x Abu Dhabi, UAEFriday 28 July 2017

Arab business has its very own global scandal

The increasingly bitter row between the Al Gosaibi family of Saudi Arabia and their erstwhile business partner, Kuwaiti-born Maan al Sanea, is setting new standards for cross-border corporate intrigue.

The Al Gosaibi family of Saudi Arabia and Maan al Sanea, above, set new standards for cross-border corporate intrigue.
The Al Gosaibi family of Saudi Arabia and Maan al Sanea, above, set new standards for cross-border corporate intrigue.

The increasingly bitter row between the Al Gosaibi family of Saudi Arabia and their erstwhile business partner, Kuwaiti-born Maan al Sanea, is setting new standards for cross-border corporate intrigue. It is difficult to recall another Arab corporate scandal that has achieved such a level of global significance. The Al Yamama defence contract scandal resonated around the world for years; the fall-out from Dubai World's 2006 bid to buy the P&O ports business flared briefly from Los Angeles to Shanghai. But these events had geopolitical significance, and security implications, which meant they were bound to attract the attention of the politicians, and therefore the world's serious business media.

Al Gosaibi versus al Sanea is the first purely business event to grab the world's attention in such a way. With some US$22 billion (Dh80.8bn) of bank funding at risk, and assets ranging from Airbuses in the Cayman Islands to Coleraine in Northern Ireland (where Mr al Sanea funds some of the activities of the local university), the recriminations between the two sides have gone truly global. Part of the reason lies in the nature of the international financial system. The list of creditor banks to Al Gosaibi and Mr al Sanea's Saad group reads like a Who's Who of the world banking industry. Virtually every financial institution of any merit is there.

When times were good, they were falling over themselves to lend to the prestigious Saudi family and the ambitious entrepreneur. Now they want their money back. The affair went global quite early on, when the UAE's Mashreqbank filed an action in New York for some $225 million it claimed it was owed by Al Gosaibi as a result of foreign exchange transactions between the two. Exactly why Mashreq raised the stakes in such a manner is still being debated. Controlled by the UAE's powerful Al Ghurair family, Mashreq might have resolved the problem with a phone call to Al Khobar, where Al Gosaibi is based.

The latest round in that legal process came last week with the (eventual) filing of a counterclaim by Al Gosaibi, alleging Mashreq had been a willing partner to the gigantic $10bn fraud it says was perpetrated by Mr al Sanea. Al Gosaibi legal counsel said it took the action because Mashreq was trying to "jump the queue" of creditors in talks to retrieve some of their loans. The UAE bank is not the only one that has taken to the courts in this way. Both Deutschebank and Commerzbank have also taken legal action, but Al Gosaibi lawyers were adamant that they were not similarly accusing the Germans of "aiding and abetting" Mr al Sanea. If Al Gosaibi were to attack such giants of the banking world it might severely alienate the other international financiers waiting in line.

It looks as though the Al Gosaibi side has decided it can afford to take on a comparatively small UAE bank, but not the big creditors. This strategy is fraught with risks. At recent meetings with creditors in Dubai and London, Al Gosaibi encountered a lukewarm reception to its claim that most of the $9.2bn it owes was the result of alleged "looting" by Mr al Sanea. Some of the creditors pointed out that their loans had been negotiated in a normal contractual process, that Al Gosaibi's balance sheets had reflected those loans and had been signed off by respectable international accountants. They are not convinced by the claims of fraud and forgery Al Gosaibi has made.

The other reason this Saudi family feud has gone global is the presence of international advocates on both sides. Al Gosaibi has hired Kearsarge Global Advisors, a firm of Washington lobbyists, to co-ordinate its communications strategy, thereby ensuring much of the action will take place in the US. Al Sanea has so far been using two London-based communications firms, Mark Bolland Associates and Cardew Group, to give its side of the story, though in a distinctly lower key than Kearsarge.

So what began as a distinctly Arab affair - a spat between Saudis and a Kuwaiti over the state of health of two banks in Bahrain - has rapidly escalated into an international scandal involving more than 100 banks and assets sprawled across the globe. The New York lawyers will continue to clock up their very expensive time and the international PR firms will also get their slice of the action, but surely the focus of this affair will soon revert to Saudi Arabia. Some $5bn of the total $22bn at stake is estimated to come from banks in the kingdom. Investors at the highest levels of Saudi society are said to have lost money in the affair. Many of the identifiable assets of the Saad group are in the form of Saudi property. The kingdom's financial authorities, acutely conscious of the damage already done to their worldwide reputation, are closely watching the progress of talks with bankers.

The Al Gosaaibi-al Sanea spat will rumble on round the globe, possibly for years as the lawyers get increasingly involved. But it is up to the Saudis to take the lead in sorting it out. fkane@thenational.ae