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The Criteria and the Adequate Compensation for a Saudi National as Lobbyist in Saudi Arabia

Guiding Principle

Regularly foreign companies in Saudi Arabia are retaining a sponsor who is lobbying for their products or services. The legal requirement of a sponsor/lobbyist for governmental contracting was abandoned in Saudi Arabia some years ago, which however does not mean that foreign companies are now forbidden to use a sponsor as their lobbyist; nor does it mean that there are no lobbyists anymore. Indeed lobbyists are a must for any company to do successful business – worldwide, also in Saudi Arabia. This article describe the development of the sponsor/lobbyist, the criteria for his selection, the scope of his obligations and services and an adequate compensation in line with the prevailing circumstances, laws and compliance rules of the foreign company.

 I.    The Background for the Evaluation

The evaluation considers a situation, which reflects a common scenario in Saudi Arabia that started before the year 2005: A prominent Saudi national, being a member of a well reputed local family, was needed by law as a service agent for a foreign branch or as a “sleeping partner” in a Saudi JV-Company, holding his shares in trust for the foreign JV-partner. At that time Saudi law required for the participation in governmental tenders a Saudi service agent respectively a Saudi partner in a JV-company. In 2005, after the law had changed, the sleeping partners often transferred their shares to the foreign shareholder. During the period of being a shareholder, the Saudi national was actively promoting products and services of the foreign company, arranging business contacts and business partners. Although the Saudi national dropped out as a shareholder, he continued to act as a “consultant” doing the same as before as a service agent or sleeping partner. Many of his previous works were public relation officer works, or consulting services, or meetings on technical level, which now could be done by personnel of the foreign shareholder’s JV-company. Thus the role of the Saudi national concentrated more, but not exclusively, on the function of a sponsor lobbying for the foreign company and its Saudi JV-company. Additionally also the PRO works may be entrusted to him.

II.  What Does it Mean – a “Saudi Sponsor”? [1]

The word “sponsor” is a versatile word in Saudi Arabia. It is used often, but its real meaning often remains unclear. Generally speaking, every Saudi or Saudi company, who is in some way connected with a foreigner or a foreign company, whether for business or for a private visit, is called “sponsor”. The word “sponsor” in practice often covers the relation Saudi / foreigner as such, irrespective what the relation in detail may look like. The Arabic word for “sponsor” is “kafil” and has the meaning of “warrantor” or “guarantor”. The expression is derived from the “Residence Law”[2],[3]. According to the law, each foreigner who applies for a residence visa has to nominate a Saudi citizen or a company, who is responsible for the foreigner and see to it that he will leave the country after his business dealings have been finished and his visa expires (see Art.5 lit.(d) for visiting‑visas or Art. 43 for residence‑visas). The “sponsor” legally is the person who supports the application for a visa of a foreigner. The “sponsor” can be a Saudi individual or a company (legal entity). The law also allows other securities, safeguarding the compliance of a foreigner with the Law, but the involvement of a sponsor generally is a normal procedure. The sponsor is responsible for the sponsored person in view of the visa rules and as far as mutually agreed with him or his company to conduct business of any kind in Saudi Arabia (RD No. 12 632 of 18.07.1382 H. = 15.12.1962 AD). In the context of this article the term “Sponsor” means the lobbyist of a foreign company.

III. Assessment of the Criteria and an Adequate Compensation for a “Sponsor/Lobbyist” in Saudi Arabia

1.   Introduction

Due to its nature, the activities of a sponsor of a foreign company in Saudi Arabia are difficult to be defined and evaluated. The assessment of an adequate compensation is – from the legal point of view – to be seen in the light of the prevailing laws – which requires in Saudi Arabia a bit more attention due to its special legal structure as a strict Islamic country – and the compliance rules as they have been set up by internationally operating companies in the recent years.

2.   The Sources of Law in Saudi Arabia

a)   The Shari’a and the Codified Saudi Substantive Law

Saudi Arabia has only a limited number of codified laws. The substantial law in Saudi Arabia is the Shari’a law[4]. On the other hand there are a number of rules and regulations promulgated by Royal Decrees (marasim) and Ministerial Resolutions (anzima or qararat). All rules and regulations in Saudi Arabia fully comply with the principles of the Shari’a. Shari’a (Arabic: شريعة‎; transliterated: Sharī‘a). Generally, the codified law does not provide substantial law but has rather a more an administrative character.

Unlike many other Islamic countries, Saudi Arabia does not have a Civil Code nor a Commercial Transaction Law (except an old Saudi Court Law of 1931), which to a large extent has been replaced by more modern laws allowing certain common commercial transactions. In case of divergences, the codified law prevails for commercial transactions. In pure civil matters the codified law is silent and the Shari’a law prevails, which often provides only an approximate – sometimes difficult to grasp – answer to modern commercial transactions based on a number of old interpretation rules. Additionally questions of liability, compensation for damages or interests (gharar) are regarded as one of the most complex legal aspects under Islamic law, which can hardly be understood in its complexity by Non-Muslims[5]. However, in reality the differences are not as big as it appears at a first glance.

b)   The Shari’a as Applied in Saudi Arabia

(1)  Introduction

The Shari’a Law provides a method to find the right answer for each case of life, comprising different approaches. Islamic law is based upon four main sources: the Qu’ran itself, the Hadith (sing. Sunnah) or practices of the Prophet Muhammad; Ijma’ or the consensus of Muslim scholars; and Qiyas or new case law decided upon by Shari’ah judges[6].

In Saudi Arabia, being an Islamic State, Shari’a governs both the public and private life of the people and is applied during lifetime and for the time thereafter. Shari’a influences the legal code in most Islamic countries, but the extent of its impact varies widely from country to country. Shari’a governs many aspects of day-to-day life, including politics, economics, banking, business, the law of contract, and social issues. Difficulties in the application arise from the fact that the contents of the Shari’a law are not outlined word by word as in case in codified laws. The variance in the interpretation and implementation of Islamic law in the Muslim societies was and is considerably broad.

Before the question of an adequate compensation can be discussed, the basic principles of an adequate compensation under the Shari’a law have to be briefly addressed. In many cases the Shari’a rules of the contract of sale may serve as a guide for other, related contracts.

 (2)  Shari’a as the Legal Source for Interpretation

In Saudi Arabia – being a rather conservative Islamic country – the Islamic Shari’a Law is the main source for the interpretation of the rights and obligations resulting from any agreement. Even if the parties agreed on a law other than that of Saudi Arabia, the Shari’a law remains relevant as being the law at the place of the events (“lex fori”). The Shari’a law also knows and recognizes the principle of ‘pacta sunt sevanda’ by providing that ‘the Agreement is the law of the parties’ as long as it does not violate the principles of the Shari’a, which are not at the human beings’ discretion.

(3)  Riba and Haraam as Shari’a Principles for the Limits of Legality of Commercial Actions

Shari’a prohibits the payment or acceptance of specific interest or fees (known as “Riba” or “usury”) for loans of money. Investing in businesses concerning goods or services contrary to Islamic principles is also Haraam (forbidden). While these principles were used as the basis for a flourishing economy in earlier times and worked well and even competed with Western banking systems it was only in the late 20th century that a number of Islamic banks were formed to apply these principles to private or semi-private commercial institutions within the Muslim community as the Western banking system became predominant, also in Saudi Arabia. The word “Riba” means excess, increase or addition, which according to Shari’a terminology, implies any excess of compensation without due consideration (i.e. a consideration that does not include the time factor as an added value) [7]. The definition of Riba in classical Islamic jurisprudence was “surplus value without counterpart”, or “to ensure equivalency in real value”, and that “numerical value was immaterial.”[8]

Learned scholar arrived at different opinions: Ibn Hajar al Asqalani held that the essence of Riba is excess whether it is in the commodity itself or in money. Abu Bakr Ibn al ‘Arabi held that every excess in return of which no reward is paid is Riba.

(4)  Shari’a and Anti-Corruption

Shari’a and Islamic interpretation in the Islamic literature provide a normative framework that is likely to give more weight, impact and legitimacy to anti-corruption initiatives in the context of the Islamic countries. Furthermore, experts consider that an entire secular legal system is not an option in Islamic countries. According to David Powers for example, professor of Islamic Law and History at the Cornwell University, there is no separation between the secular and the sacred in Islam and the law is suffused with religion. As a result, fighting corruption in an Islamic context must be rooted in the Islamic values guarded by the Shari’a (Islamic law) to ensure ownership and legitimacy of anti-corruption measures. Among others, these values promote commercial fairness and ethical business as basic standards of economic activities. Bribery is taken extremely seriously in Islam. For example, there is the well-known Hadith (saying of the Prophet Muhammad, p.b.u.h): ”Damned is the bribe-giver (or ‘corrupter’), the bribe-taker (or ‘corrupted’) and he who goes between them”, which illustrates the severity of bribery and corruption actions. In terms of generation and creation of wealth, fair trade and the creation of wealth for the benefit of all is positively encouraged in Islam – but even more important is the sharing of that wealth: “O ye who believe! Give of the good things which ye have honourably earned” (Surat Al Baqarah, verse 267). In the realm of ethics and morals in business, there are repeated injunctions in the Quran (for example in Surat Al Rahman, verses 7 and 8), to “weigh with accurate scales” and the Quran warns against those who do not weigh fairly. Here the “weighing” applies not only to scales in the sense of merchandise, but also e.g. in the sense of passing of a judgment.

In terms of general business ethics there are specific Islamic recommendations for doing business. Business dealings must be clearly documented and certified as means of sustaining finance, defining rights and installing mutual confidence, all of which contribute to creating strong relations among people. Duties towards other people should be fulfilled promptly. It is a virtue to grant respite to those who are bankrupt or to relieve them altogether of their liabilities. Such conduct helps decrease disputes, deepens trust and keeps transactions in balance. Raising prices without any legitimate exigency and selfishly making use of people’s hardship are totally prohibited. There is a great emphasis on lawful, as opposed to unlawful, profit. Contracts and other transactions must be certified by recording and signing contracts in the presence of witnesses. The prophet Muhammad called on Muslims to comply with their obligations and contracts saying ”Never break or throw aside a covenant you have signed with anybody until the period of the covenant comes to a natural end.”

These values influence and legitimise the Islamic approach to corruption but does not determine how corruption is dealt with in practice in fundamentalist societies or countries not implementing the Shari’a law. [9]

c)   Codified Saudi Laws in the Range of the Compliance Rules

(1)  The Law and Compliance Rules

The compliance rules to some extent are generally going even beyond the limits of the law. I.a. they take also care of cross border effects. Compliance rules have even the tendency to avoid actions, which are coming close to the limits set by the law. Actions, which may be allowed in one country (e.g. Saudi Arabia), may not be allowed in another country (e.g. Germany, the United States etc) or vice versa, which directly or indirectly may be involved as well. Hence, all business transactions and behaviors of the entire personnel of a company and its outside agents, freelancers etc have to comply with the relevant laws of all countries directly or indirectly involved.

(2)  The Saudi Rules for Tendering and Governmental Procurement

A major line of business of foreigners in Saudi Arabia is the tender business with Saudi authorities or governmental agencies looking for international companies for their projects. In this line of business lobbyism is of particular relevance. There are a number of laws related to procurement contracts and the tendering procedure in Saudi Arabia, out of which the principal regulatory controls are as follows:

  • The Government Bids and Procurement Law, issued by the Royal Decree No. M/58 on 4/9/1427H, corresponding to 27/9/2006 (“Procurement Law”);
  • The Executive Regulations of the Government Bid and Procurement Law issued by Royal Decree No. M/58, issued as The Ministry of Finance’s Resolution No. 362 dated 20/3/1428H corresponding to 10/3/2007 (“Exec. Regulations”);
  • The Unified Rules of Granting Priority in Government Procurements to National Products and Products of National Origin in the GCC States, issued by the Council of Ministers’ Resolution No. 139 dated 25/6/1407H, corresponding to 24/2/1987 (“Priority Rules”);
  • The Council of Ministers’ Resolution No. 23 dated 17/1/1428H, corresponding to 5/2/2007, addressing barriers facing the construction works sector and the Saudization of projects;
  • The Council of Ministers’ Resolution No 155 dated 5/6/1429H, corresponding to 9/6/2008, addressing compensation issues and the forming of a compensation committee; and
  • The Rules and Procedures of Announcing Public Tenders (“Procedural Rules”).

(3)  The Compliance Rules Applied to Explicit Objectives

The Procurement Law and Regulations have the explicit objectives of:

  • ensuring bids are not influenced by personal interest, in order to protect public funds;
  • ensuring maximum economic efficiency and competition for government projects at fair competitive process;
  • promoting honesty, competition and the fair treatment of all bids;
  • guaranteeing transparency; and
  • advancing the public interest by ensuring tenders are not tailored to fit the capacities of certain suppliers. The rationale for the Procurement Law is best summarised in Article 9, which acknowledges that:
  • government procurements and works must be carried out at fair prices, which do not exceed the prevailing market prices; and
  • bidding in accordance with the Procurement Law and Regulations is the practical means to achieve that goal. The benefits of selecting a tender process for the procurement regime as opposed to other forms of procurement are that a tender process can:
  • be kept confidential, to the extent permitted by law;
  • ensure a fair price by establishing a bid process with competitive tension;
  • encourage the most cost effective and innovative result where the subject of the tender involves the development of purpose built facilities; and
  • attract expertise to the project, which may be beyond the capabilities of the relevant government authority.

The objectives in general and the objectives No. (1),(3),(8) and (11) above in particular are clear evidence that ethical rules are very sensitive in the tender business and that potential bidders are well advised to comply with them and to take appropriate steps that also their employees, subcontractors (if any) and their consultants – respectively sponsors or lobbyists – should comply with them. For the foreign shareholder’s employees this is taken care of by the foreign shareholder’s compliance rules (in the sample case). For subcontractors, consultants and/or lobbyists this may be done by including an incorporation clause into the agreements concluded with them. Additionally the foreign shareholder’s compliance rules should be explained to them in detail.

(4)  The Saudi Anti-Bribery Law

The Saudi national being the consultant / sponsor / lobbyist of the foreign company has – of course – to comply with the prevailing laws. Any violation – in particular when acting as the foreign company’s lobbyist – will fall back on the foreign shareholder. In the tender business bribery appears always to be a tempting tool to get projects awarded. Fighting bribery has become a permanent struggle worldwide. Also countries with a lower tendency to bribery like Saudi Arabia cannot be excluded in general. In recent years internationally operating companies like the foreign shareholders or foreign branches have become more sensitive and have issued internal compliance rules, which in addition to the prevailing laws should make it clear to their employees, agents and partners that there is no way out but to follow the spirit of the laws. Already in 1992 Saudi Arabia issued an anti-bribery law by Royal Decree No. M/36. Art. 10 of the respective law reads as follows:

Article 10:

The briber, the mediator and any participant in any of the crimes mentioned in this law shall be punished by penalties of the article of incrimination. Everyone who agrees, motivates or helps in committing this crime intentionally shall be considered a participant in this crime once it is committed on the basis of this agreement, motivation or help.

Further, Art. 12 of the Saudi Anti-Bribery Law governs the following:

Article 12:

Every advantage or interest obtained by the bribee whichever the type, name of that advantage or interest either corporeal or incorporeal shall be considered a form of promise or offer in inflecting this law.

d)   Ethics and Compliance Standards of the Foreign Company

The ethics and compliance standards of the foreign company shall be described briefly, which appear relevant for the examination of the limitations for an adequate compensation of a consultant / sponsor / lobbyist in Saudi Arabia.

(1)  The Wording of the Ethics and Compliance Standards of the Foreign Company

The ethics and compliance standards “Code of Ethics” referred to herein are commonly used and chosen by random. They are considered in context with the related legal issues. The “Code of Ethics” may provide that the following standards to be observed:

Each Company employee must use the code as a reference point, learn and comply with the standards and laws that apply to their job. The code applies to all employees, directors and officers. The Company will seek to influence and encourage its business partners to adopt the standards set out in the code. The standards in the code must be applied to all business operations.

Failure to comply with the standards set out in the code may result in disciplinary actions, including dismissal, and may also result in criminal or civil prosecution.

The standards set out in the code determine how the Company will maintain its relationships with customers, suppliers, governments, other businesses, the environment and people. These standards provide clear guidance on how it is expected to act in certain circumstances and will ensure that the foreign shareholder’s good reputation will be maintained and enhanced.

The Company and all subsidiaries and companies that the Company controls or of which it has managing control must observe the Company Code of Ethics.

Where local laws or other existing Company policies are more onerous than this code, the local laws or respective other Company policies will apply.

Moreover, in Section 6.2 Bribery of the “Code of Ethics” it is stated:

6.2 Bribery

Issue

Bribery is the giving to or receiving by any person of anything of value, either directly or indirectly, as an inducement to gain an advantage or influence contrary to the principles of honesty and integrity.

Guidance

The Company will not tolerate bribery in any form.

Employees should never give or accept, directly or indirectly, a bribe in any form.

Third parties acting on behalf of the Company are prohibited from giving or accepting bribes, directly or indirectly.

(2)  Contracting a Saudi Sponsor as a Lobbyist in Line with Ethic and Compliance Standards of the Foreign Company

According to above raised concerns any contract or any renewal of a contract has to be examined in accordance with the limitations set by above described laws and the respective company’s standards. Such contract is only (legally) compliant in the event its terms, purpose or practical enforcement does violate neither the Saudi Anti-Bribery Law nor Section 6.2 Bribery nor the “Code of Ethics” (shown above as a sample).

Examining the provisions of a contract, in particular the “Scope of Services”, the services to be rendered by the Saudi national shall not indicate, that any violation of above mentioned laws or standards are directly or indirectly requested. On the contrary: The contract with the sponsor/lobbyist should expressly be made subject to the compliance rules. In a contract one paragraph may provide for example that the sponsor/lobbyist shall seek and follow the advice of the principal in his interactions with government authorities such as commercial registration, SAGIA licenses, tender board meetings etc.. With regard to the above described laws and common compliance standards the services may not imply any actions or support, which might be considered or interpreted as a violation of any of any compliance standards. The administrative support towards government authorities forms part of the common services of a public relation officer (PRO). Due to the local Saudi environment Saudi nationals are predestined to advise the foreign shareholder’s management regarding business activities, upcoming business opportunities and contacts to potential customers, employers and potential partners. As a matter of fact Saudis have a better access to public institutions and agencies. Being a Saudi is not harming any standards as such. The scope of services may be compared with those of a “commercial agent” or business consultant, who supports his principal in acquiring new customers and business partners and arranges respective business transactions.

Additionally, the clause for remuneration of the sponsor/lobbyist has to be examined. As a starting point for the assessment, the respective compensation shall be adequate and reasonable for the rendered services. For this purpose, the “Scope of Services” to be rendered by the sponsor should be clearly defined. The agreed compensation has to be fair and not exaggerated and has to correspond with the services and common practice. The limits, where compensation may become excessive, will be discussed in the following chapter. In particular it has to be taken into consideration that the amount of compensation shall not be excessive to avoid that it may be considered as “an inducement to gain an advantage or influence contrary to the principles of honesty and integrity”.

Further, the practical implementation of the contract may not violate the Saudi Anti-Bribery Law or the “Code of Ethics”. If the implementation of the contract violates the compliance rules, the foreign company has to step in. Any motivation or helping or even showing tolerance when noticing such violations is by itself a violation of the compliance rules. The principles of corporate governance and the code of ethics provide that the selection of business partners have to be done in consideration and in compliance with the company standards. Therefore, any knowledge of respective violations committed by the Saudi sponsor/lobbyist or negligent unawareness thereof may cause the foreign company to be hold directly liable.

3.   Lobbyism as an International Tool for Promoting Business

a)   Lobbyism – a Condition Sine Qua Non for Successful International Business

Lobbying commonly has an ambiguous reputation as being an attempt by a lobbyist to get via obscure channels unjustified advantages for his principal. Since the term “lobbyism” has often a critical touch, no lobbyist is actually is called “lobbying organization” or something similar. Common names for lobbying activities, for example, are “Public Affairs Office”, “Communication Office” or just using the name of the sponsor without any reference. Large companies have offices called “Capital Office” or “Capital Representative Office”, which are used by the lobbyist in the country’s capital.

Actually it is held that lobbyists perform an important service for their principles as well in the public i.e. the governmental sector as well in the private sector by advocating the interests of their clients / employers and by providing essential information to the “decisions makers” and the decision making bodies. Based on that information the governmental bodies are able to decide quickly and flexible on tenders and projects and can meet upcoming challenges and social requirements adequately. As long as an active lobbyism or promotion of the principle’s interest are exercised in certain boundaries and do not cross limits set by the prevailing law, as it is nowadays more often outlined in compliance rules, lobbyism is an effective tool for clients to market the value of their goods and services towards the decision making bodies of their counterparts and for authorities to obtain a wide range of relevant information and potential providers enabling to quick and reasonable decisions. Done within the limits set by the law, lobbyism is a tool for promoting business which is in the end beneficial for both the principle and the tenderer / employer. Governments, being the target of lobbyism, sometimes define and regulate organized group lobbying that has become influential[10]. “Who is who?” knowledge is an essential criteria.

b)   Lobbyism in Germany

Lobbyism has its own individual structure in each country. Germany may – to some extent – serve as a sample for Western countries. For the general understanding of lobbyism in Germany, please see the websites referred to in the footnote[11] and footnote[12]. The comments may be summarized as follows: Lobbyism is legal and a tool widely used in Germany to turn the attention of decision makers on the products, services or ideas of individuals, companies, institutions, associations, parties etc. The addressees are decision makers on various levels including politicians, members of parliament, major businessmen, associations, unions etc. Every lobbyist has to develop his own tailor-made strategy to bring the right attention of the right people to the business of his principal. The limits of lobbyism are the limits set by the law, e.g. related to bribery, international (embargo) rules, ethical rules, rules of fair competition, rules of compliance etc. Lobbyism is international and has no borders. Germany’s capital Berlin alone is said to have 5.000 lobbyists[13]!

c)   Lobbyism in Saudi Arabia

Although the structures of the state and of its economy of Germany and Saudi Arabia are different, generally rules and practice being common in Germany may not directly be applied in Saudi Arabia Anyhow the basic rules of lobbyism as applied in Germany are applied similarly worldwide including Saudi Arabia – subject details. Lobbyism is well established in Saudi Arabia, irrespective that the lobbyist is called “sponsor” and not “lobbyist”. The Saudi Arabian lobby in the United States for instance is a collection of lawyers, public relation firms and professional lobbyists paid directly by the government of Saudi Arabia to lobby the public and the government of the United States on behalf of the interests of the government of Saudi Arabia[14]. The Americans are making publicly use of it[15]; [16]. In some cases, which were extensively discussed in the international press, the line of compliance with the law has been passed, which gave lobbyism a bad smell. However such malpractices are exceptions to the rule; lobbyism is not only legitimate but a tool, which is absolutely necessary to do proper business, irrespective whether this is seen for the point of view of the party lobbying, e.g. a government, association, industrial sector or the internationally operating companies etc or the party being the target of the lobbyists.

Often foreign companies have to pre-qualify themselves with Saudi Authorities and public organization, to get into a position to bid in tenders. Pre-qualifying goes hand in hand with keeping up the dialogue with that organization promoting the services or products, which is the job of the lobbyist. Lobbyism may take place on different levels: (1) on political level, (2) on economical level and (3) on the level of the involved workforce.

Contacts to governmental bodies require an excellent reputation and long years of experiences in the Saudi market. Consultants/lobbyists have to qualify to provide contacts to governmental bodies and arranging new business with governmental authorities. Many Saudi nationals act as a lobbyists on the commercial level, who belong to the well reputed trading families.

4.   Lobbyism and “Sponsorships” in Saudi Arabia

a)   The Relevance of the Saudi Traditions

In in Saudi Arabia irrespective of its modern society the Saudi traditions value high and it is felt that someone has to be a Saudi to understand and to comply with them The traditions have their root in the life of the Bedouins, the customs of the traders and – last not least – in the Koran and the Shari’a. Foreigners enjoys during their stay in Saudi Arabia the countries patronage, custodianship and hospitality, being high value of the “Bedouin” traditions. The ”Bedouin’s” traditions are beautifully described the book “Arabian Sands” by Wilfred Thesiger[17]. For the lobbyist it is a must to be familiar with the traditions or even better: To be a part of it.

b)   The Saudi Nationality of the Sponsor/Lobbyist

When the obligation to appoint a Saudi service agent (= lobbyist) for governmental tendering was abandoned in 2001 due to the liberalization of the Saudi economy, the legal necessity by law for an appointment of a service agent had gone, but the must for commercial reasons continued. Although there are many foreigners in Saudi Arabia doing business on all levels, the Saudi economy in the end is controlled by Saudis. Furthermore on governmental level it is common practice, that foreigners are requested “to speak Arabic” with them. The endeavors of the Saudi Government to “saudialise” the workforce[18] in the country is also immanent. At the same time there is a clear tendency that Saudis – whether in the government or elsewhere – generally want respectively prefer to meet Saudis. Thus it appears natural to look for a Saudi national and to appoint him a sponsor/lobbyist, irrespective that the price may in the end be higher.

c)   The Remuneration of the Service Agent in Governmental Projects before 2001

The service agent[19] for a governmental project[20],[21] is based on the SA-Law Regulations on Agents Commission, RD M/2 dated 20.01.1978 AD. The appointment of a service agent was a requirement for foreign companies to participate in Saudi governmental tenders and to register themselves temporarily in accordance with Art. 228 of the Saudi Companies Law and the Resolution of the Ministry of Commerce No. 680 of 09.11.1398 AH corr. to 11.10.1978. The request for an imposed service agent was abandoned after the Saudi economy was effectively liberalized by the Saudi Foreign Investment Law M1/2000 and M/1/1421/2001, which replaced the old Foreign Capital Investment Law (FCIL). The service agent’s functions were that of an intermediate. He was supposed to be of good standing and familiar with the related business, but he did not form part of the contract of the foreigner with the Saudi government. If the foreign company had a Saudi or Saudi company as JV-partner or consortium partner, no service agent was required. Otherwise the service agent was obligatory to assist in buying the tender documents, getting information from the employer, obtaining visa and promoting the foreign company for further tenders. In the day to day life the service agent became active only upon the request of the foreign company, which asked for such help only, if it had run into problems. The service agent was not an employee of the foreign company, but he was registered as an independent businessman allowed representing up to 10 foreign companies simultaneously, however not for the same project. He was entitled by law to a commission of maximum 5% of the tender value. In practice the commission of 5% of the tender value generally was by the Saudi side considered as being the minimum.

Notwithstanding that the law was cancelled in 2001, it indicates, what the Saudi law giver considered as a fair compensation of the service agent alias lobbyist. Therefore this figure may serve as a guideline what may be agreed in a contract after the law was cancelled.

5.   The Legal Limitations for an Adequate Compensation

The limitations for an adequate compensation for rendering consultancy services by the Saudi national have to be set up in line with the applicable Saudi Laws and the Ethics and Compliance Standards of the foreign company. The crucial question will be, when the remuneration is excessive, that it includes or may include additional funds, which could be used or are even be intended to be used partly as a payment to “decision makers” for preferential treatment for bids, projects or works etc.. Any excessive amount may be considered as an evidence of illegal intentions and a direct violation of the compliance rules and should, if paid, be really based on solid grounds and supported by strong arguments.

6.   The Criteria for an Assessment of an Adequate Compensation

The adequate compensation for consultancy services is based on a number of “legal criteria” and the scope of rendered services.

The indicators for an assessment depend on the scope of services, which the Saudi sponsor/lobbyist has undertaken. Subject to the prevailing circumstances they may include:

a)   The Scope of the Lobbyist’s Services

  • To advise the foreign company in its interactions with government authorities such as advising in matters of licences and commercial registration,
  • To advise the foreign company in case of any negotiations or disputes with governmental authorities,
  • To advise the foreign company in applying work visa, business visa, driving licenses and handling all issues with hiring employees for  foreign company’s construction sites,
  • To advise the foreign company’s management in business development activities by informing about upcoming business opportunities and giving advice for establishing successfully contacts to potential clients and potential partners.
  • To promote the good will, the international standing, the high technical skills and the scope activities of the foreign company at all public levels of the Saudi government and its institutions.

b)   Criteria for Choosing a Lobbyist in Saudi Arabia

Criteria for choosing a lobbyist in Saudi Arabia are:

  • The Saudi nationality (Saudialization is a most relevant issue in Saudi Arabia since years);
  • The good reputation of his family (in Saudi Arabia family relations have a much higher relevance than in other parts of the world including Germany and other industrialized countries);
  • His years of experience in the subject field of business (giving him excellent connections and an excellent reputation) and
  • His advanced age (which counts much more in Saudi Arabia than in e.g. many European countries and gives him extra credibility)
  • Good business contacts and market experience to grow and extend the foreign company’s business activities,

From our experience providing legal consultancy for many years in Saudi Arabia, we got the understanding, that almost all foreign companies doing business in Saudi Arabia, are or are trying to be connected this way or that way with a Saudi national meeting the criteria, to play an active role as “lobbyists” in the Saudi market. The structures and their remuneration varies from case to case. To the best of our knowledge there is no standard formula neither with regard to the remuneration nor to their individual quality. Members of the royal family are said to be the most expensive “sponsors”, followed be the well-known trading families.

The amounts of compensations are fluctuating considerably and there is again no standard. The commission of maximum 5% of the contract value for a service agent as governed in the SA-Law Regulations on Agents Commission may serve as a guideline disregarding that the law in outdated.

There are no accurate tools to measure precisely the “fair assessment”, as the services cannot be measured by time, number of contracts, turnover, profits, and meetings.. The grade of reputation and the rank in the Saudi hierarchy in line combined with the above criteria generally have more influence on the compensation than the other factors. A “common practice” is due to the confidentiality not available. The prices, of which we here and there got knowledge of, are varying tremendously. Saudis are good negotiators.

7.   Financial Assessment or the Lobbyist’s Compensation

It always appears difficult to get a financial assessment or the lobbyist’s compensation as it is difficult to get an accurate picture of his actions and achievements. It appears also difficult to get from a sponsor/lobbyist like the Saudi national written reports of his promotion activities. On the other hand a financial assessment or the lobbyist’s achievements are required to verify and control his compensation. The foreign company may get into a situation in which it has to justify the amount paid. It is held that regular meetings and discussions of the sponsor/lobbyist with a key-person of the foreign company, in which the foreign company’s wishes and the Saudi sponsor/lobbyist’s transactions are exchanged should be subsequently fixed in reports. Such reports may safeguard the justification of the compensation and serve as indicators that it stays within reasonable brackets and in line with the compliance rules.

IV. The Statement in a Nutshell

  • A Saudi national, who is engaged as a “lobbyist” is regularly requested to promote the business of the foreign company in Saudi Arabia, because there is a need for them to be successful.
  • To avoid any misunderstanding, sponsor/lobbyists obligations should explicitly and in detail be governed by a contract, which should be strictly confidential but available in case of need to be presented to public authorities for evaluation.
  • A remuneration of the Saudi sponsor/lobbyist may be based on the evaluation of the Saudi sponsor/lobbyist’s by his personal criteria and second by the efforts expect from him and his performance in the past. It should be periodically be re-evaluated in accordance with the reports regularly prepared by a key-person.
  • An indicator for the compensation may be the 5% rule of the Service Agency Law, abolished 2001.
  • Putting all elements together, we consider a monthly compensation between SR 50.000 and 200.000 p/m and/or a share of 2% to 8% of the turnover from the business which the sponsor/lobbyist generates, to be a fair and reasonable compensation.
  • Provided, the foreign company has created its own “Code of Ethics” it is held that the “Code of Ethics” should be made an integral part of the contract with the Saudi sponsor/lobbyist. Additionally they should be explained to him in detail.
July, 2014 Rolf Meyer-Reumann
Meyer-Reumann & Partners, Dubai Office

Literature:

Berrer, Konstantin; Industrie- und Infrastruktur-Anlagenverträge in den arabischen Golfstaaten; in: Deutsche Unternehmen in den arabischen Golfstaaten, Schäffer Verlag 1990; S. 169 ff

MacArthur, John R.; The Vast Power of the Saudi Lobby; website: http://www.commondreams.org/archive/2007/04/17/571

Cooper, Rachel;About.com Guide, What Does a Lobbyist Do? website: http://dc.about.com/u/sty/jobs/lobbyistprofiles/

Darul-Uloom, Bury, U.K.( Darul Uloom Al-Arabiyyah Al-Islamiyyah, better known as Darul Uloom Bury, is the oldest school of its kind in the United Kingdom.); a contribution of a Student, Interest (Riba`); Website: http://www.inter-islam.org/Prohibitions/intrst.htm

The Daily Beast / In Newsweek Magazine 17.05.2008; Maccain Versus Lobbyists, website: http://www.thedailybeast.com/newsweek/2008/05/17/mccain-vs-lobbyists.html

Marie Chêne and Victoria Jennett Ph.D ; Islamic Approaches to Corruption, 5 June,2007; Website: http://www.u4.no/helpdesk/helpdesk/query.cfm?id=137

Merschmeier, Jürgen; Lobbing; http://www.polikomm.de/downloads/merschmeier_lobbying.pdf; ein Artikel für die Studienbände des pr-Kolleg Berlin

Meyer-Reumann, Rolf; Recht im Wirtschaftsverkehr mit Saudi-Arabien, 1984

Rial, Ed, Deloitte, Beyond Reproach, Why compliance with anti-corruption laws is increasingly critical for multinational businesses; wepsite: http://www.deloitte.com/view/en_US/us/Insights/Browse-by-Content-Type/deloitte-review/0754a68c4d101210VgnVCM100000ba42f00aRCRD.htm

Schacht, Joseph, An Introduction to Islamic Law, 1964, page 147

Schmidt, Wolfgang; Das öffentliche Beschaffungswesen in den arabischen Goldfstaaten; (Ziff. 3. Die Rolle des Sponsors) in Deutsche Unternehmen in den arabischen Golfstaaten, Schäffer Verlag 1990; pgs. 135 ff

Wenzlaff, Karsten, Unternehmenslobbyismus; aus LobbyWiki; http://lobbyismus.karsten-wenzlaff.de/index.php/Hauptseite

Al Tamimi & Company, Law Update; Issue 214, Jan. 2009; Government Tenders and Procurements in the Kingdom of Saudi Arabia; http://newsweaver.ie/altamimi/e_article001340509.cfm?x=bf6QPLK,0,w 

[1]        This part of the evaluation is an update of an article written by the author in Jeddah in January, 1987

[2]        “Residence Law” or “Law of Stay”; Royal Decree No. 17/2/25/1337 dd. 11.09.1371 H. = 04.06.1952 AD; an English transla­                  tion can be found in Karam; Business Laws of Saudi Arabia, II, 2.21 ff.

[3]        For details of the sponsor – requirement for visa etc see the website Travel.State.Gov of the US Department of State                               http://travel.state.gov/travel/cis_pa_tw/cis/cis_1012.html

[4]        Most encyclopaedias define the Shari’a as the law derived from the Qur’an, the Sunna (meaning “way” or “custom”,                                 commonly known as the Prophet’s traditions), and classical fiqh derived from consensus (ijma) and analogy (qiyas). Some                 argue that only the Qur’an and Sunna are beyond revision unlike the scholarly interpretations and should therefore be kept               separate from the ever-evolving interpretive law (fiqh).

[5]        Joseph Schacht, An Introduction to Islamic Law, 1964, page 147

[6]        Huda, Sources of Islamic Law, http://islam.about.com/od/law/a/sources.htm

[7]        A Student of Darul-Uloom, Bury, U.K.; Interest (Riba`); Website: http://www.inter-islam.org/Prohibitions/intrst.htm

[8]        Wikipedia; Islamic Banking; Website http://en.wikipedia.org/wiki/Islamic_banking

[9]        Marie Chêne and Victoria Jennett Ph.D ; Islamic Approaches to Corruption, 5 June,2007; Website:                                                                 http://www.u4.no/helpdesk/helpdesk/query.cfm?id=137

[10]      Lobbying; from Wikipedia; http://en.wikipedia.org/wiki/Lobbying. The article gives a comprehensive summary of                                lobbyism in general and describes the lobbyism in U.K, US, EU, France, Australia and some other countries. The article                        shows that lobbyism practically is accepted practice worldwide. Lobbyism in Germany, Austria and Switzerland is                                  described in http://de.wikipedia.org/wiki/Lobbying.

[11]      Merschmeier, Jürgen; Lobbing; ein Artikel für die Studienbände des pr-Kolleg Berlin,                                                                                             http://www.polikomm.de/downloads/merschmeier_lobbying.pdf;

[12]      Wenzlaff, Karsten, Unternehmenslobbyismus; aus LobbyWiki; http://lobbyismus.karstenwenzlaff .de/ index. php 

[13]      See the website of LobbyControl, http://www.lobbycontrol.de/blog/index.php/schwerpunkte/lobbyplanet-berlin/

[14]      Saudi Arabia lobby in the United States, http://en.wikipedia.org/wiki/Saudi_Arabia_lobby_in_the_United_States

[15] MacArthur, John R.; The Vast Power of the Saudi Lobby; website: http://www.commondreams.org/archive/2007/04/17/571

[16]      The Dayly Beast / In Newsweek Magazine 17.05.2008; Maccain Versus Lobbyists, website: http://www.thedailybeast.com/newsweek/2008/05/17/mccain-vs-lobbyists.html

[17]      Thesiger, Wilfred; Arabian Sands; for more detail see Website of Wikipedia http://en.wikipedia.org/wiki/Wilfred_Thesiger

[18]      See Saudi in Focus, Saudi Labor Minister calms Jobs Panic  http://www.saudiinfocus.com/en/forum/showthread.php?p=23942

[19]      For details see Meyer-Reumann, Rolf, Recht im Wirtschaftsverkehr mit Saudi-Arabien, 1984, pages 29, 30

[20]      Schmidt, Wolfgang; Das öffentliche Beschaffungswesen in den arabischen Golffstaaten; (Ziff. 3. Die Rolle des Sponsors) in Deutsche Unternehmen in den arabischen Golfstaaten, Schäffer Verlag 1990; S. 135 ff (139, 163)

[21]      Berrer, Konstantin; Industrie- und Infrastruktur-Anlagenverträge in den arabischen Goldfstaaten; in: Deutsche Unternehmen in den arabischen Golfstaaten, Schäffer Verlag 1990; S. 169 ff (188)

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