Saudi Arabia Scores a Big Win on Dirty Money

(Bloomberg Opinion) -- The fight against money-laundering and terrorism financing should be one thing all the EU's 28 member states can agree on. Yet the only unity on show has been their total opposition to a dirty-money blacklist proposed by the European Commission, which sparked a diplomatic ruckus by including Saudi Arabia and some U.S. offshore territories. On Thursday, EU members rejected the list in its present shape. The climbdown — after pressure from Riyadh — leaves Europe looking weak and muddled.

The objection was that the process of drawing up the list wasn't transparent. But it's hard to really separate the technical issues from the political ones, not least because the process has been in full public view for the last two years. The blacklist may have had its flaws, and the EU clearly needs to get its own house in order after a string of banking scandals linked to the Baltic states, but this is a bad signal to send to the world.

While Brussels used its own methodology for the list, its inclusion of Saudi Arabia was hardly a shock. Global standard-setters at the Financial Action Task Force (an intergovernmental agency set up by the G-7) said in 2018 that Riyadh was not effectively investigating or prosecuting individuals involved in money-laundering and faced a high risk of terror financing. The Commission took on board many of the task force's points, including estimates that 70 to 80 percent of Saudi Arabia's domestic proceeds of crime flow out of the country. The FATF had rated the kingdom's efforts on money-laundering, asset confiscation and weapons proliferation as “low.” 

Yet appearing on the same list as Iran, North Korea, and Panama was enough to trigger a huge lobbying effort from the Gulf monarchy in recent weeks, according to Brussels officials. A letter written by King Salman bin Abdulaziz warned that inclusion would affect the kingdom's reputation and “create difficulties” in trade and investment flows between Saudi and Europe, according to Reuters.

His message was heard loud and clear in London and Paris, said to be the ringleaders of EU opposition to the list. Britain and France are the No. 2 and No. 3 arms suppliers to Saudi Arabia, according to the Stockholm International Peace Research Institute. The EU, meanwhile, is a big user of of Saudi oil and an eager recipient of investment from Riyadh's $230 billion sovereign fund.

These threats merited a stern response. The Saudis' reputation is hardly gleaming. Crown Prince Mohammed bin Salman has made a show of cracking down on corruption and money-laundering, but his methods — locking up hundreds of wealthy royals and tycoons and forcing them to hand over their assets — aren't really standard practice for dealing with dirty money.

Saudi officials promoted the crackdown as good for business, but the lack of due process was troubling. A former U.S. ambassador warned last year that international investors were “nervous” that their investments might be taken away or their business partners detained without reason.

It's worth asking — yet again — whether it's healthy to have a commercial relationship with a state that can be used so easily to water down measures designed to protect EU citizens. Europe's response to the brutal murder of columnist Jamal Khashoggi was depressing: Germany halted future arms sales to Saudi Arabia, only for France to criticize the move as irrational “demagoguery.” Britain, too, has prioritized its historic and lucrative trade ties with Riyadh, even as evidence grows that use of Western arms is causing many civilian deaths in the Saudi-led war in Yemen. Brexit will probably make the U.K. even more beholden to the House of Saud.

You could argue that the methodology behind the Commission's blacklist was imperfect; you could ask why some countries were included and not others. It's true too that the EU's own weaknesses in policing banks and other finance firms across the bloc need an urgent fix. But this 11th-hour failure to stand up to the Saudis shows that some things never change.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.

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