Saudi Arabia: The MbS US Agenda

Published on June 15, 2016

Key Takeaways:

Saudi Arabia is looking into further major investments in US hi-tech firms as a follow through to its $3.5 billion stake in Uber.

Saudi officials are also pitching Wall Street for a planned international bond issue and the massive Saudi Aramco IPO down the road.

But Saudi officials remain concerned a Senate bill could open the door to civil lawsuits seeking Saudi assets, and want a redacted 28 pages of a congressional 9/11 report released. These concerns have already led to the withdrawal of Saudi assets away from US jurisdiction.

There is far more to Saudi Arabia Deputy Crown Prince Mohammed bin Salman’s three-city visit to the United States that began yesterday than those long-redacted 28 pages of a 2002 Congressional report that purports Saudi complicity in 9/11.

But just about every meeting in Washington through Thursday’s meeting with President Obama, later in New York pitching an upcoming bond issue and the Saudi Aramco IPO, or the weekend in Los Angeles to meet high-tech and Hollywood executives will invariably revolve around it.

In that vein, here are a few points on the high powered Saudi three-city visit led by the Deputy Crown Prince — otherwise widely known as MbS — who is fresh from unveiling the ambitious efforts to restructure and modernize the Saudi economy:

*** While much of the media attention will be focused on the Saudi meetings in Washington, an underappreciated leg of the Deputy Crown Prince’s visit to the USĀ  is a meet and greet this weekend in Los Angeles with hi-tech chief and Hollywood executives. The $3.5 billion investment in Uber last month was only the first of a major new investment push in the US hi-tech sector being considered by the Kingdom under the Deputy Crown Prince’s ambition plans to transform the Saudi economy. ***

*** Senior Saudi finance and energy officials will also be pitching Wall Street to select underwriters and drum up investor demand for a dollar-denominated bond issue due this summer, and are expected to lay out more detail on the massive IPO for Saudi Aramco planned for next year. The Saudis are also shopping the Hollywood studios and production companies for entertainment product suitable for the conservative Saudi society. ***

*** The dark cloud that hangs over the Saudi investment and borrowing ambitions, however, is the threat of 9/11 civil lawsuits to potentially seize Saudi assets. While such an outcome is a low probability, the Saudis want reassurances over a Senate bill, S.2040, that would put Saudi dollar holdings within the jurisdictional reach of the US courts. To clear suspicions, the Saudis want those redacted 28 pages released, which is likely later this month. ***

MbS’s Three City Agenda

The Deputy Crown Prince, who is also defense minister, and his high level delegation of Saudi officials, including Adel al-Jubeir, the foreign minister, began three days of meetings in Washington yesterday with a round of calls with senior US officials, including US Secretary of State John Kerry, CIA Chief John Brennan, and Director of National Intelligence James Clapper. Today he is meeting with Secretary of Defense Ashton Carter, Defense Intelligence Director Lieutenant General Vincent Stewart, Homeland Security Secretary Jeh Johnson, as well making the rounds on Capitol Hill. The Prince will meet with President Obama tomorrow, on Thursday.

As an interesting side story, the official Saudi Press Agency announcement of the Deputy Crown Prince’s visit and meetings made a point of noting he had extensive previous calls and meetings with Saudi Homeland Security and the intelligence agencies. The intention was apparently to deflect speculation he was overstepping into the traditional bailiwick of Crown Prince Mohammed bin Naif, who is also the Minister of Interior and well-known and well-regarded in the US counter-terrorist agencies.

The topics in Washington between the two long standing allies are the obvious ones, be it Syria, Iraq, Yemen, and above all Iran or the sale of US weapons and munitions. The Saudis are also keen to gauge the prospects in the US presidential elections, and are said to be as concerned over the rhetoric of the presumed GOP nominee Donald Trump as most foreign capitals seem to be.

In New York, with MbS is a delegation of very senior Saudi officials, among them Ibrahim Al-Assaf, the Minister of Finance and Khaled Al-Falih, Minister of Energy, Industry, and Mineral Resources. They will be leading the talks later this week in New York, where they will be meeting with Wall Street firms and potential investors about the international dollar-denominated bond issue being planned for this summer, as well as the proposed IPO for Saudi Aramco.

And over the weekend, the Saudi delegation will head to the West Coast for meetings with US technology executives as a follow through to their recent investment stake in Uber, which neatly fits into the Kingdom’s broader ambitions to bring more Saudi women into the workforce, but who under its very conservative religious custom, bans women from driving.

The Kingdom’s intended sovereign wealth fund, the Public Investment Fund, whose Managing Director Yasir al-Rumayyan will have a seat on the Uber board, is also looking into additional and potentially large investment stakes in US hi-tech firms.

While in LA, the new Minister of Culture and Information, Adel Al-Turaifi, is also expected to be scouting around Hollywood’s studios and production companies to sound out ideas and entertainment product suitable for the Kingdom’s conservative society. Those promise to be most interesting exchanges.

The “Justice Against Sponsors of Terrorism Act”

But much of the discussions in Washington, and never too far in the background of the New York and LA meetings, will inevitably revolve around the threat of US civil lawsuits over an alleged Saudi government complicity in the 9/11 attacks, and the jurisdictional reach of the US courts in any successful suit to the potential seizure of Saudi assets held in the US.

The Saudis remain highly sensitive to such a prospect, however low its probabilities, and have already been moving their dollar-denominated foreign reserves abroad for years now out of concern over the risk of the US courts or even the US government to seize sovereign assets ever since the US froze Iranian assets and used the international financial infrastructure to impose sanctions on Russia in the wake of the Crimea invasion (see SGH 5/9/14, ” Ukraine: A Broader Fallout on the Financial System”).

Above all, Deputy Crown Prince Mohammed is seeking reassurances from the Obama Administration that steps will be taken to shield the Saudi assets held within the US from the jurisdictional reach from the lawsuits.

The key to that is the fate of a Senate bill to pass, which would override a 1976 law giving foreign nations immunity from lawsuits in American courts in the case of attacks on US citizens on US soil. If that Senate bill, S.2040, passes, it could in theory allow the Saudi government to be held responsible in American courts — and for any award of damages — if its role is proven in the Sept. 11, 2001 attacks.

S.2040, or the “Justice Against Sponsors of Terrorism Act” was first introduced in the Senate last September by Texas Republican Senator John Cornyn, the second ranking Senate Republican, and has drawn high profile, bi-partisan support with 24 co-sponsors, including the next leader of the Democrats in the Senate, New York’s Chuck Schumer, Vermont’s Presidential Bernie Sander, and Massachusett’s Elizabeth Warren, as well as former Republican presidential candidates, Texas Senator Ted Cruz and Florida’s Marco Rubio.

The Senate passed the bill by voice vote May 17, and has sent it to the House Judiciary Committee for consideration. House Speaker Ryan said last month the bill is under review, but to date has sounded skeptical on the merits of the bill. The Obama Administration has lobbied hard against the bill and President Obama has vowed to veto the bill if it passes without major changes. That veto threat means S.2040 would need a two-thirds majority in both the Senate and House to override a presidential veto, or else hope for a change of tact under a new President next year.

The Senate version, in fact, already includes an amendment, “Stay of Actions Pending State Negotiations,” which grants the secretary of state power to “certify” that there are good-faith discussions with any foreign state on any claims against it, while the US Attorney General can also petition the court for a stay of 180-day periods to delay any such lawsuit against a foreign government. That amendment, in watering down the bill, was in fact considered one of the reasons it passed so easily in the Senate without debate.

The 28 Pages

Where the sensitivity of US courts potentially seizing international assets in a successful verdict in the 9/11 lawsuits enters into reality TV is in the controversies and conspiracy theories surrounding some 28 pages of redacted passages in the official 2002 Congressional report on 9/11. Some or most of the redaction entails the mention of Saudi nationals in support of the 16 Saudi nationals involved in al-Qaeda’s 9/11 terrorist attacks.

Last Sunday, CIA chief Brennan said the 28 classified pages of the report show no evidence “to indicate that the Saudi government as an institution or senior Saudi officials individually had supported the 9/11 attacks.” But his narrow wording of “senior” officials has only served to further fuel the conspiracy theories. And the withheld sections of the report are central to the civil lawsuits asserting Saudi complicity and thus the state liability to damages in the case of a successful verdict.

The Office of the US Director of National Intelligence is reviewing the information in the 28 pages to determine whether it can be declassified, and it is widely expected all or most of the pages will indeed be released to the public in the coming weeks.

The Saudis, for their part, are insisting they want the pages released to clear the air and to end the accusations, even if the publication proves embarrassing to some Saudis whose names may show up in the pages. And MbS, for one, is said to have asked to read the 28 pages for himself, to see which Saudis might be mentioned in the redacted passages.

All of this makes for high geopolitical drama, but it also has carryover implications not only for the status of Saudi Arabia’s foreign reserves deemed within the jurisdictional reach of the US courts, but also for the looming Saudi Aramco IPO or future investments on the scale of last month’s $3.5 billion stake in Uber by the Kingdom’s Pubic Investment Fund.

The Saudis, for instance, want to list the Saudi Aramco IPO on the New York Stock Exchange as well as in Riyadh and potentially Shanghai to maximize its reach to international investors. But Energy Minister al-Falih himself has expressed trepidation in “unintended consequences” stemming from “frivolous lawsuits.”

Coincidentally, the prospects for multi-billion dollar investments in US capital-hungry hi-tech firms and lucrative underwriting fees for the banks in the largest ever IPO should also help to generate goodwill with two of the most powerful US business sectors that could lobby to keep S.2040 from becoming law.

Back to list