In a significant regulatory step aimed at enhancing transparency and integrity in the commercial sector, the Saudi Ministry of Commerce has issued a guide on “Customer Due Diligence” and identifying the “Beneficial Owner.” This guide serves as a practical tool to help businesses understand and implement their regulatory obligations related to combating money laundering and terrorist financing, in line with international best practices.
General context and international efforts to combat financial crimes
The issuance of this guide comes as part of the Kingdom of Saudi Arabia’s commitment to the recommendations of the Financial Action Task Force (FATF), the international organization that sets global standards for combating money laundering and terrorist financing. Identifying the “beneficial owner”—the natural person who ultimately owns or controls the legal entity—is a cornerstone of these standards. These measures aim to prevent criminals from using complex corporate structures, such as shell companies or trusts, to conceal their identities and legitimize illicitly acquired funds.
This step is also in line with the goals of Saudi Vision 2030 , which seeks to build a prosperous and sustainable economy based on transparency and good governance, enhancing the Kingdom’s attractiveness to foreign direct investment and consolidating its position as a trusted regional financial center.
The importance of the guide and its expected impact
The guide primarily aims to clarify the procedures that companies must follow to verify the identity of their customers and the true beneficiaries of business transactions. It highlights the growing risks of legal entities (such as companies, associations, and NGOs) being exploited in money laundering and terrorist financing schemes, where they are used as fronts to conceal the sources of illicit funds and the identities of their true owners.
- At the local level, the guide will contribute to raising awareness and compliance within the business sector, reducing the risk of companies unknowingly becoming involved in illegal activities. It will also enhance the ability of regulatory bodies to track suspicious financial flows and hold those responsible accountable, thus safeguarding the national economy.
- At the regional and international levels, this measure reflects the Kingdom's commitment to its role as an active partner in the international community in combating transnational financial crimes. The application of rigorous financial transparency standards enhances the reputation of the Saudi financial system and makes business dealings with Saudi companies safer and more reliable for international partners.
Identifying the true beneficiary: mechanisms and criteria
According to the Anti-Money Laundering Law and its Implementing Regulations, the “beneficial owner” is defined as the natural person who owns or exercises ultimate effective control, directly or indirectly, over the client or the person on whose behalf the transaction is being conducted. The guidelines have established clear criteria for identifying this person:
1. Ownership percentage criterion: Any natural person who owns or controls 25% or more of the shares or stock of the legal entity must be identified. Reasonable measures must be taken to verify their identity using documents and data from reliable and independent sources.
2. The criterion of control by other means: In cases where the true beneficiary cannot be identified through the ownership percentage (either because there is no controlling interest or because it is suspected that the nominal owner is not the actual beneficiary), the person exercising control through other means should be sought, such as the ability to appoint or dismiss board members or make strategic decisions.
3. Senior Management Officer: If all possible means have been exhausted and the true beneficiary has not been identified, the identification and verification of the identity of the natural person who occupies the position of senior management officer in the company shall be pursued.
Challenges of detecting complex structures
The evidence acknowledges that identifying shareholders alone may not always reveal the beneficial owners, especially when the shareholders themselves are other legal entities. This necessitates a deeper examination of ownership structures and chains of control to uncover the natural person at the end of the chain. The evidence emphasizes that the beneficial owner is always a natural person (a human being), not another legal entity, and is the person who actually benefits from the capital or assets of the company and exercises ultimate control over them, whether or not they hold an official position.
