2.3 DEBIDO PROCESO DE LOS DENUNCIADOS 2.3.1 El Debido Proceso:

The nature of the administrative and judicial bodies that have authority over the board of directors significantly impacts on the performance of the board of directors and the roles and relationships with its members, shareholders, stakeholders and the company as a whole. Listed joint stock companies in Saudi Arabia come under the supervision of the Capital Market Authority (CMA) and are subject to its jurisdiction, not to the Ministry of Commerce or commercial courts. The members of the board of the CMA are appointed by Royal Order; this also determines the salaries and benefits of the board members.251 The CMA has corporate personality and financial and administrative independence. It also reports directly to the president of the Council of Ministers (the king).252 The CMA has a particular law that determines the scope of its authority, its jurisdiction and its power in enacting regulations and enforcing the provisions of the Capital Market Law and other relevant regulations and rules. In order to fulfil this function, the CMA has the power to inspect records, and gather evidence and documents required to tackle any violations or prevent them in the first place.253

The CMA establishes the Committee for the Resolution of Securities Disputes (CRSD), whose members shall be appointed by the board of the CMA for a renewable three-year term. Such a committee has the full jurisdiction to decide complaints or lawsuits and to issue decisions over all relevant disputes in both public and private rights, as well as to consider the grievances against actions and decisions taken by the CMA.254 The law also empowers the Committee to punish anyone violating the law with fines, imprisonment, suspension of trade, seizure of property, travel bans and so on according to set conditions.255 Moreover, it has the powers required to investigate these disputes, including subpoenaing witnesses and ordering the production of any necessary evidence and documents.256 Disputes and issues that are not mentioned by the Capital Market Law and the regulations issued by the CMA are essentially subject to the jurisdiction of commercial courts.257

251 _{Articles 7/a, 59 of Capital Market Law 2003 in the Kingdom of Saudi Arabia.} 252 _{Ibid, article 4/a.}

253 _{Ibid, article 5/a, c.} 254 _{Ibid, article 25/a, c.} 255 _{Ibid, articles 57/c, 59.} 256 _{Ibid, article 25/a.}

257 _{See the decision number 5/L/D1/2005 in 2006 of the Committee for the Resolution of Securities}

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The CMA can also file a lawsuit before the CRSD against certain violations. It has the power to determine these violations as well as the authority to issue regulations and rulesrelated to them.258 For example, article 57 of the Capital Market Law empowers the CMA to file a lawsuit against those violating articles 49 and 50 which determine matters relating to fraud and insider trading. These two articles give the CMA the power to set rules determining acts and practices constituting violations of such matters, as well as specifying and defining related terms.259 This means that the CMA in some cases plays the roles of legislator, claimant, inspector, jury and judge at the same time. According to Saudi law, the Council of Ministers shall issue a resolution to form an appeals panel for a renewable three-year term to receive appeals against the decisions of the CRSD and to issue final decisions for the complaints or lawsuits considered. The appeals panel comprises three members representing the Ministry of Commerce and Industry, the Ministry of Finance, and the Bureau of Experts at the Council of Ministers.260 In practice, the data show that the CMA Board and the Committees for the Resolution of Securities Disputes issued 241 sanction decisions; 102 of which were issued and enforced against listed companies/senior executives. On the other hand, there were 36 final judgments issued in favour of the CMA in cases brought by or against it, compared with three final judgments which were issued against the CMA in cases brought by or against it. These data come from the latest report of the CMA in Saudi Arabia.261

It should be noted that despite the fact that the CRSD and the appeals panel are carrying out judicial functions and they have the full authority to do so, the Saudi law does not deem the members of these committees as judges and it considers their decisions as administrative decisions not judicial verdicts.262 Moreover, the CRSD and the appeals panel are exercising their judicial duties away from the courts which, unlike them, have

permission, the committee decided that this case is outside its jurisdiction. See also Dahish, S. (2014). The Jurisdiction of Saudi Commercial Courts and their Litigation Procedures. Riyadh: Naif Arab University for Security Sciences (NAUSS), at 88. (Arabic)

258 _{Article 5/a of Capital Market Law 2003 in the Kingdom of Saudi Arabia.} 259 _{Ibid, article 25/c, 49, 50.}

260 _{Ibid, article 25/ f, g.}

261 _{See the Capital Market Authority in Saudi Arabia, Annual Report 2016, at p. 105, 107.} 262 _{Article 25/ b, c of Capital Market Law 2003 in the Kingdom of Saudi Arabia.}

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the supreme principles of justice, judicial independence and objective procedures. The members of the CRSD and the appeals panel have been appointed from legal consultants specialising in the jurisprudence of transactions, who have expertise in commercial and financial affairs, securities and financial markets. The law prevents them from having any financial or commercial interest even indirectly or having a kinship relationship with parties to lawsuits up to the fourth degree of relatives.263 However, this does not mean that they have sufficient legal qualifications and independence, which the members of the judicial authority have.

Another important point in this context is that the Capital Market Law uses fines and financial penalties imposed on violators of the provisions of the law as financial resources of the CMA.264 The law requires the CMA to deduct from its total income all current capital expenses, any expenses needed and double the total of its expenditures as a general reserve, and then it shall remit the surplus revenues collected to the Ministry of Finance.265

The above influential factors may create an atmosphere of uncertainty about the credibility of the litigation in Saudi capital market. These may cause serious negative effects not only on Saudi companies and the relationships with their board members but also on attracting foreign investors. Such a situation goes against the current strong trend towards privatisation and maximising the role of the corporate sector in Saudi Arabia, which needs to improve regulations, the judicial system, the environment of the market economy and measures of protection for the rights of all parties.

The recent final resolution issued on 9 February 2017 against Mohammad Al Mojil Group Company has created a big debate in the Saudi capital market and may disclose the extent of concerns in this regard, when strict sanctions including fines of billions and many years of imprisonment can be issued by a mere administrative authority. This resolution gave 5 years’ imprisonment for each of the chairmen of this company and the deputy, and a fine of 1.5 billion Saudi riyals ($400 million) to be deposited in the CMA account as well as a variety of other strict sanctions for auditors and master

263 _{Ibid, article 25/b.} 264 _{Ibid, article 13.} 265 _{Ibid, article 14.}

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executive managers. In addition, the resolution invites any individual shareholder or third party who sustained damages from this violation to file a case before the CRSD and to claim compensation.266