For each principle, we assessed Saudi Arabia's compliance from a legal perspective, an enforcement perspective, and an implementation perspective. The legal perspective examined the relevant Saudi laws and regulations, and evaluated their soundness and thoroughness. The enforcement perspective examined the governmental authorities charged with enforcing these laws and regulations, and evaluated their enforcement activity. The implementation perspective examined the persons and entities subject to the laws and regulations, and evaluated the impact on their conduct. Not all perspectives are relevant to each principle.

The documentary evidence we compiled included both primary sources, consisting of Saudi laws and regulations, and secondary sources, such as Congressional testimony, treatises by legal scholars, and news reports. In addition, we interviewed various persons with relevant banking, legal or other expertise.

As part of our effort to conduct a professional-caliber analysis of the laws, regulations, institutions and practices of Saudi Arabia, in early October we sent a detailed request for information and documents on these topics to the Saudi Arabian Foreign Policy Advisor, Mr. Adel Al-Jubeir. Unfortunately, we did not receive any documents or information in response to this request.

Wherever applicable, we based our analysis of Saudi Arabia's AML/CTF efforts on relevant international standards, in accordance with the FATF Recommendations. These standards included: 1988 United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances ("The Vienna Convention")

· 1999 International Convention for the Suppression of the Financing of Terrorism

• 2000 United Nations Convention Against Transnational Organized Crime ("The Palermo Convention")

• 2001 UN Security Council Resolution 1373

1999 Basel Committee on Banking Supervision Core Principles and Methodology (“The Basel Principles")

2002 FATF Best Practices Guidelines on Combating the Abuse of Non-Profit Organization (The "FATF NPO Guidelines")

Criminal Law

A vital component of a country's anti-money laundering and combating terrorist financing (AML/CTF) effort is its criminalization of the core conduct of money laundering and terrorist financing. Such criminalization brings to bear the investigative resources of the criminal law enforcement authorities, as well as the deterrence effect of criminal sanctions. In addition, the thoroughness with which a country criminalizes ML/FT activity sends an important public message about its determination to eradicate such activity, while stigmatizing and delegitimizing those who engage in it.

This chapter will examine the criminal law component of Saudi Arabia's AML/CTF effort along five vectors:

Scope of Money Laundering Offense: The adequacy of the legal scope of money laundering
as a criminal offense, including the definition of money laundering, the associated mental
state requirement, and the extension of money laundering criminal liability to legal persons.
Scope of Terrorist Financing Offense: The adequacy of the legal scope of terrorist financing
as a criminal offense, including the definition of terrorist financing, the associated mental
state requirement, and the extension of terrorist financing criminal liability to legal persons.
Sanctions: The adequacy of criminal sanctions against natural or legal persons that engage in
money laundering or terrorist financing, including both pre-trial attachment of suspect assets
and post-conviction imprisonment, confiscation and other criminal penalties.
Designation of Authorities: The adequacy of the formal designation and legal empowerment
of law enforcement authorities charged with enforcing the criminal law AML/CTF
provisions, including their authority to demand and obtain evidence and information.
Capacity of Authorities: The adequacy of the law enforcement authorities' capacity to carry
out their mandate, including their human and financial resources, their level of coordination,
and the systems of information tracking at their disposal.

Scope of Money Laundering Offense

Compliance with international AML/CFT standards entails a thorough legal definition of the scope of a country's money laundering offense. Money laundering comprises a variety of activities, relating both to the predicate offenses that generated the “dirty” funds and to the transfer, concealment, possession and use of such funds. If a country does not adequately define money laundering, loopholes may exist that could enable or permit illegal money laundering activities.

Special care needs to be devoted to the issue of the mental state to be associated with the crime of money laundering. The criminal act of money laundering can encompass a variety of actors, having different levels of culpability and playing different roles in the money laundering process. If a country does not adequately address the mental state requirement, persons or legal entities who contribute to a money laundering offense may improperly escape criminal liability for their actions. To this end, countries must also permit mental state to be inferred from objective factual circumstances.

Finally, the scope of a country's money laundering offense ought to address the issue of legal person liability. If legal persons, such as corporations or associations, are not covered by a country's definition of a money laundering offense, these entities may be able to conduct money laundering activities without facing law enforcement authority sanctions - and thus serve as a "safe conduit" of laundered funds.

Principle 1: Definitional Scope of Criminal Offense of Money Laundering

Standard:

In accordance with FATF Recommendation 12, we have used the 2000 United Nations Convention against Transnational Organized Crime (the "Palermo Convention") and the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the "Vienna Convention") for guidance in assessing Saudi Arabia's compliance with this principle22. Specifically, in assessing the definitional scope of the criminal offense of money laundering, we have looked to the language in Articles 2 and 6 of the Palermo Convention, and Articles 1 and 3 of the Vienna Convention.

Assessment:

From a legal perspective, we have found Saudi Arabia to be substantially in compliance with this principle.

From an enforcement perspective, we have not been able to verify Saudi Arabia's compliance with this principle.

From an implementation perspective, we have not been able to verify Saudi Arabia's compliance with this principle.

Law:

In August 2003, Saudi Arabia enacted the Anti-Money Laundering Law (the "KSAAMLL")23. The core definition of the criminal offense of money laundering is set forth in Article 2 of the KSA-AMLL, with certain aggravating circumstances singled out for more severe sanction in Article 17. Relevant terms are defined in Article 1.

We have found Saudi Arabia to be substantially in compliance with this principle from a legal perspective.

The definition of money laundering in Article 2 of the KSA-AMLL appears to be at least as broad as the corresponding language in the Palermo and Vienna Conventions. The aggravating circumstances in Article 17 of the KSA-AMLL closely track the language in Article 3(5) of the Vienna Convention.

The reason we do not consider Saudi Arabia fully compliant with this principle centers on the term definitions in Article 1 of the KSA-AMLL, which are not as rigorously drafted as the corresponding definitions in the Palermo and Vienna Conventions.

a. Proceeds.

The term "proceeds" as defined in KSA-AMLL Article 1(3) "shall mean any funds generated or earned directly or indirectly from money-laundering offences subject to sanctions hereunder" (emphasis added). In the Palermo Convention, Article 2(e) defines "proceeds of crime" as "any

21

The full text of the FATF 40 Recommendations on Money Laundering is appended to this report in Annex 1. 22 The full text of both Conventions is appended to this report in Annex 1.

23 The full text of the law is appended to this report in Annex 1.