Foreign Relations of the United States, 1969–1976, Volume E–9, Part 2, Documents on the Middle East Region, 1973–1976

122. Airgram From the Embassy in Saudi Arabia to the Department of State¹

A–97

Jidda, December 16, 1974.

SUMMARY AND INTRODUCTION

Corruption, according to one definition of the term or another, has probably always existed in Saudi Arabia. We have been looking closely at the subject since the beginning of the year. Our original examination led to the tentative conclusion that corruption was widespread, involved some high-ranking people, could lead to embarrassment of the SAG and to American firms doing business in Saudi Arabia (and perhaps the USG), but that it was not so widespread, high-reaching and resented as to endanger over the short or medium term the stability of the present regime and hurt the very major U.S. interests in Saudi Arabia. We have since revised this estimate. Because we have been looking for it we have seen more of corruption and of its effects. At the same time we have concluded that corruption has been on the increase. There is no immediate danger to the regime or U.S. interests but the unchecked growth of corruption at the present rate would probably start to breed political instability fairly soon after King Faisal (who is honest and admires honesty in others) passes from the scene. The effect on a vital U.S. interest—a reliable source of oil and a responsible use of resulting income—would be incalculable. We recommend certain limited actions we might take to inhibit corruption and protect our interests.

BACKGROUND

Examination of the subject of corruption in Saudi Arabia requires defining the term in a way that has meaning. There are many actions and patterns of behavior in Saudi Arabia which might be offensive to the morals (and aesthetic sensibilities) of the average Westerner. We might term some of these actions corrupt, but unless the Saudis themselves find them morally reprehensible, they have little relevance to U.S. policy and interests.

While there is little that is “Ottoman” about the present Saudi government—it is a combination of the traditional tribal and “modern” European as interpreted by Egyptian bureaucrats—the Ottoman experience has clearly influenced attitudes towards corruption. First because bribery became a way of getting things done or just being left alone during the Ottoman period. At the same time, since there was no particular identification with the apparatus of government, there was no sense of damaging one’s own interests by suborning and corrupting a public official. This attitude has survived in a modified form: there is a strong sense of identification with (and support for) the ruling institution personified by the King. But in general this feeling does not carry over to the apparatus of government.

[1 paragraph (5 lines) not declassified]

Equally great influences come from Saudi Arabia’s own customs and traditions. Today amidst the burgeoning signs of fabulous wealth it is hard to recall that until very recently Saudi Arabia was the home of very poor peoples and that only 15 years ago the SAG couldn’t balance a budget which aspired to economic development and provision of basic social services. The Hajj, now possibly even a net drain on the Saudi economy, was once its mainstay and the prosperity of much of the country depended on how many pilgrims could be relieved of how much money. While this acquisitiveness of the Hijazi might have been scorned by the tribes of the desert, they had their own traditional ways of acquiring money including collecting “tolls” from caravans and selling “protection” to settled agricultural communities.

Much as Americans once held frontier self-reliance to be a positive national characteristic, the average Saudi today extols the virtues of the vanishing beduin society: strong individualism (or aversion to discipline?), fierce loyalty to family and tribe; a strong sense of responsibility for weaker members of the tribe and the conviction that loyalty must be repaid.

Within this traditional pattern, it is customary for a person with influence to use it to benefit his followers. The person who gains thereby is expected to reward his benefactor in a manner consistent with the benefit derived.

Much of the foregoing is not unique to Saudi Arabia, the Arab, or Islamic world. It is, however, a partial explanation of the ubiquitousness of practices such as bribery and influence, peddling, which Americans regard as corrupt. It also points to an ingrained tolerance for these practices and we must turn to more recent developments to understand why they have now become a threat to the stability of Saudi Arabia.

THE WAYS OF CORRUPTION

Small Stuff

Any individual or organization trying to do business in Saudi Arabia is quickly confronted with a situation which generally results in some compromise of principles. Even for embassies there is the need to be nice to and do favors for the petty, officious and vain [less than 1 line not declassified] who personally approves the customs clearance of even the smallest shipment. And also for embassies but particularly for commercial enterprises is the need by one means or another to have the cooperation of important port, airport, and customs officials. Even with the cooperation of a top customs official most firms find it advisable to have an “expediter” to make the rounds disbursing small amounts of money to get the signatures necessary to clear a shipment.

Saudi laws and regulations were designed to protect Saudi businesses and workers but they also have the effect of enriching enterprising Saudis. Labor is short in Saudi Arabia, but a person waiting to come to Saudi Arabia to work in most cases must have a visa and this means having a “sponsor” who will accept financial responsibility for the person. The amount paid to a sponsor (who in fact assumes very little risk) can run upward from the SR100 per month a maid might pay to several times this for a technically trained person.

Businessmen also require sponsors. In the case of a small firm, the sponsor may actually take some risk in return for his share of the profits. In the case of a large and well established firm, however, it’s all gravy. Sponsors (who function to protect the interest of Saudi citizens) should not be confused with agents. That’s where the real action is.

The Role of the Agent

Wholly owned foreign firms cannot function in law or in practice without a Saudi agent. For a firm new to Saudi Arabia an agent performs many valuable services: visa assistance, customs assistance, introductions to business contacts, etc. The major value of the agent, however, is supposed to be his ability to influence important people when it comes to the awarding of contracts for the really big business. The range of business is vast and the amounts of money involved in the billions. Opportunities for doing business with the SAG exist in arms and defense services, civil aviation, health equipment and services, road, housing and other construction, petrochemicals, steel, etc., etc. For a very healthy fee, the agent is supposed to get in touch with the right people who can help get the contract.

A company may never know precisely what in fact its agent has done for it. The apparently authentic story is told of a confidential clerk handling the bids for a multimillion dollar project who informed his brother several days before final ministerial action that a certain company was going to win the bid. The brother had time to contact that company and say it was in trouble but that he could get the bid for a fee of $100,000—payable only if the contract was won. Feeling vulnerable, the company agreed to pay. It got the contract but would have in any case.

This case is probably unusual, but it illustrates the atmosphere in which business with the SAG is carried out—companies believe a bribe is necessary whether or not it is. In fact, very high commissions are common and a good part of this is paid out in bribes. Most of the really big contracts seem to be handled by relatively few agents, Adnan Khoshoggi being the most famous or notorious. Khoshoggi (or his Triad company) is, for instance, the agent of Raytheon, Northrop, Lockheed and others.

Who Pays

We have long known that British and French firms, particularly those in the arms business, have, with the apparent approval of their governments, paid large commissions amounting to bribes. On excellent authority, we have been told that the commission/bribe element of the $625 million [less than 1 line not declassified] contract amounted to around $100 million.

Though we couldn’t document it, we know that American companies are also involved in the practice to get and keep contracts. [less than 1 line not declassified] is reputed to have ineptly paid a middling official in the Coast Guard a middling amount to quiet dissatisfaction with its performance on a contract with the Coast Guard Frontier Forces. This fact became known to the Commander of the Coast Guard and was one of the things which came back to haunt [less than 1 line not declassified] in its losing bid for a contract to modernize the National Guard.

Saudi Arabian Airlines recently contracted to buy three [less than 1 line not declassified]. High commissions for various purposes being the norm in the aviation industry, there is probably not much unusual in the reported $5 million per plane to get this contract.

[less than 1 line not declassified] recently won a contract for $117 million to staff and operate a series of military hospitals for the next two years. [less than 1 line not declassified] was the high bidder on the contract by a fairly wide margin. After a reexamination of the bids, however, [less than 1 line not declassified] was awarded the contract. The word around Riyadh now is that [less than 1 line not declassified] will have to perform on its $117 million contract with $89 million, the difference of $25 million presumably having gone into “fees” connected with getting the contract.

Foreign firms are not the only ones who pay, of course. There is tremendous public works activity going on all over the country and especially in the cities. It is commonly assumed that the local firms competing for the many contracts also make payoffs.

Many Forms

The bribe to get a contract appears to be the most significant form of corruption, at least in terms of the money involved, but it has many forms. Some variants such as the payoff to expedite customs clearance have already been mentioned. Payoffs to officials to remove artificial roadblocks to construction projects is another. One particularly egregious case reportedly involved the [less than 1 line not declassified]. Playing on the desire of the Japanese, the Koreans and the ROC to please Saudi Arabia and assure their oil supplies, so the story goes, [less than 1 line not declassified] was offered a quantity of cement at about $35 per ton—well below the world market price. Not content with taking a handsome profit by selling at the then going local rate of about $54 a ton, he ordered merchants with cement on hand to up their prices to about $70 a ton. Everyone with cement to sell turned a handsome profit.

Since we have not precisely defined corruption we might also examine the case of oil sales. Theoretically, all of Saudi Arabia’s oil production not taken by Aramco as equity or buy-back oil is marketed by the state owned company Petromin. Practice is fairly close to theory, but not so close that a number of persons can’t turn a healthy riskless profit. This happens because a certain, relatively minor, proportion of Saudi production is allocated to Princes for their disposal. The oil is not turned over to the Princes, only the right to sell it. Through agents the oil is then sold, usually by single shiploads in spot markets around the world. The profit is the difference between the amount paid to the Treasury (believed to be equivalent to the buy-back price paid by Aramco) and the actual selling price. There have been stories in connection with this type of transaction to the effect that agents have taken exorbitant commissions without the knowledge of some of the unsophisticated Princes to whom a quantity of oil has been allocated.

Where Does All the Money Go?

King Faisal is an honest man with quite simple tastes. His sense of what constitutes a corrupt practice to be condemned and rooted out includes most if not all of those we have named. We believe he is particularly repelled by the practice of awarding contracts through bribery. Most others at or near the top in the Saudi hierarchy are on the take. [12 lines not declassified] The list is by no means limited to [less than 1 line not declassified] members of the government. [6 lines not declassified] Many upper-middle and upper level military officers routinely take bribes and otherwise supplement their salaries. The elaborate villa built by the former Chief of Staff of the Air Force is somewhat of a Riyadh landmark (though some say he lost his position because of this ostentation which also says something about official sensitivity.)

A ministerial or other position of authority is not a requirement for sharing in the spoils of corruption. Agents apparently frequently split fees with other agents, a practice which reduces the likelihood of a sore loser doing anything which might ruin the game for all. Similarly, the Princes with the greatest opportunity reportedly are generous with their less fortunate brothers and cousins. (The oil allocation is one way in which opportunity is shared.) At the same time, royal recipients would be expected to, and presumably do to some extent, share their good fortune with their many non-royal followers, helpers and hangers-on in continuation of traditional beduin practice. The extent to which this latter practice is adhered to is, of course, a factor in the degree of tolerance of corruption.

At times one has the impression that everyone is on the take, though this is certainly not true. Hisham Nazer, Head of the Central Planning Organization, is probably clean. Shaykh Zaki Yamani has, in conversation with the Ambassador, been perhaps the most eloquent Saudi to speak with us about corruption and its pernicious effect. [4½ lines not declassified] The late Minister of State for Foreign Affairs, Omar Saqqaf, several times expressed concern to the Ambassador over the extent and possible effect of corruption. (He claimed to be able to afford his own expensive living standard by inherited wealth—he had said his land holdings in Medina were worth over $15 million—and by reason of the rather large amounts of cash that the King periodically thrust upon him. That also is possible).

We also know that there is a fairly large group of generally younger military officers and government officials who are not involved in corruption, talk strongly against it, and live modest, if not actually frugal, lives. And that is where the danger to the stability of the Saudi regime may lie.

WHY WORRY?

In the course of one week this summer [less than 1 line not declassified] may have lost 10 million French francs at the gaming tables of the Riviera. (Rumors to this effect were current in Saudi Arabia many weeks before France Soir and L’Express magazine published articles on the gambling of Saudi princes on the Riviera.) [1½ lines not declassified], is said to have lost over 2 million pounds sterling during a short stay in London this past spring. Another story has it that [1½ lines not declassified], also lost heavily on the Riviera this summer. These and other stories of high living by Saudi princes come to us not only from American and other Western sources but from Saudis within the country who are critical of this princely behavior. The stories—such as the L’Express magazine one—may be exaggerated, but are not inherently implausible and are widely believed to be true. [name not declassified] has told us the story on [name not declassified] was absolutely true—even the sums—and that “[name not declassified] should have been more discreet.”

We have noted that influential Saudis [2 lines not declassified] have expressed to the Ambassador their deep concern over the effects of corruption. In their most recent conversation on this subject [name not declassified] agreed with the Ambassador’s thesis that rampant corruption could lead to a reaction from Wahabi purists and that this in turn could lead to a takeover of the government, the ousting of the royal family and perhaps the installation of a new Qadafi or worse. [name not declassified] said that furthermore this result could come about within the next five years.

We have found that in general younger, more junior, and less self-confident Saudi civilian officials are reluctant to discuss the specifics of corruption. However, there is no reluctance to admit the existence of corruption and it is not uncommon to hear talk of the need to purify Saudi society by a return to basic moral principles.

[2½ lines not declassified] recently told an Embassy officer of his discouragement at frequently having weeks of work on a contract come to naught because of a princely decision to award the contract without regard to normal criteria.

[2½ lines not declassified], is very religious and also has a finely developed sense of honesty. He carried this to such an extreme that he automatically disqualified his older brother—who has for many years specialized in government contracts—from any bid from [2½ lines not declassified]. These examples illustrate that there are qualified, capable and potentially powerful people with a very low tolerance for corruption at a time when corruption is visibly on the increase.

At the present time there are about 3,000 Saudis studying at colleges and universities in the United States. The figure may be higher now than it ever has been, but for many years large numbers of Saudis have been studying there. We have been interested to note that with very few exceptions almost all of these students have returned to Saudi Arabia when they have completed their studies in the United States (though their stay abroad quite frequently stretched out for a remarkable number of years). U.S. trained Saudis now constitute the backbone of most Saudi ministries concerned with economics and development. The salaries of these officials—normal by Saudi standards—are generally but a fraction of what an equally or less well educated representative of a western company is paid in Saudi Arabia. Many of these people will follow the example they see about them and try to get what they can from the system. They will find that the system of graft is non-exclusive and frequently generous. We believe, however, that a number of other persons will resist the temptations to corruption. From the example of other countries it seems reasonable to assume that these persons will be prepared to work to alter or completely change the system which fosters this corruption. It is in any case doubtful to what extent sharing in the spoils will induce loyalty to the prevailing order—especially as the really big payoffs will continue to go to members of the royal family.

PROSPECTS FOR THE FUTURE

Whether on the take or not, Saudis in a broad spectrum of society are increasingly aware of the world outside and they care very much what that world thinks of Saudi Arabia. Thus while [name not declassified] gambling and wenching will have genuinely offended many people—[less than 1 line not declassified]—the publicity given to his behavior has humiliated many more, some of whom might begin to question a system [1½ lines not declassified].

It was mentioned earlier King Faisal is an honest man. He is revered by his subjects, who regard his integrity as above question. [4 lines not declassified]

But the Embassy wonders how relevant Faisal’s personal character traits are to the problems the Royal Family will face as the King relinquishes power, or after his death.

The King’s interests seem to be narrowing, and the issues about which he shows most evident concern are general foreign policy, the Arab-Israeli question, and the “Zionist-Communist conspiracy”. On other matters, the Minister of Interior, Prince Fahd bin Abd al-Aziz, and his supporters have been assuming more and more authority. A year and a half ago King Faisal cancelled Fahd’s planned visit to the United States, and Embassy officers recall Fahd was afraid even to approve a visa for a Jewish staff aide of Senator Jackson, though he finally did so. This year, Fahd’s visit to the United States resulted in agreement on a comprehensive special relationship between the United States and Saudi Arabia on economic, scientific, and security matters. Visas for several Jewish newsmen who wished to visit Saudi Arabia were promptly obtained on the Ambassador’s request to Fahd. Fahd’s influence, moreover, has not appeared to diminish after articles appeared in the French and English press criticizing his extravagance while on vacation this summer. Two of his full brothers, in the Ministries of Interior and Defense, have also been given the personal rank of full Minister.

[3 lines not declassified] In years to come, moreover, the money available to Saudi Arabia will increase fantastically. By the end of 1974, Saudi Arabia’s monetary reserves may exceed 20 billion dollars; by 1980 they could exceed 100 billion dollars. Royal Family corruption in absolute terms seems bound to increase. But should the King’s influence further weaken, or in that period vanish altogether, there would be no figure in the Royal Family with the record of probity or the moral authority to check a rush to the trough.

If, with the passage of time, the Sa’uds become widely identified with corruption, they will become more vulnerable politically. The active loyalty of government officers, the armed services, and the populace that the regime would need in a crisis (and which it probably enjoys now) would be degraded into a passive, opportunistic camp following. The shock effect than of a challenge to the regime could be out of proportion to the physical assets at the opposition’s disposal. The Embassy considers, moreover, that if corruption is allowed to flourish in the next three to five years, the likelihood is good that the regime will have to cope with some troublesome and potentially dangerous challenge to its authority. Reaction time by the government will be critical.

At such a juncture, it might well be that the considerable resources of strength of the Sa’ud dynasty would prevail: the family is extraordinarily large and cohesive, and its three to five thousand princes function fairly well as a political party, and as an intelligence gathering mechanism; the monarchy’s legitimacy is widely accepted throughout one of the most homogeneous states in the Middle East; Saudi character tends naturally to be passive, and—always barring complications that may arise out of the Arab-Israeli problem—Saudi Arabia’s relations with its neighbors are less troubled than ever before. Finally—and most importantly—among the mass of royal Princes there are several who could swiftly provide leadership if the regime and the position of the Sa’ud family were challenged. But we would unquestionably have left behind the very rare kind of stability we have become accustomed to in Saudi Arabia.

ACTIONS TAKEN AND PROPOSED

As we have watched corruption mount we have asked ourselves what we might do to counter it—not from any moralistic concern, but as a means of guarding U.S. interests. We have concluded that there is relatively little which we can effectively do, but what we can is worth the effort. As noted, the Ambassador has discussed corruption and his concern over its pernicious effect with [names not declassified]. He has also discussed the subject with [2½ lines not declassified]—who like the King is scrupulously honest—left no doubt about his own concern with fighting corruption.

The Ambassador and other members of the Embassy have also warned American firms doing or considering business in Saudi Arabia of the pitfalls presented by tying up with “agents” promising lucrative contracts in return for fat “commissions” and other questionable practices. We have pointed out that this could permanently tarnish the reputation of the company in Saudi Arabia and also damage the presently excellent reputation of American business for being straightforward in business dealings.

[name not declassified] has urged the Ambassador to take up the question of corruption with the King since the King knows and respects the Ambassador’s strong position on the subject. (The King has been told of the Ambassador’s return to the Chief of Protocol of a watch given him as a gift and of his practice of rounding up and returning valuable gifts given to American official visitors). Discussing corruption with the King is an extreme step whose negative effects would probably outweigh the benefits: The King is aware of the high living of his brothers and disapproves. He also knows that there is a certain amount of graft in the awarding of contracts. He tries to curb both. Even a respected outsider’s raising the subject with him would cause him intense embarrassment. The approach might eliminate particular instances of corruption, but the general practice will not be so easily stamped out. Certain Princes, [name not declassified], would be certain to learn of the Ambassador’s action. Whether their names were mentioned (and they wouldn’t be by the Ambassador) they would very probably regard the initiative as having been directed against themselves and their positions of power. The effect would be to endanger the Ambassador’s effectiveness with those who might soon be in power.

A more promising approach might be made directly to [names not declassified] when specific instances of corruption involving U.S. interests come to our attention. If the action were taken in the context of saving their own and the SAG’s reputation from blemish due to practices of which they must be unaware, the tactic might have some effect.

We are likely to be most effective in connection with the activities of the Joint Security and Joint Economic Commissions. The Embassy recommends that in connection with the activities of the commission we constantly emphasize to our Saudi counterparts that the U.S. government will not become a party to facilitating corruption and that we will not permit our contracting procedures nor our experts to be used to promote payments to any Prince or powerful minister. We should emphasize to Saudi officials from the King on down that the USG will disassociate itself from any contract given on the basis of corruption (since proving corruption would be difficult and that is not our business, in practice we must insist upon contracts being let in accordance with pre-set guidelines.)

Reasonable fees for agents are one thing but when a fee reaches over 15% of a contract and is obviously going to the person who is responsible for awarding the contract, we should remove our umbrella of identification with the contract and the corrupt personalities. (We can do this quietly or with some publicity if we judge it might have a positive effect). We should resist being influenced by the possibility of losing export sales or short term political or military policy considerations. We might lose a little in the short run but we would have as allies the King and many others in the Kingdom who wish to see corruption checked. The longer term result will be even greater use of the American channel for important contracts and, more importantly we would maintain the presently very high esteem of the U.S. within Saudi society. Our own U.S. government reputation for incorruptability may one day prove to be our most valued asset in Saudi Arabia.

Information addressees of this airgram are requested to destroy it after reading.

Akins

1. Summary: The Embassy assessed the impact of corruption on Saudi Arabia’s relationship with the United States.

   Source: National Archives, RG 84, Jidda Embassy Files: Lot 79F80, POL 15–4, Denmark File (corruption). Secret; Exdis; Stadis. Drafted on December 10 by Nicholas M. Murphy (POL), with contributions in draft from Akins, Horan, Bird, Close, Butcher, Cecil, and Samuel Wyman (COML). Approved by Horan. Repeated to Abu Dhabi, Amman, Beirut, Cairo, Damascus, Dhahran, Doha, Kuwait City, Muscat, and Tehran.