## _cr11267

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---

### Executive overview
- Although there is currently no evidence of significant ML in the country, Kuwait’s financial sector is growing rapidly in terms of banking sector assets, creating potential vulnerabilities to money launderers and terrorist financers.
- No major terrorist activity has been recorded in the country. Less serious terrorist activity has been noted.
- The AML Law was introduced in 2002 but does not criminalize the financing of terrorism (TF) and lacks a mechanism to implement the United Nations Security Council Resolutions (UNSCRs).
- A new draft AML/CFT law was sent before the National Assembly in 2007, but has not yet been adopted.
- Key systemic shortcomings:
  - (i) incomplete coverage of predicate offenses for money laundering (ML);
  - (ii) weaknesses in preventive measures for FIs and DNFBPs;
  - (iii) inadequate supervisory powers to monitor and ensure AML/CFT compliance by FIs and DNFBPs;
  - (iv) failure to establish the Kuwait financial intelligence unit (KFIU) as an independent national centre for receipt, analysis, and dissemination of suspicious transactions reports (STRs).

### C. Legal systems and related institutional measures
- ML is criminalized under the AML Law; smuggling of migrants and TF are not criminalized and therefore are not predicate offenses for ML.
- The AML Law explicitly extends criminal liability for ML to companies, but the notion of “companies” does not cover all other legal persons (e.g., associations, foundations).
- TF is not criminalized in Kuwait. Kuwait is, however, a party to all the conventions listed in the Annex to the International Convention for the Suppression of the Financing of Terrorism (ICSFT).
- Confiscation, freezing, and seizing framework is comprehensive except for value-based confiscation.
- No laws and procedures provide for the freezing of terrorist assets in the context of UNSCRs 1267 and 1373, and their respective successor Resolutions.
- KFIU lacks legal and operational independence; under the AML Law the Public Prosecutor’s Office (PPO) is the sole body authorized to receive STRs.
- Criminal financial investigations:
  - Directed and authorized by the PPO.
  - Carried out by Ministry of Interior specialized divisions: General Directorate for Criminal Investigations (CID) for ML-related cases and State Security Bureau (SSB) for TF cases.
  - CID concentrates investigations solely on predicate crimes and does not follow proceeds of crime or examine potential ML activities.
  - SSB investigates TF cases as crimes against the State; there have been no convictions.
- Cross-border cash control (Article 4 of the AML Law) covers only inbound movements of currency and monetary instruments.

### D. Preventive Measures — Financial Institutions
- All financial activities covered by the FATF standard are conducted in Kuwait.
- Some requirements currently set out in other enforceable means (OEM) should be covered in primary or secondary legislation.
- AML Law and Ministerial Resolution 9/2005 impose some CDD and record-keeping requirements on banks, investment companies, exchange companies, insurance companies, exchange organizations and brokerage companies; additional provisions exist in sector-specific instructions and guidance and vary markedly across sectors.
- Preventive measures are:
  - More detailed and comprehensive for banks, investment companies, and exchange companies.
  - Weaker for insurance companies, exchange organizations, and brokerage companies.
- Common deficiencies across sectors:
  - timing for undertaking CDD measures;
  - verification of persons purporting to act on behalf of certain legal persons;
  - identification and verification of beneficial owners;
  - conduct of ongoing due diligence on the business relationship;
  - review of existing records collected under the CDD process.
- No measures addressing politically-exposed persons (PEPs) for most FIs; existing requirements for banks and investment companies do not conform to the FATF standard.
- Deficiencies on correspondent banking and new technologies:
  - insufficient provisions to prevent abuse of cross-border correspondent relationships and misuse of new technologies;
  - requirements to gather sufficient information about respondent FIs and to document AML/CFT responsibilities are not in line with the standard;
  - no requirements for FIs to address specific risks associated with non face-to-face business relationships.
- No explicit legal/regulatory framework governing FIs’ reliance on intermediaries or third parties to perform elements of CDD.
- Implementing regulation includes requirements for training and internal controls, but not all FIs are required to have AML programs with adequate internal controls, including a compliance officer and an annual audit.
- Inadequate guidance and feedback to FIs and DNFBPs on AML/CFT obligations; lack of understanding among non-bank FIs about distinction between transaction monitoring and suspicious transaction reporting.
- STR regime:
  - Established broadly in law and regulation but fails to meet FATF standards.
  - Severely hindered by lack of requirement to file reports with the KFIU and by the lack of criminalization of TF.
  - Brokerage companies, insurance companies and exchange organizations appear not to understand STR requirements or to whom to report.
  - No requirement to file an STR for suspicious attempted transactions.
- Secrecy provisions restrict free and direct international sharing of information outside consolidated supervision; sharing requires going through the PPO and is limited to criminal matters.
- Shell bank regime fails to meet FATF standards; lacks requirement for physical presence encompassing “mind and management.”
- Implementation and effectiveness vary widely:
  - More stringent AML requirements for entities supervised by the Central Bank of Kuwait (CBK).
  - Less stringent requirements for entities supervised by the Ministry of Commerce and Industry (MOCI) and the MC/Kuwait Stock Exchange (KSE).
  - Concerns about AML implementation by brokerage companies, insurance companies, and exchange organizations.
- Supervisory frameworks and powers differ across sectors:
  - CBK supervision over banks, investment companies, and exchange companies generally adequate.
  - MOCI and KSE inspection and surveillance powers are not adequate and lack a clear process.
  - Lack of AML/CFT supervision by the KSE of brokerage companies and inadequate AML/CFT supervision by the MOCI of insurance companies and exchange organizations.
  - MOCI and KSE lack resources to effectively conduct AML/CFT tasks.
- Enforcement and sanctions:
  - Powers of enforcement and sanction against FIs are not appropriate.
  - Limited range of formal sanctions available to MOCI and KSE; no monetary sanctions available.
  - No sanction has yet been applied by the KSE for AML/CFT non-compliance; sanctions applied by MOCI are not effective.
  - Data on sanctions applied indicate framework does not provide for effective, dissuasive, or proportionate measures.
- Licensing concerns:
  - No legal/regulatory measures to prevent criminals or associates from holding or being beneficial owners of significant or controlling interests or holding management functions in a FI.
  - No fit and proper requirements for directors and senior management of investment companies, exchange companies, exchange organizations, insurance companies and brokerage companies.

### E. Preventive Measures — Designated Non-Financial Businesses and Professions (DNFBPs)
- Of six DNFBP categories, only three can operate in Kuwait under FATF definition: real estate agents, dealers in precious metals and stones, and lawyers.
  - These DNFBPs are subject to AML Law and Resolution 9/2005.
  - DNFBPs display overall lack of awareness of AML requirements and ML risks.
- Supervision of DNFBPs is lacking:
  - MOCI supervision of real estate agents and dealers in precious metals and stones is inadequate.
  - There is currently no AML supervision of lawyers.

### F. Legal persons and arrangements and Non-Profit Organizations
- Competent authorities cannot obtain adequate, accurate, and current information on changes in ownership and control of legal persons.
- Kuwait’s legislation does not allow bearer shares and does not provide for creation of trusts or similar legal arrangements.
- Measures adopted domestically to prevent abuse of charities and foundations; associations are treated differently and are not supervised and monitored effectively.

### G. National and international cooperation
- Two mechanisms established for inter-agency cooperation: the National AML/CFT Committee and the Committee on Combating Terrorism (CCT); neither has developed effective mechanisms to enable stakeholder coordination on policy and activity implementation.
- Kuwait has ratified and implemented most provisions of the Vienna and Palermo Conventions. However, it has not ratified or implemented the ICSFT.
- International cooperation framework:
  - Provisions contained in Law No. 5/2006 ratifying the Palermo Convention, other international conventions, regional and bilateral agreements, and the AML Law.
  - While formal legal framework for Mutual Legal Assistance (MLA) exists, authorities have not provided rapid responses to foreign requests in most cases.
  - Palermo Convention provisions relating to MLA do not apply to TF because TF is not criminalized in Kuwait and thus is not a “serious offense” under Article 2.b of the Palermo Convention.
  - Limited number of MLA cases related to TF prevents assessment of system effectiveness.
- Extradition and nationals:
  - ML is an extraditable offense.
  - Extradition of Kuwaiti nationals is not possible; judicial authorities can pursue legal action against Kuwaiti national subject to extradition request.
  - Lack of specific TF criminalization prevents extradition in TF cases where dual criminality is strictly applied.
- Non-judicial international cooperation is insufficient:
  - International cooperation with the CBK is limited to consolidated supervision matters.
  - Requirement to go through the PPO in certain situations is cumbersome and restrictive.
  - Absence of clear gateways for information sharing by MOCI and KSE.
  - Lack of established track record of information sharing between supervisors and foreign counterparts.
  - KFIU cannot share information with foreign counterparts.
  - Law enforcement agencies lack sufficient controls and safeguards to ensure information received is used only in authorized manner.

### Summary of observance and priority recommendations
- Ratings scale used: Compliant (C), Largely compliant (LC), Partially compliant (PC), Non-compliant (NC), Not applicable (NA).
- Key cross-cutting priorities:
  - Substantially improve statistics and allocate more resources to competent authorities.
  - Address uneven allocation of resources to AML/CFT and lack of specialist skills across competent authorities.
- Selected recommended actions by topic (preserve exact Recommendation numbering and ratings):
  - Criminalization of ML: R.1 - LC; R.2 – LC.
    - 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.
  - Criminalization of TF: SR.II - NC.
    - Criminalize TF in accordance with SR.II.
  - Confiscation, freezing, and seizing: R.3 - LC.
    - Allow confiscation of property of corresponding value.
    - Ensure AML confiscation regime is applied effectively and frequently.
  - Freezing of funds used for terrorist financing: SR.III - NC.
    - Adopt laws and procedures to comply with SR.III and ensure implementation in line with SR.III.
    - Ensure institutions not supervised by the CBK are aware of implications of UNSCRs 1267 and 1373 notifications.
    - Adopt specific provision criminalizing TF.
  - The FIU and its functions: R.26 - PC.
    - Establish legal basis for KFIU as national centre for STRs.
    - Ensure KFIU provides guidance to reporting entities and has timely access to information.
    - Protect security of KFIU information and publish periodic reports, typologies and trends.
  - Law enforcement, prosecution and competent authorities: R.27 - PC; R.28 - PC.
    - Take a more proactive approach to investigating and prosecuting ML and TF.
    - Ensure LEAs keep comprehensive statistics.
  - Cross-Border Declaration & Disclosure: SR IX - PC.
    - Amend AML Law to provide legal basis for a declaration system when leaving the country.
    - Align cross-border cash powers to Customs and provide authority to stop or restrain cash for suspicion of ML or TF.
  - Preventive measures — FIs (selected/high priority):
    - R.5 - NC; R.6 - NC; R.7 - PC; R.8 - NC.
    - Clarify that no threshold is applied to undertake CDD measures for regular customers.
    - Establish clear requirements for CDD in line with FATF (occasional wire transfers, suspicion of ML/TF, doubts about customer identification).
    - Identify and verify all types of legal persons; verify authorization of persons acting on behalf of legal persons; determine beneficial owners and those exercising ultimate effective control.
    - Require ongoing due diligence and extend requirements to insurance companies, exchange organizations, and brokerage companies.
    - Require banks and investment companies to gather sufficient information about respondent institutions and document AML/CFT responsibilities.
    - Fully extend non-face-to-face and new technology requirements to all relevant FIs.
  - Third parties and introduced business: R.9 - NC.
    - Introduce FATF Recommendation 9 requirements in law, regulation, or OEM.
    - Require KCC to provide copies of identification data to brokerage companies upon request.
    - Introduce provisions for insurance companies regarding business introduced by brokers and agents.
  - Financial institution secrecy: R.4 - LC.
    - Permit sharing of information between CBK and foreign counterparts outside consolidated supervision and criminal cases.
    - Provide efficient mechanism for domestic authorities to share information necessary to combat ML and TF.
  - Record keeping and wire transfers: R.10 - LC; SR.VII - LC.
    - Require retention of identification data, account files, and business correspondence for at least five years following termination of an account or business relationship.
    - Require FIs to extend record-keeping if requested by competent authority.
  - Monitoring of transactions and relationships: R.11 - PC; R.21 - NC.
    - Extend Recommendations 11 and 21 to insurance companies, exchange organizations, and brokerage companies.
    - Require FIs to examine transactions involving noncompliant countries and apply counter-measures.
  - Suspicious transaction reports and other reporting: R.13 - NC; R.14 - PC; R.19 - C; R.25 - NC; SR.IV - NC.
    - Establish in law or regulation that STRs be filed with the FIU.
    - Extend STR filing requirement to terrorist financing and to attempted transactions.
    - Issue additional guidance and feedback on STRs and prohibit disclosure that an STR has been filed.
  - Internal controls, compliance, audit and foreign branches: R.15 - PC; R.22 - NC.
    - Require FIs to have internal procedures, compliance officers at management level, independent audit functions, employee screening, and extend requirements to brokerage companies, exchange companies, insurance companies, and exchange organizations.
    - Ensure foreign branches and subsidiaries observe AML/CFT measures consistent with Kuwaiti requirements and FATF Recommendations.
  - Shell banks: R.18 - PC.
    - Amend CBK licensing to prevent shell banks; require physical presence; prohibit correspondent relationships with shell banks for exchange companies.
  - Supervisory and oversight system: R.23 - PC; R.29 - NC; R.17 - NC; R.25 - NC.
    - Designate competent authorities under AML Law with adequate enforcement and sanction powers.
    - Provide adequate range of sanctions for MOCI and KSE, including monetary sanctions and sanctions for directors and senior management.
    - Provide CBK sole power to revoke licenses and ensure supervisors use sanctioning powers effectively.
    - Establish “fit and proper” measures for directors and management of all FIs.
  - Money value transfer services (MVTS): SR.VI - PC.
    - Determine size and scope of informal MVTS and effectively monitor this sector.
  - Preventive measures — DNFBPs:
    - R.12 - NC.
    - Introduce requirements for DNFBPs related to PEPs, payment technologies, introduced business and unusual transactions; extend Recommendations 13, 15, and 21 to all DNFBPs.
    - Ensure DNFBPs prohibited from disclosing that an STR has been provided to competent authorities.
  - Legal persons and NPOs:
    - R.33 - NC; R.34 - NA; SR.VIII - PC.
    - Update registries to provide adequate, accurate, and current information on beneficial ownership and control.
    - Apply AML/CFT requirements to foundations and associations and conduct systematic on-site inspections of international projects.
  - National and international cooperation:
    - R.31 - PC; R.35 - PC; SR.I - NC.
    - Put in place effective domestic cooperation mechanisms.
    - Fully implement Vienna and Palermo Conventions; sign, ratify, and implement 1999 ICSFT; comply with UNSCRs 1267 and 1373.
    - MLA and extradition: R.36 - LC; R.37 - LC; R.38 - LC; R.39 - LC; SR.V - NC.
    - Ensure rapid, constructive handling of MLA requests; adopt legislation allowing value-based confiscation; adopt legislation criminalizing TF.
  - Other forms of cooperation: R.40 - PC; SR.V - NC.
    - Empower the FIU to exchange information with counterparts and establish safeguards on use of information; provide mechanisms for CBK, MOCI and KSE to share ML and TF information internationally; maintain statistics on requests for assistance.
- Priority cross-cutting resource and statistics recommendations:
  - R.30 - NC; R.32 - NC.
    - Allocate more resources to competent authorities.
    - Develop professional standards, including confidentiality standards.
    - Provide specialized training to staff of competent authorities.
    - Develop comprehensive statistics in all relevant areas of the fight against ML and TF.
    - Regularly review the effectiveness of the AML/CFT system.

*Source: IMF assessment team report content provided in the supplied document.*

### 1.      Although there is currently no evidence of significant ML in the country,

### _cr11267 - 1.      Although there is currently no evidence of significant ML in the country,

### Executive overview
- Although there is currently no evidence of significant ML in the country, Kuwait’s financial sector is growing rapidly in terms of banking sector assets, creating potential vulnerabilities to money launderers and terrorist financers.
- No major terrorist activity has been recorded in the country. Less serious terrorist activity has been noted.
- The AML Law was introduced in 2002 but does not criminalize the financing of terrorism (TF) and lacks a mechanism to implement the United Nations Security Council Resolutions (UNSCRs). A new draft AML/CFT law was sent before the National Assembly in 2007, but has not yet been adopted.
- Key systemic shortcomings include: (i) incomplete coverage of predicate offenses for money laundering (ML); (ii) weaknesses in preventive measures for FIs and DNFBPs; (iii) inadequate supervisory powers to monitor and ensure AML/CFT compliance by FIs and DNFBPs; and (iv) failure to establish the Kuwait financial intelligence unit (KFIU) as an independent national centre for receipt, analysis, and dissemination of suspicious transactions reports (STRs).

### C. Legal Systems and Related Institutional Measures
- ML is criminalized under the AML Law; smuggling of migrants and TF are not criminalized and therefore are not predicate offenses for ML.
- The AML Law explicitly extends criminal liability for ML to companies, but the notion of “companies” does not cover all other legal persons (e.g., associations, foundations).
- TF is not criminalized in Kuwait. Kuwait is, however, a party to all the conventions listed in the Annex to the International Convention for the Suppression of the Financing of Terrorism (ICSFT).
- Confiscation, freezing, and seizing framework is comprehensive except for value-based confiscation. No laws and procedures provide for the freezing of terrorist assets in the context of UNSCRs 1267 and 1373, and their respective successor Resolutions.
- The KFIU lacks legal and operational independence. Under the AML Law, the Public Prosecutor’s Office (PPO) is the sole body authorized to receive STRs; KFIU powers to collect, analyze, and disseminate STRs derive solely from PPO “report-by-report” memoranda.
- Criminal financial investigations are directed and authorized by the PPO and carried out by specialized divisions at the Ministry of Interior: the General Directorate for Criminal Investigations (CID) for ML-related cases and the State Security Bureau (SSB) for TF cases.
  - The CID concentrates investigations solely on predicate crimes and does not follow proceeds of crime or examine potential ML activities.
  - The SSB investigates TF cases as crimes against the State; there have been no convictions.
- Cross-border cash control regime introduced in Article 4 of the AML Law covers only inbound movements of currency and monetary instruments, severely limiting usefulness.

### D. Preventive Measures—Financial Institutions
- All financial activities covered by the FATF standard are conducted in Kuwait.
- Some requirements currently set out in other enforceable means (OEM) should be covered in primary or secondary legislation.
- The AML Law and Ministerial Resolution 9/2005 impose some customer due diligence (CDD) and record-keeping requirements on banks, investment companies, exchange companies, insurance companies, exchange organizations and brokerage companies. Additional CDD and record-keeping provisions exist in sector-specific instructions and guidance and vary markedly in depth and quality across sectors.
- Preventive measures:
  - More detailed and comprehensive for banks, investment companies, and exchange companies.
  - Weaker for insurance companies, exchange organizations, and brokerage companies.
- Common legal and regulatory deficiencies across sectors include: (i) timing for undertaking CDD measures; (ii) verification of persons purporting to act on behalf of certain types of legal persons; (iii) identification and verification of beneficial owners; (iv) conduct of ongoing due diligence on the business relationship; and (vi) review of existing records collected under the CDD process.
- No measures addressing politically-exposed persons (PEPs) for most FIs. Existing requirements for banks and investment companies do not conform to the FATF standard (lack of appropriate risk management systems; no requirement for senior management approval to continue a business relationship).
- Deficiencies on correspondent banking and new technologies:
  - Provisions to prevent abuse of cross-border correspondent relationships and misuse of new technologies are insufficient.
  - Requirements to gather sufficient information about respondent FIs and to document respective AML/CFT responsibilities are not in line with the standard.
  - No requirements for FIs to address specific risks associated with non face-to-face business relationships and transactions; most FIs not required to have policies to prevent misuse of new technologies.
- No explicit legal/regulatory framework governing FIs’ reliance on intermediaries or third parties to perform elements of CDD.
- Implementing regulation includes requirements for training and internal controls, but not all FIs are required to have AML programs with adequate internal controls, including a compliance officer and an annual audit.
- Inadequate guidance and feedback to FIs and DNFBPs on AML/CFT obligations; lack of understanding among non-bank FIs about distinction between transaction monitoring and suspicious transaction reporting.
- STR regime:
  - Established broadly in law and regulation but fails to meet FATF standards.
  - Severely hindered by lack of requirement to file reports with the KFIU and by the lack of criminalization of TF.
  - Brokerage companies, insurance companies and exchange organizations appear not to understand STR requirements or to whom to report.
  - No requirement to file an STR for suspicious attempted transactions.
- Secrecy provisions do not inhibit most FATF Recommendations but restrict free and direct international sharing of information outside consolidated supervision; sharing requires going through the PPO and is limited to criminal matters.
- Shell bank regime fails to meet FATF standards; lacks requirement for physical presence encompassing “mind and management.”
- Implementation and effectiveness of preventive measures vary widely across sectors:
  - More stringent AML requirements for entities supervised by the Central Bank of Kuwait (CBK).
  - Less stringent requirements for entities supervised by the Ministry of Commerce and Industry (MOCI) and the MC/Kuwait Stock Exchange (KSE).
  - Concerns about AML implementation by brokerage companies, insurance companies, and exchange organizations.
- Supervisory frameworks and powers differ across sectors:
  - CBK supervision over banks, investment companies, and exchange companies generally adequate.
  - MOCI and KSE inspection and surveillance powers are not adequate and lack a clear process.
  - Lack of AML/CFT supervision by the KSE of brokerage companies and inadequate AML/CFT supervision by the MOCI of insurance companies and exchange organizations.
  - MOCI and KSE lack resources to effectively conduct AML/CFT tasks.
- Enforcement and sanctions:
  - Powers of enforcement and sanction against FIs are not appropriate.
  - Limited range of formal sanctions available to MOCI and KSE; no monetary sanctions available.
  - No sanction has yet been applied by the KSE for AML/CFT non-compliance; sanctions applied by MOCI are not effective.
  - Data on sanctions applied indicate framework does not provide for effective, dissuasive, or proportionate measures.
- Licensing concerns:
  - No legal/regulatory measures to prevent criminals or associates from holding or being beneficial owners of significant or controlling interests or holding management functions in a FI.
  - No fit and proper requirements for directors and senior management of investment companies, exchange companies, exchange organizations, insurance companies and brokerage companies.

### E. Preventive Measures—Designated Nonfinancial Businesses and Professions
- Of six DNFBP categories, only three can operate in Kuwait under FATF definition: real estate agents, dealers in precious metals and stones, and lawyers.
  - These DNFBPs are subject to AML Law and Resolution 9/2005.
  - DNFBPs display overall lack of awareness of AML requirements and ML risks.
- Supervision of DNFBPs is lacking:
  - MOCI supervision of real estate agents and dealers in precious metals and stones is inadequate.
  - There is currently no AML supervision of lawyers.

### F. Legal Persons and Arrangements and Non-Profit Organizations
- Competent authorities cannot obtain adequate, accurate, and current information on changes in ownership and control of legal persons.
- Kuwait’s legislation does not allow bearer shares and does not provide for creation of trusts or similar legal arrangements.
- Measures adopted domestically to prevent abuse of charities and foundations; associations are treated differently and are not supervised and monitored effectively.

### G. National and International Cooperation
- Two mechanisms established for inter-agency cooperation: the National AML/CFT Committee and the Committee on Combating Terrorism (CCT); neither has developed effective mechanisms to enable stakeholder coordination on policy and activity implementation.
- Kuwait has ratified and implemented most provisions of the Vienna and Palermo Conventions. However, it has not ratified or implemented the ICSFT.
- International cooperation framework:
  - Provisions contained in Law No. 5/2006 ratifying the Palermo Convention, other international conventions, regional and bilateral agreements, and the AML Law.
  - While formal legal framework for Mutual Legal Assistance (MLA) exists, authorities have not provided rapid responses to foreign requests in most cases.
  - Palermo Convention provisions relating to MLA do not apply to TF because TF is not criminalized in Kuwait and thus is not a “serious offense” under Article 2.b of the Palermo Convention; authorities lack legal basis to provide MLA in TF cases.
  - Limited number of MLA cases related to TF prevents assessment of system effectiveness.
- Extradition and nationals:
  - ML is an extraditable offense.
  - Extradition of Kuwaiti nationals is not possible; in lieu of extradition, judicial authorities can pursue legal action against Kuwaiti national subject to extradition request.
  - Lack of specific TF criminalization prevents extradition in TF cases where dual criminality is strictly applied.
- Non-judicial international cooperation is insufficient:
  - International cooperation with the CBK is limited to consolidated supervision matters.
  - Requirement to go through the PPO in certain situations is cumbersome and restrictive.
  - Absence of clear gateways for information sharing by MOCI and KSE.
  - Lack of established track record of information sharing between supervisors and foreign counterparts.
  - KFIU cannot share information with foreign counterparts.
  - Law enforcement agencies lack sufficient controls and safeguards to ensure information received is used only in authorized manner.

*Source: IMF assessment team report content provided in the supplied document.*

### 34.      Statistics need to be substantially improved in Kuwait. Moreover, the allocation of

### _cr11267 - 34.      Statistics need to be substantially improved in Kuwait. Moreover, the allocation of

### Summary of observance and priority recommendations
- The document presents a Summary Table of Observance and Key Recommendations covering the FATF 40+9 Recommendations.
- Ratings appear across recommendations using the scale: Compliant (C), Largely compliant (LC), Partially compliant (PC), Non-compliant (NC), Not applicable (NA).
- Key cross-cutting priorities:
  - Substantially improve statistics and allocate more resources to competent authorities.
  - Address uneven allocation of resources to AML/CFT and lack of specialist skills across competent authorities.

### Legal system and related institutional measures
- Criminalization of ML
  - R.1 - LC
  - R.2 – LC
  - Recommended actions:
    - 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.
- Criminalization of TF
  - SR.II - NC
  - Recommended action:
    - Criminalize TF in accordance with SR.II.
- Confiscation, freezing, and seizing of proceeds of crime
  - R.3 - LC
  - Recommended actions:
    - Allow confiscation of property of corresponding value.
    - Ensure the AML confiscation regime is applied effectively and is frequently used to seize and confiscate criminal assets for ML and predicate crimes.
- Freezing of funds used for terrorist financing
  - SR.III - NC
  - Recommended actions:
    - Adopt laws and procedures to comply with SR.III.
    - Ensure implementation of freezing orders in line with SR.III.
    - Ensure institutions not supervised by the CBK are aware of implications of UNSCRs 1267 and 1373 notifications and how to implement them.
    - Adopt specific provision criminalizing TF.
- The FIU and its functions
  - R.26 - PC
  - Recommended actions:
    - 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.
    - Reinforce the KFIU access, on a timely basis, to financial, administrative and law enforcement information; and request on regular basis additional information from reporting entities.
    - Protect the security of the information held by the KFIU and disseminate it in accordance with the law.
    - Ensure that the KFIU publishes periodically reports, typologies and trends of ML/TF.

### Law enforcement, prosecution and competent authorities
- R.27 - PC; R.28 - PC
- Recommended actions:
  - Take a more proactive approach to investigating and prosecuting ML and TF.
  - Ensure that LEAs keep comprehensive statistics.
- Cross-Border Declaration & Disclosure
  - SR IX - PC
  - Recommended actions:
    - Amend the AML Law to provide a clear legal basis for a declaration system when leaving the country.
    - Align cross-border cash and bearer negotiable instruments powers to Customs to request and obtain further information from the carrier.
    - Provide Customs authority to stop or restrain cash or bearer negotiable instruments for a reasonable time where there is suspicion of ML or TF; or where there is a false declaration.

### Preventive measures — Financial institutions (FIs)
- Customer due diligence, including enhanced or reduced measures
  - R.5 - NC; R.6 - NC; R.7 - PC; R.8 - NC
  - Recommended actions (selected/high priority):
    - Clarify and make sure that no threshold is applied to undertake CDD measures regarding regular customers.
    - Establish clear requirements (primary or secondary legislation) for FIs to undertake CDD when: occasional wire transfers covered by Interpretative Note to SR.VII; there is a suspicion of ML or TF regardless of exemptions or thresholds; FI has doubts about veracity or adequacy of previously obtained customer identification data.
    - Identify and verify identity of all types of legal persons, not only companies and institutions, using reliable, independent data or information.
    - Verify authorization and identity of persons acting on behalf of legal persons.
    - Take reasonable measures to determine beneficial owners and those exercising ultimate effective control.
    - Conduct ongoing due diligence on the business relationship.
    - Establish clear obligations for FIs to understand ownership and control structures, verify legal status of all legal persons, obtain information on purpose and intended nature of the business relationship (insurance companies, exchange organizations, banks, investment companies, brokerage companies), scrutinize transactions to ensure consistency with customer profile, review existing records for higher-risk categories, perform enhanced due diligence for higher-risk categories, consider STR when unable to comply with Criteria 5.3 to 5.6, terminate relationships and report when identification data are unsatisfactory.
    - Require insurance companies, exchange organizations and brokerage companies to apply CDD requirements to existing customers on the basis of materiality and risk.
    - Ensure effective implementation by FIs and extend Recommendation 6 requirements to exchange companies, insurance companies, exchange organizations, and brokerage companies.
    - Require banks and investment companies to gather sufficient information about respondent institutions and document respective AML/CFT responsibilities.
    - Fully extend non-face-to-face and new technology requirements to exchange companies, insurance companies, exchange organizations, and brokerage companies; require FIs to have policies addressing non-face-to-face risks.
- Third parties and introduced business
  - R.9 - NC
  - Recommended actions:
    - Introduce in law, regulation, or OEM the requirements set out in FATF Recommendation 9.
    - Require KCC to provide copies of identification data and other relevant documentation relating to CDD without delay to brokerage companies upon request.
    - Introduce provisions for insurance companies regarding business introduced by insurance brokers and agents.
- Financial institution secrecy or confidentiality
  - R.4 - LC
  - Recommended actions:
    - Permit sharing of information between CBK and foreign counterparts outside consolidated supervision and criminal cases.
    - Provide efficient and effective mechanism for domestic authorities to share, on a timely basis, information necessary to combat ML and TF.
- Record keeping and wire transfer rules
  - R.10 - LC; SR.VII - LC
  - Recommended actions:
    - Establish requirement to maintain identification data, account files, and business correspondence for at least five years following termination of an account or business relationship.
    - Require FIs to extend record-keeping if requested by a competent authority in specific cases upon proper authority.
    - Require FIs to ensure all customer and transaction records are available on a timely basis to domestic competent authorities upon appropriate authority.
- Monitoring of transactions and relationships
  - R.11 - PC; R.21 - NC
  - Recommended actions:
    - Extend Recommendations 11 and 21 to insurance companies, exchange organizations, and brokerage companies.
    - Ensure FIs are advised of weaknesses in other countries' AML/CFT systems.
    - Require FIs to examine transactions involving noncompliant countries with no apparent economic or lawful purpose.
    - Apply appropriate counter-measures to noncomplying countries.
- Suspicious transaction reports and other reporting
  - R.13 - NC; R.14 - PC; R.19 - C; R.25 - NC; SR.IV - NC
  - Recommended actions:
    - Establish in law or regulation that STRs be filed with the FIU.
    - Extend requirement to file an STR with the FIU when funds are suspected or reasonably suspected to be linked or related to, or to be used for terrorism, terrorist acts, or by a terrorist organization or those who finance terrorism.
    - Extend STR filing requirement to explicitly apply to attempted transactions.
    - Issue additional guidance on STR reporting.
    - Prohibit brokerage companies, insurance companies, and exchange organizations from disclosing that an STR or related information is being, or has been, provided to competent authorities.
    - Issue clear guidance on STR reporting and provide both specific and general feedback on STRs.
- Internal controls, compliance, audit and foreign branches
  - R.15 - PC; R.22 - NC
  - Recommended actions:
    - Require FIs to communicate internal procedures, policies, and controls to employees.
    - Extend internal procedure requirement to brokerage companies.
    - Require banks and investment companies to ensure compliance officer is at management level.
    - Require exchange companies, brokerage companies, insurance companies, and exchange organizations to develop appropriate compliance management arrangements.
    - Ensure AML/CFT compliance officer has timely access to relevant information.
    - Require adequately resourced and independent audit functions.
    - Require screening procedures for hiring new employees.
    - Ensure effective implementation by brokerage companies, insurance companies, and exchange organizations of internal procedures, policies, controls, and ongoing employee training.
    - Fully extend Recommendation 22 requirements to exchange companies, insurance companies, exchange organizations, and brokerage companies.
    - Require banks and investment companies to ensure foreign branches and subsidiaries observe AML/CFT measures consistent with Kuwaiti requirements and FATF Recommendations to the extent host country laws permit; require branches in host countries to apply higher standards where differences exist.
    - Require investment companies to inform home country supervisor when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures due to host country laws or measures.
- Shell banks
  - R.18 - PC
  - Recommended actions:
    - Amend CBK licensing requirements to clearly prevent establishment of shell banks in Kuwait.
    - Require banks seeking a license to have and maintain a physical presence in the country in accordance with the FATF standard.
    - Prohibit exchange companies from entering into or continuing correspondent relationships with shell banks.

### The supervisory and oversight system — competent authorities and SROs
- R.23 - PC; R.29 - NC; R.17 - NC; R.25 - NC
- Recommended actions:
  - Designate under the AML Law or implementing regulation the competent authorities responsible for ensuring FIs comply with AML/CFT requirements and provide adequate enforcement and sanction powers.
  - Provide an adequate range of sanctions (MOCI, KSE).
  - Provide legal basis for the MOCI to apply sanctions for non-compliance by the insurance sector and exchange organizations.
  - Establish sanctions for directors and senior management of insurance companies, exchange organizations, and brokerage companies that fail to comply.
  - Provide the CBK with sole power to revoke licenses for FIs under its supervision.
  - Ensure supervisors, especially MOCI and KSE, use sanctioning powers effectively.
  - Ensure licensing and regulatory measures prevent criminals or associates from owning or controlling FIs and provide supervisory authorities ability to establish prudential controls over ownership structure of all FIs.
  - Establish explicit “fit and proper” measures for directors and management of investment companies, exchange companies, insurance companies, exchange organizations, and brokerage companies.
  - Provide MOCI and KSE with adequate powers to monitor and ensure compliance by FIs.
  - Ensure adequate and effective AML/CFT supervision of securities sector, exchange organizations and insurance sector.
  - Conduct AML/CFT inspections on FIs subject to KSE supervision.
  - Strengthen MOCI’s AML/CFT supervision, including development of standardized written procedures.
  - Issue guidelines concerning AML/CFT requirements to all FIs.

### Money value transfer services (MVTS)
- SR.VI - PC
- Recommended action:
  - Determine size and scope of informal MVTS operating in Kuwait and effectively monitor this sector.

### Preventive measures — Non-financial businesses and professions (DNFBPs)
- Customer due diligence and record-keeping
  - R.12 - NC
  - Recommended actions:
    - Introduce requirements for DNFBPs related to PEPs, payment technologies, introduced business and unusual transactions.
    - Address shortcomings identified with respect to Recommendations 5 and 10 as they apply to DNFBPs.
- Suspicious transaction reporting
  - R.16 - NC
  - Recommended actions:
    - Fully extend Recommendations 13, 15, and 21 to all DNFBPs operating in Kuwait.
    - Prohibit DNFBPs from disclosing that an STR or related information is being provided to competent authorities.
    - Ensure effective implementation of AML/CFT provisions by DNFBPs.
- Regulation, supervision, monitoring, and sanctions
  - R.17 - NC; R.24 - NC; R.25 - NC
  - Recommended actions:
    - Ensure real estate agents, dealers in precious metals and stones, and lawyers are subject to effective monitoring and compliance systems.
    - Designate a competent authority or SRO responsible for monitoring and ensuring compliance of real estate agents and dealers in precious metals and stones.
    - Establish guidelines to assist DNFBPs in implementing and complying with AML/CFT obligations.
- Other designated non-financial businesses and professions
  - R.20 - PC
  - Recommended actions:
    - Consider conducting a risk assessment of NFBPs misuse for ML and TF.
    - Consider applying Recommendations 5, 6, 8-11, 13-15, 17, and 21 to NFBPs at risk.
    - Encourage development and use of modern and secure techniques for financial transactions less vulnerable to money laundering.

### Legal persons, arrangements, and non-profit organizations
- Legal persons — access to beneficial ownership and control information
  - R.33 - NC
  - Recommended action:
    - Update and respond to requests from competent authorities in a timely fashion and include adequate, accurate, and current information on beneficial ownership and control of legal persons.
- Legal arrangements — access to beneficial ownership and control information
  - R.34 - NA
  - Note: N/A.
- Non-profit organizations
  - SR.VIII - PC
  - Recommended actions:
    - Apply AML/CFT requirements to foundations and associations.
    - Conduct systematic on-site inspections of international projects to ensure funds spent consistent with purpose and objectives of charities.
    - Focus outreach on risks of terrorist abuse and measures to protect against such abuses across the entire Non-Profit Organisations sector, including associations and foundations.
    - Strengthen sanctions for noncompliance with registration requirements to ensure they are effective and dissuasive.

### National and international cooperation
- National cooperation and coordination
  - R.31 - PC
  - Recommended action:
    - Put in place effective mechanisms enabling authorities to cooperate and coordinate domestically on development and implementation of policies and activities to combat ML and TF.
- The Conventions and UN Special Resolutions
  - R.35 - PC; SR.I - NC
  - Recommended actions:
    - Fully implement the Vienna and Palermo Conventions.
    - Sign, ratify, and fully implement the 1999 International Convention for the Suppression of Terrorism Financing.
    - Take necessary measures to comply with and fully implement UNSCRs 1267 and 1373 (and successors) as provided by SR.III.
- Mutual Legal Assistance (MLA)
  - R.36 - LC; R.37 - LC; R.38 - LC; SR.V - NC
  - Recommended actions:
    - Ensure cooperation in AML/CFT concerning search or seizure of property, proceeds, or instrumentalities can occur even when requests are issued from a competent authority in another country which is not a judicial authority.
    - Ensure handling of MLA requests in ML/TF cases is rapid, constructive, and effective.
    - Adopt legislation allowing value-based confiscation.
    - Adopt legislation that specifically criminalizes TF.
- Extradition
  - R.39 - LC; R.37 - LC; SR.V - NC
  - Observations and recommended action:
    - The effectiveness of the extradition regime cannot be properly assessed.
    - Lack of explicit provision criminalizing TF is an obstacle to an effective extradition regime in the CFT area.
- Other forms of cooperation
  - R.40 - PC; SR.V - NC
  - Recommended actions:
    - Empower the FIU to exchange information with counterparts.
    - Establish controls and safeguards to ensure information received by LEAs is used only in an authorized manner.
    - Provide efficient and effective mechanism for CBK, MOCI and KSE to share ML and TF information with international counterparts.
    - Maintain statistics on number of requests for assistance made or received by law enforcement authorities, the FIU and supervisors.

### Other issues — Resources and statistics
- R.30 - NC; R.32 - NC
- Recommended actions:
  - Allocate more resources to competent authorities.
  - Develop professional standards, including confidentiality standards, to control and safeguard information.
  - Provide specialized training to staff of competent authorities.
  - Develop comprehensive statistics in all relevant areas of the fight against ML and TF.
  - Regularly review the effectiveness of the AML/CFT system.

*Source: _cr11267 (Summary Table of Observance and Key Recommendations as provided in the supplied content).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11267.pdf_