Katie Barker reports on the travails of two family-owned businesses whose lack of transparency has left more questions than answers and an upcoming lawsuit in New York
Ahmed Hamad Algosaibi and Brothers Company (AHAB), one of Saudi Arabia's oldest family-owned conglomerates, in July filed a lawsuit against Maan Al-Sanea (pictured), the head of another Saudi family company. The lawsuit accuses the billionaire leader of the Saad Group of having "misappropriated approximately $10 billion as a result of his frauds."
The accusations continue to document how Al-Sanea supposedly channelled money into his own accounts through circular transactions in the US, Middle East and elsewhere through a "massive forgery of documents".
These are strong allegations from AHAB, particularly in a region where reputation is key and public disputes are rare. The lawsuit, filed in New York, also alleges that Al-Sanea is a senior executive of AHAB's financial services division, the Money Exchange.
The Saad Group has continually denied links with AHAB and has stated they have no business arrangements "except on an arms' length commercial basis." They also deny knowledge of the lawsuit.
This is the latest development in the downward spiral of fortune experienced by these two Saudi families, and the most explicit suggestion yet that the two are in-fact linked. There has been much speculation during recent weeks over the nature of the relationship between the two companies.
The Saad Group, a second-generation business, controls $30 billion worth of assets and has made Al-Sanea the third richest businessman in the Arab world. However, problems became apparent in May when Al-Sanea had his bank accounts frozen by the Saudi national bank. The situation deteriorated throughout June when the group had their investment ratings removed due to a lack of adequate information and the Saudi billionaire was then forced to sell shares in the UK firm Berkley Homes in order to raise cash.
One of the reasons given by the Saad Group for its recent misfortune is "the failure of companies owned by a prominent family business." There was much speculation the prominent family business concerned is AHAB but the reports are unconfirmed by either family.
Meanwhile, AHAB's problems started in May when one of their subsidiary companies, The International Banking Corporation (TIBC), defaulted on payments. Media reports then suggested Al-Sanea was managing TIBC but these were again unconfirmed. AHBA is also reported to have debts of up to $9.2 billion.
The true extent of the links between the two families may only become apparent when court proceedings commence and each is forced to disclose the nature of their involvement with the other.
Saudi Arabia will watch closely while the dispute unfolds as the economy is feeling the effects of the instability. The region's banks have already announced they are suffering due to the debt of the country's family businesses.
As the Arab banks attempt to find out just how much they leant the two companies, the US court will attempt to establish the true nature of the relationship between them. The problems for the two companies, for the banks and for the Saudi Arabian economy seem to stem from a lack of transparency from AHAB and Saad Group during the profitable years. Now all are paying for a system where family businesses borrowed on name alone, where complex family relationships veiled a potential $10 billion fraud and where the economy relied too heavily on its most prominent and profitable families.
The question all family businesses in the region now need to address is this: how much transparency are they prepared to give?
If the fraud charges are proved, Maan Al-Sanea will be serve as a warning to family businesses that resist transparency and to banks that lend without asking enough of the business they are lending to.