What is Commercial Cover-Up (Tasattur Tijari)? Types & Penalties in Saudi Law

In its continuous efforts to foster a transparent and equitable economic environment, the Kingdom of Saudi Arabia vigorously combats commercial cover-up. This illegal practice undermines fair competition, facilitates illicit financial activities, and impacts the national economy.

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For businesses and individuals operating in Saudi Arabia, understanding what constitutes commercial cover-up, its various forms, and the severe penalties involved is crucial for ensuring compliance and avoiding legal repercussions.

The Kingdom's commitment to eradicating Tasattur is deeply rooted in its ambitious Vision 2030, which aims to diversify the economy, attract legitimate foreign investment, and create a robust, transparent business ecosystem. Commercial cover-up not only leads to significant tax revenue losses but also distorts market dynamics, creating unfair advantages for illicit operations and hindering the growth of genuine local businesses.

Key Takeaways

• Commercial cover-up (Tasattur Tijari) is an illegal practice in Saudi Arabia where a non-Saudi conducts business using a Saudi's name or license without proper authorization.

• It undermines fair competition, leads to tax revenue losses, and distorts the national economy.

• There are seven common types of commercial cover-up, ranging from unauthorized business operations and financial control by non-Saudis to undeclared partnerships and operating under individual employment sponsorship.

• Additional penalties for Saudis include a commercial activity ban and license cancellation, while non-Saudis face deportation and a permanent re-entry ban.

• The Saudi government encourages reporting of suspected cases, offering whistleblower protection and potentially a reward of up to 30% of collected fines.

• Businesses must ensure proper licensing, clear ownership, transparent financial transactions, and due diligence to avoid Tasattur. Legal firms in Saudi Arabia can provide essential guidance for compliance.

What Exactly is Commercial Cover-Up (Tasattur Tijari)?

Commercial cover-up is broadly defined as enabling a non-Saudi individual to conduct business activities in the Kingdom that they are not legally authorized to perform, by using the name, license, commercial registration, or any other means belonging to a Saudi citizen or a licensed foreign investor.

Essentially, it's a deceptive practice where a Saudi national or entity acts as a "front" for a foreigner's unauthorized business operations.

The Saudi Anti-Commercial Concealment Law (ACL) aims to eliminate this shadow economy, promote fair competition, and protect consumer rights.

It targets situations where a non-Saudi exercises full control over a business, while a Saudi citizen merely lends their name for a fee, without genuine participation in management or daily operations. This often involves the non-Saudi managing financial transactions, possessing key documents, and making all operational decisions, effectively bypassing foreign investment regulations.

What Are the Different Types of Commercial Cover-Up in Saudi Arabia?

Commercial cover-up can manifest in various forms, often tailored to circumvent specific regulations or exploit loopholes. The Ministry of Commerce, in conjunction with other government bodies, has identified several common types of Tasattur activities, which highlight the diverse ways this crime can be perpetrated:

1. Enabling Unauthorized Business Operations: This is the most direct and common form. A Saudi citizen or entity allows a non-Saudi to use their commercial registration, license, or trade name to operate a business that the non-Saudi is not legally permitted to run independently (e.g., without obtaining a proper foreign investment license from the Ministry of Investment). For instance, a Saudi might register a construction company and allow a foreign individual to manage and profit from all projects.
   

2. Financial Control by Non-Saudis: This occurs when a non-Saudi individual manages the financial transactions of a business, such as through bank deposits, cash payments, or money transfers within or outside the Kingdom, without proper authorization. The business might be ostensibly owned by a Saudi, but the non-Saudi has full control over its finances, often diverting profits to accounts not officially linked to the business.
   

3. Possession of Business Documents: A non-Saudi possesses or controls essential business documents like blank checks, invoices, official stamps, or even the commercial registration itself, giving them absolute power over the establishment's operations. This effectively means the non-Saudi is running the business, while the Saudi 'owner' has no real say or involvement.
   

4. Undeclared Partnerships: A covert partnership exists between the Saudi owner of an establishment and a non-Saudi worker who does not possess the necessary foreign investment license. This allows the non-Saudi to directly benefit from the business's profits without being officially recognized or regulated as a partner.
   

5. Profit Sharing with Unlicensed Foreigners: This type involves endorsing a non-Saudi who lacks a foreign investment license to have a stake in dividends or profits meant for the legitimate partners or owners of the establishment. The non-Saudi receives a share of the profits without having made a legitimate investment or obtained the required legal status.
   

6. Unauthorized Disposal of a Facility: A company or establishment grants a non-Saudi person the absolute and illegal right to dispose of the facility. This includes giving them the power to appoint employees, manage all aspects of operations, or control bank accounts that are not officially linked to the business, essentially transferring de facto ownership.
   

7. Operating Under Individual Employment Sponsorship: A non-Saudi carries out commercial activity under the sponsorship of an individual employment visa (e.g., a household worker, driver, or domestic helper). This is strictly prohibited, as these visas are not intended for commercial purposes, and using them for business constitutes Tasattur.

These types can be found across various sectors, including:

• Retail Sector: Foreigners managing grocery stores, clothing shops, or other retail outlets under Saudi names.
  

• Construction Sector: Using Saudi commercial registrations to operate construction businesses, with the foreign party overseeing projects and finances.
  

• Real Estate Sector: Foreigners engaging in buying, selling, or managing properties under a Saudi's name.
  

• Electronic Services: Providing IT services, web development, or other technological services under the guise of Saudi citizens.
  

• Industrial Sector: Foreigners managing factories or manufacturing operations under a Saudi citizen's name.
  

• Service Sector: Operating restaurants, cafes, cleaning services, or other service-based businesses under Saudi names, often with the Saudi 'owner' having minimal involvement.

What Are the Punishments for Commercial Cover-Up in Saudi Law?

The Saudi Anti-Commercial Concealment Law imposes stringent penalties on both the Saudi "concealer" and the non-Saudi "concealed" individual. These punishments are designed to be a strong deterrent and reflect the government's serious commitment to eradicating this crime and protecting the integrity of its economy.

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What Penalties Apply to Both Saudi and Non-Saudi Offenders?

• Imprisonment: Offenders face a prison sentence of up to five years. The exact duration depends on the severity and nature of the violation.
  

• Financial Fine: A substantial financial fine of up to SAR 5 million (five million Saudi Riyals) can be imposed. This hefty fine aims to strip offenders of any illicit gains and deter future attempts.
  

• Confiscation of Illegal Funds: All illegally obtained profits and funds resulting from the commercial cover-up are subject to seizure and confiscation after a final court verdict. This includes assets acquired through the concealed business.
  

• Publication of Verdict: The identities of those involved in the crime may be published in local newspapers at their own expense. This public shaming serves as an additional deterrent and damages the reputation of the individuals and businesses involved.
  

• Joint Liability: Both the Saudi and non-Saudi parties are jointly liable for paying all Zakat, taxes, government fees, and other financial obligations incurred due to the illegal activity. This ensures that the state recovers any lost revenue.
  

What Additional Penalties Apply to Saudi Citizens?

• Commercial Activity Ban: A prohibition from engaging in any commercial activity for a period of up to five years. This prevents the individual from acting as a front again.
  

• Cancellation of Licenses: Withdrawal of all commercial licenses and cancellation of commercial registrations involved in the cover-up.
  

• Liquidation of Business: All business activities associated with the concealment are liquidated, effectively shutting down the illegal operation.
  

What Additional Penalties Apply to Non-Saudis?

• Deportation: Immediate deportation from Saudi Arabia after serving the prison sentence and fulfilling all financial obligations.
  

• Permanent Ban: Permanent prohibition from re-entering the Kingdom of Saudi Arabia. This is a severe consequence, preventing future unauthorized business activities.

Are There Stricter Penalties for Recurrence?

In cases of repeated offenses, the penalties become even more severe, including significantly increased financial fines and extended imprisonment terms, reflecting a zero-tolerance approach to habitual offenders.

How Can You Report Commercial Cover-Up?

The Saudi government actively encourages citizens and residents to report any suspected cases of commercial cover-up. Reporting is considered a national and ethical duty, playing a vital role in upholding economic integrity.

The law provides robust mechanisms to protect whistleblowers, ensuring their anonymity and safeguarding them from any retaliation or negative consequences. Furthermore, the law may even offer a financial reward of up to 30% of the collected fines, provided the informer was not involved in the crime themselves, incentivizing public participation in combating this illicit practice.

How Can Businesses Ensure Compliance and Prevent Commercial Cover-Up?

For businesses and individuals operating or planning to operate in Saudi Arabia, proactive measures are essential to ensure compliance with the Anti-Commercial Concealment Law:

1. Understand the Law: Familiarize yourself thoroughly with the provisions of the Anti-Commercial Concealment Law and its implementing regulations.
   

2. Proper Licensing: Ensure all business activities are conducted under appropriate and valid licenses, obtained through official channels. Foreign investors must secure proper investment licenses from the Ministry of Investment (MISA).
   

3. Clear Ownership & Control: Maintain clear and documented ownership structures. Ensure that the actual management and financial control of the business align with its legal registration.
   

4. Transparent Financial Transactions: All financial transactions must be conducted through official bank accounts registered in the name of the licensed entity. Avoid using personal accounts or unlinked accounts for business operations.
   

5. Due Diligence: When entering into partnerships or business arrangements, conduct thorough due diligence to verify the legitimacy and legal status of all parties involved.
   

6. Employee Sponsorship: Ensure that all employees, especially non-Saudis, are sponsored under the correct visa categories that permit their specific roles and activities within the business. Avoid using individual employment visas for commercial purposes.
   

7. Regular Audits: Conduct internal audits to review business practices, financial records, and operational control to identify and rectify any potential areas of non-compliance.
   

How Can Legal Firms in Saudi Arabia Assist in Ensuring Compliance?

Legal firms in Saudi Arabia specialize in Saudi commercial and corporate law, providing comprehensive legal services to help businesses navigate the regulatory landscape. Their expertise includes:

• Legal Consultation: Offering clear and precise advice on the Anti-Commercial Concealment Law and its implications for your business operations.
  

• Compliance Audits: Conducting thorough reviews of your business structure and practices to identify and mitigate risks of commercial cover-up.
  

• Structuring & Licensing: Assisting in establishing legal and compliant business structures, including obtaining necessary foreign investment licenses.
  

• Contract Review: Ensuring all your commercial agreements and partnerships are legally sound and do not inadvertently facilitate Tasattur.
  

• Dispute Resolution: Representing clients in cases related to commercial cover-up, should the need arise, and guiding them through the legal process.

By partnering with experienced legal professionals in Saudi Arabia, you can gain peace of mind, knowing that your business operations in the Kingdom are fully compliant with the law, allowing you to focus on legitimate growth and contribution to the thriving economy.

FAQ

Q1: What is the primary purpose of the Anti-Commercial Concealment Law in Saudi Arabia?

The primary purpose is to combat the shadow economy, ensure fair competition, protect consumer rights, and promote transparency in business operations by preventing unauthorized foreign individuals from conducting business under the guise of a Saudi national or entity.

Q2: Can a foreign company be involved in commercial cover-up?

Yes, foreign companies operating in Saudi Arabia can be involved in commercial cover-up if they collaborate with Saudi citizens or entities to use their names or commercial registrations to carry out unauthorized activities. Such involvement can lead to severe penalties, including heavy fines and deportation for the foreign individuals involved.

Q3: What are the main indicators of a potential commercial cover-up?

Indicators might include a non-Saudi individual having absolute control over a business without official ownership, managing bank accounts not registered to the business, or a Saudi "owner" receiving a fixed monthly fee without active involvement in operations. Authorities also monitor financial flows and business documents for inconsistencies.

Q4: Is there a reward for reporting commercial cover-up cases?

Yes, the Saudi law incentivizes reporting. Individuals who report commercial cover-up cases may be granted a financial reward of up to 30% of the total value of the fines imposed, provided they were not involved in the crime themselves.

Q5: How does commercial cover-up affect the Saudi economy?

Commercial cover-up negatively impacts the economy by undermining legitimate businesses through unfair competition, leading to significant losses in tax revenue, facilitating money laundering and economic fraud, and potentially exacerbating social issues. It creates an uneven playing field and hinders economic transparency.