Fraud Prevention in Saudi Arabia: Strategies & Risk Controls

Despite Saudi Arabia’s strong regulations, fraudulent activities continue to evolve, requiring ongoing efforts to prevent them.

The Saudi Central Bank (formerly known as SAMA) has introduced a Counter-Fraud Framework to help financial institutions manage fraud risks. This framework highlights the need for effective controls to prevent, detect, and respond to fraud, supporting the goals of Vision 2030 to create a stable and successful business environment.

What is Fraud as Defined by the Saudi Central Bank?

The Saudi Central Bank (SAMA) defines fraud as “ Any intentional act aimed at obtaining an unlawful benefit or causing a loss to another party. This can occur through the exploitation of technical or documentary means, relationships or social tactics, misuse of functional powers, or by deliberately neglecting or exploiting weaknesses in systems or standards, either directly or indirectly.”

Legal Consequences of Involvement in Financial Fraud in Saudi Arabia

In Saudi Arabia, the Anti-Financial Fraud and Deceit Law (Cabinet Decision No. 534/1442) imposes severe penalties for those involved in financial fraud: Individuals found guilty of fraud can a) face up to seven years in prison and b) fines of up to SAR 5 million (around USD 1.3 million).

• Those who incite fraud are subject to similar penalties if the fraud is successful.

• If the attempt fails, the penalties are reduced by half.

• Repeat offenders or those involved in organized financial crime may face even harsher penalties: a) up to 14 years of imprisonment and b) fines of up to SAR 10 million (~USD 2.6 million).

But courts may reduce or waive penalties for individuals who report fraud before any financial loss occurs or help authorities arrest all involved parties.

Fraud Prevention in Saudi Arabia: Key Aspects

Fraud prevention in Saudi Arabia involves a range of fraud prevention strategies and measures to 1) identify, 2) reduce, and 3) manage fraudulent activities.

What constitutes fraud prevention in Saudi Arabia?

Saudi Arabia has put in place several important regulations to fight financial fraud: 1) the Counter-Fraud Framework 2) Anti-Fraud Rules for Finance Companies 3) Financial Consumer Protection Principles and Rules.

The role of financial institutions in mitigating fraud risks

Financial institutions in Saudi Arabia play a key role in preventing fraud by:

• Setting up strong internal controls to ensure compliance and ethical behavior

• Regularly assessing fraud risks and addressing any potential issues

• Staff trained to identify and prevent fraud

• Advanced fraud detection systems are used to monitor transactions and spot suspicious activities in real-time

• Institutions also provide clear channels for employees and customers to report any suspected fraud confidentially

Why fraud prevention is critical in Saudi Arabia

The estimated illegal proceeds in Saudi Arabia's banking sector range from $12 to $32 billion annually. What this means is that these large financial losses negatively affect public trust and thus can and might slow down economic growth.

Also, weak fraud prevention strategies and measures will most probably have a negative impact on investment opportunities. And that's why the Kingdom placed the Financial Sector Development Program, as part of Vision 2030, which focuses on building a diversified and efficient financial sector to support the country’s economic progress.

Read more: Anti-Money Laundering Compliance in Saudi Arabia: An Overview

Saudi Central Bank’s Counter-Fraud Framework

The Saudi Central Bank (SAMA) has developed a Counter-Fraud Framework to help financial institutions in Saudi Arabia manage and reduce fraud risks. The framework provides guidelines to detect, prevent, and respond to fraud, and its goals align with Saudi Arabia’s Vision 2030.

Objective, Scope, and Applicability

The main goals of the Counter-Fraud Framework are to create a consistent approach for financial institutions to address fraud risks, to ensure financial institutions develop strong fraud control systems, and to manage fraud risks effectively across all institutions.

The framework applies to all financial institutions regulated by the Central Bank of Saudi Arabia (banks, insurance companies, finance companies, amongst others) and they’re all required to follow the framework’s guidelines and ensure full compliance.

Four Main Domains of Fraud Risk Management

The framework focuses on four key areas of fraud risk management:

1. Fraud governance by assigning clear responsibilities to senior management for overseeing fraud risks, creating comprehensive fraud prevention policies, and ensuring responsibility at all levels for managing fraud risks.

2. Fraud prevention by taking proactive measures, training employees, and conducting regular assessments.

3. Fraud detection by using systems to monitor transactions and detecting suspicious activities, identifying warning signs that could indicate fraud, and continuously watching transactions for unusual patterns.

4. Fraud response by looking into fraud incidents to understand what happened, reporting it to the proper authorities, and taking steps to fix the damage.

Types of Fraud Risks Addressed

The framework covers various types of fraud risks like a) fraud committed by employees, such as stealing or unauthorized transactions b) fraud committed by outside individuals like identity theft c) fraud that involves both internal employees and external actors working together.

How to Respond to Fraud in Saudi Arabia

A quick and effective response to fraud minimizes losses and increases recovery chances. A clear Fraud Response Plan ensures a proper investigation, fair resolution, and corrective actions if needed. After resolving the issue, it’s important to identify the cause and evaluate the controls to prevent it from happening again.

The plan looks like this:

Respond to fraud → Raise alerts and initiate case management → Investigate → Remediate fraud and take corrective actions

Fraud Prevention vs. Fraud Detection Solutions

Fraud prevention and fraud detection are both key parts of managing risks in the financial sector, but they focus on different stages.

What is fraud prevention?

Fraud prevention is about taking steps to stop fraud before it happens. This includes setting up strong controls, regularly checking for risks, and encouraging a culture of compliance. In Saudi Arabia, the Saudi Central Bank (SAMA) requires financial institutions to create fraud prevention systems that use advanced technologies like AI and machine learning for real-time monitoring.

What is fraud detection?

Fraud detection, on the other hand, is about identifying fraud as it happens or after it has occurred. It relies on monitoring systems that flag suspicious transactions.

Prevention reduces the risk of fraud, while detection ensures that any fraud is quickly identified and dealt with. As part of Saudi Arabia’s Vision 2030, which aims to modernize the economy, a strategy that includes both fraud prevention and detection supports a safe and transparent financial environment.

10 Best Practices for Fraud Prevention in Saudi Arabia

The Saudi Central Bank has developed clear guidelines to help organizations create strong anti-fraud strategies.

1. Develop a Comprehensive Counter-Fraud Strategy

2. Establish Strong Governance Structures

3. Implement Rigorous Due Diligence Procedures

4. Apply Know Your Customer (KYC) and Customer Due Diligence (CDD) Measures

5. Develop and Enforce Anti-Fraud Policies and Procedures

6. Conduct Regular Employee Training and Awareness Programs

7. Utilize Advanced Fraud Detection Technologies

8. Establish Clear Reporting Mechanisms

9. Conduct Regular Fraud Risk Assessments

10. Foster a Culture of Integrity and Ethical Conduct

Detect and Prevent Fraud in Saudi Arabia with FOCAL

FOCAL is a smart AI platform built to help businesses in Saudi Arabia fight fraud. It uses advanced technology like device fingerprinting, real-time data checks, and customer due diligence to find risky activities and stop fraudulent transactions. FOCAL anti-fraud solution looks at data as it comes in, giving quick fraud risk scores, so institutions can act fast to protect their customers and assets.

Book a one-on-one demo with one of our experts to see how FOCAL fraud prevention solutions can empower your institution’s fight against fraud.