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Saudi Arabia: $3.5bn fraud case set to define crown prince’s anti-graft campaign



Once one of the most powerful security officials in Saudi Arabia, Saad al-Jabri was feted by western powers. He was integral to multibillion-dollar counter-terrorism efforts and advised senior members of the Saudi royal family before falling foul of Crown Prince Mohammed bin Salman’s rise to power and going into exile in 2017. He would later accuse the prince of sending a hit squad to Canada to kill him, an allegation with echoes of the 2018 murder of the journalist Jamal Khashoggi in Istanbul.

But in the latest twist of a bitter dispute that goes to the heart of Saudi power, al-Jabri is the one who now stands accused. In January, 10 companies owned by the Public Investment Fund, the sovereign wealth fund that Prince Mohammed chairs, filed a civil lawsuit in Canada accusing the former interior ministry official of masterminding a $3.5bn fraud using front companies that were established more than a decade ago as cover for Saudi Arabia’s covert counter-terrorism operations. The Ontario court issued a worldwide freeze on al-Jabri’s assets. In March, it rejected an attempt to have the order lifted.

Supporters of the crown prince insist the case is part of a broader anti-corruption campaign designed to break down systems of patronage. Others view it as a blatant effort to silence someone who knows many of the kingdom’s deepest secrets.

It is a struggle that goes to the heart of Prince Mohammed’s brash and autocratic rule. To his loyalists, the anti-corruption drive, backed by his father, King Salman, is necessary to cleanse a rotten system and fulfil the crown prince’s pledge to modernise an economy addicted to state petrodollars and riddled with patronage networks. To others, the dispute with al-Jabri epitomises the young royal’s ruthless pursuit of rivals and perceived opponents as hundreds of Saudis, including princes, businessmen and civil servants, have been detained.

Former Saudi intelligence official, Saad al-Jabri stands accused of a masterminding a fraud in the latest twist of a bitter dispute that goes to the heart of Saudi power © al-Jabri family/AFP

“There has been corruption and there is still corruption, and this is like a mafia eliminating competitors within the whole regime,” says Madawi al-Rasheed, a Saudi professor at the London School of Economics. “This used to happen with every king in Saudi Arabia in the past, but not in this kind of violent, obvious, blunt way.”

Whatever the merits of the al-Jabri cases, they provide a rare glimpse into workings of the Saudi patronage system that has for decades enriched royals, their lieutenants and connected businessmen. The conservative kingdom is being forced to air its dirty linen in public like never before, creating anxiety among western intelligence officials about the treatment of someone they considered a credible and respected ally. 

A senior Saudi official insists that the anti-corruption drive had to be given “teeth” because previous campaigns were not taken seriously. “We needed a very significant shock to the system to get it to shift, because people weren’t changing,” he adds. “And in some cases there were huge amounts of money being taken out of the system.”

An ‘existential threat’ to Riyadh

The al-Jabri case is one of the most high-profile in the kingdom’s crackdown. He was the right-hand man of Prince Mohammed bin Nayef, often referred to as MBN, the former interior minister and crown prince who has been detained in Saudi Arabia for the past year. 

Western intelligence officials credit the pair with transforming the kingdom’s security apparatus into a modern system that has been crucial in the fight against terrorism. 

A former senior western intelligence official says “intelligence agencies have a memory,” and operate in a world where “we look after people who work with us. Those friendships are very deep and involve a huge amount of trust.” 

Al-Jabri was the right-hand man of Prince Mohammed bin Nayef, often referred to as MBN, the former interior minister and crown prince who has been detained in Saudi Arabia for the past year (right, pictured with Mohammed bin Salman) © Fayez Nureldine/AFP via Getty Images

But, he adds, Saudi Arabia remains an important security partner. “A lot of the people we work with at the next level down are very good, and are still there . . . but Saad al-Jabri played a really important role and that won’t be forgotten,” says the former official. “The way compensation systems work in Saudi Arabia you could probably nail anyone.”

The al-Jabri family claim he became a target after MBS replaced Prince Mohammed bin Nayef as crown prince in June 2017. MBN supporters described the shake-up as a palace coup designed to neuter one of the heir apparent’s rivals for the top job.

In his US lawsuit against the crown prince, al-Jabri claims he is “uniquely positioned to existentially threaten” Prince Mohammed’s standing with the US government. It adds that he “was privy to sensitive information” about the crown prince’s “covert political scheming within the royal court” and “corrupt business dealings”.

When MBN was deposed in June 2017, al-Jabri moved to Canada but two of his children, Omar and Sarah, were forbidden from leaving the kingdom © al-Jabri family/AFP

The alleged assassination plot against al-Jabri is said to have occurred in October 2018 — the same month Khashoggi was murdered, an operation that was authorised by MBS, say US intelligence agencies. The alleged attempt on al-Jabri failed after Saudi agents “aroused the suspicion of Canadian border security officials,” according to his US lawsuit against MBS. 

When MBN was deposed in June 2017, al-Jabri was outside the country and decided it was best not to go home. Instead he moved to Canada, claiming that he made the move to protect himself and his family from the crown prince’s clutches. Two of his children, Sarah and Omar, who were in the kingdom, were barred from leaving, say the family.

Just five months later — on November 4, 2017 — the anti-corruption campaign was announced to the world in spectacular fashion. Hours after Prince Mohammed was appointed chair of a newly established Supreme Anti-Corruption Committee, the authorities closed Riyadh’s private airport to prevent the rich and powerful from escaping a crackdown that was to rock the kingdom. In a co-ordinated operation, more than 300 princes, including sons of the late King Abdullah, and businessmen were rounded up and taken to the Ritz-Carlton in the capital, Riyadh.

Simultaneously al-Jabri’s Saudi accounts were frozen, and an investigation into his activities was placed under the SACC. For three years, the family kept silent, but after Sarah and Omar were detained in March 2020, family members spoke out. In November the children, both in their early twenties, were convicted at a closed trial of “attempting to flee” Saudi Arabia “unlawfully” and money laundering offences, according to court documents filed in Ontario.

In 2017, more than 300 princes and businessmen were rounded up and taken to the Ritz-Carlton in the capital as part of Prince Mohammed’s anti-corruption campaign © Jacquelyn Martin/Reuters

In January 2021 the front companies — now owned by the PIF — filed their lawsuit alleging that al-Jabri used his position in the interior ministry to establish entities “to perform anti-terrorism activities” but that they were instead used in a fraudulent scheme to “steal” billions of dollars.

The plaintiffs claim he oversaw a scheme involving at least 21 co-conspirators across 13 jurisdictions to misappropriate at least $3.5bn, with the funds hidden across the world, including in the US, Canada and Europe. The other defendants include al-Jabri’s wife, sons, relatives, friends and companies affiliated to him. His lawyers have argued that if there was a fraud, “which al-Jabri denies and will refute, the victim of the fraud would be . . . Saudi Arabia, which is not a party” to the action.

A ‘valued partner’ to the US

The front companies were established after King Abdullah provided funding for the scheme to Prince Mohammed bin Nayef, then assistant for security affairs. Al-Jabri “directed” the creation of 17 companies, according to court documents. Neither MBN or al-Jabri held formal roles at the companies, which covered sectors ranging from technology to aviation, cyber security, real estate and security. But al-Jabri was to receive 5 per cent of the companies’ profits as compensation, according to court documents, which the plaintiffs say would be illegal under Saudi law.

In one deal cited in the court documents, Sakab, one of the plaintiffs, said it agreed to buy encrypted fax machines at artificially inflated prices, transferring $122m to al-Jabri’s brother, Abdulrahman, between 2008 and 2011 for products that “either did not exist or did not work”.

Although he is not a defendant in the US case the plaintiffs allege that MBN received at least $1.2bn from the fraudulent scheme. They also claim that al-Jabri, and Dreams International Advisory Services — an offshore entity he set up in 2007 — picked up direct payments of $480m from the front companies. In one transaction alone, Dreams International is said to have received $113.6m two months after al-Jabri was dismissed as state minister in September 2015. It is also alleged that al-Jabri appointed friends and relatives as nominee shareholders to the front companies.

al-Jabri’s dismissal in 2015 is blamed by some on an unauthorised meeting between al-Jabri and John Brennan, the then CIA director © Saul Loeb/AFP via Getty Images

Al-Jabri’s total compensation package from the state between 2008 and 2015 was $4.2m, according to court documents, but the plaintiffs allege he owns “luxury” properties in Canada, the US, the UK and elsewhere worth $83.2m.

The case could also prove embarrassing for HSBC, which appears to have been al-Jabri’s bank of choice for both his personal business — he opened multiple accounts — and entities he allegedly used to execute the fraud, according to court documents. HSBC said it would not comment on an ongoing legal case.

HSBC was also trustee of a $55m al-Jabri trust called Black Stallion which he set up in Jersey. According to the documents, it was involved in property transactions by the front companies, including the sale of a Geneva building — in which the bank is a tenant — in a $310m deal.

Al-Jabri gifted his assets to his son Mohammed in June 2017. Yet in a subsequent declaration to the court he listed assets of more than $63m held in bank accounts and trusts outside the kingdom, as well as a portfolio of real estate in Canada, Malta, Morocco, Saudi Arabia and Turkey, including a residence in Toronto purchased for $10.4m and a fleet of more than 20 vehicles including Porsches and Bentleys.

His defence team claims the plaintiff’s calculation understated his income during the period as it excluded “patronage” from senior members of the royal family, arguing that while Saudi civil servants have salary limits, “it is well known that, as a matter of custom, they receive lavish gifts as a sign of favour and reward for loyalty”.

After King Salman named al-Jabri a state minister in January 2015, the monarch gave the official a SR20m ($5.3m) cheque, Khalid al-Jabri, the former official’s son, told the court in Ontario. In 2015 alone, al-Jabri received gifts of about $14.7m, according to defence court documents.

His subsequent dismissal in 2015 is blamed by some on an unauthorised meeting between al-Jabri and John Brennan, the then CIA director, and or political manoeuvring by MBS to weaken MBN.

Al-Jabri’s reach was highlighted after the family went public about the detention of his son and daughter last year. Four US senators wrote to Donald Trump urging the then president to secure their release, saying the former Saudi official had “been a valued partner to the US government”.

‘We’re not swimming in cash’

The investigation into the front companies began after they were incorporated into Tahakom Investments Company, a newly established subsidiary of the PIF, following a royal order in December 2017. EY was hired to do due diligence on some of the entities. After the auditor reported irregularities, Deloitte was engaged to conduct a forensic review, which is at the core of the case against al-Jabri. Its investigation is continuing.

A motion filed in the US in December, to dismiss the al-Jabri case against the crown prince, alleged that of $19.7bn allocated by the Saudi authorities to combat terrorism after the September 11 2001 attacks in the US, $11bn had been “misspent or outright stolen by al-Jabri and his associates”.

It is not just the defence and security sectors — long viewed as the most vulnerable to large-scale corruption — that have been the subject of the crown prince’s campaign. Nazaha, a Saudi anti-corruption watchdog, has initiated criminal cases against dozens of employees of the central bank, health ministry, a meteorology agency, local government workers, a retired judge, National Guard members and policemen since the start of 2021.

The Saudi official says a new procurement law and processes are designed to improve transparency in the awarding of state contracts. “It [anti-corruption] is very important because we’re not swimming in cash the way we used to, so right now everything we spend is important,” he adds. “We have no choice but to do things differently.”

Some Saudis say the clampdown has had a dramatic impact in reducing corruption, especially in government procurement. “Things are generally getting done much faster at government offices as there are no delays for bribes,” says one Saudi industrialist.

Some Saudis say the clampdown has had a dramatic impact in reducing corruption, especially in government procurement © Fayez Nureldine/AFP via Getty Images

Other businesses, however, complain about officials being paralysed with fear that they will be accused of corruption. “I’ll probably end up in the Ritz” has become a common phrase among Saudi bureaucrats, says one of them.

Most of the Ritz detainees were released, but only after many bought their freedom by transferring assets and cash over to the state. Reports of maltreatment — denied by the government — accompanied the operation, which Riyadh said would net at least $100bn for the state coffers.

The anti-corruption drive, says one Saudi analyst, is popular among many Saudis, adding: “[But] it’s very unpopular among the business elite.”

“They are reluctant to invest in future Saudi projects, their culture has been that they have connections to royals or government departments, and this is how many get large projects,” the Saudi analyst says. “Now there’s a sort of monopoly that is concentrated, or associated, with MBS.”

Prof Rasheed, at the LSE, says a lack of transparency has undermined the anti-graft message.

“If there was an independent judiciary in Saudi Arabia, you could put those arrested or held hostage, on trial,” she says. “But we can’t consider what MBS is doing [as positive], when all the negotiations with the detainees are done in secret. Then we have a figure released that he has received $100bn from that. On what basis?”

David Rundell, a former US chief of mission in Riyadh and author of Vision or Mirage, Saudi Arabia at a Crossroads, disagrees that the campaign has been used as part of a “power grab,” arguing that corruption has been on King Salman’s radar for a “very long time”.

Yet he questions whether one group is simply being replaced by another. “It’s not clear whether [MBS] is cleaning up the sea or whether he’s just creating a new crew of pirates, it’s probably a bit of both,” he says. “We’d be naive if we didn’t think he was rewarding those closest to him.”

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Toyota faces Thai bribery probe over tax dispute




Toyota is under investigation in Thailand over allegations that consultants hired by the world’s largest carmaker tried to bribe local officials in a tax dispute, according to Thai authorities, court documents and a person with knowledge of the matter.

The probe followed a filing last month in which Toyota revealed that it had reported “possible anti-bribery violations” related to its Thai subsidiary to the US Department of Justice and Securities Exchange Commission.

Toyota is one of the biggest foreign investors in Thailand, where it makes a large range of cars, vans and pick-up trucks for the local market and for export. The country is Toyota’s biggest manufacturing hub in south-east Asia. Prior to the Covid-19 pandemic, car sales had been strong in a market, where it has a 31 per cent share.

This month, Thailand’s Court of Justice said in a statement that it would take action against any of its judges found to have taken bribes. The statement, which the court described as a move to “clarify facts” in a news report on a foreign website, directly referenced a tax dispute involving Toyota.

“If the Court of Justice has received information or explicitly found that any judge committed an act of corruption to their duty, whether it is about bribery or not, the Court of Justice will resolutely investigate and punish any action which dishonours judges, undermines the neutrality of the court, or causes society [to] lose faith in the Thai justice system,” it said.

According to the court, the case involved a tax dispute worth Bt10bn ($320m) between Toyota Motor Thailand and tax authorities over imports of parts for its Prius hybrid model. 

The affair dates back to 2015, when Toyota’s Thai subsidiary was accused by local customs authorities of understating taxes by claiming that the imported Prius vehicles were assembled from completely knocked down kits, or imported parts that were later assembled in Thailand.

CKDs would have been subject to a discounted tax rate under a Japanese-Thai free trade agreement, but if the cars were fully assembled before being imported they would have attracted a much higher rate. 

Toyota appealed against a decision by customs authorities to impose a higher duty in 2015, but lost. 

Thailand’s Court of Justice has said that it had accepted a petition to review the case, but had not yet begun hearing it.

In its regulatory filing last month, Toyota warned that the US investigations regarding its Thai subsidiary could result in civil or criminal penalties, but the company has not disclosed any detail on the allegations.

In a statement, Toyota said it was co-operating with the investigations and declined to comment on the tax dispute in Thailand. “We take any allegations of wrongdoing seriously and are committed to ensuring that our business practices comply with all applicable government regulations,” it said.

The SEC and the DOJ declined to comment.

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Boris Johnson cancels India trip after Covid cases surge in country




UK prime minister Boris Johnson’s trip to India this month has been cancelled as the country battles a new variant and a surge in coronavirus cases that is overwhelming hospitals.

A joint statement by the British and Indian governments said the decision to scrap the visit scheduled for next week was prompted by the “current coronavirus situation”.

The trip, during which Johnson had hoped to discuss the prospects of a closer trading partnership with India, was initially planned to run for four days but had been scaled back. The two leaders will speak remotely instead, with plans to meet in person later this year.

The cancellation came as India’s capital city region has been put under lockdown and authorities have prohibited the use of oxygen except for essential services, as the country battles a surge in coronavirus cases that is overwhelming hospitals.

India continues to set single-day records of coronavirus cases, reporting more than 273,000 new infections and 1,619 deaths on Monday, with the number of new cases growing by an average of 7 per cent a day, one of the fastest rates in any big country.

The surge is believed to be linked to a new B.1.617 variant that was first discovered in the country.

British health officials are investigating whether the variant should be reclassified from a “variant under investigation” to a “variant of concern” following the discovery of 77 cases in the UK.

“To escalate it up the ranking we need to know that it’s increased transmissibility, increased severity, or vaccine-evading, and we just don’t have that yet, but we’re looking at the data on a daily basis”, Dr Susan Hopkins, a senior medical adviser at Public Health England, said on Sunday.

Officials in Delhi announced it would impose a strict lockdown for a week, following Mumbai and other cities that have already placed curbs on movement.

States are running short of beds, drugs and oxygen, leading the central government to restrict use of the gas. “The supply of oxygen for industrial purposes by manufacturers and suppliers is prohibited forthwith from 22/04/2021 till further orders,” the central government said.

Arvind Kejriwal, chief minister of Delhi, said “oxygen has become an emergency” in the region because its quota had been diverted to other states. He warned there were “less than 100 ICU beds” available.

The new restrictions have been imposed even as Prime Minister Narendra Modi and his ruling Bharatiya Janata party have hosted huge political rallies and allowed religious festivals attended by tens of thousands of maskless people in recent weeks.

Amit Shah, India’s home minister, told the Indian Express newspaper that he was “concerned” about the variant and the “surge is mainly because of the new mutants of the virus”. But he was “confident we will win” over the disease and said there was not yet a need to impose a national lockdown.

Bed shortages in India have forced authorities to re-establish emergency coronavirus hospitals in banquet halls, train stations and hotels that had been shut down following the previous peak in September. Crematoriums in the state of Gujarat and Delhi are running 24 hours a day, while cemeteries are running out of burial spaces.

Coronavirus patients have also been struggling to access medicines. More than 800 injections of remdesivir, an antiviral drug commonly used in India as part of Covid-19 treatment, were stolen from a hospital in Bhopal, Madhya Pradesh, at the weekend.

India is also facing a vaccine supply crunch and has frozen international exports of jabs to meet domestic demand. New Delhi pledged on Friday to increase monthly production of Covaxin, a vaccine made by Indian manufacturer Bharat Biotech, to 100m from 10m by September. The government also said last week that it would fast-track the approval of foreign vaccines in an attempt to boost supply and cleared Russia’s Sputnik V for use in the country.

The majority of the more than 120m Indians that have been vaccinated have received the Oxford/AstraZeneca jab manufactured by Serum Institute of India, the world’s largest manufacturer. The Serum Institute has struggled to increase its monthly capacity of more than 60m doses a month due to a fire at its plant earlier in the year and equipment supply shortages from the US.

Additional reporting by John Burn-Murdoch in London

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The limits of China’s taming of tech




The record fine handed out this month to Alibaba, the Chinese ecommerce giant, was a welcome step toward combating anti-competitive behaviour. The $2.8bn penalty put Alibaba and other tech companies on notice that creating siloed fiefdoms designed to trap customers and merchants within their ecosystems will not be tolerated.

It was addressing a longstanding problem. Many of China’s ecommerce companies operate “walled gardens” that prevent interactions with rival platforms. For example, Alibaba’s Taobao ecommerce app keeps users from paying for goods using the payment app of rival Tencent. Tencent’s social media app, WeChat, prevents clips from being shared directly from ByteDance’s video-sharing app. 

Last week China’s internet and market regulators signalled the seriousness of their intent. They gave tech companies one month to fix anti-competitive practices, telling them to conduct “comprehensive self-inspections” and “completely rectify” problems, following which they would need to publicly promise to abide by the rules. The aim is create a commercially open and competitive internet.

It is tempting to argue that regulators in the west could take a leaf out of China’s book. But to hold China up as an example of competitive best practice would be to ignore the elephant in the room. Although Beijing is giving its monopolistically-minded internet companies — which are almost all private enterprises — a rap on the knuckles, it shows no sign of applying the same standards to vast swaths of the economy that have been dominated by state-owned giants for decades. 

The market dominance of these behemoths of state capitalism is an issue that affects not only domestic competitors but also foreign multinationals that operate in China. A trenchant joint paper last week from the European Council on Foreign Relations, a think-tank, and the Rhodium Group, a consultancy, took aim at the increasingly unfair advantages that this system gives China.

While it is true that China has opened up sectors such as financial services to foreign capital in recent years and allowed foreign brands to win market share in luxury goods and pharmaceuticals, broad sectors of the economy remain fully or partially closed or to overseas investors. 

Often the barriers erected to block or stymie competition are informal. Authorities can deliberately favour domestic companies in public procurement, are more ready to grant approval for licenses, subject foreign firms to arbitrary inspections or require them to re-engineer products to meet idiosyncratic domestic standards.

Such drawbacks are not new. But they are taking on an extra urgency as Chinese companies become leaders in an increasing number of industries and the country’s technological prowess draws level with the US and Europe in a list of industries. The key problem now, says the ECFR/Rhodium report, is that Chinese multinationals are using the advantage of a protected home market to build up resources that they then deploy in competition with western counterparts abroad.

This sets the scene for friction. China should extend its anti-monopolistic scrutiny from its own privately owned internet companies to several state-dominated sectors of its economy, taking care to open to foreign multinationals as much as domestic competitors. If it decides against doing this — as is likely — it will be furnishing Europeans and Americans with ammunition to argue against extending access to Chinese corporations in their own markets.

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