An American Lawyer in Riyadh

AmericanLawyer has gone on something of a hiatus this year, with few and slow posts; one contributing factor is the content of the new regulations on On-Line Publishing.

Do the regulations ban blogging?  Not directly, but over the years, American Lawyer has found that an “indirect ban” is more typical than a direct one.  There is no law that prohibits women from driving, etc. – rather, driving without a drivers license is prohibited, in the KSA as everywhere else (and it just so happens that such licenses are not issued to women).

Of the 19 articles I’ve seen in translation in the new regulation, there is no article which indicates – directly – that the practice of publishing a blog without a license is prohibited, which fits with most statements about the law.

Art. 18 (10) indicates that “all owners of electronic activities referred to in Article 5 (electronic journalism, news agencies, publishing houses, websites of traditional media, mobile broadcasting, and broadcasting via electronic media” must “adjust their status within six months as of the date of publishing of this regulation.”  The Article 5 activities which must be registered and licensed do not include “blogging,” so no problem, right?

Yet Art. 18(11) indicates that “whoever fails to adjust his status within 6 months shall be deemed in breach of the provisions of the law and this regulation.”  This renders compliance a universal obligation falling upon “whoever” practices the activity.

What does it take to “adjust one’s status” under the law?  In theory, either registration or licensing.

Article 8 indicates that one must

(1) be a Saudi national.

(2) Have an email address at the same domain name.

(3) Define the email address of the applicant.

(4) Actually have a website in existence that can be registered.

In order to be “licensed,” there are additional requirements (in Art. 7), which among others, include that the applicant must be a Saudi national.

Thus, Art. 18(11), read in tandem with Art. 8(1)(1), results in the outcome that unless one is a Saudi national, one cannot “adjust one’s status” and register – and hence, one will be in breach of the blogging law.  Even though Art. 6 suggests that registration for blogs is “optional,” failure to register would be a failure to “adjust one’s status” and thus would constitute a breach.

One hopes that implementing regulations or explanatory statements will result in an alternative reading, or perhaps the translation upon which I am relying is incorrect, and the term “adjust ones status” does not mean “register” or “obtain a license.”  Sadly, Art. 18(11) puts the burden on “anyone” – meaning that the obligations are universal, for all persons practicing the activities.  Had they meant otherwise, they would have drafted the law differently.  Or they would release a translation indicating the official views as to the meaning of the law.

Hence, this blog shall remain closed.  For now.

How does one get to watch Ken Burns’ Jazz in Riyadh?  In the 20s, one would brave police and sneak into speakeasies.  In the 30s, one scraped pennies together to go for a weekend relief.  These days, one can fly to America, buy a DVD, carry it back and watch it from here (if the DVD player accepts US region encoded disks), download illegally, or download “sort of legitimately.” I used iTunes.  Is that legal?

read more…

Every week my law firm gets contacted by an American or European company with plans for Saudi Arabia.

All did the math, and calculated that with oil priced at X/barrel, and with Saudi pumping Y/million barrels, there’s a big chunk of revenue out there somewhere, just waiting for them to tap.  Executives fly in for some visits from a hotel room, read the misleading reports (e.g., the World Bank’s “Doing Business in the World” survey ranks Saudi Arabia as the #11 easiest place to do business – but only if you’re a Saudi national), they meet with prospective partners and government contacts, and  all seems promising… read more…

Just about every worthwhile blog based in Saudi Arabia goes on the occasional hiatus.  All are apologetic when they do so.  The story is well told.

Some preliminary observations:

(1) AmericanLawyer has not received instructions from an employer, a company, a client, the government, or any other party requesting that posts should cease.  No drama applies here.

(2) AmericanLawyer has not concluded that in view of the new Electronic Publishing Law, publishing a blog results in intolerable levels of liability or risk to himself or others.

(3) AmericanLawyer is remarkably busy of late, but that doesn’t necessarily mean too busy to read and assess the law.  Indeed, doing so (for pay) takes a good 10-15 hours out of my day.

(4) AmericanLawyer is not swept up by the “unprecedented” tumult underway in other Arab countries.  (a) It is not unprecedented.  Just read some history, folks, before getting unduly enthusiastic. (b) It’s not happening in Saudi Arabia, at least, not now.  (c) In terms of support or opposition, AmericanLawyer supports law, truth, equity, human decency, and all things favorable to these ideals.  AmericanLawyer does not support or oppose any government, or any specific policy.  AmericanLawyer opposes both chaos and subjection, stupidity and arrogance, bigotry and cruelty, wherever they be found – especially within myself.

Why the hiatus?  The use of a blog to explore has proven to be of limited utility – more likely to scare away those who know me, and who would wish to speak, than to attract discussion and discovery.  This blog is not intended to be a commentary/response , I have learned a fair bit about controlling and balancing my public positions, nuancing them without disguising or watering them down – speaking my mind without serving as either a puppet, self-promoter, or publicist of another kind.

But I have not yet learned how best to convert honest opinions honestly expressed into dialog whereby such expression actually matters.

Starting the New Year – AmericanLawyer intends to see a bit more of Riyadh, see it a bit more clearly, and share what he sees with anyone willing to help explore a bit further.  In short, AmericanLawyer would love to find some partners in adventure.

Yet sometimes, AmericanLawyer has to pause for a bit of wry befuddlement.  Case in point – what on earth is the following event about?

The 2nd Forum of Social Partnership in Scientific Research aims to monitor the reality of the social partnership in scientific research scope in Kingdom and evaluation of the national initiatives so as to reinforce the social partnership, beside the discussion of the policies and procedures that lead to the establishing of the social partnership. It also will study the most prominent obstacles and challenges that confront the start-up of the partnership and to find the available opportunities before the private sector for investing in scientific research scope as well as the anticipated roles of civil society institutions in supporting the scientific research.

I guess it has something to do with partnership.

Ronald Pump, one of the leading American lawyers in Riyadh,  passed away on Wednesday, December 1, while attending an event at an embassy in the Diplomatic Quarter of Riyadh.

His passing was sudden and without pain.

Those near to him in Saudi Arabia are doing what they can under the circumstances.  Perhaps appropriate words may be found to commemorate his life and to comfort those who will miss him, but for now, silence and sorrow.

AmericanLawyer attends a few diplomatic events over the course of a year.  It’s seldom productive for developing new business – bigger companies have already opted on a course, and smaller companies tend to send their salesmen to Saudi Arabia (often as part of a “Gulf trip”) – people looking to ink a deal, meet a quota, and run home, rather than businessmen looking to build something enduring.

But embassies can effectively advance the business interests of their home countries.  Someone who sticks around in Saudi Arabia for a few years can build an authentic  network of trusted contacts and friends.  They can have insights based on actual experience rather than simple impressions.

That experience can yield unpredictable fruit.  For example, knowing personnel in Ministry X, one might learn a bit about how they understand a problem – which becomes an unwritten aspect of a major bid.  Whoever knows about the problem, and sees a cost effective solution, has an advantage in preparing for the bid.  Since preparations may take the better part of a year, advance knowledge can often prove immensely helpful.

This sort of knowledge doesn’t involve “secrets” or even “spying” – simple honest discussions with people who know what they’re talking about, and who want to solve those problems (rather than enrich themselves).

“Transparency” of the sort fomented by Wikileaks, puts this sort of trust at risk.  Little chats with a government official over coffee may now never occur.  Little discussions about random bits of this and that will simply cease.

And that puts more than a few jobs in the States at risk.

One odd fact, however, that will doubtless be overlooked: according to the Guardian, around 3 million US government personnel had access to this information.  During the Cold War, foreign governments penetrated the CIA, FBI, and other agencies – even though the national security stakes at the time were massive and the controls extreme.

This time, 2.999 million government employees exercised due discretion, which at the end of the day, better describes US Embassy personnel than “free speaking” (particularly relative to other embassies).  When our people lend a hand (and I suppose they often try their best to do so), few will ever know it.

Unfortunately, such “discretion”  has now been blasted into a mockery.

Many others will note the political and security implications of the leaks, and for good reason.  Any responsible person will be concerned about such things.

Yet attempting to embarrass a man whom most agree has been a very good king and a very good friend to America is a simply ridiculous, and certainly not the way to earn his trust (or business).  Few will acknowledge what may well be the largest cost: opportunities, which often translate in the end into jobs.

When I was young, Japanese cars tended to be laughingstock playthings.  German vehicles commanded a begrudging respect, but lacked the raw power of the American West (and tended to be shown handling smoothly on the Pacific 101,  but not climbing mountain tops).

In 2009, two of the big three American automakers went bankrupt.  Best hopes for GM’s current “re-offering.”

In law school, one of my professors had a final exam question that went something like this:

“A recent article champions the American corporate management system as easily the most efficient system in the world, with particularly impressive results obtained in American industrial sectors.  German industrialists, with their inclusion of workers councils, and Japanese industrialists, with their broad array of social mandates, are both held to be incapable of streamlining production and operating for the benefit of shareholders…”

Comment.

Ah, the dreaded “comment” question.  See, in my law school, the professors didn’t care that everyone read the same guides, books, and had answers and issues galore.  ”Comment” always beckoned, forcing a rethink.

The thing was, in law school, business school, and other bastions of quasi-professional academia, the basic fact that value matters can be overlooked.  Here’s a horrifying profundity from one Saudi during this year’s Hajj contemplating the new Mina rail line – made by Chinese engineers:

“We would go to shopping malls and ask for Made-in-Germany and Made-in-Japan stuff. We would look down upon Made-in-China stuff,” said Suleiman Al-Hatrash, a social-sciences teacher at an Abha college. “We started taking China seriously when we went to the Western countries and saw their shopping malls filled with Made-in-China goods.” (Source: ArabNews)

What to do, when export reengineering is the current grand hope for the U.S. economy?  Are we seeing a game of currency chicken between Washington and Beijing out here in Saudi Arabia?

No.  Outside the defense sector, I’m seeing Chinese brands “subscendent” – U.S./Japanese labelled goods, manufactured in China’s workshop of the world.

The issue is a simple one, really: when two salesmen sell seemingly identical products, the lower priced good often wins.  If the higher priced good offers a better value, someone has to make that case.  However, every time you hire someone else to make that case for you, the marketing costs go up even more – so you either do it yourself, or try offering something new (like investment).

Why not try building the dang gadgets and what-not in the Kingdom from the beginning?  Energy costs are cheap.  And, you know, the Middle East is sort of in the middle of most shipping lanes.  And has a young labor force that just might be able to pull it off…

No successful investor ever put money down on a country merely as a result of high rankings on some annual report about foreign direct investment (FDI), but rankings obsessions being what they are, let’s think through the kingdom’s FDI performance.

What is FDI?  I like UNCTAD’s definition:

…FDI refers to an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor…the investor´s purpose is to gain an effective voice in the management of the enterprise… Some degree of equity ownership is almost always considered to be associated with an effective voice in the management of an enterprise…a threshold of 10 per cent of equity ownership [is suggested] to qualify an investor as a foreign direct investor.

UNCTAD notes that Saudi Arabia is one of the world’s top ten destinations for foreign direct investment.  Really?

Visit the corporate office towers in Riyadh, Jeddah, elsewhere – those storied buildings with “no vacancy for the next five years” and skyrocketing rents.  No vacancy?  Hardly. Count the people coming in during morning rush hour at most “new” offices – does that equal “full occupancy”?  And the rents?  Skyrocketing on paper, because discounts and uncollected back payments for other tenants mean that a handful of good tenants subsidize the rest.

Where are the jobs?  If a billion dollars translates into, say 10,000 jobs, simple math says the kingdom should be adding 300,000 jobs or more per year.  Is it?

Are the numbers lying?  Are theft or corruption or foreign workers stealing all the money?  Not at all – just, in this case, “FDI” is somewhat misleading.

Think of the massive BAE and Boeing deals as a model applicable to most major “investment.” The defense giants aren’t really “investing” in the kingdom – they’re just selling aircraft.  Yet on paper, these “deals” could look like massive “investment.”

And outside defense/major infrastructure, Saudi businessmen have strong incentives to play the FDI game.  A Saudi businessman pays no income tax, but does pay zakat, a 2.5% holding tax on all assets.  Instead of paying that tax, it’s more efficient to put all ones assets into offshore vehicles.  ”Income” is earned locally (where it features a 0% tax on income, and only the holdings are taxed), while “investment” occurs from the external vehicle, avoiding any tax in both jurisdictions, but adding little to the Saudi economy.

When foreign companies pay salaries for the employees based in the kingdom, are they “investing” in the kingdom somehow?  On paper, it can be made to look like it (payment into the capital of the local subsidiary, converted into payment of wages).  But in reality, it’s nothing like ordinary concepts of FDI.

Variations on the formula abound.  Local agent is absconding with the bulk of the profits due to its foreign principal? Foreign principal can set up a new entity, “forgive” some of the debt, and characterize the “forgiven debt” as investment.  What Saudi court will ever rule that such a characterization is not actually “investment” at all?  What foreign court will question the accounting?

In China, FDI means foreign companies take a stake in Chinese manufacturers, invest in factories, equipment, capital goods.  The outcome? Massive production increases, massive job growth, massive building spurts, and hundreds of millions of Chinese moving into industrialized modernity.

In Saudi Arabia, outside the petroleum/infrastructure sectors, FDI means foreign companies take a stake in their marketing channels (often through Dubai sub-channels). The outcome? Sporadic sales quotas met, but no job growth, and intermittent building spurts backed by uncollected debts from tenants.

Will paper investments of this sort help Saudi diversify its economy?  Will it result in any job creation for the legions of Saudis who need it?

We’ll see.  AmericanLawyer will remain skeptical until the day when Saudi Arabia is an export powerhouse outside the petrol-related sectors – or when the kingdom sees the job growth so desperately needed here.

Listening to  oral arguments in Monsanto Co. v. Geertson Seed Farms,  makes me think about injunctions in Saudi Arabia.  The case involves a claim by Geertson Seed Farms seeking to block the use of Monsanto’s genetically modified alfalfa until after an impact study was released that found that the new seeds would not possibly cause the loss of another company’s seeds.  Fair enough.

One of the most common boilerplate terms in contracts I see here concerns injunctive remedies when compensation is unable to cure harms to a party.  Phrases often look a bit like this:

The provisions of this section shall not be deemed to preclude any Party hereto from seeking preliminary injunctive or other equitable relief to protect or enforce its rights hereunder pending arbitration, or to prohibit any court from making preliminary findings of fact in connection with granting or denying such preliminary injunctive relief pending arbitration, or to preclude any Party hereto from seeking permanent injunctive or other equitable relief after and in accordance with the decision of the arbitrators.

Good luck enforcing an injunctive remedy in Saudi Arabia.  In this kingdom, it would be difficult indeed to imagine a court – or any regulator –  intervening to stop the planting of Monsanto seeds because other farmers feared their crops might be affected by cross pollination.

Indeed, there are very few instances where a court can intervene to stop a party from taking an action due to the potential harms that may result to other parties.

How should that affect contract drafting?  In general, the focus should shift to exercising control, and empowering one’s own agents on the ground, instead of hoping for third parties to come to the rescue.

Concerned that a joint venture partner may engage in actions that will harm the venture?  Put some of your people on the ground to express your concerns to the partner directly.

Concerned that a third party will disclose corporate secrets, resulting in irreparable harm?  Put some of your people on the ground and take oversight control over communications.

In the States, a fair bit of export and investment judgment is guided by the logic of extracting strong contractual concessions from another party, hoping that any disputes can be handled outside the country where one is operating, and then leaving everything to run according to principles already set down.

That would be a ridiculous tactic in military affairs – conflict by cruise missiles instead of by power projection on the ground, sky, and seas.

That would be a ridiculous tactic in political affairs – governance by press conference, rather than direct personal interaction with the constituents, funders, colleagues, and rivals.

Despite the power of robo-trader algorithms to move securities markets, one needs traders to plan strategies and manage supply chains, customers, and shareholders.

And in Saudi Arabia, a land where relationships still rule, one must always remember that the key to success is good people managing those relationships personally.  It may be convenient for some to pretend they can do it all from outside – flying in for key meetings when needed – but the day-to-day demands knowing what is happening and keeping on the path, rather than coming in to correct things when they go wrong (or to sell a product or service, and then back away).

No one will come to your aid to ensure proper dealings – no government agency will stop an inequitable act before it happens – except for your own people.