(Repeats to add pdf link and reporting credit)
For pdf version of the story: link.reuters.com/nub38r
* Royal family views Saudi as "Al Saud Inc" - Wiki cable
* "Royal greed has gone beyond the bounds of reason"-cable
* King Abdullah's reform efforts sparked royal discontent
* Royal grandchildren's cut in 1996: $27,000 a month
LONDON, Feb 28 (Reuters) - When Saudi King Abdullah arrived home last week, he came bearing gifts: handouts worth $37 billion, apparently intended to placate Saudis of modest means and insulate the world's biggest oil exporter from the wave of protest sweeping the Arab world.
But some of the biggest handouts over the past two decades have gone to his own extended family, according to unpublished American diplomatic cables dating back to 1996.
The cables, obtained by WikiLeaks and reviewed by Reuters, provide remarkable insight into how much the vast royal welfare program has cost the country -- not just financially but in terms of undermining social cohesion.
Besides the huge monthly stipends that every Saudi royal receives, the cables detail various money-making schemes some royals have used to finance their lavish lifestyles over the years. Among them: siphoning off money from "off-budget" programmes controlled by senior princes, sponsoring expatriate workers who then pay a small monthly fee to their royal patron and, simply, "borrowing from the banks, and not paying them back."
As long ago as 1996, U.S. officials noted that such unrestrained behaviour could fuel a backlash against the Saudi elite. In the assessment of the U.S. embassy in Riyadh in a cable from that year, "of the priority issues the country faces, getting a grip on royal family excesses is at the top."
A 2007 cable showed that King Abdullah has made changes since taking the throne six years ago, but recent turmoil in the Middle East underlines the deep-seated resentment about economic disparities and corruption in the region.
A Saudi government spokesman contacted by Reuters declined to comment.
The November 1996 cable -- entitled "Saudi Royal Wealth: Where do they get all that money?" -- provides an extraordinarily detailed picture of how the royal patronage system works. It's the sort of overview that would have been useful required reading for years in the U.S. State department.
It begins with a line that could come from a fairytale: "Saudi princes and princesses, of whom there are thousands, are known for the stories of their fabulous wealth -- and tendency to squander it."
The most common mechanism for distributing Saudi Arabia's wealth to the royal family is the formal, budgeted system of monthly stipends that members of the Al Saud family receive, according to the cable. Managed by the Ministry of Finance's "Office of Decisions and Rules", which acts like a kind of welfare office for Saudi royalty, the royal stipends in the mid-1990s ran from about $800 a month for "the lowliest member of the most remote branch of the family" to $200,000-$270,000 a month for one of the surviving sons of Abdul-Aziz Ibn Saud, the founder of modern Saudi Arabia.
Grandchildren received around $27,000 a month, "according to one contact familiar with the stipends" system, the cable says. Great-grandchildren received about $13,000 and great-great- grandchildren $8,000 a month.
"Bonus payments are available for marriage and palace building," according to the cable, which estimates that the system cost the country, which had an annual budget of $40 billion at the time, some $2 billion a year.
"The stipends also provide a substantial incentive for royals to procreate since the stipends begin at birth."
After a visit to the Office of Decisions and Rules, which was in an old building in Riyadh's banking district, the U.S. embassy's economics officer described a place "bustling with servants picking up cash for their masters". The office distributed the monthly stipends -- not just to royals but to "other families and individuals granted monthly stipends in perpetuity". It also fulfilled "financial promises made by senior princes".
The head of the office at the time, Abdul-Aziz al-Shubayli, told the economics officer that an important part of his job "at least in today's more fiscally disciplined environment, is to play the role of bad cop". He "rudely grilled a nearly blind old man about why an eye operation promised by a prince and confirmed by royal Diwan note had to be conducted overseas and not for free in one of the first-class eye hospitals in the kingdom." After finally signing off on a trip, Shubayli noted that he himself had been in the United States twice for medical treatment, once for a chronic ulcer and once for carpal tunnel syndrome. "He chuckled, suggesting that both were probably job-induced."
FOLLOWING THE MONEY
But the stipend system was clearly not enough for many royals, who used a range of other ways to make money, "not counting business activities".
"By far the largest is likely royal skimming from the approximately $10 billion in annual off-budget spending controlled by a few key princes," the 1996 cable states. Two of those projects -- the Two Holy Mosques Project and the Ministry of Defence's Strategic Storage Project -- are "highly secretive, subject to no Ministry of Finance oversight or controls, transacted through the National Commercial Bank, and widely believed to be a source of substantial revenues" for the then-King and a few of his full brothers, according to the authors of the cable.