Financial Services Focus
Ahmed RezeikSenior Counsel,Head of Shipping - Kuwait
Passant MansourAssociate,Transport & Insurance
Generally, money laundering in Kuwait is not a widespread problem. Nevertheless, Kuwait has made significant efforts to maintain a strong Anti-Money Laundering (AML) system.
On March 10, 2002, the Emir of Kuwait signed Law No. 35 of year 2002 criminalizing money laundering. Additionally, the law prohibits financial institutions from keeping or opening any anonymous accounts or accounts in fictitious or symbolic names. The law also requires banks to verify the identity of regular and occasional clients, maintain all records of transactions and customer identification information for a minimum of five years, conduct training and establish internal control systems, and report any suspicious transactions.
On June 23, 2003, the Central Bank of Kuwait (CBK) issued Resolution No. 1/191/2003, establishing the Kuwaiti Financial Inquiries Unit (KFIU) whose responsibilities include receiving and analysing reports of suspected money laundering, establishing a database of suspicious transactions, conducting anti-money laundering training, and carrying out domestic and international exchanges of information. The KFIU works in conjunction with the Office of the Public Prosecutor (OPP) to process and exchange information about suspicious money laundering activity.
Consequently, law No. 24/2012 established the Anti-Corruption Authority that looks after all AML-related activities for Kuwait as a whole.
In May 2013, Kuwait developed the Law No. 35/2002 and replaced it with the law No. 105 for year 2013 (AML Law) which updates the law to reflect all recent global developments in AML, including coverage of international treaties regarding terrorist financing and related activities.
Recently, the Insurance Regulatory Unit “IRU” has well updated their AML regulations in respect of insurance activities.
The AML Law defines the crime of financing terrorism as the direct or indirect provision or otherwise raising of funds in a voluntarily and unlawful manner for the purpose of using such funds to commit a terrorist act or knowing that such funds will be wholly or partially used for such acts of terrorism or to fund a terrorist organization or person. As noted above, the AML Law also criminalizes the act of money laundering which is provided to be the intentional disposition of any funds, which is known to be the proceeds of crime by:
converting, transferring or replacing such funds with the purpose of concealing or disguising the illegal source of such funds or assisting any person who participated in committing the initial crime from which the funds were generated to evade the legal consequences of his act;
concealing the true nature of the funds, its location, its source, its ownership, the method of disposing of the funds or the rights attached to such funds; and/or
obtaining, possessing, or using such money.
The integrity of the Kuwait insurance market and preventing the entry of criminal groups represent a public interest for all the insured and beneficiaries of insurance policies. Therefore, the Insurance Regulatory Unit undertakes the responsibility for the issuance of legal frameworks of anti- money laundering and combating the financing of terrorism in insurance activities. Therefore, the Insurance Regulatory Unit was very keen to maintain the safety of the Kuwait market away from any illegal act that might be happen through any of the insurance companies in Kuwait.
Accordingly, the IRU issued resolution no. 38/2021 concerning the issuance of the insurance sector AML/ CFT Rules (Insurance AML Regulation) which will be mainly supervised by the chairman of the higher committee of the IRU and as well will be covered under the following laws:
Law No. (125) of 2019 on the Regulation of Insurance and the Executive Regulations thereof;
Law No. (106) of 2013 on AML/CFT and Executive Regulations and amendments thereto,
Resolution of the Supreme Committee of the Insurance Regulatory Unit (IRU) in its meeting No. (12) of 2021, held on 31.08.2021, concerning the Approval of the Issuance of the Insurance Sector AML/CFT Rules.
Insurance AML Regulation has paved the way with the general provision that each insurance company in Kuwait shall be complied with. From one side be aware of the work policies and procedures by making sure that all the insurance companies and the foreign branches of the same are following the rules, setting policies, work procedures, and bylaws and controls of AML/CFT operations in proportion to the size, nature and scope of the company or Insurance group. They shall be approved by the Senior Management of those subject to the Rules and shall be applicable to all local and foreign branches and subsidiaries of the group, if any. They shall confirm that the foreign branches and subsidiaries implement requirements contained in Article (10) of law No. (106) of 2013 referred.
Therefore, the insurance companies must follow the precautionary measures which set out in article 4 of the Insurance AML Regulation as below:
Client and transaction risk assessment;
Identification and confirmation of the identity of the Client, Actual Beneficiary, the Politically Exposed Persons (PEP), and their confirmation;
Maintain records and transactions related to Clients;
Apply due diligence measures to the Client and the Actual Beneficiary;
Examine and review independently the policy processes, business procedures, and bylaws and controls;
Appoint Compliance Controller of the Senior Management level. He shall be responsible for the implementation of the commitments contained in Law No. (106) of (2013) referred to Executive Regulations thereof, these Rules, or any Resolutions or instructions issued by the IRU or the Financial Intelligence Unit (FIU) in this regard;
Establish high efficiency standards for staff recruitment;
Implement ongoing training programmes on AML/CFT - all new and existing employees; and
Any other requirements placed by the IRU.
As such, the insurance companies and its foreign branches are required to create an electronic record system in which all client data and transactions determined by the IRU will be recorded so the IRU is able to access this system at any time. Therefore, the issuance reports from the insurance company shall include the assessment of the internal control system and to make sure that the law compiles it.
Moreover, they have to submit the required documents such as corporate documents / financial statistics and any information proves their suitability, integrity and efficiency. The insurance companies should be careful when they are appointing employees, members of the executive and supervisory management and their managers, and when selecting members of the Board of Directors, in particular:
making sure that the person possesses an elevated level of competence and integrity in order to perform their duties with no actual or potential conflicts of interest.
bearing in mind that the appointed employee has not been previously convicted of a felony or a crime against honour or trust, unless he has been rehabilitated.
Finally yet importantly, we would like to highlight article 44 from the Insurance AML Regulation, which stipulated that without prejudice to the criminal responsibility stipulated by Law No. (106) of 2013 referred to, those subject to the rules shall be punished in the case of violation, and the Disciplinary Board that a measure, penalty, or more of the following for each violation:
issue written warnings of the violation;
issue order that includes compliance with specific procedures;
issue order to submit regular reports on the measures taken to remedy the violation in question;
impose a financial penalty not exceeding five hundred thousand dinars for each violation;
prevent the Violator from working in the related activity for a period specified by the Disciplinary Board; and
restrict the powers of the members of the board of directors and members of the executive or supervisory management or its managers and the controlling owners, including the appointment of a temporary controller.
Finally, we would like to draw your attention to all the insurance companies in Kuwait as well as its foreign branches, to provide the IRU a quarterly report and make sure that the minimum level of compliance activities is undertaken, and the companies shall make sure that the department and the function are complied with the laws of AML/CFT law compliance, relevant compliance policies and procedures for Kuwait as well as complying with AML/CFT regulation of Kuwait. in addition, the insurance companies will also need to comply with relevant and applicable rules and regulations pertaining to insurance activities and provide quarterly compliance confirmation / certificate for their Kuwait branch office.
Otherwise, they might put the entity in a high-risk situation, which may lead to them facing legal liability according to law no. 106/2013 along with the Insurance AML Resolution issued by the IRU.
From a legal perspective, we would like to remind all companies / branches practicing any insurance activity to seek advice in respect of the audit and compliance report and the preparation of the same in order to avoid any future confusion.
For further information,please contact Ahmed Rezeik or Passant Mansour.
Published in February 2023
