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29 March 2024

Kuwait is vulnerable to money laundering

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By Staff

Kuwait has not suffered from serious money laundering and terror funding activities but such cases could surge amidst dramatic development in the Gulf country’s banking sector, the International Monetary Fund (IMF) has said.

Kuwait, one of the world’s largest oil exporters, currently has no clear anti-laundering law and current legislations suffer from many flaws, including its failure to incriminate launderers, the Washington-based Fund said in a 21-page study on Kuwait’s financial sector and anti-laundering measures.

“Although there is currently no evidence of significant money laundering (ML) in the country, Kuwait’s financial sector is growing rapidly in terms of banking sector assets. This development has the potential of creating a suitable environment for money launderers and terrorist financers to exploit,” it said.

The IMF noted that the Anti-Money Laundering (AML) law was introduced in Kuwait in 2002. While it imposes obligations on a range of financial institutions (FIs), the AML Law does not criminalize the financing of terrorism (TF) and does not put in place a mechanism to implement the UN Security Council Resolutions.

A new draft law on combating money laundering and terror funding was sent before the National Assembly in 2007, but has not yet been adopted.

“The AML/CFT framework has many shortcomings, such as (i) the fact that the

predicate offenses for money laundering (ML) do not cover all the designated categories of offenses required by the FATF Recommendations; (ii) the weaknesses in the preventive measures for financial institutions and for designated non-financial businesses and professions (DNFBPs); (iii) the lack of adequate powers of some supervisors to monitor and ensure AML/CFT compliance by FIs and DNFBPs; and (iv) the failure to establish the Kuwait financial intelligence unit (KFIU) as an independent national centre responsible for the receipt, analysis, and dissemination of suspicious transactions reports and other information regarding potential money laundering and terror funding.”

The study said that while the preventive measures for banks, investment companies, and exchange companies are more detailed and cover more aspects of the FATF recommendations, they are weaker for insurance companies, exchange organizations, and brokerage firms.

Nevertheless, there are still a number of deficiencies in the legal and regulatory framework that apply to all sectors, such as: (i) the timing for undertaking customer due diligence (CDD) measures; (ii) the verification of persons purporting to act on behalf of certain types of legal persons; (iii) the identification and verification of beneficial owners; (iv) the conduct of ongoing due diligence on the business relationship; and (vi) the review of existing records collected under the CDD process, the IMF said.

It said there are also no measures in place addressing politically-exposed persons (PEPs) for most financial institutions.

“Moreover, the existing requirements for banks and investment companies in the country do not conform to the FATF standard (i.e., lack of appropriate risk management systems; no requirement for senior management approval to continue a business relationship),” it said.

“The provisions to prevent the abuse of cross-border correspondent relationships and the misuse of new technologies, and to address the risks inherent to non face-to-face business relationships and transactions, are insufficient. The requirements to gather sufficient information about the respondent financial institutions and to document the respective AML/CFT responsibilities of each institution are not in line with the standard.”

The IMF said that although the secrecy provisions of Kuwaiti law do not inhibit the implementation of most of the FATF Recommendations, they restrict the free and direct international sharing of information outside consolidated supervision. “Indeed, there is a need to go through the public prosecutor office to share information with foreign counterparts outside of the context of consolidated supervision, and that process is limited to criminal matters,” it said.

“Implementation and effectiveness of preventive measures vary widely across

financial sectors. There are more stringent AML requirements for entities supervised by the Central Bank of Kuwait (CBK) and less stringent requirements for those entities supervised y the Ministry of Commerce and Industry (MOCI) and the Kuwait Stock Exchange KSE). Concern exists with respect to the implementation of AML requirements by brokerage companies, insurance companies, and exchange organizations.”

The study said the powers of enforcement and sanction against FIs are also not appropriate, adding that there is a limited range of formal sanctions available to the ministry of commerce and industry and the stock exchange.

“No monetary sanctions are available. Neither of these two supervisors have adequate powers. No sanction has yet been applied by the KSE for non-compliance with AML/CFT matters, and the sanctions applied by the MOCI are not effective. The data on the sanctions actually applied by some regulators for AML/CFT deficiencies clearly indicate that the framework does not provide for effective, dissuasive, or proportionate measures.”

The IMF recommended several measures to be taken by Kuwait to reinforce its anti-money laundering regulations. They include:

- Undertake prosecutions for ML also where there is no prior conviction for the predicate offense.

- Criminalize smuggling of migrants and TF.

- Extend criminal liability to all legal persons Allow confiscation of property of corresponding value.

- Ensure that the AML confiscation regime is applied effectively and is frequently used to seize and confiscate criminal assets for ML and predicate crimes

- Adopt laws and procedures to comply with SR.III.

- Ensure that the implementation of the freezing orders takes place in line with SR.III.

- Ensure that the institutions which are not subject to the supervision of the CBK are aware about the implications of the notifications received under UNSCRs 1267 and 1373, and the manner in which they should be implemented.

- Adopt specific provision criminalizing TF

- Address the legal basis that establishes the KFIU as a national centre for receiving (and, as permitted, requesting), analyzing, and disseminating disclosures of STRs and other relevant information concerning suspected ML or TF activities.

- Ensure that the KFIU provides reporting entities with guidance regarding the manner of reporting.