The Kingdom of Saudi Arabia (KSA)’s legal system recognizes the supremacy of divine sovereignty. The Saudi courts rely on the principles of Shari’ah jurisprudence and apply statutory laws to cases before it, unless they conflict with the Islamic Shari’ah.
The Basic System is the name of the most important constitutional document of the three fundamental laws inaugurated in 1992. It specifically states that the Qur’an and the Sunnah (the sayings and habits) of the Prophet Muhammad are the KSA’s constitution. Article 7 of the Basic System reaffirms Islamic Shari’ah (Islamic Religious Law) as the foundation of the KSA, stating that the government draws its authority from the Qur’an and the Sunnah, and that these two sources govern all administrative regulations of the state. It emphasizes that the state’s role and objective is to protect the principles of Islam and to enforce its Shari’ah. The document is guided by Islamic law when defining the nature, the objectives, and the responsibilities of the State, as well as in defining the relationship between the ruler and the ruled based on brotherhood, consultation, friendship and cooperation.
The KSA has made an independent judiciary the basic safeguard for the protection of its citizens’ rights and freedoms. The Law of the Judiciary enforces the full protection of judges against any interference from the executive authority. Appointments are mainly based on the fulfillment of statutory conditions and a decision on the part of the Supreme Judicial Council stating that these conditions have been fulfilled. Only those who satisfy all necessary requirements and meet all designated qualifications can become members of the Judiciary. These qualifications and conditions are based on a judge’s scientific knowledge, previous experience, and the experience gained while in office. Sitting judges have their professional performance inspected and evaluated to ensure the validity of their qualifications, fitness for continued judicial service, and willingness to commit the time and energy needed to honor their offices.
The Saudi Legislature has taken a major step forward in modernizing the Saudi Judicial System. For the first time in the history of the KSA, a High Court will be established in Saudi Arabia’s capital (Riyadh), as the highest judicial authority in the land, and will take on the responsibilities that have been previously given to the Supreme Judicial Council. It will exercise its authority through criminal and other specialized circuits.
The Supreme Judicial Council will oversee the administrative aspects of the judiciary, including the choice of judges, the oversight of judges’ personnel affairs, the establishment of specialized courts, etc. The new law will abolish the existing Courts of Appeals and will establish new Courts of Appeals in all thirteen provinces, thereby enhancing the speed with which disputes are resolved and the efficiency of each Court of Appeals’ decision by dividing their caseload among specialized Labor, Commercial, Criminal, Personal Status, and Civil Circuits. In addition, according to the new law, Specialized Courts in Labor, Commercial, General, Personal Status, and Criminal cases will have complete jurisdiction over their areas of specialization.
The intention of the new law is to shape the Saudi Judicial system so as to better meet a higher standard in light of the ongoing reforms begun by the passage of the Law of Criminal Procedures and Procedures before Shari’ah Courts Law adopted in 2001 to 2002, respectively. The changes were reviewed as a major response to the social and economic needs of Saudi society, and a major step toward meeting the requirements of a modern and thriving economy. They also represent a major step in improving the business environment. The law will affirm the Saudi justice system’s independence and impartiality, and will ensure the highest possible fair trial standards. The new reforms represent King Abdullah’s promise of bringing about social, economic and political advances in Saudi Arabia. These will likely have a major impact on other Arab and Islamic countries that look to the Kingdom for inspiration and guidance.
The preceding information is taken from the Online guide to the Saudi Arabian legal system written by Dr. Abdullah Ansary (http://www.nyulawglobal.org/globalex/Saudi_Arabia.htm) who is a Senior Fellow at the Homeland Security Policy Institute (HSPI) of George Washington University and a Senior Research Fellow at the Arabian Peninsula & Gulf Studies Program (APAG) of the University of Virginia.
The guide was published in 2008 on the Globalex website and made freely available by the Hauser Global Law School at the New York University School of Law. The guide provides background and historical information on Saudi Arabia and the development of the legal system.
The author explains the meaning and importance of the Basic System of Governance, a fundamental law introduced in 1992, and gives guidance to the executive, legislative and judicial branches of the Kingdom’s governmental system. There is detailed information on the Saudi Arabian courts system, (including diagrams illustrating the structure of the courts), the Board of Grievances and reform of the judicial system. There are also sections dealing with judicial training, qualifications and independence. The guide outlines the three main sources of law – Islamic Law, Statutory Law, and Royal Orders and provides links to Saudi laws, journals and news sites, governmental, legal, educational and organisations’ websites.
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Affidavits
The following section contains three summaries of affidavits which encapsulate the allegations and rebuttals made in this case. Though there have likely been many more affidavits, these three are available publicly (unlike in the proceedings under way in the Cayman Islands). If you are interested, affidavits in the New York proceedings can be viewed by searching the New York Supreme Court's online records file: http://iapps.courts.state.ny.us/iscroll/index.jspAs more affidavits become publicly available, they will be added to this page:
- Summary of the English translation of the affidavit in Arabic of Maan Abdul Wahed Al –Sanea, submitted 28 October 2009 to the New York Supreme Court via the U.S. Embassy, London
- Key points summary of affidavit by Ahmed Hamad Al Gosaibi & Brothers Company (AHAB) as its answer to the Complaint of Mashreqbank and its Counterclaim, submitted to the New York Supreme Court on 26 August 2009
- Summary of the English translation of the affidavit in Arabic of Maan Abdul Wahed Al –Sanea, submitted 28 October 2009 to the New York Supreme Court via the U.S. Embassy, London
Although I speak conversational English, I would not feel comfortable using it in official legal documents. Accordingly, I submit this affidavit in Arabic.
My wife is a partner in AHAB, a general partnership organized under the laws of KSA, inherited when her father died in 2003. Her brother Saad Abdulaziz Algosaibi is also a partner. My wife executed power of attorney authorising her brother to act on her behalf. To my knowledge my wife has had no involvement in the management or business affairs of AHAB.
I have never lived in New York, do not own a residence, never registered a business or have any offices in New York. I have never filed a tax return in New York State. The only bank account I have ever personally maintained in New York is a joint checking and account and credit card my wife and I maintained at Citibank. The majority of funds was withdrawn nearly a year ago and the credit card account closed.
Awal Bank is a regional bank serving the Gulf Cooperation Council region and is headquartered and licensed in the Kingdom of Bahrain. I own 47% of Awal Bank, the remainder by two Saad group entities. Awal is not registered to do business, has any offices, or ever filed a tax return in New York.
AHAB’s principal place of business is Al Khobar, Saudi Arabia. It is my understanding that all of AHAB’s partners are Saudi citizens all of whom (except for one in Dubai, UAE) reside in KSA. My work for AHAB was conducted in Al Khobar, where I reside.
Although AHAB is based in Al Khobar, where I, my extended family, and all but one of AHAB partners live, and matters would, as I understand it, be governed by Saudi law, AHAB has not brought any civil action against me in the courts of KSA. Indeed AHAB alleges the acts, witnesses and documentary evidence are all in KSA.
AHAB has failed to inform this court it made a similar complaint against me to the KSA authorities in May this year, alleging I had defrauded AHAB. As a result a government committee was ordered by the highest authorities to investigate the allegations. It is my understanding the committee has the power to grant full relief to AHAB or me when, as I expect, the committee determines I have been falsely accused by AHAB.
AHAB further failed to inform this court that members of the Algosaibi family have requested criminal charges be filed against me in Switzerland which are currently being investigated by the Canton of Geneva. No charges have been filed.
AHAB further failed to inform this court that members of the Algosaibi family have filed a criminal complaint against me and others with the Attorney General of Bahrain. No charges have been filed.
AHAB has also commenced civil proceedings against me in the Cayman Islands and the UK.
In short, AHAB has commenced, sought to commence, and shortly will commence proceedings against me in seven countries in addition to this court, making materially identical allegations against me.
Litigation in New York would be a substantial hardship in me. Many if not all of the witnesses speak Arabic as a first language; many relevant document are in Arabic; and all of AHAB’s partners, except the one in Dubai, live in KSA. None of us can travel to New York, except the one in Dubai, because the KSA government has restricted our foreign travel while the committee in KSA considers the matter. Even if travel restrictions were lifted, there is no guarantee that any of us could obtain visas.
The cost and burden of conducting these proceedings in Arabic, in Al Khobar, where we live as neighbours is negligible compared to what they would be New York.
Because I believe the court lacks jurisdiction over me, I do not propose to address the merits of the AHAB claims against me in this affidavit. I vigorously dispute those claims and will disprove them at an appropriate time and in an appropriate form.
2. Key points summary of affidavit by Ahmed Hamad Al Gosaibi & Brothers Company (AHAB) as its answer to the Complaint of Mashreqbank and its Counterclaim, submitted to the New York Supreme Court on 26 August 2009
Answer
AHAB admits it is non-domiciliary general partnership organized and under the existing laws of the Kingdom of Saudi Arabia (KSA).
Upon investigation AHAB learned that its former employee, Maan Al Sanea, organized a fraud in which he, among other things, entered into certain transactions, such as the one alleged in the Complaint, in order to engineer the receipt of funds into accounts in the name of AHAB, which he then diverted to his own use. The transactions arranged by Al Sanea were entirely for his own benefit and were contrary to the interests of AHAB. Al Sanea actively concealed this fraud from AHAB’s principals and Board of Directors.
AHAB avers that subsequent investigation indicates that the sum of $150,000,000 was received into a bank account in the name of AHAB at a Bank of America on or about April 28, 2009.
AHAB asserts that sums in that account were transferred out of that account on or about May 3, 2009, without authority or consent, by Maan Al Sanea and those operating under his control, to an account at Awal Bank. Awal Bank is owned and controlled by Maan Al Sanea. AHAB further asserts that requests for such funds have not been honored.
Counterclaim
Beginning in the early 1990s, Maan Al Sanea, the self-styled “Managing Director” of AHAB’s financial service division, the Money Exchange, engaged in a massive scheme to loot AHAB in general, and the Money Exchange in particular, of funds.
Maan Al Sanea used his position as an executive to control operations of the Money Exchange and to control all information and communications coming in or out of the Money Exchange. This control permitted Maan Al Sanea to perpetrate his fraud and to siphon billions of dollars out of the Money Exchange and into his own accounts and the accounts of companies (unrelated to AHAB and the Money Exchange) which he controlled.
Because the Money Exchange’s ostensible primary business – providing remittance services to workers in Saudi Arabia – was a low margin/low profit business, Al Sanea needed to generate an inflow of cash to the Money Exchange through other means. If the Money Exchange had no money, Al Sanea had no money to steal. Equally, a high level of liquidity was necessary so that the Money Exchange had funds to make its regular payments when due, so that the looting of funds from the Money Exchange could be concealed from AHAB’s Board of Directors and principals.
In order to maintain regular inflows of cash, Al Sanea caused the Money Exchange to engage in transactions that appeared to be arm’s length with third party banks, but were, in reality collusive agreements to provide liquidity to the Money Exchange through fraudulent, unauthorised and concealed transactions.
One of Al Sanea’s regular counterparties for such transactions was Mashreq. As a result of Mashreq’s participation in fraudulent exchange transactions, such as the one at issue in this proceeding, Al Sanea was able to continue looting AHAB and to conceal the massive scope of his thievery from AHAB and its Board.
Al Sanea’s Scheme to Loot AHAB
Over many years, through massive forgery of documents and the provision of phony confirmations and guarantees, acting in concert with entities he controlled, including his wholly owned bank, Third Party Defendant Awal Bank Ltd, as well as third party entities, Al Sanea fraudulently obtained money as a result of unauthorised, non-commercial transactions with a variety of financial institutions in the United States, the Middle East, and elsewhere, including Mashreq.
Among the fraudulent acts by which Al Sanea misappropriated funds from the Money Exchange and AHAB and fraudulently concealed his looting of the company were the following:
- Debiting funds from AHAB accounts and transferring them to accounts controlled by Al Sanea and for paying unrelated expenses of Al Sanea or companies controlled by him;
- Directing employees to falsify AHAB’s books by recording sham transactions, provide false confirmation of balances to auditors, and to enter into financial transactions without recording such transactions on the books of AHAB. Defendant Al Sanea then siphoned the funds from AHAB for his own use and benefit.
Al Sanea also concealed his fraudulent misappropriations by maintaining a secret set of books and records for Money Exchange – which was referred to “Ledger 3” – which was not shown to AHAB’s Board of Directors or principals.
Al Sanea also engaged in a regular practice of forging signatures necessary for AHAB to enter transactions. In particular, Al Sanea regularly forged or directed his employees to forge the signature of Suleiman Hamad Algosaibi, who was at relevant times and until his death in February 2009, the Chairman of AHAB’s Board of Directors, on hundreds of official documents including the Facilities Letter Agreement dated July 16, 2008 purportedly entered by Mashreq and AHAB.
With forged documents, Al Sanea caused AHAB to engage in spurious and fraudulent financial transactions by which AHAB was caused to receive funds from third party financial institutions. The funds were then diverted by Al Sanea to conceal his own accounts or for his own purposes or, alternatively, were used by Al Sanea to conceal Al Sanea’s previous thefts and AHAB’s resulting difficulties.
Among the financial transactions entered into for this purpose were a long series of purported foreign exchange transaction with Mashreq bank which reaped substantial and extraordinary profits, far beyond ordinarily available.
Foreign exchange transactions involve two parties exchanging currencies either simultaneously or with a very short interval between transfers. Where the money is to be paid at substantially different times is known as a split value exchange transaction, not uncommon involving the US dollar and ME currencies for a day or two because of the different weekends. It is highly unusual for transaction to be split for a week – as alleged here- due to the potential credit risk on the transaction.
The Saudi Riyal is pegged to the US dollar thus neither party to the transaction at issue was at any actual market risk for exchange rate fluctuation during the period.
Between February 2005 and May 5, 2009, Mashreq and AHAB, acting through the Money Exchange at al Sanea’s direction, engaged in over 100 purported split value transactions. Between January 2008 and May 1, 2009 alone, 52 split value foreign exchange value transactions were carried out between Mashreq and the Money Exchange, totalling $4.7 billion.
Virtually all of these transactions followed the same pattern:
Mashreq advanced $60 million to $150 million to AHAB by making a transfer to the Money Exchange’s correspondent bank account at Bank of America in New York. The Money Exchange at Al Sanea’s direction agreed to make a deferred payment, 3 to 12 days later, of Saudi Riyals to Mashreq’s account at National Commercial Bank in Jeddah, Saudi Arabia. The agreed exchange rate was not the pegged rate but a rate selected to provide Mashreq with a substantial profit.
At or near the payment date, the Money Exchange and Mashreq undertook another transaction of similar or identical value in which Mashreq made another payment to the Money Exchange. On occasion this new payment would actually fund the Money Exchange’s repayment of its liability to Mashreq, less the Mashreq profit, thus rolling over the liability for an additional period of time. Indeed the transaction alleged in the complaint was a roll-over of a previous transaction commenced on April 21, 2009.
These transactions increased in frequency and amount during the four year period. From January through October 2008 they occurred every week in $100 million amounts. In January 2009 they resumed on a weekly basis at $100 million per week and increased in March 2009 to $150 million per week. For four years, literally billions of dollars sluiced back and forth between Mashreq and AHAB and resulted in extortionate profits for Mashreq. These transactions could not have served any legitimate commercial purpose.
The transactions were not actual foreign exchange transactions because there was no foreign exchange risk between the two currencies. No major commercial borrower would ever borrow hundreds of millions on a seven day rollover basis at rates that were 10 to 12 per cent above the ordinary rates. The extraordinary profits from these transactions flowed in only one direction – towards Mashreq. As a result of these transactions, Mashreq was paid an amount estimated to be in excess of $20 million in improper and excessive fees.
On July 16, 2008, a Facilities Letter was purportedly executed between Mashreq and AHAB. The authorised signatories for AHAB were forged by Al Sanea and were falsely confirmed by a Saudi bank, whose participation in this process is under investigation by AHAB. The letter provided for a maximum trading limit of $80 million of which $30 million was for forward (i.e., future) transactions. Thus the split transactions from January 2008 onwards were not authorised even by documentation that Al Sanea concocted and gave to Mashreq. In addition, that document provided for an interest rate on lending of 1.05% above the London Interbank Offer Rate, not the confiscatory rates of these secret side deals.
Count I: Aiding and Abetting Fraud
WHEREFORE judgement should be entered in favour of Counterclaim Plaintiff AHAB and against Counterclaim Defendant Mashreq in an amount to be determined at trial but which is estimated to be in excess of $500 million.
Count II: Aiding and Abetting Breach of Fiduciary Duty
Ditto – $500 million.
Count III: Aiding and Abetting Conversion
Ditto – $1 billion.
Count IV: Unjust Enrichment
Ditto – $20 million.
Count V Commercial Bad Faith
Ditto – $500 million
Count VI Declaratory Judgement
AHAB demands a declaratory judgement against counterclaim defendant Mashreq, declaring that the purported facilities agreement is forged and therefore not binding on AHAB; the transaction sued upon by Mashreq was unauthorized and that AHAB’s participation in the transaction was procured by fraud; and that AHAB is not liable for any damages, costs or attorneys fees in relation to the transaction.
Verified Third Party Complaint
Defendant –Third Party Plaintiff AHAB for its Third Party Complaint against Third Party Defendants Maan Abdulwaheed Al Sanea and Awal Bank BSC alleges to the Court as follows:
On or about May 27, 2009 Mashreq Bank PSC (‘Mashreq’) filed a Complaint to this Court against AHAB. A Copy of the Complaint is attached hereto as Exhibit 1 (not attached to this summary of key points)
The Complaint alleged that AHAB entered into a foreign exchange transaction with Mashreq by which Mashreq would remit through wire transfer$150 million to an account in the name of AHAB at Bank of America in New York on April 28, 2009, and AHAB agreed to transfer 564,300,000 Saudi Riyals (‘SAR’) to Mashreq’s account at National Commercial Bank in Jeddah, Saudi Arabia on May 5, 2009. The Complaint further alleges that the transfer of US dollars was received in the AHAB account, but AHAB failed to make the required Saudi Riyal transfer.
The first notice or awareness by AHAB’s Board of Directors or its principals of the existence of this transaction was the service of the ex parte order of attachment obtained by Mashreq in this Court. Upon investigation, AHAB learned that Maan Al Sanea, a senior executive of AHAB’s financial service division, the Money Exchange, had organised a massive fraud in which he had entered into transactions largely through the Money Exchange and purportedly in AHAB’s name with third parties, including, allegedly Mashreq. Al Sanea obtained loans frequently using forged or falsified documents and then diverted the funds received to his own use. Inter alia, he wrote cheques drawn on AHAB accounts in favour of companies under his control. AHAB presently estimates that al Sanea misappropriated approximately $10 billion as a result of his frauds.
What then follows is a description of Maan Al Sanea’s alleged scheme to ‘loot the Money Exchange’ whose key points have been covered previously in this summary document, mainly word for word. Repetition is superfluous.
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Court Orders
This is a provisional list and will be expanded in due course.An Abu Dhabi court issued on November 12, 2009 a provisional attachment order of about $151 million on the accounts and assets of two companies owned by Saudi business tycoon Maan Al Sanea.
The court on November 12, 2009 ordered the freezing of funds, assets and listed securities held by Saad Group and Saad Trading & Financial Services in the United Arab Emirates, according to a statement issued Thursday by the Judicial Department in the Emirate of Abu Dhabi.
The statement didn’t name the banks involved.
Both Saad companies had previously drawn a total of $151 million in financing facilities and credit lines from an Abu Dhabi-based lender but defaulted in paying back their debt on time, the statement said.
Saad Group declined to comment.
A precautionary attachment order is a legal term used to place goods, or assets, under the protection of the court in order to safeguard any subsequent judgment.
U.A.E. banks have set aside billions of dirhams this year to cover an increase in loan defaults, including losses from loans to Al Sanea and the Al Gosaibi business conglomerate in Saudi.
The Abu Dhabi Securities Exchange, or ADX, said Wednesday it asked banks to provide details of their exposure to financially troubled Saudi groups Saad and Al Gosaibi as part of routine regulatory measures.
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