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RetroSaudi: Corruption – and its little brother

November 20, 2017

An interesting article in Britain’s Financial Times prompts me to continue my RetroSaudi series with a discussion on corruption. The FT quotes estimates that “anywhere between 10 per cent and 25 per cent of the value of government contracts is routinely skimmed, with the proceeds used to fund lavish regal lifestyles, channel money to loyal tribes and grease the palms of favoured functionaries.” Over decades, that amounts to a helluva lot of money.

Even in Saudi Arabia, the subject has been liberated into the public domain. Tariq Al-Maena, a veteran Saudi journalist who has often written in guarded terms about the country’s ills, has thrown off his self-imposed shackles to speak freely about the recent round-up of princes and leading businessmen accused of corruption in this article from the UAE’s Gulf News.

Normally in RetroSaudi, I quote stuff I wrote thirty years ago about the Kingdom. But on this subject, for some reason, I wrote nothing.

But I can offer a press cutting from 1987 that gives food for thought.

Saudia is the national airline. The King’s “gift” of a fleet of Boeing 747 aircraft was widely believed at the time to be unnecessary. The airline already had a huge fleet, probably larger than it needed. Why then did the King, out of the goodness of his heart, bestow these jumbo jets worth hundreds of million dollars upon Saudia?

If Saudia actually needed the planes, why did it not purchase them through its own resources, or by means of a loan or a lease?

I have no inside knowledge of the transaction, so what follows is pure speculation.

One possible answer was that the King drew the funds out of the oil revenue “off the books”. Saudi Arabia has long had a system whereby a proportion of its revenue is formalised in an annual budget – for education, infrastructure, defence and so forth – and the rest finds its way to senior members for various purposes – charitable donations, travel, property and other personal projects. The details of these “off-budget” payments are never revealed.

By using funds from unbudgeted sources, the King would have been able to draw down more than was needed to buy the planes, and distribute the difference as he saw fit.

I have no evidence that this was the case with the Boeing purchase. I merely present it as a kind of transaction that would have been typical of the time.

The question is: would such a deal have been corrupt – as seen through the eyes of the movers and shakers at the time – if it had happened this way?

To understand the wealth accumulated by various senior members of Al-Saud, and the means by which they acquired it, one needs to understand the mindsets that did the acquiring.

King Abdulaziz, with the assistance of his eldest sons, acquired his kingdom by conquest. Conquest means ownership. Therefore, subject to the constraints of Islamic law, the land he conquered and its resources were his to dispose of. And that included the oil wealth that a team of American engineers discovered in the 1930s.

But conquerors cannot rule by force of arms alone. Gradually, from the 1940s, ministries sprung up to tend to the needs of the population. So did laws that addressed matters not dealt with in the scriptures. However, the attitude among the sons of Abdulaziz persisted that the hospitals, schools and roads that sprung up flowed from their benevolence. In other words, they were gifts to the people, not rights. Just as the jumbo jets were gifts to Saudia.

Gradually, as the Kingdom increased its involvement with the outside world, the princes started realising that certain proprieties needed to be observed. There should be procurement regulations, competitive bidding – no matter that the same few companies won contract after contract.

Until Saudi Arabia joined the World Trade organisation in 2005, foreign companies that wanted to do business in the Kingdom had to do so either through local agents or via joint ventures. The agents, some of whom were princes and others long-established merchant families, grew fabulously rich through the importing of concrete, foodstuffs, automobiles and washing machines.

In the case of government contracts, transactions were somewhat murkier. Allegedly, intermediaries would agree with the decision makers who got the kick-backs, how they were to be paid, how much they would be paid and how the deal was to be structured. Provided the proprieties were observed – that there would be competitive bidding duly evaluated by technical experts – the deals went ahead.

Again allegedly, smart foreign vendors who knew the game duly inflated their prices to take into account the kick-backs, and found ways to avoid exposure within their own countries. Some, knowing that there would almost certainly be a dispute over the final payments for their contracts that could be resolved by discreet greasing of the wheels, inflated their prices further. It helped if they knew in advance that their name was on the contract before the procurement process started, and that the other bidders were there to make up the numbers.

I say allegedly because there has never been a prosecution of a minister or a prince for corruption that might lay bare the process – though that might change very soon.

Meanwhile, the construction companies, most of whom were Saudi, with foreign subcontractors as required, were all too happy to sit at the top of a supply chain who would each distribute largesse to their respective owners and sponsors, while the company that actually did the bulk of the work might receive as little as ten percent of the contract price.

Thus did the big boys, such as Saudi Bin Ladin, who endeared themselves to senior members of the royal family by building their palaces and not insisting on being paid, prosper.

Beneath the commanding heights of the economy, the most valuable commodity that its citizens had to offer beyond their own knowledge and skills was the little brother of the endemic corruption practised by the powerful – or as the powerful saw it, the natural way of doing things.

The little brother was called wasta, which roughly translated means influence, or clout. A kinder way of defining it is to call it social capital.

A person who uses wasta to achieve certain ends is not necessarily corrupt. They might be doing a favour to a friend by having a word about a job in the right ears. They might use their influence to persuade an official who happens to be a cousin to grant someone a visa.

For many princes lower down the royal food chain, wasta is their only asset. Being a prince, and being able to ask a favour of a brother, a cousin or an uncle, is an asset that can be monetised, either now or later. Who, after being introduced to a decision-maker for a business deal, or escaping jail for a road traffic offence through the good offices of a man of influence, would not be prepared to show their gratitude by financial or other means?

Wasta determines social outcomes too. Who would not be delighted to marry their son or daughter into a family with wasta, especially if it exceeds their own? Conversely, few families are prepared to allow their children marry for love, especially if the object of their affection happens to be someone from a family without wasta.

It is a system that pervades society, even if it is not always used for financial gain.

Saudi Arabia has long had anti-corruption laws. But until recently there was a whole class of untouchables. It was only the little people who were busted, or rewarded for their honesty, as this press cutting from 1987 shows.

2009 marked a turning point. Jeddah, a city that I know well, was inundated with seasonal rains, and despite flood defences that had seemingly been enhanced to prevent disaster, many people were drowned and thousands of homes were flooded. The drainage works were subsequently discovered to have been shoddily completed, and in some cases not carried out at all despite large sums of money having passed to contractors.

The result was a storm of outrage across the social media, to which the government responded by arresting and jailing a number of the perpetrators. Because of anonymity regulations, the names of those convicted were never officially revealed.

This article in the UK’s Guardian newspaper, describes the anger felt by many residents. I visited the city on a number of occasions around the time of the flooding, and I also witnessed the anger of Jeddawis, even though they were reluctant to ascribe the disaster – as the writer did – directly to the royal family.

Eight years on, as senior movers and shakers sit confined in their luxury hotel-turned-prison, accused of embezzlement of the state over countless years, the tables have turned. The big fish are wriggling. It’s highly likely that some will find themselves compelled to part with large proportions of their wealth in return for freedom.

I suspect that many of them will feel aggrieved. They will say that they were only behaving according to the unwritten rules of the time, and to punish them retroactively for what the vast majority of their peers were doing is unjust.

They may have a point, but those who have never benefitted from corruption and whose wasta is weak, will no doubt welcome their downfall, temporary or otherwise. And if the funds liberated from the wealthy go towards new schools, houses and other social programmes, then popular support for Crown Prince Mohammed bin Salman will no doubt continue to soar.

They will also be unlikely to be swayed by sceptics who argue that the arrests are not about corruption, but a means to silence dissent.

Ultimately, I can’t see an end to corruption and the wasta culture as long as the ruling family continue to believe that the country ultimately belongs to them. And for that to change, they will have to start acting as accountable custodians rather than conquerors.

At a time when democracy in my country and in the United States is falling apart, I’m not about to lecture anyone on the need for transparent governance and the rights of citizens. Saudi Arabia will have to find its own way forward, and it’s unlikely that their model will closely resemble ours.

But if it wants to imbue in its people a sense of ownership, then, as Jeremy Corbyn constantly reminds us Brits, it will have to convince its citizens that the state is there for the many and not for the few. In a region of nation states beset with similar concerns, that could take a long time.

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