By Timour Azhari
RIYADH, Aug 18 (Reuters) - Saudi Arabia has placed financial transfers to the United Arab Emirates under extra layers of regulatory oversight reserved for countries considered high-risk for illicit money flows, according to three people with direct knowledge of the matter, the latest sign of a widening rift between the wealthy Gulf monarchies.
The measures, which were not announced publicly, could help explain why a number of companies say they have had difficulties transferring funds from accounts in Saudi Arabia to the UAE in recent months, an issue first reported by Bloomberg and the Financial Times in July. The enhanced oversight measures have not previously been reported.
Six businesspeople told Reuters their companies have had transfers in various currencies delayed or returned by Saudi banks with no official explanation.
Saudi Arabia's central bank requires financial institutions to apply more checks when dealing with customers or jurisdictions that pose greater risks for money laundering, terrorism financing and other crimes. Earlier this year, it notified key banks in the country to apply such measures when handling settlements with the UAE, said the three people with direct knowledge of the matter, who like others spoke on condition of anonymity.
A fourth person, a Western executive with operations in Saudi Arabia, said they received the same explanation when they asked their bank about transaction delays.
Responding to questions from Reuters, the Saudi central bank said: "There are no direct restrictions on specific countries."
It said Saudi Arabia has a robust regulatory framework to combat money laundering and terrorism financing in line with standards set by the Financial Action Task Force (FATF), a global watchdog based in Paris.
"All banks in the Kingdom apply necessary controls and preventive measures to mitigate risks based on their own internal assessments and institutional risk appetite, while also assessing various risk factors, including country and geographic risk," it said.
A UAE official said its economy ministry has not received any reports from private-sector companies regarding difficulties or unusual delays in completing bank transfers between the two nations.
"The UAE and Saudi Arabia maintain deep and longstanding economic and commercial ties, supported by significant trade and investment flows," the official said. "We remain in regular engagement with the private sector and relevant stakeholders, and would review any specific concerns brought to our attention through the appropriate channels."
OVER A HALF DOZEN COUNTRIES DEEMED HIGH RISK, SOURCES SAY
The additional scrutiny puts the UAE – a hub for real estate investment and the trade of precious metals and stones – among more than a half dozen countries in the region deemed high risk in Saudi Arabia for financial crimes, two of the sources said. They include Lebanon, South Sudan and Iraq, which are on the FATF's "grey list" of jurisdictions that need additional monitoring.
The FATF delisted the UAE in 2024 after it made improvements to its anti-money laundering regime, a decision some anti-corruption groups argue was premature. The United States has imposed sanctions on a number of UAE-based individuals and entities accused of raising or laundering funds for groups such as Iran's Islamic Revolutionary Guard Corps and Somalia's al Shabaab militants.
A Saudi insider said the enhanced oversight was intended as a "subtle message" to Emirati leaders about the importance of maintaining good relations following a period of escalating tensions between the two Gulf heavyweights – an interpretation shared by four regional financial-sector sources who were not briefed on the reasons for the measures.
Authorities in Saudi Arabia and the UAE did not answer questions about what may have prompted the move.
The two are major trading partners, but their interests have diverged over the years on everything from oil quotas and geopolitical influence to the race for foreign talent and capital.
Simmering disagreements came into the open late last year over their support for opposing sides in the war in Yemen. Saudi Arabia accused the UAE of threatening its security by backing secessionist forces who made a push toward its borders.
There were more disagreements over how to respond to Iran's war with the United States and Israel, even as Riyadh and Abu Dhabi sought to present a united front against Tehran's attacks on Gulf nations.
Saudi Arabia and the UAE are so deeply enmeshed in trade, investment and logistics that analysts consider a full-blown economic rupture unlikely, saying it would serve neither country's interests. The kingdom is the UAE's largest trading partner in the Arab world, while the UAE was Riyadh's fifth-largest export destination overall and its fourth-largest source of imports in 2024, according to data from the online platform the Observatory of Economic Complexity.
For all their differences, the Iran war has "solidified the rationale for cooperation" to secure vital interests, including reopening the Strait of Hormuz, said Justin Alexander, director of Khalij Economics, a Gulf-focused consultancy.
Top media officials from both nations posted synchronized statements on social media last month underlining the brotherly ties between the two.
ECONOMIC RIVALRY
Still, economic competition has been brewing for years as both attempt to reduce their reliance on oil-and-gas revenues and establish themselves as world-class financial and business centers.
While Dubai remains the Gulf's main business hub, Saudi Arabia has pushed multinational companies to relocate their regional headquarters to Riyadh, making it a condition to secure big government contracts.
The businesspeople who spoke to Reuters said their difficulties with cross-border transfers began in the weeks after the UAE announced on April 28 that it was leaving OPEC, the group of oil-producing states effectively led by Saudi Arabia.
The head of a Dubai-based consultancy said some Saudi clients were struggling to make payments to the firm and had advised him to set up operations elsewhere.
Two other UAE-based companies received similar requests from clients, who said Saudi authorities asked them not to do business with firms in the UAE, according to an investor with stakes in both firms. The companies have been waiting weeks for payments from Saudi Arabia, in some cases for amounts below 1 million dirham ($272,257), which would previously have been processed in a few days, the investor said.
Authorities in Saudi Arabia and the UAE did not respond to questions about these accounts.
Three bankers said the enhanced oversight means transfers to the UAE pass through more hands and receive closer scrutiny from compliance departments. Some transfers take weeks to go through; others never make it, they said.
Three businesspeople said their firms now route payments via third countries to get around the issue.
($1 = 3.6730 UAE dirham)
(Reporting by Timour Azhari in Riyadh; Editing by Alexandra Zavis)
