With all the drama of Dubai World being played out on the UAE stage, international observers have taken their eye off the other big story that came out of the region last year: the continuing dispute between the al Gosaibi family and their erstwhile confidant, Maan al Sanea. This affair involves about the same amount, at some US$22 billion (Dh80.8bn), of cash at risk as Dubai World and roughly the same number of creditors - about 100. It will not be long before it hits the headlines again.
New readers start here: last May, Gulf financial circles were shocked to hear of the default of two Bahraini banks, The International Banking Corporation (TIBC) and Awal Bank. Their financial problems quickly spread to their owners, Ahmad Hamad Al Gosaibi and Brothers of Saudi Arabia (Pepsi bottlers, builders and paint makers) and the Saad Group (property, import-export and fancy financial transactions), respectively.
Saad is owned by Mr al Sanea, a Kuwaiti-born entrepreneur who gained the trust of the al Gosaibi family through his marriage to Sana, the sister of Saud al Gosaibi, who is the managing director of the family's master company. Investigation by the Bahraini authorities and the al Gosaibis found serious financial problems in their own businesses and in the Saad Group, which led to allegations - well documented in New York and London courts - that Mr al Sanea had perpetrated a huge fraud on the family.
These allegations were then, and are still, vigorously denied by Mr al Sanea and his lawyers, the London firm of Harbottle and Lewis. (The latter, in particular, has been assiduous in the pursuit of their client's interests. There can be few media organisations in the world that have not received a warning letter from Harbottle.) The fraud is alleged but the losses were real, and big enough to prompt the interest of the Saudi authorities, who have set up a committee of banking regulators, investigators and financial institutions to determine what went wrong and how the problem can be rectified.
Meanwhile, the legal eagles got in on the act. The UAE's Mashreqbank filed an action in New York for return of $150 million it claims is owed to it by the Al Gosaibi group as part of a foreign-exchange transaction, and this sparked a litigation fest. The various filings, affidavits and documentation put into the public domain in courts around the world, especially New York, have proved a gold mine for investigators and commentators on the affair.
In particular, this year lawyers for the Al Gosaibi group filed an action in support of their claim that the case should be heard in New York, the scene of the alleged fraudulent foreign-exchange transactions, rather then Saudi Arabia, which Mr al Sanea argues is the proper legal venue. Attached to their filing were two reports commissioned by the Bahraini authorities. One was from the international accounting firm Ernst & Young on TIBC, which concluded that Mr al Sanea had a significant executive influence on the bank's affairs.
The other was produced by an investigative firm, Hibis, which has offices in Australia and Europe. Hibis was asked by the central bank of Bahrain to report on the affairs of Awal, Mr al Sanea's bank in the kingdom. Their conclusions, filed in the public domain as evidence in New York, were a litany of allegations of fraud, deception and misuse of funds by Mr al Sanea. Again, these are vigorously denied by his advisers and lawyers.
But the really interesting thing about the Hibis report is that huge parts of it have been "redacted", that is, taken out of the original report as filed in New York on the advice of lawyers. Apparently, some of the Hibis findings were too hot to handle, even for the hard-nosed seen-it-alls in Manhattan. This month the affair will hit the headlines again. The New York court will rule on whether it has appropriate jurisdiction over the matter, or whether it should be heard in Saudi Arabia. Lawyers say the court decision is too close to call at the moment.
Mr al Sanea will claim it as a victory if New York decides not to hear the case, but who knows? Independent observers of the Saudi business scene, on recent visits to the country and after talking to top-level Saudi decision-makers, report that opinion is hardening. What began as a minor problem in Bahrain, and came to be viewed as an internecine family feud, is now being increasingly seen as a serious scandal.
But one thing is for sure. With $22bn of bankers' cash and Saudi Arabia's reputation as a financial centre at stake, the kingdom's authorities are coming under increasing pressure to resolve the issue. firstname.lastname@example.org