Documents filed in the New York Supreme Court claim Maan al Sanea, the head of the Saad Group of Saudi Arabia, was involved in multibillion-dollar frauds involving hundreds of foreign exchange transactions with US banks. 

The allegations, which Mr al Sanea strongly denies, are contained in papers filed by lawyers working for Ahmad Hamad Al Gosaibi and Brothers, the Saudi family conglomerate fighting a long-running battle with Mr al Sanea.

 

The family has alleged that he defrauded them of about US$10 billion through theft and forgery over many years. The latest legal move, which came late on Friday night, is part of the Al Gosaibi strategy to have the case heard in New York and not in Saudi Arabia. Al Sanea has argued that Saudi is the appropriate location for it to be decided.

The case also involves Mashreqbank of the UAE, which initially brought legal proceedings in the US to seek $150 million it claims it is owed by Al Gosaibi.

 

Arguing that New York is the appropriate place for the legal action to be heard, the Al Gosaibi lawyers claim: “The scheme by which Maan al Sanea usurped the name and credit of the al Gosaibi family was complex and multi-faceted.

 

“While al Sanea’s scheme began in Saudi Arabia, its reach became global. Al Sanea used [Al Gosaibi’s] good name and credit to borrow money not for [Al Gosaibi’s] benefit, but to finance his own separate business empire.”

A London source close to Mr al Sanea declined to comment on the latest legal moves. A formal response from Mr al Sanea to the New York Supreme Court is expected next month.

Attached to the filing is a report from the fraud investigation company Hibis to the Central Bank of Bahrain and the country’s public prosecutor. Mr al Sanea’s bank, Awal, which sparked the controversy when it defaulted on debts last May, is based in Bahrain.

 

Hibis claims: “All the evidence that we have gathered indicates that the chairman of Awal Bank, Maan al Sanea, is the central figure to this conspiracy and the main beneficiary of these frauds.

“Al Sanea’s management style has allowed him to control all of the transactions at the bank and use the senior management of the bank to assist him in these frauds.”

Also attached to the New York filings is a report from the accounting firm Ernst & Young to the Central Bank of Bahrain into foreign transactions at The International Banking Corporation, the Bahraini bank owned by the al Gosaibis, which they claim fell under the control of Mr al Sanea.

 

There is also what is alleged to be evidence of a forgery submitted to the Bahraini public prosecutor.

The Al Gosaibi documents further allege: “The currency exchange transactions with Mashreq in issue were an important part of the overall scheme. Using his hirelings within the Money Exchange [a Saudi-Bahraini money transfer company] and other entities that he controlled, al Sanea directed and supervised close to $5bn in Mashreq transactions. Each transaction involved the purchase of US dollars in New York.”

 

 

Analysis and Forecast: Increasing Risk

 

The Gosaibi conflict is one of the most serious business scandals to hit the Gulf region. Banks all over the Gulf are exposed, particularly in Bahrain, Saudi Arabia and the UAE.

 

The conflict exposed the dangers of the widespread large family businesses in the Gulf. Large family businesses in the region are the main businesses that operate most of the non-oil segments of the economy. The fact that the case may be heard in New York raises the possibility that high-level parties involved in the dispute will be dragged and forced to have their statements and evidence made public. If the case is heard in Saudi Arabia, it is unlikely sensitive material will be published. However with the case now more likely to be heard in New York, other large businesses, most notably banks, will be dragged and raise further questions on governance of large family businesses. This is likely to have repercussions on various institutions in various GCC states, and will indirectly put pressure on GCC governments to regulate such large businesses. This will not be easy as the owners of those businesses are part of or very close to the ruling families in the various states and the fact that the hearing will now be – at least partly – public, will put pressure on those states.

 

Large institutions likely to have their governance publically scrutinized further by the latest action include the UAE’s Mashreq Bank, Bahrain’s International Banking Corporation and others, raising issues on uncontrolled lending to large families in the region, something that has pinned much of the region’s economy during the past few decades.