Preventing Corporate Scandals in Saudi Arabia through Whistleblowing

The business landscape in Saudi Arabia is rapidly evolving, with increased transparency and corporate governance becoming central to the nation’s economic vision.

While significant progress has been made in enhancing regulatory frameworks, recent corporate scandals highlight a lingering gap: the need for effective whistleblowing mechanisms to identify and address unethical practices before they spiral out of control.

Lessons from corporate scandals in Saudi Arabia

An image of a company in Saudi Arabia implementing effective whistleblowing channels to prevent corporate scandals

Several high-profile corporate scandals in Saudi Arabia have shed light on the vulnerabilities within organizations, particularly regarding ethical oversight and internal reporting mechanisms. Let’s consider a few examples to understand how an early-warning whistleblowing system could have changed the narrative.

Saudi Oger’s financial crisis

Once a powerhouse in the construction industry, Saudi Oger fell into financial ruin, partially due to allegations of mismanagement and delayed payments to subcontractors and employees. Had an effective whistleblowing mechanism been in place, employees, and stakeholders could have alerted authorities to internal financial mismanagement before the crisis reached a critical stage. An internal reporting channel could have identified discrepancies early on, allowing for proactive interventions to mitigate financial and reputational damage.

2015-2016: Economic Downturn

Falling oil prices significantly reduced Saudi Arabia's revenue, leading to cuts in government spending. This particularly affected large construction firms like Saudi Oger, which heavily depended on government contracts.
Payment delays from the Saudi government exacerbated cash flow issues.

2016: Employee Protests

Thousands of Saudi Oger workers, many of whom were expatriates, went unpaid for months. This led to protests and strikes.
Workers were stranded in labor camps without basic necessities, as the company was unable to pay salaries or provide adequate support.

2017: Shutdown

The financial situation became untenable, and Saudi Oger ceased operations in July 2017.
The Saudi government intervened to address the humanitarian crisis, repatriating unpaid workers and settling some dues.

Al-Khodari’s bankruptcy

Al-Khodari, a prominent construction firm, filed for bankruptcy in 2019 after failing to repay heavy debts. Reports of alleged corruption, inflated project costs, and inefficient management practices raised questions about the firm's internal governance. If employees or managers had a safe, confidential channel to report unethical behavior, it could have potentially uncovered systemic issues, allowing management and regulators to take corrective actions before the financial collapse.

2019: Financial Challenges

The company suspended trading on the Saudi Stock Exchange (Tadawul) due to its inability to publish financial results on time.
Mounting debts and liquidity shortages made it hard to sustain operations.

2020: Bankruptcy Filing

In March 2020, Al-Khodari formally filed for bankruptcy under the Saudi Bankruptcy Law, which had been introduced in 2018 to address such financial crises.
The court approved a financial restructuring plan.

2022: Liquidation

After restructuring efforts failed, the court moved to liquidate the company, marking the official end of Al-Khodari's operations.

At the time of its financial collapse, Al-Khodari had reported total liabilities of approximately SAR 1.8 billion (around $480 million).

PetroRabigh’s financial discrepancies

In 2019, PetroRabigh faced scrutiny for discrepancies in financial reporting, which resulted in a significant loss of shareholder trust. Such issues underscore the importance of having robust whistleblowing frameworks in place. Anonymous and secure channels could have encouraged employees to report financial irregularities without fear of retaliation, enabling timely interventions to rectify discrepancies.

Petro Rabigh, a key Saudi petrochemical company, has faced significant financial challenges recently. By early 2024, the company reported accumulated losses exceeding 38% of its share capital, amounting to SAR 6.4 billion (approximately $1.7 billion).

These losses were largely attributed to declining demand, challenging market conditions, and reduced profit margins for petrochemical products in 2023. Petro Rabigh's financial struggles are part of a broader downturn in the petrochemical sector due to oversupply and weak global demand.

How effective whistleblowing systems could prevent scandals

The image is of a corporate whistleblower reporting unethical practices in Saudi companies to prevent scandals

Whistleblowing mechanisms serve as an organization’s “immune system.” They are designed to detect and neutralize threats to ethical and financial integrity early, long before they escalate into full-blown crises.

Establishing a proactive whistleblowing system is vital in an era when companies face complex legal and reputational risks, especially in a scrutinized market like Saudi Arabia.

Here are three key ways an effective whistleblowing system could have prevented or minimized corporate scandals in the Saudi business landscape:

1. Early detection of financial mismanagement

Employees are often the first to recognize red flags within their organizations. With a reliable whistleblowing system, like Ethicontrol, employees can report unethical financial practices anonymously, prompting internal audits and investigations before mismanagement leads to financial ruin. This was a missed opportunity in the cases of Saudi Oger and Al-Khodari, where internal reporting could have uncovered financial misconduct before reaching an irreversible stage.

2. Building trust and accountability

A whistleblowing channel reinforces a company’s commitment to ethical practices and accountability. When employees believe that their concerns will be taken seriously and addressed confidentially, they are more likely to come forward. In PetroRabigh’s case, having a channel where employees could report financial discrepancies without fear of reprisal might have prevented the escalation of the crisis and protected shareholder interests.

3. Preventing legal and reputational fallout

Scandals not only impact the company’s finances but also cause long-lasting damage to its reputation. In Saudi Arabia, where trust and reputation are critical to business relationships, an effective whistleblowing system can act as a safeguard. By addressing issues internally and proactively, companies can avoid legal liabilities, financial penalties, and the loss of investor confidence.

Whistleblowing has played a critical role in uncovering cases of corruption and misconduct in Saudi Arabia

The arrest of Amr bin Saleh bin Abdelrahman Al-Madani, the head of the Royal Commission for AlUla, in 2024. His arrest was triggered by an anonymous whistleblower tip, leading to charges of abuse of influence and money laundering. Al-Madani allegedly used his position to secure millions-dollar contracts for a company he secretly owned.

This case highlights how whistleblowing mechanisms, supported by Saudi Arabia’s Oversight and Anti-Corruption Authority (Nazaha), have become an effective tool for exposing high-level corruption.

The increased transparency and reporting in sectors like construction and endowments are aided by whistleblower protections. Financial rewards for reporting unauthorized endowments exceeding SAR 9 million (approximately $2.4 million) have further encouraged public participation in identifying and curbing illegal activities.

This case demonstrates the importance of whistleblower protection and incentivization in fostering accountability and reducing corruption.

The role of Ethicontrol in safeguarding corporate reputation

Corporate scandal involving financial mismanagement in a company

Ethicontrol is a whistleblowing platform designed to assist companies in identifying and addressing unethical practices at an early stage. It provides employees with a secure and confidential channel to report concerns anonymously, promoting organizational transparency and accountability.

Key benefits of Ethicontrol:

Anonymity and Security. Employees can raise concerns without revealing their identity, ensuring confidentiality and protection from retaliation.
Customizable to Saudi Market Needs. The platform can be tailored to meet the regulatory standards and cultural nuances of Saudi Arabia, increasing its applicability and efficiency in the region.
Proactive Risk Management. By enabling early detection of potential issues, Ethicontrol supports companies in maintaining ethical standards, fostering trust, and mitigating the risk of reputational or legal challenges.

An essential step towards ethical business in Saudi Arabia

Modern and sleek office building in a bustling city, with the sun shining brightly on its glass exterior
The high-profile corporate scandals in Saudi Arabia serve as a clear reminder of the urgent need for robust and effective whistleblowing systems. Companies must prioritize the implementation of secure reporting channels, not only to protect their financial integrity, but also to preserve their reputation and the trust of their stakeholders.

Ethicontrol offers a comprehensive and culturally adaptable solution for Saudi businesses looking to strengthen their internal controls and ethical standards. By proactively implementing whistleblowing systems, organizations can safeguard themselves against financial mismanagement, legal complications, and reputational damage.

Now is the time for Saudi companies to invest in preventative measures like Ethicontrol. Don’t wait for a crisis to force change — empower your employees to be the first line of defence in upholding your company’s integrity and success.

If you are interested to know more about whistleblowing law in Saudi Arabia, please read our previous article about whistleblowing in Saudi Arabia.

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