Saudi bid to curb capital flight

Saudi Arabia issued a stern warning against banks and companies engaging in illegal investment in a bid to curb capital flight, bankers in Gulf kingdom said.

The warning came as the world's leading oil supplier is struggling to attract investment to spur growth in its economy after it was hurt by low oil prices.

The Saudi Arabia Monetary Agency (SHMA) warned local and foreign banks and companies that they could be subject to harsh punishment if they continued to transfer funds abroad through unlicensed investment funds.

It has been noticed that some foreign banks and investment companies are marketing their services in the kingdom by attracting deposits through investment funds and transferring them abroad, SAMA said in a letter sent to banks and investment firms in Saudi Arabia last week.

It has also been noticed that some unlicensed companies are carrying out banking activities such as receiving funds from Saudi citizens and foreigners resident in the Kingdom for investment purposes. Some foreign individuals are also collecting funds from the expatriate labor and transferring them abroad.

Saudi Arabia’s central bank, warned citizens against dealing with unlicensed institutions, saying they could lose their money."Violators could face up to two years in jail and a fine of 5,000 Saudi Riyals ($1,333) for every offense" it said.

Saudi citizens and expatriates are called upon to be careful and to deal only with licensed banks and exchange shops in activities related to banking.

The letter said some parties were transferring money out of Saudi Arabia to their home country, where they are not licensed or do not exist.

Bankers said the warning followed an increase in such activities, including newspaper advertisements by some banks and firms for investment abroad.

Some exchange houses have also announced new facilities for the large expatriate community in the Kingdom to remit home their money, they added.

"Saudi authorities feel such activities harm the efforts to regulate the financial sector and encourage investment," one banker said.

Saudi Arabia is in a bad need for foreign capital to revive its economy and rectify its balance of payments that has upset by weak oil prices and expatriate remittance.

Riyadh's balance of payments has reeled under a heavy deficit over the past six years.

The gap was complicated by lower oil prices, an increase in imports and remittance by the country's nearly five million foreign workers.

Official figures showed nearly $ 90 billion had been siphoned out of the Kingdom by the expatriates and Saudi investors between 1990 and 1995. In 1996, the funds were estimated at $13 billion

.