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Saudi Arabia: Gilded Royal Circles and Oil Kingpins

Saudi Crown Prince Mohammed bin Salman attends the Future Investment Initiative conference in Riyadh, the capital, on Oct. 24, 2017. Source: Fayez Nureldine / AFP/Getty Images.

Saudi Corruption Crackdown Topples Oil Kingpins

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Saudi Crown Prince Mohammad bin Salman’s unexpected crackdown has shattered the tranquility of the kingdom.

After Saturday’s news emerged that a long list of high-profile Saudi royals, military leaders and multi-billionaires were arrested or confined to their quarters, all seemed to be only an implementation of the crown prince’s open threat that “no-one is above the law, whether it is a prince or a minister.”

The current list of arrests include names like Saudi billionaire Prince Al-Waleed bin Talal, one of the most media-loved Saudi businessmen, and Prince Miteb bin Abdullah, former head of the Saudi National Guard. At the end of the weekend, the impact was clear: The new Saudi power broker isn’t cutting anyone slack.

Just after that, in an effort to clean house in one fell swoop, Mohammad bin Salman (MBS) announced—by royal decree—a new anti-corruption committee.

At the moment, most eyes are on the anti-corruption narrative, which is being pushed by the Saudi government and media. The announcement of the arrests, made over Al Arabiya, the Saudi-owned satellite (whose broadcasts are controlled by the state), showed MBS’s willingness to address corruption. Clearly, corruption and a lack of transparency is still a significant issue in Saudi Arabia, and MBS is taking a risk in challenging it.

It seems the crown prince is far from finished, as news has emerged that one of the Arab world’s leading broadcasters, MBC, has been put under government control. Part of its management was removed and the owner detained. News is also emerging that even the former Saudi Minister of Oil Ali Al Naimi, Saudi Arabia’s media face for decades, has been forcibly confined to his quarters.

Other sources state that a travel ban has been imposed for Saudi officials, including some figures within Saudi Aramco. The latter have been informed that travel requests are currently on hold. More interesting is that the Saudi Monetary Agency (SAMA) has ordered a freezing of accounts of individuals linked to corruption. SAMA reiterated the respective accounts of companies have currently not been frozen.

Regarding the Saudi royals, most princes and princesses are currently prohibited to travel, except with the permission of King Salman. Foreign money transfer also has currently been limited to $50,000 per month, with a two-month limit.  Security sources indicate that Saudi princes in Tabuk, Eastern Province and Mecca have been put under house arrest. At the same time, Saudi special forces have moved to surround the residencies of Prince Mishal bin AbdulAziz, Prince AbdulAziz bin Fahd and Prince Khalid bin Sultan.

These developments are going further than the original anti-corruption crackdown. The already long-foreseen power struggle to take the Saudi throne seems to be entering its second phase. Crown Prince bin Salman seems—supported by signs of support coming from Washington, Moscow and even Arab neighbors—to take the chance to overwhelm his local opponents by shockwave tactics. Some indicate that they expect a possible change of guard at the top in the next couple of days.

Each day’s developments grow more significant. MBS was able to increase his own position dramatically this weekend, and continues to remove remaining opposition by the dozen.

Although short-term volatility could occur, overall stability and change inside of the kingdom is to be expected, as MBS and his supporters are holding not only the military and security forces in their hands, but have also gained the trust and support of the majority of the Saudis.

MBS has the same charisma as John F. Kennedy had when took the U.S. presidential office.  The crown prince has gained an almost movie-star popularity under the young Saudis, who form the majority of the population.

These current developments didn’t come out of nowhere. The basis for the anti-corruption crackdown was supported by the success of the Future Investment Initiative 2017. Dubbed “Davos in the Desert”, this high-profile gathering of the world’s leading financial power brokers happened in Riyadh last week.

At the event, MBS received the green light to pursue his Saudi Vision 2030 dream to wean the kingdom from its hydrocarbon addiction. In the same week, U.S. president Trump and his administration increased their support for the Saudi hardline position to Iran, IRGC and Hezbollah. Washington also increased its pressure on Qatar to soon move away from Tehran.

These regional and geopolitical developments have bolstered the views of the MBS to pursue his strategy of confronting Iran and its proxies. It’s no coincidence that the start of the crackdown popped up at the same time that Lebanese prime minister Hariri took refuge in the kingdom. Thus, the link with Hezbollah-Iran and Lebanon isn’t difficult.

Without trying to assess the present situation as dire and threatening, all signs show that the region, under influence of Saudi’s new de-facto ruler, is heading toward a full confrontation with Iran. The internal Game of Thrones of Saudi royals is now being slowly but obviously transformed to a full-scale showdown with Iran and its proxies.

Saudi Arabia—supported by the UAE, Bahrain and likely Egypt—was openly given the green light by Trump’s secretary of treasury and secretary of state. The silence on the Russian front indicates a possible change of heart in Putin’s coterie, as well. Saudi Arabia and others openly stated that Iran has committed several acts of war against the kingdom. The ballistic missile attack by Houthi rebels on the airport of Riyadh is directly linked to an act of war by Iran, perceived to be the provider of these systems.

The coming days are crucial for the region’s stability and future. The ongoing power struggle in the kingdom, which is currently openly on the streets, not only targets corruption, but is a move to consolidate power by Crown Prince bin Salman. His movement is clear, and should perhaps be supported in full, as it could lead the change that young Saudis want. The outcome will decide the further steps needed by all parties involved.

Considering the signs, the most positive outcome would be a consolidation of the position of MBS as the main power broker, leading to a full implementation of Saudi Vision 2030. In the short term, this won’t prohibit the Saudis and their allies to react and act with full military power against the Iranian power projections and its proxies in Yemen, Lebanon and Iraq.

Stability and security in Saudi Arabia is seen as a leading factor in MBS’s power strategies. Confrontations inside and outside the kingdom aren’t seen as a no-go area. After decades of listening to U.S., European or Russian advice, MBS is creating his own future. Short-term financial or economic instability and geopolitical risks have increased substantially in the last 24 hours.

In gilded Saudi royal circles, corruption has long been a way of life

This material belongs to: Los Angeles Times.

Behind the walls of one of his many opulent palaces, the king was troubled. He knew all too well that the self-dealing ways and gold-plated lifestyle of the House of Saud — whose princes and princelings numbered in the thousands — had spiraled out of control. Things had to change.

That was a decade ago.

Leaked American diplomatic cables from the time described the attempts of then-King Abdullah bin Abdulaziz to rein in the money-skimming excesses of his fabulously wealthy fellow royals. The Saudi Arabian monarch, already an octogenarian, reportedly told his brothers that he didn’t want to face Judgment Day with “the burden of corruption” on his shoulders, the diplomatic memos said. He died in 2015.

Now the kingdom’s brash young crown prince, 32-year-old Mohammed bin Salman, has proclaimed a new war on corruption. Acting at his behest, Saudi authorities have accused hundreds of people, including a dizzying roll call of prominent princes, of crimes that include graft, bribery and money laundering.

The arid peninsula’s business lore brims with tales of ambitious infrastructure projects that shimmered like mirages, their cost vastly inflated by blatant bribery demands from royal and VIP patrons, their completion delayed or doomed altogether by brazen high-level malfeasance.

A gleaming subway in the capital, Riyadh, a promised-but-unbuilt sewer system in the port city of Jidda, even the Grand Mosque complex in the holy city of Mecca — all have come under scrutiny over kickbacks and misappropriated funds. In past years, other Saudi deals such as lucrative arms contracts have ensnared foreign partners.

The Jidda case had particularly tragic consequences. A powerful Saudi businessman had accepted a multimillion-dollar payment to build a new sewage and drainage system, but merely pretended to have completed it — a ruse that was widely known among commoners as well as the ruling elite. Later, in 2009, flooding sent torrents of water coursing through the city, killing more than 100 people. The lack of a viable drainage system was a key underlying cause.

To the point of cliche, trappings of the luxe life have become the Saudi royal family’s calling cards the world over: yachts and private planes, an endless array of designer goods, venerable enterprises purchased like baubles, sumptuous apartments in London and Paris, the commandeering of entire wings of the planet’s most exclusive hotels.

“Clearly, they understand they’ve had a corruption problem for decades, and know they have to do something,” said Robert Jordan, a former U.S. ambassador to Saudi Arabia, citing the “shakedown culture” that surrounded the royal family and other elites.

Many veteran Saudi watchers, and more than a few wary investors, are questioning whether the prince’s ostensible cleanup drive is primarily a bid to consolidate power and sideline potential rivals — following a template used by authoritarian leaders such as Chinese President Xi Jinping or Russian President Vladimir Putin, both of whom have jailed potential adversaries on corruption charges.

“There are some concerns that what this is really going to do is centralize oversight of public spending, and the same practices will continue, but among a smaller group of people,” said Allison Wood, an analyst for Control Risks, a London-based global risk and strategic consulting firm.

The “real test” of a serious anti-corruption drive, she said, would be “not just to pursue these people for corruption, but to maintain and set a new standard for transparency.”

Even some of the prince’s many critics, though, acknowledge that he is correctly reading the zeitgeist in the kingdom’s less exalted quarters, especially among less privileged Saudi youth. Popular resentment over royal money grabs poses a potent threat as a new generation of leaders struggles to envision life beyond the petrodollars that fueled Saudi Arabia’s extraordinary transformation from barren desert to a realm of gilded shopping malls and superhighways.

People walk on Tahlia street in the Saudi capital, Riyadh, on Sept. 24, 2017, during celebrations for the anniversary of the founding of the kingdom. Source: Fayez Nureldine / AFP/Getty Images.

The problem, detractors say, is that the crown prince and his particular branch of the family tree are part of the kingdom’s patronage system, which makes his startling move against his royal brethren even more of a high-wire act.

Critics call it a campaign of selective prosecution waged by an indulged young royal — widely known by his initials, MBS — who reportedly made an on-the-spot purchase of a $500-million yacht while vacationing on the Riviera in 2015, and is tied to business entities that stand to benefit immensely from the removal of some of those arrested.

Prominent whistle-blower Ali Adubisi, a Saudi in self-exile who heads the Berlin-based European-Saudi Organization for Human Rights, called the crown prince’s campaign a “black comedy.”

“This move is more a matter of organizing corruption,” he said, “so that it is in the hands of MBS and his coterie.”

As Saudi investments tighten the once-insular kingdom’s ties to the outside world, head-spinning sums of money are in play. And those are likely to increase exponentially with next year’s expected public offering of shares in Saudi Aramco, the oil behemoth, and moves to privatize other state assets under an economic blueprint known as Vision 2030.

President Trump has openly wooed the Saudis, tweeting just before the wave of weekend arrests that he hoped the Aramco offering would be made on the New York Stock Exchange. And just as openly, the president has taken sides in the crown prince’s crackdown, declaring on Twitter that some of those targeted had been “‘milking’ their country for years.”

The State Department has been more circumspect, with spokeswoman Heather Nauert expressing support for the anti-corruption effort but calling on Saudi officials to carry it out in a “fair and transparent manner.”

True reform would have to go much further than these arrests, many analysts say. With few Western-style regulatory mechanisms in place, very little is made public about the scale and nature of holdings of the royal family and the myriad ways in which the royals’ wealth overlaps with the state budget.

It’s not even clear precisely how many royals there are. Joseph A. Kechichian, a scholar at the King Faisal Center for Research and Islamic Studies, estimates the descendants of founding monarch King Abdulaziz al Saud at about 20,000 men and women, with an influential core of about 200 members.

“No one knows what the collective wealth is,” Kechichian, who has authored a book about the clan, wrote in an email from Riyadh, “but probably in the hundreds of billions.”

Also known for its opacity is the state-run Public Investment Fund, whose holdings are thought to total about $200 billion and could balloon with the Aramco offering and other measures envisaged by the crown prince. In the last two years, the fund’s oversight was transferred from the Saudi finance committee to a council under Crown Prince Mohammed’s control.

In occasional bursts of candor over the years, some prominent Saudis have acknowledged the staggering scale of the royal family’s financial entanglements, but described them as underpinning the country’s emergence as not only a regional power, but also a player on the world stage.

In a memorable 2001 interview with PBS’ “Frontline,” Prince Bandar bin Sultan, who served for years as the Saudi envoy to Washington, said three decades of development had involved an expenditure of about $400 billion, perhaps an eighth of which had found its way into illicit channels.

“If you tell me … that we misused, or got corrupted, with $50 billion, I’ll tell you ‘yes,’” he said. “But I’ll take that anytime. There are so many countries in the Third World that have oil that are still 30 years behind.”

“We did not invent corruption,” the veteran ambassador added. “This has happened since Adam and Eve…. This is human nature.”