Kingdom of Saudi Arabia: New Anti-Commercial Concealment Law
In August 2020, a new Anti-Commercial Concealment Law was introduced by Saudi Arabia’s Council of Ministers, which will be effective on the last week of January 2021. The law is introduced for the purpose of eliminating the shadow economy or an under-ground economy and restricting the sources of concealment. The law includes heavy penalties of jail time and fines, also the protection of whistle-blowers in anti-commercial concealment cases. The new revisions seek to prohibit the use of locally distributed business licenses that are used as "veils" by unknown foreign parties that are silently involved (usually in SMEs)
Earlier, the government had set up a ministerial committee to prevent commercial fraud and the practice of veiling in SME’s. The new committee will continue to investigate foreign nationals who own companies registered under Saudi citizens' names. Along with that, the advanced stages of cooperation between company licensing and staff visa-issuing authorities will take place.
Commercial concealment is characterized as any unauthorized business activity that encourages non-Saudi persons or companies to participate in or participate in business practices that they are prohibited from doing.
The main purpose of the introduction of the provision is to prevent the negative consequences of commercial concealment. There are several negative effects, including the erosion of market interest because of a lack of equitable opportunity. Such inequality facilitates corruption, increases the cost of operating enterprises in the country, promotes money laundering operations and economic fraud. In addition, social issues such as robbery and drug trafficking are exacerbated by it. In this sense, one of the key reasons for the breach of residency and job regulations by expats finding employment illegally is commercial concealment. Additionally, the unlawful practice of foreigners who come to the country claiming to be tourists, with the true intent of finding jobs, is one of the most negative effects of commercial concealment.
The Saudi citizens were also contributing to the inflammation of the situation by hiring foreigners to work in their homes illegally which contributed to the increase in commercial concealment and the unemployment rate of the locals. Therefore, the government set up National Program to Combat Commercial Concealment. It was introduced for the purpose of stimulating e-commerce, promoting the use of technological solutions, controlling the exit of funds, promoting private sector expansion, creating employment and enabling Saudis to invest and find solutions to the issue of foreigners' irregular ownership in the private sector. This will potentially encourage the citizens to own and do business in diverse fields of commerce and finance, and will include services for funding and financing.
The National Transformation Program 2020 paved the way for the development of regulations and legislation, intensifying censorship and raising awareness of the cover-up of crimes in all industries. In KSA, the commercial banks proceeded to apply the “Know Your Customer” (KYC) rule to all the transactions to prevent proceeds created from unlawful undertakings, such as commercial concealment. Commercial concealment is a significant economic and financial illness that ruins every country's market climate. In order to guarantee the presence of a stable and equal market climate, the Saudi government is committed to combating it.
The Ministry of Commerce and Investment clarified that the current legislation contains five-year suspensions and up to SAR 5 million fines for violators of aggravated penalties. Under the previous statute, two years of detention and a fine of SAR 1 million per convict is stipulated as civil punishments against violators. Under the previous statute, two years of imprisonment and a fine of SAR 1 million per convict is stipulated as civil punishments against violators. This is to remove the sources of the phenomenon by addressing the root cause of the occurrence.
The current legislation requires the responsible government authorities, in conjunction with the Ministry of Commerce and together with the Ministry of Commerce, to regulate crimes and violations relating to commercial concealment, and obliges each authority granting licenses to carry out economic activity in order to carry out the required follow-up on such facilities and to inform the Ministry of any suspicion relevant to the commercial activity.
In addition to other means of testimony, the current legislation grants the appropriate parties the power to use the technologies to prove the offences and breaches of commercial concealment by "Electronic Evidence". The new legislation has incorporated the idea that the punishment may be diminished or removed for the infringer who arrives by himself to warn or report, in compliance with strict controls, of the crime of cover-up.
It should be noted that the current Anti-Commercial Concealment Law helps motivate small and medium-sized establishments and safeguard consumers from the negative effects of cover-ups. Notably, as stipulated in this law, the Ministry of Commerce is responsible for monitoring business facilities, receiving reports, and controlling crimes and violations.
It is expected that the strong provisions in the new Anti-Commercial Concealment Law will help motivate small and medium-sized enterprises to become more transparent, provide greater opportunities for entrepreneurial Saudis to participate in small and medium-sized enterprises and protect consumers against the negative effects of veiling and cover-ups.
Implementing Regulation of the Anti-Concealment Law
The Article 3 of the Anti-Concealment Law provides that the following are considered punishable crimes;
- a person who authorizes a non-Saudi person to carry out, on his own account, and economic operation in the Kingdom which he is not allowed to carry out and which involves authorizing the non-Saudi person to use: his identity, his permission or his permission, his business register and/or his trade name.
- A non-Saudi citizen performing an economic operation on his own account in the Kingdom, which he is not allowed to do, by an agency authorized to do so locally.
- Providing support, encouragement or guidance in a disguised or "veiled" way to further the conduct of business.
- Not cooperating, including not sharing documents or supplying false or deceptive information, with the police during the investigation.
The new legislation allows for harsh sentences, without prejudice to any other intensive punishment provided for under any other rule, for offending individuals:
- The liquidation of all undertakings, the suspension of any misused license of the type and the cancellation of the commercial registration thereof.
- Imprisonment for a maximum of (five) years and a fine not exceeding (five) million riyals or both, taking into account the size of the commercial operation in question, its profits, the length of the imprisonment and the main effects thereof.
- Joint responsibility for the payment of every Zakat, duty, government fees and other obligations owed.
- Publishing the identities of the persons involved in the crime in the newspapers of the Kingdom (at the expense of the offender).
- Confiscate the misused company’s funds and other assets.
The Competent Agencies for the prosecution of these Violations: -
- Ministry of Commerce & Industry
The Ministry of Trade and Industry can audit and prosecute infringements, obtain reports, and register infringements. The Minister of Commerce and Industry shall recommend the name of the recording officers. The requirements for the appointment of such officers and the processes they observe in discharging their duties shall be contained in the Implementing Regulations. The requirements for the appointment of such officers and the processes they observe in discharging their duties shall be contained in the Implementing Regulations.
- The Bureau of Investigation & Public Prosecution
The regulations have provided the Bureau of Investigation & Public Prosecution approved investigation duties involving breaches of these regulations.
- Board of Grievance
It involves the consideration and resolution of infringement of these rules.
- A violator of Article 1 of these Regulations shall be sentenced to imprisonment for a term not exceeding 2 years and a fine not exceeding 2 million Saudi Riyal, or either of both, without breach of any other intensive punishment provided for in any other legislation. The fine stated shall be multiplied according to that, in terms of multiple violators.
- At the expense of the violator, the sentence will be released in one or more local newspapers
- The business who undertakes such practices would be liquidated, the misused license would be revoked and finally, the commercial registration would be cancelled.
- The Saudi nationals who are convicted from conducting business for five yeards and in the case of a foreign party, he/she would be deported from the country with a lifetime ban from entering the KSA.
- The parties will be jointly liable for paying any Zakat, Tax, government fees and other obligations.
- The properties and money of the misused business will be seized
The authorities responsible for preventing the violations stated in the law are the Ministry of Human Resources and Social Development, the Ministry of Municipal and Rural Affairs, the Ministry of Environment, water and agriculture, the Ministry of Commerce, the General Authority for Zakat and income and other competent authorities.
According to Article 3 (1) of the Anti-Concealment Law, the Judicial officers shall investigate, which includes searches of the site where the economic activity is taking place, examine the records, access the surveillance cameras, go through the documents and data of the suspected companies, and shall ask for the parties to disclose the information related to the activity. The sites and properties can be confiscated if it's necessary to conduct a proper examination.
The Government of Saudi Arabia have taken extra measures to prevent the activities that lead to commercial concealment;
- According to Article 7, the Ministry of Commerce and Industry can take steps that motivate and encourage citizens and foreigners to reduce concealment acts.
- Article 8 states that the Ministry of Commerce and Industry, with the help of other relevant authorities to raise public awareness of the negative impact of the concealment and make the people understand the laws that they would be violating and the penalties they impose upon these violations.
- Article 9 stipulates that If any person presents admissible proof and a final judgment of guilt is reached, the Minister of Commerce and Industry may award a financial compensation of not more than thirty percent (30%) of the fine levied and received under this Statute, providing that said person is neither a concealing nor a concealed entity.
The Government of the Kingdom of Saudi Arabia adopted a new Anti-Concealment Act in August 2020, effective from the last week of January 2021. "The latest revisions seek to reduce the use of business licenses granted locally but which are used as "veils" for silently participating unidentified international parties (usually in SMEs) and are proof of the government's commitment to eradicate the so-called "cover-up market. The new laws introduce heavy punishments, including up to five years in jail and fines of up to five million riyals.