. In addition, the commercial register or the subregister or the license of the Saudi, which registers and permits the activity constituting the subject of the violation, shall be cancelled and the activities shall be liquidated as well as the Saudi party being prohibited from practicing the same activity for a period of no more than five years. The final verdict shall be published in one or more local newspapers at the joint expense of the violators. The zakah, taxes, fees and any other obligations, which have not been collected as a result of the cover-up, shall be collected jointly from the perpetrator of cover-up and the party which has been covered- up.
It should be noted that the parties involved in covering up could face charges of money laundering, depending on the circumstances of the case and the money involved, as covering up is deemed by the Anti-Money Laundering Law as one of the money- laundering crimes. The punishment for money- laundering is a custodial sentence of no longer than ten years and with fine of no more than five million Saudi riyals, or either one of these two sanctions, as well as the confiscation of the property, proceeds and instrumentalities connected with the crime. Also, in particular cases, the punishment could be a custodial sentence up to 15 years and with fine of no more than seven million Saudi riyals.
The illegality and punishment of covering up or money- laundering, depending on the case, stated above are not the only risks concerning the Saudi and non-Saudi parties. A foreigner could lose his entire business, which he has spent much effort and money to develop, as the Saudi party at any time could take over the whole business without any compensation as the business is conducted under his name or license or entity, and the foreign party may not be able to prove otherwise. Even if the non-Saudi party were able to prove otherwise, he would undoubtedly be hesitant to file a lawsuit against the Saudi to avoid getting into any legal issues. In this case, the non-Saudi party could lose his entire business and end up empty handed with no proper course of action at his remedy. On the other hand, the Saudi party could suffer losses made by the foreign party, in case he has borne liabilities and fled the country, leaving the Saudi to face sever ramifications as the business is under his name or license or entity.
To avoid the issues of covering up and its dire consequences, foreigners should conduct their businesses after obtaining the required licenses and permits from the relevant authorities, among which are the Saudi Arabian General Investment Authority (SAGIA) and the Ministry of Commerce and Industry, and establishing their entities properly in Saudi Arabia. Also, the Ministry of Commerce and Industry should be more active with respect to public awareness of the illegality of the covering up and its punishment as well as its negative impact on the economy and society.
Covering up businesses are unfortunately very common in Saudi Arabia and many Saudis and non-Saudis, who are involved in these businesses, are either aware or not aware that they are committing crimes and they could be punished for them. Thus, Saudis and non-Saudis should conduct their businesses in compliance with the relevant laws and regulation to avoid being subject to punishments.
— Dr. Qaisar Hamed Metawea Attorney at Law-Partner Mikwar, Akkad & Metawea Law Firm E-mail: [email protected]