I. Corporate liability deriving from criminal activity
1. Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company).
Unlike most other jurisdictions, the Kingdom of Saudi Arabia (the “Kingdom”) does not have a penal code and the principle that a corporate entity is criminally liable does not generally exist under Shariah (Islamic Law).
By way of background, the paramount body of law in the Kingdom is the Shariah. The Shariah is derived from the Holy Quran and the Sunna (words and deeds) of the Prophet Mohammed, as interpreted by influential scholars of Islamic jurisprudence. The Shariah consists of precepts that are often expressed as general principles. This leaves a Saudi Arabian court (or other adjudicatory authorities) with considerable discretion as to how to apply such precepts. Moreover, there are different schools of Islamic jurisprudence, and they construe certain precepts differently. The Hanbali School of Islamic jurisprudence is followed in Saudi Arabia, and within the Hanbali School, there are majority and minority views on various issues, either of which may be applied to any particular case. In addition, we are aware of certain instances in which precepts of other schools of Islamic jurisprudence have been applied by the courts where such application was deemed by such courts to be appropriate in the interests of justice and fairness with respect to the particular matter in question. In general, Saudi courts and other adjudicatory authorities do not report their decisions, and previous decisions of the courts and other adjudicatory authorities of Saudi Arabia are not considered to establish a binding precedent for the decision of later cases.
The secular authorities are permitted to supplement the Shariah, and the Saudi government does so through the issuance of statutes, regulations, decrees and circulars, as well as with the adoption of policy positions, all of which can be, and frequently are, changed from time to time to adapt to changed circumstances or to take into account other considerations. Royal decrees, ministerial decisions and resolutions, departmental circulars, and other pronouncements of official bodies of Saudi Arabia having the force of law are not generally or consistently indexed and collected in a central place, or made available as a matter of public record. Public officials are often in a position to exercise a good deal of discretion as to how statutory provisions are construed and applied.
However, there are a few specific laws and regulations under which it is possible for a corporate entity to incur criminal liability for certain acts that are committed by persons acting on its behalf.
2. Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
Here are examples of crimes under specific laws and regulations from which corporate liability may arise in the Kingdom:
- Bribery crimes: The Law for Combatting Bribery issued pursuant to Royal Decree No. M/36 dated 29/12/1412H (corresponding to 01/06/1992G) (the “Bribery Law”), lists a number of acts that, if committed by the corporate person, can lead to criminal liability. These acts include offering or providing a public official any promise or gift in order to:
- perform any of their duties
- fail to perform any of their duties
- violate their official obligations
- Anti-money laundering crimes: The Anti-money Laundering Law, issued pursuant to Royal Decree No. M/39 dated 25/06/1424H (corresponding to 23/08/2003G), imposes criminal liability on any person (natural or juristic) that contravenes the anti-money laundering requirements. The Saudi Arabian Monetary Authority (SAMA) has issued further rules relating to money laundering for banks and insurance companies while the Capital Market Authority (CMA) has issued rules for Authorized Persons (which are financial institutions licensed by the CMA to conduct securities business in the Kingdom).
- Antitrust crimes: The Competition Law, issued pursuant to Royal Decree No. M/25 dated 04/05/1425H (corresponding to 22/04/2004G) as amended on 11/04/1435 (corresponding to 11/02/2014G) (the “Competition Law”), prescribes numerous sanctions for acts committed by corporate entities that breach the Competition Law, including entering into restrictive agreements, abuse of dominant position and economic concentration.
- Trademark crimes: These are governed by the Trademark Law, issued pursuant to Royal Decree No. M/21 dated 28/05/1423H (corresponding to 08/08/2002G) (the “Trademark Law”). A person is deemed to be infringing a trademark if they:
- forge or fraudulently use or imitate a registered trademark to deceive the public
- place a mark owned by another person on goods with the intent to deceive
- knowingly sell or possess, with the intention of selling, products
- Environmental crimes: The Public Environmental Law, issued pursuant to Royal Decree No. M/34 dated 28/07/1422H (corresponding to 15/10/2001G) (the “Environmental Law”), criminally sanctions any person (which includes corporate persons) for violating the law. Crimes include not abiding by the relevant procedures and controls (as set by the Environmental Law) for the production, transportation, storage, recycling, treatment and final disposal of poisonous, hazardous or radioactive materials.
- Cover-up crimes: The Anti-Cover-up Law, issued pursuant to Royal Decree No. M/22 dated 04/05/1425H (22/06/2004G), prohibits any non-Saudi person from conducting a business in the Kingdom without a foreign investment license from the Saudi Arabian General Investment Authority (SAGIA). A person is considered to be engaged in a “cover-up” activity if they enable a non-Saudi to invest in or carry out any activity without the appropriate license, whether by the use of their name, license, commercial registration or any other means.
- Cyber crimes: The Anti-Cyber Crime Law, issued pursuant to Royal Decree No. M/17 dated 08/03/1428H (corresponding to 26/03/2007G), lists a number of acts that, if committed by the corporate person, can lead to criminal liability. These acts include:
- unauthorized spying, interception or reception of data through an information network or computer
- illegal accessing of bank or credit data
- production, preparation, transmission or storage of material impinging on public order, religious values, public morals and privacy through any information network or computer
- construction or publicizing of websites on information networks for terrorist organizations and/or facilitating communication between such organizations, etc.
- unlawfully obtaining of data jeopardizing the internal or external security of the Kingdom, etc.
- Commercial fraud crimes: The Anti-Commercial Fraud Law, issued pursuant to Royal Decree No. M/19 dated 23/04/1429H (corresponding to 29/04/2008G) (the “Commercial Fraud Law”), lists the following acts (among others) as violations:
- deception or attempted deception by a person as to a product’s nature, type, kind, its origin, its quantity, weight, capacity, etc.
- display or sale of a fraudulent product
- manufacturing, acquiring, displaying or selling products that do not conform to applicable standards specifications
- importing fraudulent products
- Securities and Stock Exchange-related crimes: Under the Capital Market Law, issued pursuant to Royal Decree No. M/30 dated 02/06/1424H (corresponding to 31/07/2003G), any person involved in market manipulation or insider trading, or purports to carry on securities business without the relevant license from the CMA will be criminally liable.
3. Identification of companies and entities to which liability may apply
There is nothing in the laws mentioned above that would seem to exclude governmental agencies and their officers and departments. In fact, the Bribery Law and the Anti-Forgery Law specifically refer to acts of public officials. Therefore, at least theoretically, all types of corporate persons may be criminally liable.
4. Corporate liability for crimes committed abroad by its representatives or subsidiaries
There are no specific provisions in the relevant laws that govern the criminal liability of corporate entities when its representatives or subsidiaries commit crimes abroad.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
- Mergers: The company resulting from the merger will be liable for all the liabilities of the merged companies (Article 192 of the Companies Law).
- Conversion: The company that is changing its corporate form will continue to bear all the liability incurred prior to the conversion (Article 188 of the Companies Law).
- Acquisition: An acquisition of a company does not affect the corporate liability of the company itself.
II. Applicable sanctions
1. Type of sanctions applicable to the company
Sanctions applicable to corporate entities include fines, confiscation, cancellation of trade licenses and closure of establishments.
Here are examples of some of the applicable sanctions under the various laws:
- Bribery Law: Article 19 of the Bribery Law provides that if a director or employee of a company or other business establishments is convicted of having violated the Bribery Law and it is determined that they did so in order to benefit the company, the company will be subject to a fine of up to 10 times the value of the bribe or a ban of at least 5 years on the company’s being granted supply or public works contracts with Ministries or public establishments, or both. In addition, each government agency that has an ongoing contract with the relevant company is required to submit to the Council of Ministers a report suggesting the course of conduct to adopt regarding the project being undertaken by the company for the relevant government agency, notwithstanding that the particular agency may have no connection to the sanctioned infraction. In addition, the Government Tenders and Procurement Law and most standard governments provide for the withdrawal of work from, and possible blacklisting of, contractors that are found to have resorted to bribery to obtain the contract.
- Competition Law: Sanctions include fines not exceeding 10% of the total turnover of the company or not exceeding SAR 10 million. Fines will be multiplied in cases of repeat offenders. In certain cases, the Council of Competition (CoC), the regulatory body in charge of monitoring and supervising competition in the Kingdom, may suspend the activity of the company for a period not exceeding 1 month or revoke its license permanently.
- Anti-Money Laundering Law: Violation of the law may result into pecuniary fines and confiscation of property and proceeds. Fines can range from SAR 100,000 up to SAR 7 million (depending upon the money laundering activity committed). Funds of a person suspected to be involved in money laundering may be frozen and their property can be seized or put under attachment.
- Trademark Law: Violation may lead to fines, confiscation and possible destruction of the infringing products and possible closure of the violating entity for a minimum of 15 days and a maximum of 6 months.
- Commercial Fraud Law: Sanctions may include fines ranging from SAR 50,000 to SAR 1 million (fines will be doubled in cases of repeat violations). In certain cases, courts may order the closure of the shop selling fraudulent products for a period of 1 year. Fraudulent products may be seized and destroyed.
- Public Environmental Law: Sanctions include shutting down a facility in violation and fines of up to SAR 500,000, for each violation (fines will be doubled in cases of repeat violations).
- Anti-Cover-up Law: Violation of the law may result into fines of up to SAR 1 million. In certain cases, the courts may order the cancellation of the violator’s commercial registration license and liquidation of the entity that is used in the cover-up.
- Anti-Cyber Crime Law: Sanctions include pecuniary fines ranging from SAR 500,000 to SAR 5 million (depending on the criminal act), as well as confiscation of any equipment or property used in committing the crimes and any proceeds resulting from the crimes.
- Capital Market Law: Violation of this law may lead to fines ranging from SAR 10,000 up to SAR 100,000 for each violation, as well as seizure and execution of property. Temporary suspension of securities of an issuer, temporary suspension of a broker’s license and revocation of a broker’s license are also possible.
2. Interim measures, cease and desist orders, bans and confiscatory measures
Please refer to Section II (1).
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
Saudi laws have no specific provision that addresses the liability of directors and managers for not having adopted measures in order to prevent a crime.
III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions
1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)
Saudi Arabia does not have a system of models of prevention that companies may adopt to avoid being penalized that other jurisdictions have. However, there are corporate governance rules applicable to listed companies. Abiding by the corporate governance rules may eventually assist a corporate entity with proving that all internal procedures have been correctly implemented and complied with, and with determining whether any breaches have been committed by individuals.
2. Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)
There is no modality in Saudi Arabia according to which a compliance model may be adopted.
3. Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; mode of operation of such person or body
There is no independent person or body that controls or supervises the correct application of the “model” per se. The board of directors of a listed company is responsible for monitoring the implementation of the corporate governance manual and the board must report on (in its annual report) the instances where the company did not comply with the corporate governance regulations issued by the CMA.
IV. Judicial proceedings to determine corporate liability
1. Court competent to decide the liability of and penalties applicable to the company
There is no special court for corporate entities. Depending on the specific law that is violated, either a specific committee or the Board of Grievances will be the competent court.
2. Possibility of the application of interim measures
Interim measures, such as injunctions and specific performances, are rarely applied in the Kingdom. However, certain laws, such as the Anti-Money Laundering Law, allow the Financial Investigation Unit (the entity responsible for investigating money laundering) to seek a temporary seizure order (to seize funds and properties) for up to 20 days on suspicion of money laundering by a person.
The Trademark Law allows a person to seek an interim measure from the courts for the preparation of a list giving details of equipment and articles that are or were used in committing the trademark violation, as well as the local and imported products or goods and papers on which the infringing mark was used. Seizure of products, equipment or articles is also possible upon an order from the competent courts.
3. Plea bargains and related effects on the corporate liability
Plea bargains (which may be commonly found in other jurisdictions) in Saudi Arabia are usually only allowed when they are expressly permitted under the relevant law. By way of example, Article 16 of the Bribery Law provides that a briber or “mediator” is exempt from penalty if they inform the authorities of the infraction before it is discovered.
4. Imposition of sanctions against the company
Please refer to Sections II (1) and VI (1).
5. Permanence of corporate liability if the crime is extinguished
There are no special or express provisions addressing the permanence of corporate liability if a crime has been extinguished.
V. Corporate liability in multinational groups
1. Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company
As mentioned above, there are no general rules and regulations regarding corporate liability that arises due to criminal activity. The Companies Law does not cover criminal the liability of a corporation. Specific laws, such as the Bribery Law (Article 19) address the issue of criminal liability of a corporation when a representative of the company commits an offense (please refer to our response under I 2). However, there is nothing that expressly covers the liability of a parent company abroad if offenses are committed by directors, managers or representatives of the local company.
2. Basis of liability and applicable sanctions
Please refer to our response to II (1).
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant case law, if any
There is no case reporting system in the Kingdom and in general, Saudi courts and other adjudicatory authorities do not generally report their decisions. We are aware of a recent lawsuit against an agent of the manufacturer for the soft drink Pepsi, who was held criminally liable for breaching the Competition Law. The investigations leading to the case were initiated by the CoC in response to the sudden increase in the price of Pepsi soda drinks by 50%. The CoC issued a decision holding the agent of Pepsi liable for violating several provisions of the Competition Law. The agent appealed to the Board of Grievances, but the CoC decision was upheld. The Board of Grievances agreed with the CoC that there had been a violation of several Competition Law provisions, particularly:
- Price fixing of soda drinks
- Compelling of clients to not deal with other competitors
- Setting special conditions on sale transactions
The Board of Grievances imposed SAR 15 million in fines on the agent and ordered the publication of the violation.
2. Proposed or contemplated new legislation
We are not aware of any proposed or contemplated new legislation that is under discussion with regard to corporate liability arising from crimes in Saudi Arabia.