Under the current system, the sluggish litigation process involved in getting offenders to pay up has seen some cases drag on for 15 years.

A weekly Cabinet meeting chaired on Monday and convened by the Ministry of Commerce and Industry, approved the measures, which include prison terms, public defamation in local newspapers, and granting authorities the power to impose freezes on offenders’ bank accounts and commercial activity.

According to the Saudi Ministry of Commerce and Industry, the amount of money tied up in checks that bounced throughout 2007 amounted to 3 billion Saudi riyals, the equivalent of around $800 million. Yadullah Ijtehadi, managing editor of the Dubai-based business website Zawya, blamed the problem on the financial crisis and said the problem is not limited to Saudi Arabia.  “In the UAE, it’s a longstanding issue, and people who bounce checks are sent to jail,” he told The Media Line. “Because of the credit crisis, the number of people who bounce checks has risen. I suspect it’s the same situation in Saudi Arabia, where people who have lost their jobs or businesses and can’t keep their cash issues in order are facing problems. It’s a symptom of the credit crunch.”

Ijtehadi said a high number of foreign workers in both Saudi Arabia and the UAE were a contributing factor to the problem.

“The authorities have very little way of getting hold of them to resolve the issue,” he explained. “People can leave and never come back.  You can argue that it’s not the way to get things done and that if a person is in jail, no one will benefit because he’s not in a position to repay his debt.

But you have to understand that the authorities have no other choice. There’s an inherent problem where if the person is an expatriate, he doesn’t have a family or as much of a stake in this country as someone who lives here and has citizenship.” But Rory Fyfe, editor and economist at the Middle East and North Africa division at the Economist Intelligence Unit was skeptical the problem warranted such measures. “The Kingdom has many severe punishments for minor offenses,” Fyfe told The Media Line, “putting in place a harsh punishment is not necessarily indicative of a serious problem.”

“I am sure people will be less keen to bounce checks if there are such harsh punishments, and they risk being publicly embarrassed,” he said. “But I do not view this as a particularly significant problem in any case.”

Fyfe predicted that if dishonored checks became more abundant, people would likely resort to other means of payment that are considered more reliable.

“This may be an inconvenience for some people, but generally there are other means of payment that are becoming increasingly utilized,” he explained. “In Saudi Arabia debit/credit card transactions are increasingly available.”

Citing data from the Saudi Arabian monetary Agency, Fyfe said the number of issued cards almost doubled from 6.4 million in 2004 to 12.6 million in 2009 and the number of point of sale (POS) terminals, through which electronic card transactions can be made, has also increased substantially from 35,521 in 2004 to 63,870 in 2009.

Saudi banks return hundreds of thousands of checks to their senders every year due to inadequate credit in drawers’ accounts.

Checks are usually dishonored if the drawer’s account has been frozen or limited, if there were insufficient funds in the drawer’s account when the check was redeemed or if it was redeemed beyond a specific time period.

Arabian Business reported that under the new measures, anyone who writes a bad check will be taken into custody and investigated by the Commission for Investigation and Prosecution before being referred back to the relevant authority for a final ruling.

The decision stipulates that Saudi citizens and anyone residing in the Kingdom should provide their bank with a valid mailing address that makes any bank-related correspondence with that address legally binding on the receiver. Philippe Dauba-Pantanacce, a Dubai-based senior economist with Standard Chartered Bank, said that based on the UAE experience, the development was not necessarily a welcomed step.

“This has been a tremendous barrier, especially to small and medium enterprises, and more generally speaking to the development of an entrepreneur spirit,” he told The Media Line. “It has pushed many, often, perfectly honest people to depart abruptly from a country in which they were at risk of going to jail, for something that could even be independent of their will.

This recent move by the authorities in Saudi is not a welcome step toward a modernization of the economic infrastructures and regulatory framework.”

The new measures, intended to restore confidence in the usage of checks, will require setting up a new division in the Saudi Interior Ministry, including representatives from the Justice Ministry, Commerce and Industry Ministry, Communications and IT Ministry, Finance Ministry, Customs Authority, Postal Authority and the Saudi Arabian Monetary Agency.