Concerning bribery, focus is on
laws with international reach (the US Foreign Corrupt Practices Act, the UK's
Bribery Act 2010), local laws are often overlooked. One is a Saudi Council of
Ministers Resolution on the defense industry. One can run afoul of these
restrictions on payment of commissions to third parties, while complying with
the FCPA or Bribery Act. This article proposes methods to ensure compliance
with all of these laws.
I. Overview on the Use of Agents in Saudi
The use of agents or intermediaries in procuring government contracts in Saudi
Arabia is quite prevalent. Foreign companies typically hire local agents that
use their knowledge of the local economy to assist in winning contracts in
exchange for commissions that range from anywhere between .2% to 20% of the
value of contracts procured.
Saudi Arabia's Government Tenders and Procurement Law, enacted by Royal Decree
no. M/58, dated 4/9/1427 Hijri (H.), corresponding to 27/9/2006
Gregorian (G.) does not prohibit such practice, though Article 71 does
require that all contracts be signed and executed by the principle that is to
carry out a project, not by any agent. However, other laws and resolutions
provide further restrictions specific to military contracts.
II. Restriction on Agents for Sales of Armaments and Military Equipment
Under Article 47(a) of the Procurement Law, direct purchase from manufacturers
of weapons, military equipment and their spare parts is exempt from the
Procurement Law. Rather than the Procurement Law, the lesser known Council of
Ministers Resolution No. 1275, dated 12/9/1395 H., corresponding to 18/9/1975 (Resolution
1275), which remains in force, governs sales of armaments and military
equipment. Resolution 1275 provides that no company that has concluded a
contract with the Saudi Arabian government for the supply of armaments or
military equipment may pay any sum as commission to any intermediary, sales
agent, representative, or broker, regardless of whether the contract has been
concluded between the foreign entity and the Saudi Arabian government directly
or via a third-party State.
The above rule is an important exception to the general permissibility of the
use of agents hired under a commission basis. Whereas foreign companies may
generally pay local agents a commission for procuring contracts with the Saudi
government, such commissions are strictly prohibited for contracts for the sale
of military equipment or armaments.
Access the full version of this article with your lexis.com
ID. Additional fees may be incurred.
If you do not have a lexis.com ID, you can purchase this commentary and additional Emerging Issues Commentaries from the LexisNexis Store.
Lexis.com subscribers can access the complete
set of Emerging Issues Analyses for International Law the and the International Area of Law page.
For more information about LexisNexis
products and solutions connect with us through our corporate site.