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In recent years, the rapid advancement of Artificial Intelligence (AI) and Machine Learning (ML) technologies has revolutionised industries worldwide, including in Saudi Arabia. These cutting-edge technologies hold immense potential for innovation and efficiency, yet they also pose complex legal challenges that must be carefully navigated by businesses and policymakers alike. From liability concerns to data protection and intellectual property rights, the legal landscape surrounding AI and ML in Saudi Arabia is evolving rapidly.

Liability and Accountability

One of the primary legal considerations in deploying AI and ML technologies in Saudi Arabia is determining liability for errors, accidents, or unintended consequences. Traditional legal frameworks often struggle to assign responsibility when AI systems make autonomous decisions. In Saudi Arabia, as in many jurisdictions, questions arise around who is ultimately accountable for AI-driven actions—whether it’s the developer, the user, or the AI system itself.

To address this, Saudi Arabia may need to adapt existing laws or introduce new regulations that establish clear guidelines for liability attribution in AI-related incidents. This could involve defining legal standards for AI governance, setting thresholds for human oversight, and establishing mechanisms for accountability that ensure fairness and transparency in AI applications.

Data Protection and Privacy

Another critical area of concern is data protection and privacy. AI and ML technologies heavily rely on vast amounts of data to function effectively. In Saudi Arabia, where privacy rights are highly valued, businesses must adhere to stringent regulations outlined in the Saudi Data and Artificial Intelligence Authority (SDAIA) and Personal Data Protection Law (PDPL).

Compliance with these laws is essential to safeguarding individuals’ rights and mitigating data breaches or misuse risks. Companies operating in Saudi Arabia must implement robust data protection measures, including data anonymisation, informed consent practices, and secure data storage and processing protocols, to ensure compliance with local regulations.

Intellectual Property Rights

AI and ML technologies raise complex intellectual property (IP) rights issues. Protecting AI-generated creations or algorithms under existing copyright or patent laws in Saudi Arabia presents challenges. Determining ownership of AI-generated works and resolving disputes over IP rights require careful consideration of legal principles and precedents.

Regulatory Framework

Saudi Arabia is actively shaping its regulatory framework to accommodate the rapid advancements in AI and machine learning technologies. The Saudi Data and Artificial Intelligence Authority (SDAIA) plays a central role in overseeing AI-related initiatives and enforcing data protection laws. However, the regulatory landscape is evolving, and there is a need for comprehensive legislation tailored specifically to AI applications.

Cross-border Data Transfers

AI and machine learning thrive on large datasets, often requiring cross-border data transfers. However, data localisation laws and international data transfer regulations can pose challenges for businesses operating in Saudi Arabia. Understanding and complying with these regulations is crucial to avoid legal pitfalls related to data sovereignty and cross-border data flows.

Saudi businesses engaging in international collaborations or leveraging cloud-based AI services must navigate complex legal landscapes to ensure seamless data transfers while upholding data protection standards mandated by local and international laws.

Contractual Arrangements

Contracts play a vital role in defining rights and responsibilities in AI-related transactions. Businesses must draft clear and comprehensive agreements with AI service providers, outlining terms related to data ownership, intellectual property rights, liability, and confidentiality.

As Saudi Arabia embraces AI and ML technologies to drive economic growth and innovation, addressing the legal implications becomes imperative. Businesses must proactively engage with policymakers and legal experts to navigate the evolving regulatory landscape, ensuring compliance with existing laws and advocating for new frameworks where necessary.

By promoting responsible AI deployment, fostering transparency, and prioritising ethical considerations, Saudi Arabia can harness the transformative potential of AI and ML while upholding legal principles that protect individuals’ rights and promote sustainable development.

The legal implications of AI and ML in Saudi Arabia extend across liability, data protection, and intellectual property rights. Businesses must adapt to this dynamic environment, leveraging legal expertise to innovate responsibly and contribute to a thriving AI ecosystem in the Kingdom.

Foreign investors eager to win bids pursuant to public tenders in the Kingdom of Saudi Arabia (“Kingdom”) must take heed of the ever-evolving landscape in the Kingdom impacting their ability to submit bids in light of the current restrictions in place as a result of the Kingdom’s desire to attract more regional headquarters (“RHQ”) to establish in or relocate to the Kingdom.

This Article aims to demystify the current restrictions in place pursuant to the Guidelines for Contracting between Government Agencies and Companies with no Regional Headquarters in the Kingdom and Related Parties issued by Council of Ministers Resolution No. (377) dated 03/06/1444 H (corresponding to 27/11/2022 G) (“Guidelines”), effective as of 01 January 2024, and the interplay between recent amendments to the Executive Regulations of the Government Tenders and Procurement Law, issued pursuant to Ministerial Resolution No. (1242) dated 21/03/1441 H (corresponding to 18/11/2019 G) and amended pursuant to Ministry of Finance Resolution No. (1090) dated 21/09/1445 H (corresponding to 31/03/2024 G) (“Regulations”), which came into effect as of 19 May 2024 G.

The Guidelines have restricted the window of opportunity for foreign investors operating in the Kingdom to qualify for public tenders. Prior to the enactment of the Guidelines, companies in the Kingdom could directly bid for public tenders. Now, with such enactment, one of the underlying and determining factors for any governmental tender is that a foreign entity must have a RHQ in the Kingdom. It should be clarified that while having an RHQ is a prerequisite to qualify in the bidding process, the foreign investor’s operational entity in KSA must execute the project, because RHQs cannot enter into any commercial agreements with third parties, as RHQs are non-revenue generating entities pursuant to the Ministry of Investment of Saudi Arabia’s rules. Despite such restrictions under the Guidelines, there are exemptions to the general rule. For instance, foreign companies with no RHQs may be eligible to participate in public tenders if: (a) the total value of the contract does not exceed one million Riyals, (b) after considering all proposals, it is the most standout proposal in terms of technical specifications, or (c) the contract is being executed abroad.  Under any of the scenarios, the burden is on the government entity in proving that such exemption is applicable to the particular project.

Naturally, and in light of the promulgation of the Guidelines, the Regulations required revisiting. Some of the key amendments to the Regulations are:

1. Adjusting the bid process under article 5 of the Regulations for works executed outside the Kingdom, notably, expanding on the exceptions to the requirements under the Government Tenders and Procurement Law, issued pursuant to Royal Decree No. (M/128) dated 13/11/1440 H (corresponding to 16/07/2019 G) (“Law”)

a. Permitting for framework agreements to being executed abroad;

b. Allowing government entities to accept bids through other means, and not limiting to electronic submission through the Ministry of Finance’s (“MOF”) Etimad portal, so long as the contracts are then uploaded and registered on the Etimad portal after execution;

c. Permitting government entities to disregard requirement of initial guarantee during the bid;

d. Allowing government entities to forgo requirement of the company from providing a final guarantee by taking into consideration alternative options to ensure quality assurance/guarantee of the works executed and in accordance with the specifications of the relevant jurisdiction’s quality assurance guarantee mechanisms. Should the government entity elect to require a final guarantee by the bidder, then it should specify the duration of such guarantee, and ensure it is disclosed in the tender, with such period of guarantee being subject to extension pursuant to the government entity’s discretion.

e. The government entity must comply with the suite of documents related to qualification of the participant such as approved forms of contracts, tender documents, pre-qualification documents, contractor performance assessment, and, to use such templates as a guidance but while taking into consideration the governing qualification documents in the respective jurisdiction of execution of the works. If the government entity was unable to use the same documents or similar documents, the reasons must be provided for the Qualification Committee’s assessment.

2. In regards to changes for contracting work with non-licensed entities for work in the Kingdom, the previous language under article 4 of the Regulations allowed for non-licensed entities to execute work in the Kingdom subject to MISA’s approval, now, such entities must obtain a license from MISA, which is in essence, obtaining a temporary certificate to submit proposals for government projects.

3. In respect to construction projects, article 96 of the amended Regulations mandates that the Government Entity must ensure that the site is ready for commencement of the work and is suitable for execution before opening up for bids. However, if an exigent circumstance exists, the government entity may open the project up for bidding before ensuring safety and suitability of the site, provided that it is disclosed in the bid and ensuring that the site has been evaluated in terms of safety and suitability prior to executing the necessary agreements with the winning bidder.

4. No longer making it a requirement on the company to furnish the Zakat, Tax, and Customs Authority certificate or a General Organization of Social Insurance certificate as a precondition to the final invoice amount

5. Lastly, the major change to the Regulations is article 154, which now mandates that any disputes arising from the project must now be resolved through arbitration by the Saudi Centre of Commercial Arbitration or any other arbitration centres in the Kingdom, which is now also extended to foreign companies. However, there is an exception to this rule when the contracts are being executed abroad, arbitration can be selected elsewhere subject to the MOF’s discretion. Irrespective of where arbitrator occurs, the relevant governmental entity must furnish the arbitral award for the MOF and the General Court of Audit’s records.

In essence, the options for foreign investors to participate in public tenders is now limited to: (a) execution of projects outside of KSA for foreign companies, (b) execution of projects within the KSA without a RHQ subject to the limited exceptions under the Guidelines and in observance of the procedures under article 5 of the Regulations, and (c) through its operational entities in KSA, where an RHQ must exists in parallel as a prerequisite.  Kingdom. It is important that should foreign investors wish to have more opportunities in the Kingdom for public tenders, it must consider, from commercial, legal, and tax standpoints, the option of incorporating an RHQ in the Kingdom.

The tug-and-pull between the Guidelines and the Regulations in practice creates a balance where it opens up the window of opportunity for foreign companies aiming to participate in public tenders, while also creating an incentive for foreign investors to establish their RHQ in the Kingdom.

With the advent of the Guidelines coupled with the ticking of the Vision 2030 clock’s approaching, the Kingdom is aiming to implement such projects with a clearer legal framework, as the Law is also due for a regulatory overhaul, as such proposed drafts were open for public consultation until 19 April 2023, but we have yet to see any indication of its implementation in the near future. Foreign investors should stay abreast of such changes by building repertoire with local counsel.

The landscape of fundraising in the financial markets is evolving rapidly with the advent of blockchain technology and digital assets. One notable innovation is the rise of Security Token Offerings (STOs), which present a regulated and compliant method of issuing digital securities. However, venturing into STOs in Saudi Arabia necessitates a deep understanding of the legal and regulatory framework governing these offerings. In this article, we will explore the essential legal considerations and regulatory challenges associated with conducting STOs in the Kingdom of Saudi Arabia.

Compliance with Securities Laws

One of the primary legal considerations when conducting an STO in Saudi Arabia is compliance with securities laws. The Capital Market Authority (CMA) is the regulatory body responsible for overseeing securities activities in the country. Any offering of security tokens must adhere to the provisions set forth in the CMA’s regulations.

The CMA defines securities broadly, covering traditional securities and extending to digital assets like security tokens. Issuers must navigate the regulatory requirements for offering and trading securities, ensuring proper registration and disclosure to protect investor interests. Compliance encompasses detailed prospectus requirements, periodic reporting obligations, and anti-fraud measures.

In Saudi Arabia, STOs are subject to stringent securities regulations overseen by the CMA. The CMA’s regulations aim to protect investors and ensure the integrity of the capital markets. Key considerations include:

• Registration Requirements: Issuers of security tokens must obtain necessary approvals and register offerings with the CMA. This process involves submitting detailed documentation, including prospectuses that disclose essential information about the offering and associated risks.
• Disclosure Obligations: Issuers are obligated to provide transparent and accurate information to investors. This includes financial statements, business descriptions, risk factors, and details about the token structure and rights conferred.
• Anti-Fraud Measures: The CMA enforces strict anti-fraud measures to combat illicit activities in securities offerings. Issuers must refrain from making misleading statements or omissions and ensure compliance with market conduct regulations.

Investor Accreditation Requirements

The CMA sets criteria for investor eligibility, often focusing on wealth and investment experience. Accredited investors are individuals or entities meeting specific thresholds of wealth, income, or professional expertise. These criteria are intended to safeguard retail investors from the risks associated with high-stakes investments. Accredited investors typically include:

• High Net Worth Individuals: Individuals meeting specified wealth thresholds, such as minimum income or asset levels.
• Sophisticated Investors: Entities with substantial investment experience, such as financial institutions, asset managers, or government bodies.

The CMA’s accreditation requirements aim to restrict access to STOs to qualified investors capable of assessing risks independently.

Navigating these requirements is crucial for issuers, as failure to comply may lead to penalties or regulatory repercussions. Verification of investor accreditation ensures that offerings are made to qualified individuals or institutions capable of assessing risks associated with security token investments.

Tokenisation of Traditional Financial Assets

Another aspect of legal consideration in STOs is the tokenisation of traditional financial assets. In Saudi Arabia, the process of tokenising assets such as real estate, equities, or debt instruments requires legal clarity. Tokenisation involves converting ownership rights into digital tokens on a blockchain, enabling fractional ownership and efficient transfer of assets.

Legal frameworks must address issues such as ownership rights, transferability, and regulatory implications specific to tokenised assets. Smart contracts governing these tokens must align with existing legal principles, ensuring enforceability and clarity in transactions.

Tokenising traditional assets involves converting ownership rights into digital tokens on a blockchain. Legal considerations include:

• Ownership and Transferability: Defining legal ownership rights and mechanisms for transferring tokenised assets securely on blockchain platforms.
• Regulatory Compliance: Ensuring tokenisation adheres to existing laws governing asset ownership, taxation, and regulatory oversight.
• Smart Contract Legality: Smart contracts governing tokenised assets must align with contract law principles to ensure enforceability in case of disputes.

Innovative Legal Structures

To navigate the evolving landscape of STOs, innovative legal structures are emerging. Special purpose vehicles (SPVs) and digital asset custodianships are employed to streamline compliance and governance. SPVs can be used to facilitate fundraising while adhering to regulatory standards, providing a layer of legal separation for token issuers. Innovative legal structures are being developed:

• Special Purpose Vehicles (SPVs): Issuers may use SPVs to facilitate STOs, segregating assets and liabilities from the parent company. SPVs can enhance legal clarity and mitigate risks associated with tokenised offerings.
• Digital Asset Custodianships: Third-party custodians manage and safeguard digital assets on behalf of investors, enhancing security and regulatory compliance.

Security Token Offerings offer a transformative approach to capital markets, bridging traditional finance with blockchain technology. In Saudi Arabia, conducting an STO requires meticulous attention to legal considerations and regulatory challenges. Compliance with securities laws, investor accreditation requirements, and innovative legal structures are essential pillars for a successful STO campaign.

As the regulatory landscape continues to evolve, legal practitioners and market participants must stay abreast of developments to harness the full potential of security tokens within Saudi Arabia’s financial ecosystem. Ultimately, navigating the legal complexities of STOs enables issuers to unlock new avenues of investment while upholding investor protection and regulatory integrity.

In Saudi Arabia’s dynamic economic landscape, businesses grappling with financial difficulties increasingly turn to debt restructuring. This strategic move aims to realign the terms of existing debt with the debtor’s repayment capabilities, thereby restoring stability and ensuring continuity of operations. This article delves into the debt restructuring landscape in Saudi Arabia, offering legal and practical insights into the mechanisms available and their implications for businesses and creditors.

Understanding Debt Restructuring Mechanisms

Debt restructuring in Saudi Arabia encompasses a variety of approaches, each tailored to specific scenarios of financial distress. Out-of-court workouts and pre-packaged insolvency arrangements stand out as particularly efficient. Out-of-court workouts involve informal negotiations between debtors and creditors, sidestepping formal legal proceedings and enabling parties to forge mutually beneficial agreements. Meanwhile, pre-packaged insolvency arrangements streamline the restructuring process by agreeing on a plan before initiating formal insolvency proceedings, reducing uncertainties and time consumption typical of traditional approaches.

Court-supervised reorganisations offer a structured legal framework for more complex cases or when creditor disputes arise. These proceedings ensure fairness and adherence to established procedures under Saudi insolvency laws, providing a clear path forward for all involved parties.

Legal and Practical Considerations

Navigating debt restructuring in Saudi Arabia requires careful consideration of several key factors:

• Compliance with Local Laws: Adhering to Saudi bankruptcy and insolvency laws is crucial. This compliance ensures that restructuring strategies are effective and legally sound.
• Negotiation Skills: Effective negotiation is vital in understanding creditor motivations and debtor capacities, which are essential for successful restructuring.
• Operational Strategy: It is important to continuously evaluate the business’s viability, engage with stakeholders, and maintain transparent communication to manage reputational risks and ensure support throughout the restructuring process.

Credit dynamics also play a significant role. The distinction between secured and unsecured creditors impacts negotiation strategies, as secured creditors have priority claims over specific assets. In contrast, unsecured creditors rely on the general financial health of the business. Innovative approaches such as debt-for-equity swaps and debtor-in-possession (DIP) financing can be useful, providing creditors with ownership stakes or offering the business crucial liquidity during restructuring, respectively.

Sharia Compliance and Technological Integration

Given Saudi law’s Islamic foundation, ensuring Sharia compliance in financing structures is non-negotiable. Moreover, integrating advanced technologies like data analytics, AI, and blockchain can significantly enhance decision-making, improve transparency, and streamline the restructuring process. These digital tools facilitate collaboration and ensure the precise execution of complex agreements, particularly in cross-border transactions.

The Path Forward

Debt restructuring presents viable solutions for Saudi businesses facing financial challenges. By selecting the appropriate mechanisms and understanding legal and operational considerations, businesses can navigate financial distress and emerge stronger. Successful restructuring requires collaborative efforts among debtors, creditors, and legal advisors, each contributing to the strategic realignment of the business’s financial obligations.

The debt restructuring landscape in Saudi Arabia is complex and requires a nuanced approach to effectively address different levels of financial distress. Businesses that proactively engage with experienced professionals and explore the various mechanisms available can navigate these challenges effectively, setting the stage for renewed stability and growth.