## _cr11268

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**Canonical URL:** [_cr11268](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11268.pdf)

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---

### Executive summary and key findings
- AML Law introduced in 2002; imposes CDD obligations and requires STRs to be submitted to the Public Prosecutor’s Office (PPO).
- TF is not criminalized domestically; no statutory mechanism for implementing UNSCRs 1267 and 1373.
- Systemic shortcomings affect freezing/confiscation and UNSCR implementation: gaps in criminalization (TF, smuggling of migrants), KFIU legal/operational weaknesses, absence of a legal freezing mechanism for UNSCRs.
- Indicators: ML/TF do not currently pose a serious threat to Kuwaiti economy, but rapid banking asset growth could create vulnerabilities.
- Key numeric highlights:
  - Banking sector assets: US$138.6 billion (end-2009).
  - Financial sector total assets: approx. US$200 billion (December 2009).
  - KD 3,000 threshold for currency declarations (around US$10,900).

### Legal and institutional framework — criminalization, confiscation, UNSCRs
- ML:
  - Criminalized by Law No. 35 of 2002 (AML Law) and Resolution 9/2005; aligns with material elements of Vienna and Palermo Conventions.
  - Predicate offenses list excludes smuggling of migrants and terrorist financing.
  - ML penalties: imprisonment up to seven years; fine between half and all of proceeds; confiscation; doubled sanctions for organized groups or abuse of position.
  - Official ML convictions: 28 convictions (2005–2010) — statistical Table 9 totals preserved as presented (Total: 120 incoming; 6 under investigation; 69 archive; 15 not convicted; 28 convicted; 2 under consideration).
- TF:
  - Not specifically criminalized; Kuwait party to conventions listed in Annex to TF Convention but has not ratified the 1999 ICSFT.
  - Authorities rely on participatory offenses (instigating, conspiring, aiding and abetting) in practice — not compliant with SR.II.
- Confiscation/freezing:
  - Broad confiscation/seizure powers exist; no provision for confiscation of property of corresponding value.
  - Provisional measures: PPO may order defendant not to dispose of money; seizures applied ex parte.
- UNSCRs implementation:
  - No law for freezing terrorist assets under UNSCRs 1267/1373; process administrative (MFA receives UN lists and forwards to agencies) but not codified.
  - Reported timeline for MFA to forward lists: “within two/three working days”; assessed as too slow relative to SR.III “without delay” (interpreted as "within a matter of hours").

### Financial Intelligence Unit (KFIU) — mandate, operations, and deficiencies
- Legal basis and structure:
  - Article 16 AML Law designates PPO as sole STR recipient; 2003 MOF Decree No. 10 authorized Governor of CBK to establish KFIU; KFIU powers derive from PPO “report-by-report” memoranda.
  - KFIU located within CBK on-site supervision; membership includes CBK, MOCI, MOI (CID), and Customs.
- Operational constraints:
  - KFIU lacks independent legal authority to receive, analyze, and disseminate STRs; cannot spontaneously share with foreign FIUs — all foreign requests must be channeled through PPO.
  - No independent budget; staff fungible; total part-time staff and members: 15.
  - Typical information collection timeframe: two to three weeks.
- Reporting and statistics:
  - PPO received and asked KFIU to analyze total of 115 STRs (2005–2009) — breakdown by year and reporting category preserved:
    - Year totals: 2005: 13; 2006: 16; 2007: 26; 2008: 24; 2009: 36; TOTAL: 115.
    - FI STRs total: 91; DNFBP: 5; Other: 19.
- KFIU rating and recommendation:
  - R.26 — NC.
  - Recommendation: adopt draft AML/CFT law to create independent FIU with powers to receive, analyze, and disseminate STRs; provide dedicated staff, IT, analytical databases, periodic reports, and confidentiality safeguards.

### Preventive measures — scope, CDD, PEPs, wire transfers, recordkeeping
- Coverage and thresholds:
  - AML Law and Resolution 9/2005 impose CDD and record-keeping on banks, investment companies, exchange companies, insurance companies, exchange organizations, brokerage companies, and some DNFBPs.
  - Ministerial Resolution 9/2005 sets KD 3,000 threshold for identification/verification before processing transactions above KD 3,000.
  - Observed confusion: threshold may be interpreted inconsistently; authorities state in practice FIs identify regular customers irrespective of threshold, but legal texts are not explicit.
- Key CDD deficiencies (Recommendations 5–8):
  - Timing for verification unclear; CDD obligations absent for:
    - occasional wire transfers as per SR.VII Interpretative Note;
    - suspicions of ML/TF irrespective of thresholds;
    - cases where FIs have doubts about previously obtained ID.
  - Identification and verification weaknesses for legal persons, representatives, and beneficial owners; no statutory definition of “beneficial ownership.”
  - No explicit requirement for ongoing due diligence and review of existing records, particularly for higher-risk customers.
  - Enhanced due diligence (EDD) for higher-risk customers and PEPs largely absent outside banks and investment companies.
  - PEPs: CBK Instruction (2/R B, R B A/R I, R I A/242/2009) applies to banks and investment companies only; no measures for exchange companies, insurance companies, exchange organizations, or brokerage companies.
- Record-keeping and wire transfers:
  - Record retention: AML Law and Resolution 9/2005 require retention of transaction documents for at least five years, but retention trigger tied to “completion of the transaction” rather than termination of account/relationship.
  - R.10 — LC; SR.VII — LC.
  - Wire transfers: only banks and exchange companies may execute; CBK Instructions require originator information for transfers and deny finalization if missing; CBK Instructions effectively eliminate KD 3,000 threshold for electronic transfers.
- STR regime and tipping-off:
  - STRs must be filed with PPO (Article 5 AML Law); no statutory requirement to file STRs with KFIU — R.13 — NC.
  - No legal requirement to report attempted transactions.
  - Reporting protections: Article 14 AML Law grants immunity for good-faith reporters; tipping-off protections and prohibitions on disclosure are incomplete — R.14 — PC.
  - Practical concerns: reporting entities often unclear where STRs go; filing STRs can result in PPO treating STR as criminal complaint and possibly alerting subjects; confidentiality and feedback issues.

### Supervision and oversight — CBK, MOCI, KSE; sanctions and licensing
- Supervisory authorities and sectoral coverage:
  - CBK: supervises banks, investment companies, exchange companies; issues AML Instructions and has inspection powers under Law No. 32/1968.
  - MOCI: de facto supervises insurance companies and exchange organizations; legal basis for MOCI supervisory powers considered unclear/insufficient.
  - KSE/MC: supervises brokerage companies; current powers and resources limited; Capital Market Law No. 7/2010 pending implementation.
- Supervisory effectiveness and resources:
  - CBK considered generally adequate; On-Site Supervision Department staffing: 59; Off-Site Supervision Department staffing: 109.
  - MOCI AML Unit staffing: 25 (10 inspectors); coverage includes >4,000 entities (32 insurance companies, 159 exchange organizations, ~3,600 real estate agents, 837 jewelry dealers) — assessed as inadequately resourced.
  - KSE lacks dedicated AML unit; brokerage companies had 0 AML inspections recorded (2007–2009).
- Inspections (2007–2009) — number of AML/CFT inspections by sector:
  - Banks: 2007 — 13; 2008 — 14; 2009 — 12.
  - Investment Companies: 2007 — 60; 2008 — 40; 2009 — 49.
  - Exchange Companies: 2007 — 32; 2008 — 33; 2009 — 31.
  - Insurance Companies: 2007 — 23; 2008 — 41; 2009 — 87.
  - Exchange Organizations: 2007 — 10; 2008 — 20; 2009 — 90.
  - Brokerage Companies: 2007 — 0; 2008 — 0; 2009 — 0.
- Sanctions and fit-and-proper:
  - CBK has sanction powers (Article 85 CBK Law) and applied 62 sanctions (2006–2009): 11 against banks; 16 against investment companies; 35 against exchange companies; aggregate sanctions: 5 warnings; 53 financial penalties; 2 partial suspensions; 2 rulings out. Average fines range “between US$25,000 and US$ 50,000” (as provided).
  - MOCI sanctions limited to warnings and closures; no monetary fines — considered not proportionate/dissuasive.
  - KSE lacks power to levy pecuniary sanctions or sanction directors/senior management; no AML sanctions applied.
  - No comprehensive fit-and-proper tests for non-bank FIs; controls over ownership structures limited — R.17 — NC; R.23 — PC; R.29 — NC.

### Law enforcement, prosecution, and investigations
- PPO is central authority for STR receipt and ML prosecutions; Financial Crimes Department within PPO designated for ML cases (25 prosecutors).
- Criminal investigations:
  - CID (MOI) Financial Crimes Department conducts ML investigations; SSB handles TF-related matters.
  - CID staffing approx. 1,400 officers; Financial Crimes Department staffed at HQ with 30 staff sergeants.
- Use of special techniques:
  - Undercover operations, controlled deliveries, informants, and wiretapping used with PPO or court approval; no comprehensive statistics on use for ML/TF.
- Effectiveness and statistics:
  - ML statistics (2005–2010): official stat of 28 convictions over five years; number of seized/confiscated cases low and statistics incomplete.
  - Table 10 extracts (selected as presented):
    - 2005: Number 1; Value -; Number of convictions for ML 2.
    - 2006: Number 2; Value KD 38,000; Number of convictions for ML 6.
    - 2007: Number 1; Value US$502,000; Number of convictions for ML 5.
    - 2008: Number 4; Value -; Number of convictions for ML 8.
    - 2009: Number 3; Value KD 70,837,500; Number of convictions for ML 7.
- R.27 & R.28 — PC: concerns over proactive pursuit of ML/TF, lack of autonomous TF offense, insufficient statistics and evidence of effectiveness.

### Designated Non-Financial Businesses and Professions (DNFBPs) and NPOs
- DNFBPs in scope and supervision:
  - Operating DNFBPs: real estate agents (~3,500 licensed), dealers in precious metals and stones (~873 dealers), and lawyers (~2,800–3,000 attorneys).
  - TCSPs do not exist; casinos prohibited; notaries are civil servants.
  - DNFBP STRs (2005–2009): only five STRs filed by non-FIs in period.
  - Awareness and supervision weak: MOCI supervision limited and legal authority unclear; KLA unaware lawyers are subject to Resolution 9/2005.
  - R.24 & R.25 — NC.
- Real estate and dealers practices:
  - Real estate agents act as intermediaries; buyers pay 10–50 percent down directly to sellers; agents do not handle escrow or accounts.
  - MOCI AML Unit conducted 436 onsite visits in 2009 but less than 10 percent coverage of supervised entities; 142 violations found; 24 violations led to temporary closures; no sanctions against 3,600 real estate agents in last four years.
- Non-profit organizations (NPOs):
  - Charities: 10 charities approved by MOSAL (5 authorized to operate abroad).
  - Foundations: 70 registered foundations (source contains both 70 and 71 figures as presented).
  - Associations: 72 registered associations supervised by MOSAL.
  - DOCF (MOSAL) oversees charities; transfer abroad requires MFA approval; banks and exchange businesses prohibited from transferring charitable funds abroad without MOSAL permission.
  - SR.VIII — PC: supervision regime for charities stronger than for foundations and associations; recordkeeping period not consistently five years; outreach and sanctions limited.

### Cross-border declarations, Customs, and cash controls (SR.IX)
- Article 4 AML Law introduced inbound reporting for amounts above KD 3,000 (around US$10,900); implemented February 2007.
- AML Law covers only inbound movements; no statutory outbound declaration requirement exists — SR.IX — PC.
- Customs powers (Customs Law No. 10 of 2003):
  - Article 122: require evidence on import/export of goods; powers to be used in cases of suspicion of trafficking.
  - Retention of records: registers and documents retained for five years (Article 175).
- Statistical Table 14 — Number and value of cash courier declarations:
  - 2008: No. of declarations 1458; Value in K.D 88 043 000
  - 2009: No. of declarations 1308; Value in K.D 98 023 000
- Recommendations: amend AML Law to include outbound declaration system; define “bearer negotiable instruments”; grant Customs clear powers to request carrier information and to restrain cash/bearer instruments for reasonable time.

### International cooperation, MLA, extradition, and asset recovery
- Legal framework:
  - Law No. 5/2006 approves Palermo Convention; PPO central authority for MLA; Office of the PPO for Criminal Execution and International Cooperation Affairs established (director, deputy director, 25 members).
- MLA and extradition performance and statistics:
  - MLA requests received (2000–2010): 8; requests sent: 1 (2000–2010); only one MLA partly TF-related (Bosnia and Herzegovina) pending.
  - Extradition: only one ML extradition case; no TF extraditions.
  - R.36–R.38 — LC; SR.V & SR.II — NC (lack of TF criminalization).
- Confiscation and value-based forfeiture:
  - No statutory provision allowing confiscation of property of corresponding value; no Asset Forfeiture Fund; confiscated assets deposited into MOJ accounts.
  - Recommendation: adopt legislation to allow value-based confiscation and improve MLA execution timeliness and scope (including cooperation when requests originate from non-judicial competent authorities).

### Key recommended priorities and action plan (selected)
- Criminalization and prosecutions:
  - Criminalize TF; criminalize smuggling of migrants as predicate offense.
  - Ensure prosecutions for ML can proceed without prior predicate conviction.
  - Extend criminal liability to all legal persons.
- UNSCRs and freezing:
  - Adopt statutory freezing procedures for UNSCRs 1267/1373 and specify receiving/transmitting authority and timelines to implement freezing “within a matter of hours.”
- FIU/KFIU:
  - Enact independent FIU in law to receive, analyze, disseminate STRs; provide staff, IT, databases, confidentiality safeguards, and publish periodic reports.
- Preventive measures and supervision:
  - Clarify and strengthen CDD, beneficial ownership, EDD, ongoing due diligence, PEPs coverage, and rules for third-party reliance (R.5–R.9).
  - Extend AML/CFT requirements and supervisory reach to exchange companies, insurance companies, exchange organizations, brokerage companies, and all DNFBPs.
  - Improve record-keeping rules to require retention for at least five years from termination of account/business relationship.
  - Strengthen supervisory powers, sanctions (MOCI, KSE), fit-and-proper ownership controls, and resources for MOCI and KSE.
- Law enforcement and asset recovery:
  - Improve investigative practice to follow proceeds; collect comprehensive statistics on seizures/confiscations, investigations, prosecutions, and convictions.
  - Provide legal basis for confiscation of property of corresponding value.
- Cross-border and Customs:
  - Introduce outbound declaration rules; define bearer negotiable instruments; give Customs powers to restrain and investigate suspected outbound movements.
- International cooperation:
  - Empower KFIU to exchange information with foreign FIUs; streamline CBK international sharing outside consolidated supervision; strengthen safeguards and gateways for cross-border information exchange.
- DNFBPs and NPOs:
  - Designate competent supervisors/SROs for DNFBPs; issue guidance and outreach; require DNFBPs to file STRs with FIU; extend AML/CFT measures to foundations and associations; require five-year record retention for NPOs and systematic inspections.

### Selected statistics and figures (preserved as in source)
- Banking sector assets: 138.6 (USD billion) — Commercial banks (21) total assets 138.6 (USD billion) — Central Bank of Kuwait supervision.
- KSE market capital value: KD 31.9 billion (end-May 2010).
- Crude oil reserves: 104 billion barrels (10 percent of world reserves).
- Manufacturing GDP: KD 877.2 million (2008); manufacturing contribution to GDP: 2.2 percent (2008).
- Drug offences’ rate per 100,000 inhabitants (selected years):
  - 2005: population 2,866,888; drug offences 854; offences rate 30
  - 2009: population 3,442,945; drug offences 1001; offences rate 29
- STRs by year (2005–2009) — TOTALS: 2005: 13; 2006: 16; 2007: 26; 2008: 24; 2009: 36.
- FCTs and LCTs (selected aggregates):
  - Total Foreign Currency Transaction Reports — TOTAL: 2007: 425,900; 2008: 462,589; 2009: 408,698.
  - Large Cash Transaction Reports (banks) — Number of LCT reports: 2007: 660; 2008: 624; 2009: 613.
- Cross-border declaration threshold: KD 3,000 (around US$10,900).
- CBK sanctions (2006–2009): 62 sanctions total (11 banks; 16 investment companies; 35 exchange companies); aggregate sanctions included 53 financial penalties.

*Source: _cr11268 - PREFACE (IMF assessment mission materials and Executive Summary of the Kuwait AML/CFT detailed assessment).*

### PREFACE ................................................................................................................

### _cr11268 - PREFACE

### PREFACE
- Page: 8

### EXECUTIVE SUMMARY
- Page: 9

### 1. GENERAL
- Page: 16
- Subsections:
  - 1.1 General Information on Kuwait — Page: 16
  - 1.2 General Situation of Money Laundering and Financing of Terrorism — Page: 19
  - 1.3 Overview of the Financial Sector — Page: 21
  - 1.4 Overview of the DNFBP Sector — Page: 27
  - 1.5 Overview of commercial laws and mechanisms governing legal persons and arrangements — Page: 29
  - 1.6 Overview of strategy to prevent money laundering and terrorist financing — Page: 30

### 2. LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES
- Page: 33
- Major thematic subsections and page anchors:
  - 2.1 Criminalization of Money Laundering (R.1 & 2)
    - 2.1.1 Description and Analysis — Page: 33
    - 2.1.2 Recommendations and Comments — Page: 40
    - 2.1.3 Compliance with Recommendations 1 & 2 — Page: 41
  - 2.2 Criminalization of Terrorist Financing (SR.II)
    - 2.2.1 Description and Analysis — Page: 41
    - 2.2.2 Recommendations and Comments — Page: 42
    - 2.2.3 Compliance with Special Recommendation II — Page: 42
  - 2.3 Confiscation, Freezing and Seizing of Proceeds of Crime (R.3)
    - 2.3.1 Description and Analysis — Page: 43
    - 2.3.2 Recommendations and Comments — Page: 45
    - 2.3.3 Compliance with Recommendation 3 — Page: 46
  - 2.4 Freezing of Funds Used for Terrorist Financing (SR.III)
    - 2.4.1 Description and Analysis — Page: 46
    - 2.4.2 Recommendations and Comments — Page: 50
    - 2.4.3 Compliance with Special Recommendation III — Page: 51
  - 2.5 The Financial Intelligence Unit and its Functions (R.26)
    - 2.5.1 Description and Analysis — Page: 51
    - 2.5.2 Recommendations and Comments — Page: 56
    - 2.5.3 Compliance with Recommendation 26 — Page: 57
  - 2.6 Law Enforcement, Prosecution and other Competent Authorities—the Framework for the Investigation and Prosecution of Offenses, and for Confiscation and Freezing (R.27, & 28)
    - 2.6.1 Description and Analysis — Page: 57
    - 2.6.2 Recommendations and Comments — Page: 61
    - 2.6.3 Compliance with Recommendations 27 & 28 — Page: 62
  - 2.7 Cross-Border Declaration or Disclosure (SR.IX)
    - 2.7.1 Description and Analysis — Page: 62
    - 2.7.2 Recommendations and Comments — Page: 66
    - 2.7.3 Compliance with Special Recommendation IX — Page: 67

### 3. PREVENTIVE MEASURES—FINANCIAL INSTITUTIONS
- Page: 68
- Thematic coverage (page anchors):
  - 3.1 Risk of Money Laundering or Terrorist Financing — Page: 71
  - 3.2 Customer due diligence, including enhanced or reduced measures (R.5 to 8)
    - 3.2.1 Description and Analysis — Page: 71
    - 3.2.2 Recommendations and Comments — Page: 89
    - 3.2.3 Compliance with Recommendations 5 to 8 — Page: 91
  - 3.3 Third Parties and Introduced Business (R.9)
    - 3.3.1 Description and Analysis — Page: 92
    - 3.3.2 Recommendations and Comments — Page: 94
    - 3.3.3 Compliance with Recommendation 9 — Page: 95
  - 3.4 Financial Institutions Secrecy or Confidentiality (R.4)
    - 3.4.1 Description and Analysis — Page: 95
    - 3.4.2 Recommendations and Comments — Page: 97
    - 3.4.3 Compliance with Recommendation 4 — Page: 98
  - 3.5 Record-keeping and wire transfer rules (R.10 & SR.VII)
    - 3.5.1 Description and Analysis — Page: 98
    - 3.5.2 Recommendations and Comments — Page: 104
    - 3.5.3 Compliance with Recommendation 10 and Special Recommendation VII — Page: 104
  - 3.6 Monitoring of Transactions and Relationships (R.11 & 21)
    - 3.6.1 Description and Analysis — Page: 105
    - 3.6.2 Recommendations and Comments — Page: 108
    - 3.6.3 Compliance with Recommendations 11 & 21 — Page: 109
  - 3.7 Suspicious Transaction Reports and Other Reporting (R.13-14, 19, 25 & SR.IV)
    - 3.7.1 Description and Analysis — Page: 109
    - 3.7.2 Recommendations and Comments — Page: 117
    - 3.7.3 Compliance with Recommendations 13, 14, 19, and 25 (criterion 25.2), and Special Recommendation IV — Page: 118
  - 3.8 Internal Controls, Compliance, Audit, and Foreign Branches (R.15 & 22)
    - 3.8.1 Description and Analysis — Page: 118
    - 3.8.2 Recommendations and Comments — Page: 126
    - 3.8.3 Compliance with Recommendations 15 & 22 — Page: 127
  - 3.9 Shell Banks (R.18)
    - 3.9.1 Description and Analysis — Page: 129
    - 3.9.2 Recommendations and Comments — Page: 130
    - 3.9.3 Compliance with Recommendation 18 — Page: 131
  - 3.10 The Supervisory and Oversight System—Competent Authorities and SROs. Role, Functions, Duties, and Powers (Including Sanctions) (R. 23, 29, 17 & 25)
    - 3.10.1 Description and Analysis — Page: 131
    - 3.10.2 Recommendations and Comments — Page: 160
    - 3.10.3 Compliance with Recommendations 17, 23, 25 & 29 — Page: 161
  - 3.11 Money or Value Transfer Services (SR.VI)
    - 3.11.1 Description and Analysis (summary) — Page: 162
    - 3.11.2 Recommendations and Comments — Page: 163
    - 3.11.3 Compliance with Special Recommendation VI — Page: 163

### 4. PREVENTIVE MEASURES—DESIGNATED NON-FINANCIAL BUSINESSES AND PROFESSIONS
- Page: 164
- Subsections:
  - 4.1 Customer Due Diligence and Recordkeeping (R.12)
    - 4.1.1 Description and Analysis — Page: 166
    - 4.1.2 Recommendations and Comments — Page: 167
    - 4.1.3 Compliance with Recommendation 12 — Page: 167
  - 4.2 Suspicious Transaction Reporting (R.16)
    - 4.2.1 Description and Analysis — Page: 168
    - 4.2.2 Recommendations and Comments — Page: 170
    - 4.2.3 Compliance with Recommendation 16 — Page: 170
  - 4.3 Regulation, Supervision, and Monitoring (R.24-25)
    - 4.3.1 Description and Analysis — Page: 171
    - 4.3.2 Recommendations and Comments — Page: 174
    - 4.3.3 Compliance with Recommendations 24 & 25 (c. 25.1, DNFBP) — Page: 174
  - 4.4 Other Nonfinancial Businesses and Professions—Modern and Secure Transaction Techniques (R.20)
    - 4.4.1 Description and Analysis — Page: 175
    - 4.4.2 Recommendations and Comments — Page: 175
    - 4.4.3 Compliance with Recommendation 20 — Page: 176

### 5. LEGAL PERSONS AND ARRANGEMENTS & NON-PROFIT ORGANIZATIONS
- Page: 177
- Subsections:
  - 5.1 Legal Persons—Access to Beneficial Ownership and Control Information (R.33)
    - 5.1.1 Description and Analysis — Page: 177
    - 5.1.2 Recommendations and Comments — Page: 178
    - 5.1.3 Compliance with Recommendations 33 — Page: 178
  - 5.2 Legal Arrangements—Access to Beneficial Ownership and Control Information (R.34)
    - 5.2.1 Description and Analysis — Page: 179
    - 5.2.2 Recommendations and Comments — Page: 179
    - 5.2.3 Compliance with Recommendations 34 — Page: 179
  - 5.3 Non profit Organizations (SR.VIII)
    - 5.3.1 Description and Analysis — Page: 179
    - 5.3.2 Recommendations and Comments — Page: 183
    - 5.3.3 Compliance with Special Recommendation VIII — Page: 184

### 6. NATIONAL AND INTERNATIONAL CO-OPERATION
- Page: 185
- Subsections:
  - 6.1 National Cooperation and Coordination (R.31 & R.32)
    - 6.1.1 Description and Analysis — Page: 185
    - 6.1.2 Recommendations and Comments — Page: 186
    - 6.1.3 Compliance with Recommendation 31 & 32 (criterion 32.1 only) — Page: 187
  - 6.2 The Conventions and UN Special Resolutions (R.35 & SR.I)
    - 6.2.1 Description and Analysis — Page: 187
    - 6.2.2 Recommendations and Comments — Page: 188
    - 6.2.3 Compliance with Recommendation 35 and Special Recommendation I — Page: 189
  - 6.3 Mutual Legal Assistance (MLA) (R.36-38, SR.V)
    - 6.3.1 Description and Analysis — Page: 189
    - 6.3.2 Recommendations and Comments — Page: 196
    - 6.3.3 Compliance with Recommendations 36 to 38 and Special Recommendation V — Page: 197
  - 6.4 Extradition (R.37, 39, SR.V)
    - 6.4.1 Description and Analysis — Page: 198
    - 6.4.2 Recommendations and Comments — Page: 200
    - 6.4.3 Compliance with Recommendations 37 & 39, and Special Recommendation V — Page: 200
  - 6.5 Other Forms of International Co-Operation (R.40 & SR.V)
    - 6.5.1 Description and Analysis — Page: 201
    - 6.5.2 Recommendations and Comments — Page: 205
    - 6.5.3 Compliance with Recommendation 40 and Special Recommendation V — Page: 206

### 7. OTHER ISSUES
- Page: 208
- 7.1 Resources and Statistics — Page: 208

### Statistical Tables (listed)
- 1. Drug offenses’ rate per 100,000 inhabitants — Page: 21
- 2. Annual Prevalence of Use as a percentage of the population aged 15–64 — Page: 21
- 3. Transparency International Corruption Perception Index-Kuwait rankings (2003–2010) — Page: 21
- 4. Structure of Financial Sector, December 2009 — Page: 22
- 5. Financial Institutions: Licensing and Supervisory Authority — Page: 23
- 6. Financial Institutions: Number & Type — Page: 24
- 7. Financial Institutions: Financial Activities — Page: 25
- 8. Predicate Offenses in Kuwait — Page: 36
- 9. Money Laundering Cases — Page: 40
- 10. Number of convictions and amount of seized and confiscated property — Page: 45

*Source: _cr11268 - PREFACE (PDF chapter), canonical URL provided in metadata.*

### 11. Frozen assets of UNSCRs1 designated persons and entities................................50

### 11. Frozen assets of UNSCRs1 designated persons and entities................................50

### Executive summary and key findings
- The AML Law was introduced in 2002 and imposes customer due diligence (CDD) obligations on a range of financial institutions (FIs), and requires these FIs to submit suspicious transaction reports (STRs) to the Public Prosecutor’s Office (PPO).  
- The AML Law did not criminalize the financing of terrorism (FT) and did not put in place a mechanism to implement the United Nations Security Council Resolutions (UNSCRs).  
- Several systemic shortcomings were identified that affect Kuwait’s ability to freeze and confiscate assets and to implement UNSCRs effectively, including gaps in criminalization, weaknesses in the Kuwait Financial Intelligence Unit (KFIU), and the lack of a legal freezing mechanism for UNSCRs.  
- Indicators suggest that ML and FT operations do not currently pose a serious threat to the Kuwaiti economy, although the rapid growth in banking sector assets could create vulnerabilities.

### Legal and institutional framework relevant to frozen assets and UNSCRs
- ML is criminalized under the AML Law (2002) and complemented by Resolution 9 of 2005 (Resolution 9/2005), which contains detailed implementation regulations. The ML offense aligns with the material elements of the Vienna and Palermo Conventions.  
- The list of predicate offenses for ML covers most FATF-designated categories but excludes the smuggling of migrants and terrorism financing.  
- TF is not criminalized in Kuwait, although Kuwait is a party to all the conventions listed in the Annex to the International Convention for the Suppression of the Financing of Terrorism (TF Convention); the offenses in that Annex are criminalized under Kuwaiti criminal law.  
- Kuwait has a comprehensive confiscation, freezing and seizing framework that applies to all offenses under Kuwaiti criminal legislation, including felonies and misdemeanours, and covers all predicate offenses for ML and ML offenses under the AML Law. There is no provision allowing confiscation of property of corresponding value.  
- There is no law providing for the freezing of terrorist assets in the context of UNSCRs 1267 and 1373, and their respective successor Resolutions. A process exists to communicate freezing orders under UNSCRs 1267 and 1373, but it is not formally articulated in any legal text. The Ministry of Foreign Affairs (MFA) receives notifications under UNSCRs 1267 and 1373 and transmits those to relevant agencies within Kuwait, but there is no legal provision specifically entrusting the MFA with this role.  
- The KFIU does not have legal and operational independence. The AML Law designates the PPO as the sole body authorized to receive STRs. A 2003 Ministerial Decree authorized the Governor of the Central Bank of Kuwait (CBK) to establish the KFIU in the CBK, but the KFIU’s powers derive solely from PPO-granted “report-by-report” memoranda. The on-site supervision department of the CBK functions as the KFIU Secretariat. This structure limits KFIU efficiency because the PPO retains the central role in receiving STRs and granting specific powers to the KFIU to review each STR.  
- Criminal financial investigations are directed and authorized by the PPO and carried out by a specialized division at the Ministry of Interior (MOI), the general Directorate for Criminal Investigations (CID) for ML cases and the State Security Bureau (SSB) for TF cases. CID investigations tend to focus on the predicate crime and do not always follow the proceeds to examine potential ML activity. AML investigations by CID were initiated upon PPO request after receipt of STRs from the KFIU. In the absence of an autonomous TF offense, there have been no TF convictions. Law enforcement and prosecution personnel would benefit from more frequent and in-depth training.  
- A cross-border cash control regime was introduced in Article 4 of the AML Law, requiring travellers coming into Kuwait through any port of entry to report all currency and precious materials above the value of KD 3,000 (around US$10,900). Implementation began in February 2007. The AML Law covers only inbound movements of currency and monetary instruments, which severely limits the usefulness of the provision.

### Preventive measures affecting frozen-assets implementation
- The AML Law and Resolution 9/2005 impose CDD and record-keeping requirements on banks, investment companies, exchange companies, insurance companies, exchange organizations and brokerage companies, and on some DNFBPs. However, these requirements are limited and uneven across sectors; sector-specific instructions and guidance vary markedly in depth and quality.  
- Noted deficiencies in preventive measures relevant to identifying, tracing, and freezing assets include inadequate provisions related to:  
  - the timing for undertaking CDD measures;  
  - the identification and verification of some legal persons;  
  - the verification of persons purporting to act on behalf of certain types of legal persons;  
  - the identification and verification of beneficial owners;  
  - the conduct of ongoing due diligence on the business relationship;  
  - the review of existing records collected under the CDD process, particularly for higher-risk customers or relationships; and  
  - the application of enhanced measures for high-risk customers and the requirement to apply CDD measures on existing customers of exchange organizations, insurance companies and brokerage companies on the basis of materiality and risk.  
- Not all FIs operating in Kuwait are required to obtain information on the purpose and intended nature of the business relationship. Preventive measures are comparatively stronger for banks, investment companies and exchange companies, and weaker for insurance companies, exchange organizations, and brokerage companies.

### Systemic deficiencies directly relevant to freezing UNSCR-designated assets
- Absence of a specific legal framework to implement UNSCRs 1267 and 1373: no statutory freezing mechanism exists; the current process is administrative and not codified in law.  
- Lack of criminalization of FT limits the domestic legal basis for prosecuting and confiscating assets linked to TF and for securing convictions that support asset measures.  
- KFIU lacks independent legal authority to receive, analyze, and disseminate STRs directly; the PPO’s central role in receipt and delegation reduces KFIU operational effectiveness and timeliness in detecting and responding to asset freezing needs.  
- Law enforcement investigative practices (CID focus on predicate crimes rather than proceeds) and reliance on PPO-triggered AML investigations reduce the capacity to identify, trace, and seize assets proactively.

### Policy implications and recommended priorities (as identified in the assessment)
- Establish a clear legal mechanism to implement UNSCRs 1267 and 1373 (and successor resolutions), including a statutory freezing procedure and specified responsibilities for the receiving/transmitting authority.  
- Criminalize the financing of terrorism (TF) to provide a clear domestic legal basis for prosecution, seizure, and confiscation of TF-related assets.  
- Strengthen the legal and operational independence and authorities of the KFIU so it can receive, analyze, and disseminate STRs and related information as an autonomous national center.  
- Improve the scope and depth of preventive measures across all FIs and DNFBPs by expanding and harmonizing CDD, beneficial ownership identification and verification, ongoing due diligence, and EDD requirements for high-risk customers and relationships.  
- Clarify and extend the cross-border currency reporting regime to cover outbound movements and ensure comprehensive implementation of reporting controls.  
- Provide more robust supervisory powers and sanctioning authority to relevant supervisors to monitor AML/CFT compliance across sectors and apply fit-and-proper requirements beyond banks to other FIs.  
- Enhance law enforcement and prosecutorial capacity with more frequent and in-depth training, and promote investigative practices that trace proceeds and follow assets as part of ML investigations.

*Source: IMF assessment mission materials and Executive Summary of the Kuwait AML/CFT detailed assessment (mission on-site October 17 through November 1, 2010).*

### 18. There are no measures in place addressing politically-exposed persons (PEPs) for most FIs.

### _cr11268 - 18. There are no measures in place addressing politically-exposed persons (PEPs) for most FIs.

### Preventive measures for financial institutions (FIs)
- There are no measures in place addressing politically-exposed persons (PEPs) for most FIs.
- The existing requirements for banks and investment companies do not conform to the FATF standard.
- Cross-border correspondent relationships and misuse of new technologies:
  - Requirements to gather sufficient information about the respondent FI and to document respective AML/CFT responsibilities are not in line with the FATF standard.
  - There are no requirements for FIs to address specific risks associated with non face-to-face business relationships and transactions.
  - Most FIs are not required to have policies to prevent the misuse of new technologies.
- Reliance on intermediaries/third parties:
  - No legal and regulatory framework explicitly addresses FIs relying on intermediaries or other third parties to perform elements of the CDD process.
  - In practice some FIs rely on third parties for CDD measures, but there is no requirement to regulate conditions of such reliance.
- Training and internal controls:
  - Implementing regulation for the AML Law includes requirements for training and internal controls.
  - Resolution 9/2005 requires FIs to train personnel and officers on AML/CFT developments and on requirements of AML/CFT law and ministerial resolutions.
  - Additional requirements on internal controls and training vary by sector; as a result, not all FIs are required to have AML programs with adequate internal controls, including a compliance officer and an annual audit.
- Transaction monitoring:
  - Guidance to FIs on the purpose of transaction monitoring should be provided.
  - Lack of understanding among FIs (primarily non-bank FIs) regarding distinction between monitoring transactions and reporting suspicious transactions.
  - No requirements for various types of FIs to pay special attention to complex and unusual transactions.
  - Significant reliance appears to exist on automated detection of unusual or complex transactions.
- Foreign country risk and correspondent concerns:
  - Authorities could provide greater clarity on the need to pay special attention to transactions from countries which do not or insufficiently apply the FATF Recommendations.
  - Authorities should ensure effective measures to advise FIs of concerns and weaknesses regarding AML/CFT systems of other countries.
  - Authorities do not implement appropriate counter-measures against countries which do not or insufficiently apply the FATF Recommendations.
- Foreign branches and subsidiaries:
  - Guidance should be provided to ensure foreign branches and subsidiaries of FIs observe AML/CFT measures consistent with home country requirements and FATF Recommendations.
  - Authorities should ensure FIs notify competent authorities when AML/CFT requirements of host and home countries differ and when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures.
- Feedback and guidance:
  - Authorities should provide appropriate guidance and feedback to FIs and DNFBPs to enable compliance with AML/CFT obligations.
  - The KFIU should provide appropriate feedback on the manner of reporting.

### Suspicious transaction reporting (STR) regime
- STR reporting is established broadly in both law and regulation but fails to meet the FATF standard in several ways.
- Key shortcomings:
  - Lack of a requirement to file reports with the KFIU.
  - Lack of criminalization of TF (terrorist financing).
- Practical issues:
  - STR regime for ML has existed for several years, but FIs lack clarity on the exact basis on which to file a report.
  - Banks, investment companies, and exchange companies appear very risk averse and have stopped or rejected transactions or customers upon discovering suspicious behavior.
  - Brokerage companies, insurance companies, and exchange organizations do not appear to understand the STR requirements or to whom they should be reporting.

### Legal and secrecy constraints on information sharing
- Secrecy provisions of Kuwaiti law inhibit free and direct international sharing of information outside consolidated supervision.
  - Domestic access and sharing are not directly inhibited, but sharing with foreign counterparts outside consolidated supervision requires going through the PPO.
- Non-judicial international cooperation:
  - International cooperation with the CBK is limited to matters relating to consolidated supervision.
  - Need to go through the PPO in certain situations is cumbersome and restrictive.
  - Absence of clear gateways for information sharing by the MOCI and the KSE.
  - Lack of evidence of information sharing from supervisors with foreign counterparts.
  - The KFIU cannot share information with its foreign counterparts, since it can only act under instruction from the PPO.
  - Law enforcement agencies provide international cooperation but lack sufficient controls and safeguards to ensure information received is used only in an authorized manner.

### Shell banks, correspondent relationships, and licensing
- Shell banks regime:
  - Measures to prevent establishment of shell banks fail to meet FATF standards.
  - Measures in place do not sufficiently require physical presence in a manner encompassing the concept of “mind and management.”
  - No measures prevent exchange companies from entering into or continuing correspondent relationships with shell banks.
- Licensing and fit-and-proper controls:
  - General concerns about adequacy of licensing process for FIs.
  - No legal or regulatory measures to prevent criminals or their associates from holding or being beneficial owner of a significant or controlling interest or holding a management function in a financial institution.
  - No fit and proper requirements for directors and senior management of investment companies, exchange companies, exchange organizations, insurance companies, and brokerage companies.

### Supervision and enforcement across sectors
- Supervisory authorities and sectoral coverage:
  - Three supervisory authorities in the financial sector: the CBK for banks, investment companies, and exchange companies; the MOCI for the insurance sector and exchange organizations; and the MC/Kuwait Stock Exchange (KSE) for brokerage companies.
- Supervisory adequacy:
  - CBK supervisory framework over banks, investment companies and exchange companies is generally adequate.
  - MOCI and MC/KSE lack adequate authority and powers to supervise FIs and ensure compliance with AML/CFT laws and regulations.
  - Inspection and surveillance powers of the MOCI and MC/KSE are not adequate and lack a clear process.
  - MOCI and MC/KSE lack resources to effectively conduct their AML/CFT tasks.
- Implementation and effectiveness:
  - Implementation and effectiveness of preventive measures vary widely across financial sectors.
  - More stringent AML requirements for entities supervised by the CBK and less stringent for those supervised by the MOCI and the MC/KSE.
  - Where requirements are the same, implementation is more effective by banks, investment companies, and to some extent exchange companies.
  - Considerable concern regarding implementation levels for brokerage companies, insurance companies, and exchange organizations.
  - CBK supervision is thorough, based on off-site review, previous examinations, and a review of STRs filed.
  - CBK has good communication with regulated institutions and plans to move toward a risk-based approach to supervision by the end of 2011.
- Enforcement and sanctions:
  - Powers of enforcement and sanction against FIs are not appropriate.
  - Sanctions applied indicate framework does not provide effective, dissuasive, or proportionate measures.
  - Limited range of formal sanctions available to the MOCI and the KSE; no monetary sanctions are available.
  - Neither MOCI nor KSE have adequate powers to supervise or sanction FIs for noncompliance with AML/CFT obligations.
  - No sanction has yet been applied by the KSE for noncompliance with AML/CFT matters; sanctions applied by the MOCI are not effective.
  - Application of sanctions does not extend to all members of supervisory boards and senior management of FIs under MOCI and MC/KSE supervision.
  - Involvement of the MOF over certain specific actions of the CBK, in particular over its decision to delete a bank from the CBK’s register, undercuts the effectiveness of CBK’s sanction regime.

### Designated Non-Financial Businesses and Professions (DNFBPs)
- Scope and presence:
  - DNFBPs operating in Kuwait include real estate agents, dealers in precious metals and stones, and lawyers.
  - Authorities report no trust or company service providers (TCSP) exist in Kuwait.
  - Remaining three FATF-defined DNFBP categories do not operate in Kuwait: casinos are prohibited; notaries are civil servants who do not participate in financial transactions; accountants/auditors are prohibited from engaging in activity outside accounting/auditing function.
- Awareness and supervision:
  - General lack of awareness of ML risks and AML requirements among DNFBPs.
  - DNFBPs are subject to AML Law and Resolution 9/2005 and the same requirements for CDD, record-keeping, and suspicious transaction reporting as FIs.
  - Some DNFBPs were unaware they are subject to provisions of Resolution 9/2005.
  - Lack of effective supervision of DNFBPs:
    - MOCI supervision of real estate agents and dealers in precious metals and stones is inadequate relative to number of entities and scope of supervision.
    - Legal profession covered by Resolution 9/2005 but no supervision of lawyers with respect to AML, as the self-regulating organization appears unaware that lawyers are subject to AML/CFT provisions.

### Legal persons, arrangements, and non-profit organizations (NPOs)
- Corporate ownership and control:
  - Changes in ownership and control of legal persons have not been kept up-to-date.
  - Department of corporations at MOCI obtains accurate information about beneficial ownership and control when registered, but this information is not updated.
  - Kuwait’s legislation does not allow bearer shares and does not provide for creation of trusts or similar legal arrangements.
- Charities, foundations, and associations:
  - Measures adopted domestically to prevent abuse of charities and foundations; associations are treated differently and are not supervised and monitored effectively.
  - Department of charities and foundations at MOSAL appears to ensure effective implementation, licensing, supervision, and monitoring of a significant portion of financial resources of charities.
  - Department of associations within MOSAL does not implement requirements effectively nor monitor associations allowed to receive donations.

### National and international cooperation, treaties, extradition, and MLA
- Domestic coordination mechanisms:
  - Two mechanisms exist: National AML/CFT Committee and Committee on Combating Terrorism (CCT).
  - Committees have not developed effective mechanisms to enable policy makers, law enforcement, supervisors, and other competent authorities to coordinate domestically on policy and activities to combat ML and TF.
- Conventions and treaties:
  - Kuwait has ratified and implemented most provisions of the Vienna and Palermo Conventions.
  - Kuwait has neither ratified nor implemented the TF Convention.
- Legal basis for international cooperation:
  - Type and extent of international cooperation mainly regulated by Law No. 5/2006 approving the Palermo Convention, other international conventions to which Kuwait is party, and regional and bilateral agreements.
  - Articles 17 and 18 of the AML Law contain provisions relating to international cooperation; these texts constitute a sound legal basis for comprehensive international cooperation.
- Mutual Legal Assistance (MLA) and effectiveness:
  - Legal framework for MLA is formally largely in line with the standard, but authorities have not provided rapid responses to foreign requests for assistance in most cases.
  - Limited number of MLA cases relating to TF prevents assessment of effectiveness; not possible to establish to assessors’ satisfaction that Kuwait can provide MLA in TF cases in a timely and effective manner.
- Extradition:
  - ML is an extraditable offense.
  - Dual criminality is a requirement for execution of extradition.
  - Authorities informed assessors that when deciding whether dual criminality exists, they look at underlying conduct rather than title/denomination of offense.
  - Extradition of Kuwaiti nationals is not possible; in line with aut dedere, aut iudicare, in lieu of extradition of nationals, judicial authorities can pursue legal action without delay against a Kuwaiti national subject to an extradition request.
  - Lack of specific provision criminalizing TF may be an obstacle in extradition cases where dual criminality is strictly applied.

### Capacity, resources, and statistics
- Capacity constraints:
  - Capacity of authorities and statistics still need substantial improvement.
  - Allocation of resources to AML/CFT appears uneven, particularly given development and diversification of the economy.
  - Human resources allocated to AML/CFT supervision for non-banking financial sectors are inadequate.
  - Professional standards, including confidentiality, are not fully developed.
  - Lack of specialist skills in law enforcement personnel, including prosecution agencies, KFIU, supervisors, and other competent authorities involved in combating ML/TF.
  - Competent authorities have yet to develop comprehensive statistics.

_Italic: Source: _cr11268 - 18. There are no measures in place addressing politically-exposed persons (PEPs) for most FIs._

### 54. The banking sector is considered as one of the pillars of Kuwait’s economy. It includes Kuwaiti

### The banking sector is considered as one of the pillars of Kuwait’s economy.

### Banking sector: history and structure
- Includes Kuwaiti banks and a number of non-Kuwaiti banks, all subject to the control and supervision of the CBK.
- Historical milestones:
  - The British Bank of the Middle East was the first foreign bank established in Kuwait; operations were suspended when a 1971 law prohibited foreign banks, and it was transformed into the Bank of Kuwait and the Middle East (BKME), a 100 percent local bank.
  - The National Bank of Kuwait (NBK) was the first local bank, established in 1952.
  - Kuwait Finance House (KFH) established in 1977 as the first Islamic bank in Kuwait and the second Islamic bank in the Gulf region.
  - Al-Mezzeni Exchange Co., established in 1942, was the first company in Kuwait carrying out exchange operations.
- Early banking services included commercial credits, currency exchange, transfers, deposits, and withdrawals.

### Investment sector and Kuwait Stock Exchange (KSE)
- KSE is one of the oldest financial markets in Kuwait and the second largest market in the Gulf in terms of capital value.
- Market capital value of companies listed in the KSE: KD 31.9 billion at end-May 2010.
- KSE includes 51 investment companies listed from a total of 100 Kuwaiti investment companies; all are subject to CBK control.

### Oil and power sector
- Crude oil reserves in Kuwait: 104 billion barrels, equivalent to 10 percent of the oil reserves in the world.
- First oil discovery: 1938; first oil shipment: 1946.
- The government controls the sector through several specialized public agencies working in continuous coordination under relevant laws and regulations.

### Industry sector
- Government support measures:
  - Kuwait Industrial Bank established in 1973 to provide financial and credit support for industrial projects.
  - Public Authority for Industry designated industrial lands and constructed necessary infrastructure and services.
- Manufacturing sector contribution to GDP:
  - 2.2 percent in 2008 and 6 percent of non-oil GDP.
- Composition of manufacturing industries:
  - Chemical industries: 33.2 percent of total manufacturing industries.
  - Metal industries: 23 percent.
- GDP of the manufacturing industry: KD 877.2 million in 2008.

### Services sector
- Services sector: 59 companies listed on the KSE, operating in education, telecommunication services, air and land transportation.
- Capital market value of the services sector: KD 9.5 billion at end-May 2010.
- Insurance sector:
  - Seven companies listed on the KSE; mainly obligatory insurance on vehicles and properties.
  - Life insurance does not represent any significant value.
  - Total insurance premiums: about KD 181 million in 2008, representing around 0.6 percent of the national GDP.

### Government system
- Kuwait is a hereditary emirate ruled by descendants of Mubarak Al Sabah; rules of succession are subject to a special law with status similar to the constitution.
- Crown prince appointment: by royal decree on the Emir’s recommendation and approved by the People’s Assembly in a special session with majority agreement.
- If no appointment is made, the Emir recommends at least three descendants for selection by the Assembly.
- System of government:
  - Democratic, with people’s sovereignty per the Kuwaiti Constitution.
  - Separation of powers among three branches: legislative (Emir and People’s Assembly), executive (Emir and Cabinet), and judicial (courts in the name of the Emir).

### Judicial system
- Judicial authority established by the Constitution and operates under Emiri Decree 19 of 1959.
- Court hierarchy and jurisdiction:
  - District Courts (summary/first instance): competent for suits not exceeding KD 5,000; judgments irrevocable in suits whose value is not less than KD 1,000; otherwise subject to appeal in the plenary court.
  - Plenary courts: handle civil, commercial, personal, and criminal cases exceeding KD 5,000 or of indefinite value; their sentences are submitted for appeal to the Supreme Court of Appeals; commercial and civil judgments exceeding KD 5,000 are considered irrevocable.
  - Courts of appeal: three-judge panels acting as intermediate and final courts of appeal.
  - Supreme Court [of Cassation]: joined the system in 1990 and is the final court of appeal.
- Special courts and bodies:
  - Constitutional Court established by Law No. 14 of 1973 with exclusive authority to interpret the legitimacy of laws and assess election procedures; consists of five members chosen by the Judicial Council through private election; one member is appointed by decree.
  - State Security Court established by Law No. 26 of 1969 to address internal and external security issues; consists of three members appointed by recommendation from the Minister of Justice; judgments are irrevocable.
  - Law No. 42 of 1964 regulates the judiciary, judges are appointed by Emiri Decree and may not practice other professions after appointment; judges are subject to disciplinary procedures by the Judicial Disciplinary Council.

### General situation of money laundering (ML) and financing of terrorism (TF)
- Predicate offenses and crime context:
  - UN data indicate the crime rate in Kuwait is relatively low, with the exception of a high kidnapping rate.
  - Investigations and convictions of ML did not show predicate offenses that generate major proceeds or complex/sophisticated ML schemes.
  - Predicate crimes identified include fraud, counterfeiting, falsification of banking documents, embezzlement, and selling calling cards without authorization.
- Drug offenses:
  - Drug offenses’ rate per 100,000 inhabitants:
    - 2005: population 2,866,888; drug offences 854; offences rate 30
    - 2006: population 3,051,845; drug offences 986; offences rate 32; Change in offense rate 2
    - 2007: population 3,328,136; drug offences 901; offences rate 27; Change in offense rate -5
    - 2008: population 3,420,725; drug offences 895; offences rate 26; Change in offense rate -1
    - 2009: population 3,442,945; drug offences 1001; offences rate 29; Change in offense rate 3
  - Drugs are mostly trafficked for personal use, with cannabis prevalence: Annual Prevalence of Use as a percentage of the population aged 15–64 — Opiates 0.17; Cocaine <0.1; Cannabis 3.1.
- Corruption and governance:
  - Transparency International Corruption Perception Index (CPI) — Kuwait rankings (2003–2010):
    - 2003: 35
    - 2004: 44
    - 2005: 45
    - 2006: 46
    - 2007: 60
    - 2008: 65
    - 2009: 66
    - 2010: 54
  - 2010 TI CPI ranks Kuwait 54th out of 180 countries, last amongst the GCC countries listed.
  - A 2009 report by the Kuwaiti Transparency Society noted increased administrative and financial corruption and questioned Parliament’s role in monitoring corruption.
- Money laundering assessment and vulnerabilities:
  - At the time of the report, no evidence of significant ML in the country.
  - Economic rebound expected in 2010 and steady medium-term growth as global recovery boosts oil demand and the government implements its four-year development plan with an expansionary budget in 2010/11.
  - Creation of an international financial center is being considered.
  - Potential ML risks arise from these developments, and shortcomings exist in the AML/CFT institutional framework and supervisory mechanisms, notably:
    - Role and functions of the FIU.
    - Supervision of nonbank FIs and of those FIs under the supervision of the KSE and of the MOCI.
  - Main laundering-generated proceeds from analyzed and investigated cases identified by KFIU and LEAs: fraud, smuggling (especially to/from Iraq), and corruption; other proceeds-generating crimes include credit card fraud, piracy of goods, insider trading, and market manipulation.
  - Authorities report unawareness of serious organized or transnational crime in the country.
- Terrorist financing and activities:
  - No widespread terrorist activity recorded in Kuwait.
  - Eight Kuwaitis allegedly linked to Al-Qaeda were accused of plotting to bomb U.S. Army Camp Arifjan but were acquitted by a Kuwaiti criminal court.
  - Authorities informed the mission of four convictions for TF-related crimes but did not provide judgments.
  - Absence of specific legislation criminalizing terrorism and its financing constitutes a threat and vulnerability, potentially hampering convictions, asset seizure/confiscation, and international cooperation.
  - Lack of legal framework for effective implementation of UNSCRs 1267 and 1373, shortcomings in oversight of non-profit organizations (NPOs), and absence of control of cash moving out of Kuwait are noted.
  - Draft AML/CFT Law and a draft Law against terrorism are pending Parliamentary approval.

### Overview of the financial sector (structure as of December 2009)
- Kuwait’s economy is relatively open but does not attract a significant amount of foreign investment; heavily dependent on hydrocarbons; public sector employs over 75 percent of all professionally active Kuwaitis.
- Structure of Financial Sector, December 2009 (Number of Institutions; Total Assets (USD billion); Authorized/Registered & Supervised by):
  - Commercial banks: 21; 138.6; Central Bank of Kuwait
  - Conventional banks: 15; 100.7; Central Bank of Kuwait
  - Islamic banks: 6; 37.6; Central Bank of Kuwait
  - Specialized banks: 1; 2.3; Central Bank of Kuwait
  - Foreign banks (both conventional & Islamic): 10; N/A; Central Bank of Kuwait
  - Investment companies: 100; 52.7; Central Bank of Kuwait
  - Conventional investment companies: 46; 27.6; Central Bank of Kuwait
  - Islamic investment companies: 54; 25.1; Central Bank of Kuwait
  - Exchange companies/houses: 38; 0.4; Central Bank of Kuwait
  - Exchange organizations: 159; N/A; Ministry of Commerce & Industry
  - Insurance companies: 32; 2.6; Ministry of Commerce & Industry
  - Brokerage Companies: 14; N/A; Kuwait Stock Exchange
- Table notes:
  - Data for banks, investment companies, and exchange companies was provided by the Central Bank of Kuwait.
  - Specialized banks are defined by Article 76 of the CBK Law; due to their nature, specialized banks are not included in the total number of conventional banks or total assets of commercial banks.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11268.pdf*

### 3.   For insurance companies, the data is as of December 2008, from Financial Report 2009, Institute of Banking Studies.

### _cr11268 - 3.   For insurance companies, the data is as of December 2008, from Financial Report 2009, Institute of Banking Studies.

### Financial sector size and scope
- The total value, in assets, of the financial sector, as of December 2009, was approximately US$200 billion.
- All financial activities defined by the FATF are practiced in Kuwait and are conducted by: 1) banks; 2) investment companies; 3) exchange companies; 4) exchange organizations; 5) insurance companies; and 6) brokerage companies.
- All FIs in Kuwait are reporting institutions under the Law 35 of 2002 (AML Law) and/or Resolution 9 of 2005, the implementing regulations.
- The total assets of exchange organizations and brokerage companies were not available.
- For insurance companies, the data is as of December 2008, from Financial Report 2009, Institute of Banking Studies.

### Financial system structure and supervision
- The financial system is divided into two major categories: conventional FIs and Islamic FIs.
- Conventional FIs comprise the majority of financial and banking activities in Kuwait.
- Islamic FIs operate in accordance with the provisions of Islamic Shari’a.
  - Footnote: "Islamic Shari’a prohibits the payment or acceptance of interest charges for the lending and accepting of money. It also prohibits investment in goods or services considered contrary to the principles of Shari’a."
- For AML purposes, both conventional and Islamic FIs are subject to the same AML/CFT requirements and supervision.
- Three supervisory authorities:
  - Central Bank of Kuwait (CBK)
  - Kuwait Stock Exchange (KSE)
  - Ministry of Commerce and Industry (MOCI)
- All commercial institutions, including all FIs, must receive a commercial license from the MOCI.
- Banks, exchange companies, and investment companies must also receive a license from the CBK; CBK is responsible for both prudential and AML/CFT supervision of those entities.
- Brokerage companies require, in addition to the commercial license, authorization from the KSE.
- Table summary (legal basis and supervisor for each FI type preserved in source):
  - Banks: Approval of the Ministry of Finance; commercial registration with MOCI; bank license from the CBK — Supervisor: Central Bank of Kuwait
  - Investment Companies: Commercial registration with MCI; register as investment company with the CBK — Supervisor: Central Bank of Kuwait
  - Exchange Companies: Commercial registration with the MOCI; register as exchange company with the CBK — Supervisor: Central Bank of Kuwait
  - Exchange Organizations: Commercial registration with the MOCI — Supervisor: Ministry of Commerce and Industry
  - Life Insurance Companies: Commercial registration with the MOCI — Supervisor: Ministry of Commerce and Industry
  - Brokerage Companies: Commercial registration with the MOCI; register with the Kuwait Stock Exchange — Supervisor: Kuwait Stock Exchange

### Banking sector
- Banks comprise approximately 75 percent of the financial sector in Kuwait by assets.
- Banking sector composition and control:
  - Both domestic banks and branches of international banks operate; all are subject to CBK control and supervision for prudential and AML/CFT.
  - Most banks are privately owned and usually controlled by a related group of shareholders.
  - The banking market is concentrated, with the two largest banks accounting for about half of local banks’ total assets.
- Number and types (end-2009 context):
  - "Currently, there are 21 banks operating in Kuwait: 15 conventional banks (9 are branches of foreign banks); and 5 Islamic banks (1 is a branch of a foreign Islamic bank)."
  - This is an increase from 2004, when 9 banks operated in Kuwait.
- Banking sector assets totaled US$138.6 billion at the end of 2009.

### Financial institutions counts and branches (from Statistical Table 6)
- Conventional Banks: Number of domestic FIs in Kuwait: 6; Number of Branches in Kuwait: 232; Number of branches abroad: 16; Number of branches of foreign FIs in Kuwait: 9; Supervisor: CBK
- Islamic Banks: Number of domestic FIs in Kuwait: 5; Number of Branches in Kuwait: 113; Number of branches abroad: 0; Number of branches of foreign FIs in Kuwait: 1; Supervisor: CBK
- Conventional Investment Companies: Number of domestic FIs in Kuwait: 46; Number of Branches in Kuwait: 19; Number of branches abroad: 0; Number of branches of foreign FIs in Kuwait: NA; Supervisor: CBK
- Islamic Investment Companies: Number of domestic FIs in Kuwait: 54; Number of Branches in Kuwait: 11; Number of branches abroad: 0; Number of branches of foreign FIs in Kuwait: NA; Supervisor: CBK
- Exchange Companies: Number of domestic FIs in Kuwait: 38; Number of Branches in Kuwait: 231; Number of branches abroad: 0; Number of branches of foreign FIs in Kuwait: NA; Supervisor: CBK
- Life insurance Companies: Number of domestic FIs in Kuwait: 32; Number of Branches in Kuwait: 74; Number of branches abroad: 0; Number of branches of foreign FIs in Kuwait: NA; Supervisor: MOCI
- Note: "NA=information was not available"

### Investment companies
- Investment companies comprise almost 14 percent of the financial sector in Kuwait.
- As of October 2010, there were 100 investment companies operating in Kuwait, up from 39 in 2004, including both conventional and Islamic investment companies.
- Permitted activities: lending, financial leasing, financial guarantees and commitments, securities activities, portfolio management, management of investment funds, and securities subscription management.
- Supervision: Investment companies are subject to the control and supervision of the CBK.
- Cash acceptance restrictions:
  - The only instance investment companies may accept cash is for fees, and the sum must be below KD 3,000 (US$10,900).
  - All payments into the account of the client must be made directly from the client’s bank account.

### Exchange companies and exchange organizations
- Exchange companies:
  - Principal activities: transfer of money abroad and exchange of currency.
  - There are 38 exchange companies operating in Kuwait, supervised by the CBK.
  - Exchange companies are not permitted to open or hold accounts, but will register customers for repeated transactions.
  - Prohibited from accepting cash above KD 3,000 (US$10,900); transactions above KD 3,000 must be via bank transfer, check, or ATM card.
- Exchange organizations:
  - Engage solely in money and currency exchange.
  - There are 159 licensed to operate in Kuwait, and they are under the supervision of the MOCI.

### Securities market, KSE and KCC
- KSE market statistics:
  - At the end of May 2010, market capital value of companies listed in the KSE was estimated to be KD 31.9 billion (US$112.5 billion).
  - There are 212 companies listed in the KSE, including: 9 banks, 50 investment companies, 7 insurance companies, and 39 real estate companies.
- Kuwait Clearing Company (KCC):
  - Established by the KSE to act as the settlement house for all trades conducted on the KSE.
  - All customers who trade on the KSE open an account with the KCC; each customer may have only one account, tied to at least one Kuwaiti-based bank account.
  - The KCC is not permitted to accept or pay cash for transactions; transfers to a customer’s KCC account must come from a Kuwait-based bank account previously registered at the KCC.
  - All payments are issued as a check or an electronic transfer to an account registered at the KCC on behalf of the customer.
- Brokerage companies:
  - Act as agents for account holders, take responsibility for trading of clients on the KSE.
  - Supervised by the KSE for securities activities; they are not responsible for opening brokerage accounts (KCC handles account opening).
  - Permitted only to execute securities orders requested by their clients; do not handle money and do not hold securities for clients.
  - Legal basis: Article 4 of the Emiri Decree of August 14, 1983 and Article 20 (repeated) of Ministerial Resolution No. 113 of 1992 restrict activities to brokerage transactions in buying and selling stocks and securities.
- KCC supervision:
  - The KCC is an investment company; supervised by the KSE for securities-related issues and by the CBK for prudential and AML/CFT matters.

### Regulatory change underway
- In February 2010, Parliament passed a Capital Market Authority Law establishing the Capital Market Authority (CMA).
  - CMA will become the supervisory authority of the KSE and will supervise public and private subscriptions, acquisitions and mergers.
  - CMA Law grants CMA broad regulatory and supervisory authority over investment companies.
  - Authorities are discussing how this will affect supervision of investment companies when the CMA becomes fully operational, expected to occur in late 2011.
  - It is likely the CBK will continue to be responsible for both prudential and AML/CFT supervision of investment companies, and the CMA will be responsible for supervising investment companies' activities with respect to the KSE.

### Insurance sector and other FIs
- Insurance sector characteristics:
  - The insurance sector is small, concentrated in issuance of obligatory policies for vehicles and property.
  - Life insurance accounts for less than 1 percent of the insurance policies issued in 2009.
  - There are 32 insurance companies operating in Kuwait; approximately 10 are branches of foreign insurance companies.
  - There were 17 insurance companies in 2004; approximately 10 insurance companies entered the market in the last three years (relative to the report).
- Supervisory gap:
  - While the MOCI engages in licensing and both prudential and AML supervision, the lack of a clear legal authority for the MOCI to supervise insurance companies and exchange organizations negatively impacts FATF Special Recommendations. This gap is reflected in the rating boxes for each FATF Special Recommendation (where applicable), not in sector descriptions.

### DNFBP sector overview
- Of the six categories of DNFBPs, only three operate in Kuwait under the FATF definition: real estate agents, dealers in precious metal and stones, and lawyers.
- Casinos: prohibited in Kuwait.
- Notaries: exist but are employees of the Ministry of Justice (MOJ); as government professionals they do not fall within the FATF definition of a DNFBP.
- Accountants and Auditors:
  - Accountants: employed by a company; requirement is a university degree in accounting; no examination; not licensed by MOCI; approximately 92 accountants registered with the Kuwait Association of Accountants and Auditors; not DNFBPs under FATF definition.
  - Auditors: sole practitioners or employed in firms; individually licensed by MOCI; Article 17 of Decree No. 5 of 1981 prohibits auditors from taking up incompatible jobs; auditors are prohibited from engaging in transactions for a client that would qualify the auditor as a DNFBP.
  - Conclusion: neither accountants nor auditors fall within the FATF definition of a DNFBP in Kuwait.

### Real estate agents (DNFBP detail)
- Over 3,500 real estate agents are licensed in Kuwait.
- Practices and cash handling:
  - Real estate agents do not handle money or assets for buyers or sellers, either directly or through escrow accounts, and do not establish accounts for buyers or sellers.
  - Agents operate as intermediaries: after buyer and seller reach agreement, the agent draws the primary contract and witnesses signatures.
  - At that time, the buyer provides 10–50 percent of the sale price directly to the seller as a down payment.
  - The agent handles property inspection and files initial documents with the Real Estate Registration and Authentication Department at the MOJ.
  - Three to four days after filing initial documents, buyer, seller, and agent go to the MOJ where the buyer and seller sign the final contract before a notary public; at that time the buyer pays the outstanding balance by certified check given directly to the seller.

*Source: _cr11268 - 3.   For insurance companies, the data is as of December 2008, from Financial Report 2009, Institute of Banking Studies.*

### 106. As with all commercial businesses in Kuwait, real estate agents are licensed to practice their

### _cr11268 - 106. As with all commercial businesses in Kuwait, real estate agents are licensed to practice their

### Supervision of Designated Non-Financial Businesses and Professions (DNFBPs)
- Real estate agents:
  - Licensed by the MOCI.
  - Assessors found no statute giving the MOCI authority to regulate and supervise real estate agents.
  - The lack of clear legal authority for the MOCI to supervise the real estate sector "has a negative impact on all FATF Recommendations."
- Dealers in precious metals and stones:
  - Approximately 873 dealers in precious metals and stones are licensed in Kuwait.
  - Licensed by the MOCI under Article 2 of Law 23 of 1980 regarding supervision and monitoring of precious metals and stones.
  - The assessors found no other statute giving the MOCI authority to regulate and supervise dealers of precious metals and stones.
  - The lack of clear legal authority for the MOCI to supervise dealers "has a negative impact on all FATF Recommendations."
- Lawyers:
  - Practicing lawyers are recorded in a special registry at the MOJ and register with the Kuwait Lawyers Association (KLA).
  - It is estimated that there are 2,800–3,000 attorneys in Kuwait.
  - Lawyers are not required to pass an examination to register with the MOJ or to become part of the KLA.
  - Law No. 42 of 1964 regulates the legal profession but does not address lawyers’ representation of clients in financial, banking, or other commercial activity.
  - Article 10 of Law 42 of 1964: a lawyer who ceases to practice law or works in an area that does not conform to the practice of law shall be placed on inactive status; "conform to the practice of law" is not defined and does not preclude financial representation.
  - Article 12: the practice of law cannot be combined with “being employed at any government entity, societies, authorities, banks, companies or persons,” but this does not limit services a lawyer can provide to clients.
  - Private sector feedback: lawyers can be hired in their professional capacity to buy and sell real estate, manage client money, securities or other accounts, organize contributions for the creation, operation or management of companies and create, operate or manage legal persons or arrangements and buying and selling of business entities.
  - The KLA is a self-regulatory organization that receives complaints or concerns and refers professional misconduct to a disciplinary council; the KLA does not conduct ongoing monitoring of registered lawyers for AML/CFT.
- Trust and company service providers (TCSPs):
  - TCSPs do not exist in Kuwait; AML/CFT obligations for TCSPs as required by the FATF Recommendations "are not applicable."

### Legal persons, commercial laws, and NPOs
- Corporate legal framework:
  - Kuwait Commercial Code, Law 68 of 1980, and Kuwait Commercial Companies Law, Law 15 of 1960, regulate principles for business activity and types of legal companies.
  - Article 1 of the Commercial Companies law: all commercial companies are subject to commercial laws and commercial practice.
  - Company types permitted include: joint-liability company; partnership corporation divided into (a) limited partnership corporations and (b) partnerships limited by shares; joint-venture company; joint-stock company (public subscription and non-public types); limited-liability company; and holding companies.
  - Articles 5 and 68 of the Commercial Companies Law: at least 51 percent of a company’s stock must be owned by one or more Kuwaiti citizens; for insurance companies and banks, the percentage interest of Kuwaiti partners shall not be less than 60 percent.
- Non-Profit Organizations (NPOs):
  - NPO sector is well developed.
  - Currently, 10 charities approved by the Ministry of Social Affairs and Labor (MOSAL); five authorized to operate abroad and transfer funds outside Kuwait.
  - 70 registered foundations supervised by the Department of Charities and Foundations at MOSAL.
  - 72 associations registered and supervised by the Department of NPOs at MOSAL.

### AML/CFT strategy, institutional framework, and responsibilities
- Strategy and coordination:
  - Domestic cooperation facilitated by the AML/CFT Committee.
  - No overall government policy on AML/CFT matters; the AML/CFT Committee limited its work to the draft of a new AML/CFT legislation and implemented recommendations of the 2004 IMF assessment.
  - National AML/CFT Committee membership includes: Central Bank of Kuwait, Ministry of the Interior, Ministry of Foreign Affairs, Public Prosecution Office, Ministry of Commerce and Industry, Ministry of Finance, Ministry of Social Affairs and Labor, Kuwait Stock Exchange, General Administration of Customs, and Union of Kuwaiti Banks.
- Roles of key authorities:
  - Ministry of Finance (MOF):
    - AML Law 35 of 2002 assigned the MOF the task of issuing implementing regulations; MOF issued Regulation No. 5/2005.
    - MOF issued a decree authorizing the Governor of the CBK to head both the AML/CFT National Committee and the Kuwait FIU, and to determine their tasks.
    - MOF established a special Money Laundering Department to follow developments in ML/TF and represent the State in related meetings.
    - MOF is the competent ministry to submit local legislation related to ML and TF.
  - Ministry of Justice (MOJ):
    - Controls the judicial system.
    - AML Law assigned responsibility for receiving all reports on suspicious cases to the PPO and transfers them to the KFIU; the PPO can initiate investigation and prosecution of ML and TF cases.
  - Ministry of the Interior (MOI):
    - Responsible for internal security.
    - Established the Criminal Investigation Department (CID) for investigation of ML cases.
    - Officials charged with combating financial crimes are legally authorized to conduct investigations, draft investigation reports, implement PPO arrest decisions, and request permission from the PPO to investigate bank accounts, financial and property records, and other suspicious documents (in accordance with the Kuwait Criminal Procedure Code).
  - Ministry of Foreign Affairs (MFA):
    - Receives UNSCR 1267 and 1273 lists via its UN mission and disseminates them nationally.
    - Channels Mutual Legal Assistance (MLA) and extradition requests.
  - Ministry of Commerce and Industry (MOCI):
    - Issues ministerial decrees to be adopted by FIs not subject to CBK control (e.g., insurance companies) and DNFBPs in AML/CFT matters.
    - MOSAL has established an office for combating ML to control and supervise these institutions.
  - Ministry of Social Affairs and Labor (MOSAL):
    - Responsible for licensing and registering NPOs.
    - Authorized to review registers and records of associations and institutions and carry out regular investigations including administrative, technical, organizational, and accounting aspects, and verify compliance with laws and decrees regulating charitable activities.
  - Kuwait Stock Exchange (KSE):
    - Independent legal entity with authority to organize and monitor the stock market and trading of securities.
  - Central Bank of Kuwait (CBK):
    - Direct control over public banks, investment companies, and exchange companies registered with the CBK.
    - Responsible for verifying compliance by requesting information or inspecting institutions.
  - General Administration of Customs (GAC):
    - Responsible for customs affairs and tax procedures in land, sea, air, and postal customs sites; controls movement of goods entering and exiting Kuwait under Law No. 10 of 2003.
  - Kuwait Banks Association:
    - Established on May 16, 2001 to foster cooperation and coordination among member banks and enhance capacities of bank employees.

### AML/CFT risk approach and progress
- Risk approach:
  - The AML Law and its implementing resolution impose obligations on FIs to prevent ML.
  - Authorities have not conducted a systemic review or assessment of potential ML and TF risks affecting FIs to serve as a basis for applying enhanced and/or reduced measures.
  - The existing AML legal and supervisory framework "has been developed without considering ML/TF risk levels."
- Progress since the last IMF assessment:
  - The IMF conducted an assessment of Kuwait’s compliance with FATF recommendations in 2003.
  - The on-site visit took place during October 6–16, 2003.
  - FATF Standards have changed; current 2003 FATF 40 Recommendations and 9 Special Recommendations set new thresholds and consider effectiveness.
  - Authorities report work to address deficiencies identified in the previous report: adjusted and enhanced preventive measures, improved institutional cooperation, and invested in training and awareness.
  - Kuwait has issued Regulation 9 of 2005, implemented requirements of SR.VIII and SR.IX, ratified the Palermo Convention and additional protocols, and provided training and awareness programs to financial and nonfinancial institutions.
- Draft AML/CFT Law:
  - Draft legislation submitted to the National Assembly in 2007.
  - Draft addresses criminalization of TF, broader requirements for SR.IX, and establishment of the FIU.
  - Assessment team view: additional work needed to bring the draft law into line with AML/CFT standards; authorities should consider comments in the Detailed Assessment Report.
  - Importance stressed that all relevant Kuwait texts (Penal Code, commercial procedure code, banking secrecy law, AML/CFT law, and other relevant texts such as the banking law) be consistent and in line with international standards.

### Criminalization of Money Laundering (overview of legal framework)
- Legal instruments:
  - Law No. 35 of 2002 (the AML Law) criminalizes ML.
  - Resolution 9 of 2005 contains detailed regulations for implementing the AML Law.
- International conventions:
  - Kuwait ratified the Vienna Convention on November 3, 2000.
  - Kuwait ratified the Palermo Convention on May 16, 2006.
- ML offense definitions and scope:
  - Article 1 of the AML Law defines ML: “A financial or non-financial operation or group of operations aiming to conceal or disguise the illicit origin of money or proceeds from any crime making them appear as money or properties derived from a lawful origin [and] also any act contributing to the process of employment or transfer of money or proceeds originating directly or indirectly from a crime or to the concealment or disguise of their origin is considered as such.”
  - The notion of “any crime” covers felonies and misdemeanors (Articles 3 and 5 of the Penal Code, Law 16/1960) and includes predicate offenses committed abroad (Articles 11 and 12 of the Penal Code, Law 16/1960).
  - Definitions of “money and properties,” “receipts and proceeds,” and “instrumentalities” in Resolution 9 of 2005 align broadly with the AML/CFT Methodology glossary.
- Conducts constituting ML under Article 2 of the AML Law include:
  - Committing, or participating in, ML knowing that the money or proceeds are derived from a crime;
  - Converting, transferring, possessing, acquiring, using, keeping, or receiving money or proceeds, knowing they are derived from a crime, or participating in one of those activities;
  - Concealing or disguising the true nature of money or proceeds, their origin, place, manner of disposition, movement or rights to them or their possession, knowing they are derived from a crime, or participating in one of those activities.
- Scope of laundered property:
  - ML extends to any type of property, regardless of value; Article 1.f of Resolution 9 of 2005 indicates “money or properties” covers any property resulting from or rewarding a crime.
- Proving proceeds are criminal:
  - Kuwaiti criminal legislation does not require a conviction for a predicate offense to prove illicit origin of proceeds; a person can be convicted for ML without prior conviction of the underlying predicate offense.
  - In practice, prosecutors often rely on a prior conviction for the predicate crime as a basis for bringing ML charges; in absence of such conviction prosecutors may be more hesitant to bring stand-alone ML charges.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11268.pdf*

### 149. To address this issue and enhance the effective application of the ML provisions by improving

### _cr11268 - 149. To address this issue and enhance the effective application of the ML provisions by improving

### Coordination within the Public Prosecution Office (PPO) and Resolution 1 of 2010
- Resolution 1 of 2010 was adopted by the Director of the PPO on June 28, 2010, referring to Article 16 of the AML Law and earlier Resolution 57 of 2002.
- Required steps for directors of PPO departments in all ML-related cases:
  - As a general rule, all ML investigations and prosecutions are to be carried out by the Financial Crimes Department of the PPO (responsible for dealing with ML cases).
  - If other departments suspect ML during investigation/prosecution of a predicate offense and determine the various parts are not properly coordinated, they should transfer the case to the Financial Crimes Department for further investigation and/or prosecution of the case as a whole.
  - Alternatively, if other departments determine there is proper coordination with the Financial Crimes Department, they should continue investigations/prosecutions in close coordination and enter all relevant documents in the IT system for future reference.
- The Financial Crimes Department should prepare a special registry for all ML cases and should inquire with the courts about all the convictions.
- Article 176 of the Law of Penal Trials and Procedures requires the President of the Court to deliver judgments in public hearings; judgments are public and published in specialized journals.
- Expected outcome: Resolution 1 of 2010 should improve coordination within the PPO among prosecutors dealing with predicate crimes and those dealing with ML.

### Scope of Predicate Offenses (c. 1.3) — coverage and notable omissions
- Predicate offenses for ML: according to Article 1 of the AML Law, any felonies and misdemeanors under Kuwaiti criminal law.
- The list of predicate offenses covers most designated categories in the FATF Glossary to the 40 Recommendations, with notable exceptions:
  - Smuggling of migrants is not, as such, criminalized under Kuwaiti law.
  - TF (terrorist financing) is not criminalized under the Kuwaiti law for the purposes of SR.II and is not a predicate offense to ML for Recommendation 1.
- Trafficking in human beings and smuggling of migrants:
  - Both are addressed in one provision, Article 185 of the Penal Code; Article 185 appears to relate more to trafficking in persons (reference to “slave” status suggests exploitation).
  - The two Protocols to the Palermo Convention distinguish trafficking in human beings from smuggling of migrants; Kuwait has a draft law pending Parliamentary approval addressing both offenses.
- Terrorism and terrorism-related offenses:
  - Kuwaiti law does not contain a stand alone criminalization of terrorism.
  - Kuwaiti criminal law criminalizes a series of terrorism-related offenses through ratification of treaties annexed to the 1999 International Convention for the Suppression of the Financing of Terrorism (ICSFT) (e.g., unlawful seizure of aircrafts, unlawful acts against safety of civil aviation, taking of hostages, unlawful acts of violence at airports, unlawful acts against safety of maritime navigation).
  - Kuwait has not ratified the 1999 Convention but has ratified all treaties referred to in its Annex.
- Consequence: Failure to criminalize TF and smuggling of migrants weakens the domestic AML/CFT framework and may complicate international cooperation where dual criminality is required.

### Statistical Table 8 — Predicate Offences in Kuwait (selected entries preserved)
- Participation in an organized criminal group and racketeering: Article 30 and 228 of the Penal Code, respectively
- Terrorism, including financing of terrorism: Criminalization of some terrorism-related offences through the ratification of the 9 treaties annexed to the 1999 SFT Convention
- Trafficking in human beings and migrant smuggling: Article 185 of the Penal Code (trafficking in human beings)
- Sexual exploitation, including sexual exploitation of children: Articles 186-192 and Articles 200-201 of the Penal Code
- Illicit trafficking in narcotics drugs and psychotropic substances: Law 48/1987
- Illicit arm trafficking: Law 13/1991
- Illicit trafficking in stolen and other goods: Law 10/2003
- Corruption and bribery: Articles 35-42 of Law 31/1970
- Fraud: Articles 231-233 of the Penal Code
- Counterfeiting currency: Article 263 of the Penal Code
- Counterfeiting and piracy of products: Articles 257-259 of the Penal Code
- Environmental crimes: Law 12/1964
- Murder, grievous bodily injuries: Article 149 of the Penal Code, as modified by Law 85/1983
- Kidnapping, illegal restraints and hostage-taking: Article 178 of the Penal Code
- Robbery or theft: Articles 217-219 of the Penal Code
- Smuggling: Law 10/2003
- Extortion: Article 225 of the Penal Code
- Forgery: Articles 257-259 of the Penal Code
- Piracy: Article 170 of the Penal Code and Article 4 of Law 31/1970
- Insider trading and market manipulation: Articles 118 and 122 of Law 7/2010

(Table notes preserved: lists of conventions and ratification dates as presented in the source.)

### Threshold approach and extraterritoriality (c. 1.4–1.5)
- Threshold approach: Predicate offenses to ML include all crimes under Kuwaiti criminal law, including felonies and misdemeanors.
- Extraterritorially-committed predicate offenses:
  - Pursuant to Articles 11 and 12 of the Kuwaiti Penal Code, the provisions apply to conduct partially outside Kuwait which constitutes a crime (felony or misdemeanor) in Kuwait.
  - The reference to “under Kuwaiti law” implies ML provisions are also applicable to predicate offenses committed outside of Kuwait.
  - Article 11: applies to acts outside Kuwait making a person principal author or accomplice in a felony that took place wholly or partly in the territory of Kuwait.
  - Article 12: provisions apply to any Kuwaiti national committing an act outside Kuwait if he returned to Kuwait without having been discharged of his charges by the foreign court.

### Self-laundering and ancillary offenses (c. 1.6–1.7)
- Self-laundering: The authorities informed the assessment team that self-laundering is criminalized in Kuwait. Article 2 of the AML Law is broad enough to allow prosecution of both the predicate offense and the subsequent laundering of proceeds.
- Ancillary offenses:
  - The Kuwaiti Penal Code provides for ancillary offenses to ML.
  - Article 1 of the AML Law criminalizes “any act contributing to” the ML offense.
  - Articles 48 and 49 of the Penal Code deal with accomplices, aiding and abetting, facilitating and counseling.
  - Article 56 of the Penal Code deals with “conspiracy to commit a felony or a misdemeanor,” which would include an ML offense.
  - Attempt is criminalized under Article 45 of the Penal Code.

### Predicate offense requirement where conduct is not an offense abroad (c. 1.8)
- If an act is committed in another country and it is not a criminal offense in that country, it cannot constitute a predicate offense for ML in Kuwait (even if it would have been a predicate offense had it been committed in Kuwait).

### Liability of natural and legal persons (c. 2.1–2.4)
- Liability of natural persons:
  - Article 40 of the Kuwaiti Penal Code: only “intentional” acts are considered crimes unless a specific provision expressly criminalizes negligence.
  - For ML, the law requires the perpetrator to know that the objects being dealt with were derived from an unlawful act; prosecutors must prove this knowledge beyond reasonable doubt.
  - Article 41: criminal intent is present if the perpetrator intended to commit the constitutive elements and achieves results punishable by law.
  - Article 2 of the AML Law establishes the level of proof required for ML to the knowledge that the property constituted proceeds of a crime.
- Mental element of ML (c. 2.2):
  - The Penal Code provides that the intentional element may be inferred from objective factual circumstances; a judge can infer knowledge from objective factual circumstances.
- Liability of legal persons:
  - Most legal persons are subject to criminal liability.
  - Article 12 of the AML Law: companies can be held criminally liable for ML and may be punishable with a fine not exceeding one million KD if the crime was committed in their interest or name by bodies, directors, representatives, or personnel. Additional sanctions may include cancellation of the company’s license.
  - The notion of “company” in Article 12 does not include public stockholding companies or nonprofit organizations (NPOs), but only companies licensed by the MOCI. Therefore, NPOs cannot be charged as companies for ML; only individual managers/administrators can be charged.
- Parallel proceedings:
  - The Kuwaiti Penal Code provides for criminal liability of companies; administrative proceedings may also be initiated.
  - The MOCI may, without prejudice to criminal proceedings, initiate administrative proceedings against companies (Article 2 of the MOCI Resolution 204/2004).
  - The CBK has the power to initiate administrative proceedings against banks that violate the law (Article 85 of Law 32/1968 (CBK Law)).

### Sanctions for ML (c. 2.5)
- ML penalties:
  - Imprisonment of not more than seven years.
  - A fine ranging between half and all of the proceeds involved.
  - Confiscation of the proceeds, without prejudice to the rights of bona fide third parties.
  - Termination of the criminal action for any reason does not prevent confiscation of property derived from ML operations.
  - Sanction may be doubled where the ML offense is committed by an organized group or the offender uses his power, position, or influence.
- Cooperation incentive:
  - Penalties can be suspended by the court for a person who, on his or her own initiative, informs the authorities of the crime.
- Additional measures:
  - The court may order that a person or a company be prohibited from carrying out a business activity for a specified period where that person or company has committed an offense as part of a licensed business activity.
- Comparative severity:
  - Sanctions mostly applied to natural persons; sanctions seem to fall within the average of the predicate offenses (examples: up to five years for trafficking in persons; up to ten years for counterfeiting currency; up to seven years for counterfeiting and piracy of products; up to five years for corruption and bribery).
  - The Director of the Financial Crimes Department of the PPO expressed a need for stronger penalties as deterrence and punishment given ML’s seriousness.

### Analysis of effectiveness
- The Penal Code, the Criminal Procedure Code (CPC), and the AML Law are the centerpieces of Kuwait’s criminal law response to ML and related predicate offenses.
- Institutional strengths:
  - Well-informed judges and prosecutors provide reasonably uniform application of the law.
  - The central role and wide powers of the PPO for ML investigations and prosecutions, including international cooperation, provide the basis for a generally sound AML regime.

*Source: Extract from the provided IMF assessment document content unit _cr11268 - 149.*

### 178. Kuwaiti law criminalizes ML in line with the material elements of the Vienna and Palermo

### 178. Kuwaiti law criminalizes ML in line with the material elements of the Vienna and Palermo

### Criminalization of Money Laundering (ML) — findings and issues
- Kuwaiti law criminalizes ML in line with the material elements of the Vienna and Palermo Conventions.
- Implementation concerns:
  - Authorities acknowledged that, despite no legal requirement, a conviction for a predicate offense49 is often used as the basis to bring ML charges.
  - In the absence of a conviction for the predicate offense prosecutors would sometimes be more hesitant to prosecute stand-alone ML offenses.
- Coordination improvement:
  - The newly-adopted Resolution 1 of 201050 may improve coordination and cooperation between the Financial Crimes Department of the PPO and other PPO departments dealing with predicate crimes; this is relevant given the PPO’s discretion to initiate criminal proceedings.
- Legal gaps impeding effectiveness:
  - Smuggling of migrants and terrorism financing are not explicitly criminalized, and thus are not predicate offenses for ML.
  - Criminal liability for ML does not extend to all legal persons, but only to companies.

### Money laundering statistical overview (official statistics for 2005–2010)
- Official statistics indicate 28 convictions for ML in five years (official statistics available for 2005–2010).
- Authorities did not provide copies of sentences; assessment team could not ascertain whether convictions were for stand-alone ML or combined with predicate offenses.
- Statistical Table 9. Money Laundering Cases (as provided):
  - Year / Incoming / Under investigation / Archive / Not convicted / Convicted / Under consideration
  - 2005 13                        0                        6                        5                        2                          0                        
  - 2006 16                        0                        7                        3                        6                          0                        
  - 2007 26                         0                         18                         3                         5                          0                         
  - 2008 25                         0                         15                         2                         8                          0                         
  - 2009 36                         2                         23                         2                         7                          2                         
  - 2010 4                        4                        0                        0                        0                          0                        
  - Total 120                         6                         69                         15                         28                          2                         

### Recommendations regarding ML (Recommendations 1 & 2)
- Recommendation 1:
  - Effectively undertake prosecutions for ML also in cases where no prior conviction for the predicate offense has been obtained.
  - Criminalize the following categories of offenses: smuggling of migrants and TF.
- Recommendation 2:
  - Extend criminal liability to all legal persons, not just the companies licensed by the MOCI.

### Compliance summary for R.1 and R.2
- R.1 — LC
  - Smuggling of migrants and TF are not predicate offenses for ML.
  - Reluctance to undertake ML prosecutions without prior convictions for the predicate offense.
- R.2 — LC
  - Criminal liability only applies to companies, and not to other legal persons.

### Criminalization of Terrorist Financing (TF) — findings and analysis
- Legal framework and status:
  - There is no legal provision in Kuwait that specifically criminalizes terrorism51 and its financing.52
  - Kuwait has not ratified the 1999 International Convention on the Suppression of the Financing of Terrorism (ICSFT, 1999).
  - Kuwait is a party to all Conventions listed in the Annex to the ICSFT; offenses in the Annex are criminalized under Kuwaiti criminal law.
- Authorities’ position:
  - Authorities claim TF may be prosecuted based on participatory offenses of “instigating, conspiring, or aiding and abetting” a terrorist (related) offense.53
  - Authorities note four convictions for what they consider to be TF (2005–2010), but assessment team could not confirm these convictions or legal basis.
- Gaps and non-compliance:
  - Criminalization of TF solely on the basis of instigating, aiding and abetting, attempting, or conspiring does not comply with SR.II.
  - TF is not a crime in Kuwait and thus is not a predicate offense for ML.
  - Jurisdictional issues for TF are not applicable since TF is not as such a crime; Article 12 of the Penal Code only applies to persons who commit an offense in another country, not to their “accomplices,” which limits applicability of participatory-based TF criminalization.
  - Defining TF based on participatory offenses would exclude criminal liability of legal persons, as Articles 47 to 49 of the Penal Code refer to natural persons, not legal persons.
- Statistics:
  - Authorities submitted statistics showing four convictions for what they consider to be TF from 2005 to 2010; assessment team could not confirm these convictions.

### Recommendation on TF
- The authorities should criminalize TF in accordance with SR.II.

### Compliance summary for SR.II
- SR.II — NC
  - No specific provision criminalizing TF.

### Confiscation, freezing and seizing of proceeds of crime — legal framework and analysis
- Legal basis:
  - Title 2 of the Kuwaiti Penal Code includes “consequent and complementary sanctions,” including confiscation.
  - Article 78 of the Penal Code provides for confiscation of proceeds or instrumentalities of crime.
  - The AML Law54 allows confiscation of “money, possession, proceeds and instrumentalities used in committing the crime,” without prejudice to bona fide third parties.
  - These provisions apply to all offenses in Kuwaiti criminal legislation, including predicate offenses for ML and ML offenses (as defined in the AML Law).
- Confiscation scope:
  - Kuwaiti legislation allows confiscation of “money, possession, proceeds and instrumentalities” used to commit ML or a predicate offense, or obtained as a consequence of such crimes (Ministerial Resolution No. 9 of 2005).
  - Penal Code allows confiscation of property obtained directly or indirectly from the commission of the offense; Article 78’s reference to “consequent materials” confirms indirect proceeds may be confiscated.
  - For TF, although TF is not specifically criminalized, authorities claim ability to confiscate proceeds and instrumentalities used to commit conducts they consider TF.
  - No provision allowing confiscation of property of corresponding value (Article 12 of the Palermo Convention requirement not fully implemented).
  - Authorities informed the assessment team that Article 6 of the AML Law is wide enough to cover confiscation of properties held or owned by a third party.
- Provisional measures and seizures:
  - Criminal Procedure Code58 allows the PPO to search and seize properties to prevent dealing, transfer, or disposal of property subject to confiscation.
  - AML Law59 provides PPO may order the defendant not to dispose of or otherwise deal with his money or part of it60 until the criminal action is settled.
  - Provisional measures are mostly seizure (rather than freezing); competent authorities take control while ownership remains with the person until final measures.
  - Provisional measures are applied ex-parte, based on an order by the public prosecution or investigators; no prior notice required.
- Identification, tracing, and discretion:
  - PPO has discretion whether to start an investigation and prosecution; this applies to identification and tracing of property subject to confiscation.
  - Criminal Procedure Code62 allows law enforcement to identify and trace property which is or may become subject to confiscation.
- Protection of bona fide third parties:
  - Rights of bona fide third parties are protected under Articles 6, 7, and 12 of the AML Law and Article 78 of the Penal Code; bona fide third parties may claim rights against the State.
- Power to void actions:
  - PPO may take steps to prevent or void actions where persons knew or should have known those actions would prejudice recovery of property subject to confiscation.
  - AML Law65 and Criminal Procedure Code67 provide mechanisms to prevent disposition of property and to keep seized items until the case is settled.
- Additional elements:
  - Kuwaiti confiscation regime does not authorize civil (in rem) forfeiture, but provides for confiscation of property belonging to organizations found to be primarily criminal in nature.
  - Kuwaiti criminal legislation does not allow reversal of the burden of proof.

### Effectiveness and statistics on confiscation (analysis)
- Legal framework provides a wide range of confiscation, seizure, and provisional measures for property laundered, proceeds from, and instrumentalities used in ML or predicate offenses.
- Effectiveness concerns:
  - Difficult to ascertain value of property subject to final confiscation from statistics provided (2005–2010), as amounts include property subject to provisional measures (not final).
  - Number of cases in which seizure/confiscation occurred seems rather low compared to other countries and to number of ML convictions.
  - Authorities did not develop comprehensive statistics on number of cases and amounts of property frozen, seized, and confiscated relating to ML and criminal proceeds.
- Statistical Table 10. Number of convictions and amount of seized and confiscated property (as provided):
  - Year / Number / Value / Number of convictions for ML
  - 2005                                         1                                         -                                         2                                         
  - 2006                                         2                                         KD                                         38,000                                         6                                         
  - 2007                                         1                                         US$502,000                                         5                                         
  - 2008                                         4                                         -                                         8                                         
  - 2009                                         3                                         KD                                         70,837,500                                         7                                         

*Source: IMF assessment excerpt provided in content unit _cr11268 - 178. Kuwaiti law criminalizes ML in line with the material elements of the Vienna and Palermo*

### 215. The authorities are recommended to:

### _cr11268 - 215. The authorities are recommended to:

### Recommendations on confiscation and asset seizure
- Make provision allowing for 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.

### Compliance with Recommendation 3 — Rating and reasons
- R.3: LC
- Summary of factors underlying rating:
  - Impossibility to confiscate property of corresponding value.
  - Lack of evidence of the effectiveness of the confiscation framework.

### Freezing of Funds Used for Terrorist Financing (SR.III) — Legal framework and procedures
- There is no law in Kuwait that provides for the freezing of terrorist assets in the context of UNSCRs 1267 and 1373, and their respective successor Resolutions.
- A process exists (not formally provided in any legal text) for communicating freezing orders under UNSCRs 1267 and 1373: the MFA receives notifications and transmits them to relevant agencies. There is no legal provision specifically entrusting the MFA with this role.
- General criminal procedure legislation allows law enforcement authorities, in a general criminal investigation or prosecution, to seize properties and to prevent any dealing, transfer, or disposal of such properties subject to confiscation (Article 80 of the Criminal Procedure Code).
- The routine practice described by authorities: when the MFA receives the consolidated list under UNSCR 1267 from its permanent delegation in New York, the MFA forwards the list to members of the National AML/CFT Committee “within two/three working days” maximum. Thereafter, each agency is expected to implement necessary freezing measures.
- SR.III’s notion of “without delay” should be interpreted as meaning within a matters of hours, thereby making the “more-than-two/three-working-days” timeline too long to satisfactorily comply with SR.III.
- No information provided by the authorities on whether freezing may occur without prior notice to the designated person.
- No regular feedback is provided by agencies represented in the National AML/CFT Committee to the MFA as to actions taken to implement freezing orders (possible exception: Central Bank).
- Authorities stated that funds have been frozen in practice under UNSCR 1267 and 1373, but the assessment team was not able to verify this information.

### Committee on Combating Terrorism (CCT) and UNSCR 1373 implementation
- For UNSCR 1373, the MFA set up a “Committee on Combating Terrorism” (CCT) composed of representatives from: Central Bank of Kuwait, Ministry of the Interior, Ministry of Justice, Ministry of Defense, Ministry of Commerce and Industry, Ministry of Social Affairs and Labor, Ministry of Finance, General Administration of Customs, Public Prosecution Office. There is no regulation establishing this Committee or describing its implementation procedure.
- Procedure for UNSCR 1373 notifications: MFA forwards notifications to CCT members “within two/three working days” maximum; then each agency implements measures. UNSCR 1373, however, obliges member States to identify and designate individuals/entities and freeze their funds without delay.
- The assessment team could not ascertain the frequency of CCT meetings; anecdotal evidence suggests it does not meet regularly.
- No domestic decision-making process on designations or process to freeze assets exists; implementation, when it happens, takes more than “a matter of hours.” No ascertainment whether freezing occurs without prior notice to designated persons.
- No regular feedback to the MFA from CCT agencies on actions taken pursuant to UNSCR 1373 notifications.

### Interaction with foreign lists and requests
- Authorities do not give the same value to lists issued by other countries as to UN lists; country lists are handled through the same process and are sent to the CCT “for information” only.
- There is no law or procedure to properly handle requests from other countries to take freezing actions, examine such requests, or freeze assets in response without delay and without prior notice to targets.

### Scope of freezing actions
- There is no provision in Kuwait that freezing actions should extend to funds or other assets: (i) wholly or jointly owned or controlled, directly or indirectly, by designated persons under UNSCR 1267 or by terrorists, those who finance terrorism or terrorist organizations within the meaning of UNSCR 1373; and (ii) derived or generated from funds or other assets owned or controlled, directly or indirectly, by designated persons, terrorists, those who finance terrorism, or terrorist organizations.

### Communication and guidance to financial sector
- When notifications under UNSCRs 1267 or 1373 reach the Central Bank of Kuwait (CBK), the CBK sends memoranda to all banks, investment and exchange companies on freezing assets and funds of listed entities/persons and stresses high priority for compliance.
- Financial institutions under CBK supervision must inform the CBK within five working days about the existence of any persons or entities appearing on the list and must freeze related assets. This information is then sent by the CBK to the MFA.
- Banks, investment and exchange companies must provide the CBK, within five working days from the date of the letter sent to them, with information concerning freezing of assets and funds of listed persons/entities, in accordance with sample letters provided by the CBK.

### De-listing and unfreezing procedures
- The same process is followed for de-listing requests: MFA informs various agencies within a maximum of two/three working days; agencies are expected to unfreeze funds accordingly.
- The CBK sends circulars to supervised entities instructing them to unfreeze funds within five working days of the notice and inform the Central Bank that they have done so; CBK will inform the MFA of measures taken. The assessment team could not ascertain frequency of such occurrences.
- For persons inadvertently affected by freezing (e.g., similarity of names): the affected person should inform the entity that froze the accounts; the entity informs the CBK, which informs the MFA. The affected person may file a complaint with a local court pursuant to Article 94 of the Criminal Procedure Code against the concerned bank and the CBK to unfreeze assets. The CBK shall send the details to the MFA, which will inform the Kuwaiti delegation to the United Nations; the Sanctions Committee may verify if the freeze occurred in error and, if so, the funds shall be unfrozen and released.

### Access to frozen funds for living expenses and review
- MFA receives requests to allow affected persons to meet living expenses in accordance with UNSCR 1452 of 2002.
- Authorities handled one case seeking access to frozen funds for living expenses under UNSCR 1452, but provided no details to the assessment team.
- The Criminal Procedure Code contains a general provision allowing a person whose assets have been frozen to appeal to the Court of First Instance (Article 94). This provision is general and not specific to UNSCRs implementation.

### Freezing, seizing and confiscation in other circumstances; protection of third parties
- Kuwaiti law contains a wide range of search, seizure, and confiscation measures; however, inability to confiscate property of corresponding value may impact seizing and confiscation of terrorist-related funds or assets outside criteria III.1–III.10.
- Rights of bona fide third parties are explicitly preserved in ML cases, but no such provision exists specifically for TF as TF is not a criminal offense under Kuwaiti law.

### Enforcement, monitoring and sanctions regarding SR.III
- There is no specific measure in Kuwait to effectively monitor compliance with legislation, rules, or regulations governing obligations under SR.III, nor specific measures to impose civil, administrative, or criminal sanctions for failure to comply.
- One exception: general sanctioning power of the CBK over its supervised entities who fail to act within five working days following a CBK instruction; these sanctioning powers are general and not specific to UNSCRs implementation.
- Types of violations for which the MOCI can issue sanctions do not include reference to implementation (or lack thereof) of relevant UNSCRs.

### Statistics (R.32) — Frozen assets of UNSCRs designated persons and entities
- Year: 2005 — No. of persons /entities: 1 — Value of frozen assets: KD 5,300
- Year: 2006 — No. of persons /entities: 1 — Value of frozen assets: 0
- Year: 2007 — No. of persons /entities: 0 — Value of frozen assets: 0
- Year: 2008 — No. of persons /entities: 4 — Value of frozen assets: KD 624/1,929 + securities (about KD 1,756)
- Year: 2009 — No. of persons /entities: 0 — Value of frozen assets: 0
- Table note: The assessment team could not confirm the accuracy of these statistics. The MFA could not confirm the accuracy either, but affirmed they were compiled by the CBK, raising questions about coordination and feedback regarding implementation of UNSCRs 1267 and 1373.

### Additional elements and identified gaps
- Authorities provided no information on implementation of Measures in Best Practices Paper for SR.III (c. III.14) or procedures to access frozen funds (c. III.15).
- Identified gaps include: no law/procedure to implement UNSCRs 1267 and 1373 or to handle freezing requests from other countries; no authority responsible for designations or legal basis for freezing/seizing orders; implementation takes more than “a matter of hours”; no coordination mechanism for UNSCRs 1267 and 1373; no communication mechanisms or guidance for institutions not supervised by the CBK; lack of an appropriate review mechanism; lack of clear monitoring and sanctioning procedures to verify implementation; no criminalization of TF.

### Recommendations on SR.III (from paragraph 246)
- Adopt laws and procedures to comply with SR.III, including legislation that provides for freezing of terrorist assets in the context of UNSCRs 1267 and 1373, and their respective successor Resolutions, and for proper handling of freezing requests from other countries (including a specific procedure for implementation of UNSCRs 1267 and 1373).
- Ensure that implementation of freezing orders takes place within “a matter of hours” and without prior notice to the target.
- Ensure that institutions not subject to CBK supervision are aware of implications of notifications under UNSCRs 1267 and 1373 and how they should be implemented.
- Adopt specific provision criminalizing TF.

### Compliance with Special Recommendation III — Rating and reasons
- SR.III: NC
- Summary of factors underlying rating:
  - There is no law and procedure in place to implement UNSCRs 1267 and 1373, or to handle freezing requests from other countries.
  - There is no authority responsible for designations, or a legal basis for the freezing/seizing orders.
  - Implementation of freezing orders, when it occurs, takes more than “a matter of hours.”
  - No coordination mechanism in place for the implementation of UNSCRs 1267 and 1373.
  - No communication mechanisms or guidance for institutions not subject to CBK supervision.
  - Lack of an appropriate review mechanism.
  - Lack of clear monitoring and sanctioning procedures to verify implementation of freezing requests.
  - No criminalization of TF.

### The Financial Intelligence Unit and its Functions (R.26) — legal framework and structure
- Pursuant to Article 16 of the AML Law, the PPO is the sole body authorized to receive STRs and to investigate and prosecute suspected ML offenses.
- In 2003, a MOF decree No. 10 gave the Governor of the CBK the authority to establish the KFIU in the CBK. Resolution 1/191/2003 issued by the Governor of the CBK established the KFIU.
- The KFIU’s powers to analyze and investigate STRs are derived solely from the powers extended to it from the PPO via a “report-by-report” memorandum.
- The legal structure of the KFIU is complex: it was formed within the CBK as part of the on-site supervision section. Decree 10/2003 sets the membership of the decision body of the KFIU as including representatives of: (i) CBK; (ii) MOCI; (iii) Ministry of the Interior, Criminal Investigation Department (MOI); and (iv) General Directorate for Customs (GDC).
- Staff is currently fungible, moving between the AML Unit of the CBK and the KFIU, causing confusion for reporting entities regarding roles and powers of the CBK, the KFIU, and the PPO within the AML framework.
- The KFIU’s functions and mandate only cover fighting ML and do not extend to combating TF.

*Source: _cr11268 - 215. The authorities are recommended to:*

### 249. Article 5 of the AML Law authorizes the PPO to receive STRs directly from the reporting entities

### Article 5 of the AML Law authorizes the PPO to receive STRs directly from the reporting entities

### Overview and legal framework
- Article 5 of the AML Law authorizes the PPO to receive STRs directly from the reporting entities and institutions.  
- STRs filed to the PPO are currently considered to be a criminal complaint.  
- Upon receipt, the PPO sends the STRs to the Governor of the CBK in his capacity as the head of the KFIU and provides a memorandum setting out the scope of investigatory powers and authority granted to the KFIU to assist in STR analysis and investigation.  
- The MOU between the PPO and FIU governs the procedure for handling reported cases.

### Powers to initiate investigations and effects on reporting
- The PPO can initiate an investigation if the information in the STR constitutes solid grounds to suspect ML and no additional information is needed from the KFIU.  
- By initiating an investigation, the PPO qualifies the STR as a criminal complaint according to the CPC; this qualification may lead the PPO to inform the suspected persons of the existence of the STR or complaint.  
- Some reporting entities reported that filing an STR to the PPO sometimes constitutes a reason for a higher threshold of suspicion for reporting.

### KFIU analysis powers, procedures, and limitations
- There is no statutory law or regulation setting out the analysis or information gathering powers of the KFIU; its authority derives from the cover memorandum from the PPO on a report-by-report basis.  
- Through the cover memorandum, the KFIU is authorized to ask for information, statistics, and documentation from any entity or person in Kuwait or to review it on site.  
- The KFIU typically seeks assistance from members from the CBK, MOI, MOCI, and GDC to collect administrative, financial, and law enforcement information.  
- After collection and analysis, the Governor of the Central Bank, in his capacity as head of the KFIU, provides the PPO with a report that includes an opinion as to whether there are grounds to suspect ML.  
- The KFIU does not have independent powers to disseminate or file reports; it is obliged to reply to PPO requests for analysis.

### Guidance to reporting entities and reporting practice
- A standard STR form was developed by the CBK and transmitted to FIs and some DNFBPs; the KFIU encourages its use but accepts STRs submitted in other forms.  
- To date, the KFIU or other competent authorities have not issued guidance to reporting entities to assist in identifying suspicious transactions or to establish procedures for reporting STRs. The CBK has provided guidance on typologies; the KSE and MOCI have not.  
- The lack of written guidelines accessible to all precludes a common understanding of reporting requirements.  
- In practice, the KFIU has requested additional information primarily from banks under CBK supervision and has not done so for FIs not under CBK supervision or for DNFBPs.

### Access to information, confidentiality, and operational independence
- The PPO referral grants the KFIU, through its members, authority to demand information and documents from any governmental or nongovernmental authority or entity or from individuals and to visit headquarters to investigate documents or records.  
- Such broad powers could jeopardize confidentiality because there is no legislation preventing KFIU members (especially the CDI member) from using PPO referral information for investigation or other purposes, potentially alerting subjects of STRs.  
- Typical information collection timeframe: information is usually collected within two to three weeks to enable preliminary analysis.  
- Identified access points (Statistical Table 12) — MEMBER / SOURCE/TYPE OF INFORMATION:
  - CBK: KFIU local database (Excel Sheets): Information about previous STRs, PPO’s requests and related information.  
  - CBK FCT-LCT supervisory sector database (Oracle): Foreign Currency Transactions and Large Cash Transactions reported according to the AML Law for all transactions above 3000 KD.  
  - CDI at the MOI Police Database: National ID and photographs of subjects, residence and addresses, antecedents, vehicle registration holders, driver's licences and vehicles, serious-crime information and (current) investigations.  
  - Interpol database: International alerts.  
  - MOCI Commercial Register: beneficial ownership of companies (this information is limited); Real Estate Register (Property and Owners).  
  - GDC Local database: Entry/ Exit from Kuwait; Declarations of Cash upon entry to the country for amounts exceeding 3000 KD; Customs files (import/export, trafficking, etc.).  
- Protection weaknesses:
  - No legislation prevents KFIU members from using referral information for investigations beyond KFIU analysis.  
  - No log history records queries made by KFIU employees; premises of the KFIU are not properly secured and can be accessed by CBK staff.  
  - Uncertainty exists about the sufficiency and applicability of confidentiality provisions cited by authorities (Article 11 of the AML Law; civil service law; Article 15 of Law No. 23 of 1968; Article 11 of Law No. 35 of 2002).

### Resources, staffing, and training
- The KFIU has no independent budget or permanent staff; total number of its part-time staff and members is 15.  
- Staff composition: head of the unit + twelve employees of the CBK working part time on collecting and analyzing information; members from CBK, CID, GDC, and MOCI who meet when necessary.  
- CBK bears all administrative costs of the unit; KFIU lacks sufficient technical resources and financial resources for in-depth analysis.  
- CBK staff working part-time at KFIU are civil servants subject to Civil Service Law No. 15 of 1979; incoming employees undergo background checks and security clearance.  
- Training: some staff have received training and provided training to others, but additional specialized and practical in-depth training on KFIU analysis functions is recommended.

### Statistics and case handling
- Since establishment, the PPO has received and asked the KFIU to analyze a total of 115 STRs; all have been analyzed and transmitted back to the PPO.  
- Statistical Table 13 — Breakdown of STRs submitted to the KFIU (by year and reporting category):
  - Year: 2005 2006 2007 2008 2009 Total  
  - FI: 9 9 24 19 30 91  
  - DNFBP: 1 2 0 1 1 5  
  - Other: 2 3 5 2 4 5 19  
  - Total: 13 16 26 24 36 115  
  - Table notes: (1) The total 19 STRs in 2008 and 30 STRs in 2009 were filed by the same bank. (2) “Other” refers to government agencies or NPOs.  
- The KFIU, through the PPO, also receives ML-related information from other sources that are considered STRs and recorded as such.  
- The KFIU does not receive feedback from the PPO about the results of investigations and does not periodically review the effectiveness of its STR review system.

### International cooperation and Egmont membership
- The KFIU has an extremely limited ability to share information spontaneously with foreign counterparts; it can only act under instruction from the PPO.  
- Any request for information from a foreign FIU must be channeled through the PPO and can only be satisfied if approved by the PPO.  
- The USA/FinCEN, Egyptian and Bahraini FIUs are co-sponsors of the KFIU to join the Egmont Group; decision pending due to lack of KFIU independence and mandate not extending to CFT. The KFIU does not meet the Egmont definition of an FIU at present.  
- The KFIU did not consider putting in place the Egmont Group Statement of Purpose and its Principles for Information Exchange.

### Analysis of effectiveness
- As of the on-site visit, the KFIU did not appear capable of carrying out its functions efficiently due to:
  - Central role of PPO in receiving STRs and granting KFIU specific powers on a report-by-report basis.  
  - KFIU lacks independence to receive, analyze, and disseminate information consistent with international standards.  
  - KFIU cannot disseminate information domestically or internationally without express PPO consent; PPO can exchange information only with competent judicial authorities or pursuant to a treaty (foreign FIUs are not judicial authorities).  
  - KFIU has not issued guidance to industry on identifying suspicious transactions; CBK provided typology information but KSE and MOCI have not.  
  - KFIU’s limited international cooperation powers severely limit timely responses to foreign law enforcement or FIU information requests.  
  - KFIU does not have sufficient operational independence and autonomy; does not securely protect information; does not release periodic reports with statistics, typologies, trends, and information about its activities.

### Recommendations and comments (section 2.5.2)
- Adopt the draft AML/CFT legislation currently before the Parliament that creates an independent FIU in Kuwait to receive, analyze, and disseminate information regarding potential ML or TF. More precisely, authorities are recommended to:
  - Address the legal basis that established the KFIU as a national center 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 FIs and other reporting parties with guidance regarding the manner of reporting, including the procedures to be followed when reporting.  
  - Ensure that the KFIU (i) reinforce its access, on a timely basis to the financial, administrative and law enforcement information; (ii) request on regular basis additional information from reporting entities; (iii) enhance the quality of its STR operational and tactical analysis; and (iv) conduct strategic analysis.  
  - Protect the security of the information held by the KFIU and disseminate it in accordance with the law.  
  - Ensure that the KFIU publishes periodically annual reports, typologies and trends of ML/TF.  
  - Ensure that the KFIU periodically reviews the effectiveness of the system to combat ML and TF and improves its collection of statistics.  
  - Provide the KFIU with its own dedicated staff and supply it with the appropriate IT equipment and analytical databases to accomplish its mission. The staff should receive in-depth training on the core functions of the FIU.

### Compliance with Recommendation 26 — summary
- Rating: R.26 NC  
- Summary of factors relevant to underlying overall rating:
  - Absence of a clear legal basis for establishing the KFIU and providing it with its powers and functions.  
  - No clear guidance on filing STRs has been issued by the KFIU.  
  - Insufficient tactical, operational and strategic analysis of STRs and other related information.  
  - Absence of a legal basis to request additional information from FIs and DNFBPs.  
  - The KFIU is not authorized to disseminate financial information to domestic agencies for investigation or when there are grounds to suspect ML or TF.  
  - Inadequate operational independence and autonomy to ensure that the KFIU is free from undue influence or interference.  
  - Inadequate protection of information and premises.  
  - No publication of periodic reports.

*Source: _cr11268 - 249. Article 5 of the AML Law authorizes the PPO to receive STRs directly from the reporting entities*

### 2.6 Law Enforcement, Prosecution and other Competent Authorities—the Framework for the

### _cr11268 - 2.6 Law Enforcement, Prosecution and other Competent Authorities—the Framework for the Investigation and Prosecution of Offenses, and for Confiscation and Freezing (R.27, & 28)

### Description and Legal Framework
- The responsibilities, rights, and duties of law enforcement and the PPO are predominantly set forth in the Kuwaiti Criminal Procedure Code (CPC).
- Under Article 16 of the AML Law, the PPO is the principal entity responsible for investigating and prosecuting ML cases.
- Criminal financial investigations are directed and authorized by the PPO and are carried out by a specialized division at the MOI, the Criminal Investigation Directorate (CID).
- Law enforcement agencies are accountable to one of the prosecutors in the PPO. The PPO may authorize coercive measures, including special investigative techniques, and has discretionary powers to prosecute or not.

### Designation of Authorities for ML/TF Investigations (c. 27.1)
- The PPO initially receives STRs and directs analysis and investigation of potential money laundering.
- The PPO can obtain bank or other records by means of a simple letter of request.
- There is a specialized unit within the PPO and within the CID responsible for conducting ML investigations; PPO usually determines direction and scope.

### Prosecutors and Units
- MOJ Order 15 of 2002 designates the Financial Crimes Department within the PPO to investigate and prosecute ML cases.
  - The Department is composed of 25 prosecutors, all trained in financial investigations and prosecutions.
  - The Financial Crimes Department can call upon the General Prosecutions Department for assistance.
  - Foreign assistance requests handled by the Criminal Execution Affairs and the Foreign Communication Office within the PPO.
  - Each department has adequate technical resources (including IT equipment) to record and keep track of their cases.
- The Financial Crime Unit at the CID is the designated law enforcement agency for ML investigations.
- TF investigations are the sole responsibility of the State Security Department at the MOI.

### Criminal Investigation Directorate (CID)
- CID has approximately 1,400 officers and staff sergeants.
- CID is divided into 15 departments including Financial Crimes.
- The Financial Crimes Department (FCD) is staffed at headquarters with 30 staff sergeants and approximately one investigator in each branch office.
- CID has a large database containing criminal records, case tracking information on passports, immigration and other public information.
- CID participates in the Interpol N25 Network for immediate access to Interpol information and requests for assistance.

### State Security Bureau (SSB)
- SSB created by Ministerial decree in 2008 as a general department at the MOI; primary responsibility is to investigate crimes against the State.
- Terrorism and its financing are not criminalized in the penal code; SSB investigates “instigating, conspiring, or aiding and abetting” crimes against the State as defined in Law No. 31 of 1970.
- A ministerial decision dated August 31, 2010 provides that starting January 1, 2011, ML investigations will be conducted by the SSB under the authority of the PPO.

### Ability to Postpone / Waive Arrest or Seizure (c. 27.2)
- Authority to postpone or waive arrest or seizure is not expressly found in law but is practiced based on Articles 48 and 90–94 of the CPC and tactical considerations.
- Immediate seizure is only required when objects are forbidden and pose danger to public health or safety.
- The PPO may decide timing for issuance or repeal of arrest warrants and may exercise postponement in context of controlled deliveries or undercover operations.

### Use of Special Investigative Techniques (c. 27.3 & c. 27.4)
- Special investigative techniques (undercover operations, controlled delivery, use of informants, wiretapping) are not regulated in the CPC or the AML Law but are permitted with approval of the PPO or the court.
- Authorities confirm these techniques are routinely used by CID in investigating some predicate offenses (in particular, drug trafficking and smuggling).
- No statistics available to ascertain whether such techniques have been used to investigate predicate offenses; have not been used to date for ML or FT but can be used in the future.
- CID and SSB reported regular use of special investigative techniques; no statistics kept on their use for ML, TF, and underlying predicate offenses.
- Provisions related to these techniques should be included under Kuwaiti Law.

### Specialized Investigation Groups & Cooperative Investigations (c. 27.5)
- Authorities have not considered specialized investigation groups in other countries for multi-national cooperative financial investigations.
- National cooperation between PPO, CID, and Customs takes place through National Committee meetings.
- FIU powers from PPO memorandum allow KFIU to call upon CBK, CID, and Customs to ensure cooperation and information sharing.

### Review of ML & TF Trends by Law Enforcement (c. 27.6)
- ML and TF methods, techniques, and trends are not reviewed by law enforcement authorities on a regular, interagency basis.
- No analysis or studies have been conducted or disseminated.

### Ability to Compel Production and Searches (c. 28.1)
- The PPO is entitled to request any document deemed necessary for a criminal investigation; refusal or noncompliance is not allowed.
- Law enforcement can obtain any document and information once a criminal financial investigation is authorized (Article 39 of the CPC).
- Financial institutions’ secrecy laws do not inhibit access to documents and information.
- Pursuant to Article 40 of the CPC, an investigating officer may:
  - require all persons and authorities to compel production of records, identity documents, papers, items, or anything related to the offense; authorize requiring delivery and review of such items (Article 77 of the CPC);
  - search persons or premises and messages to uncover items used in or resulting from the crime (Articles 78-89 of the CPC);
  - seize and obtain transferred funds and all items related to the crime (Articles 90 and 91 of the CPC).
- Article 8 of the AML Law states the PPO can prohibit criminal persons from disbursing all or part of his money until settlement of the criminal claim and appoint a deputy to manage detained funds.
- PPO may issue a warrant to CID for seizure of records or information and may instruct the FIU to collect information for analysis and to CID for further investigations after a KFIU report.

### Power to Take Witnesses’ Statements (c. 28.2)
- The PPO can summon witnesses, hear testimony, and discuss all matters related to the alleged crime for the investigation; applicable to ML and underlying predicate offenses.
- Reference: Article 99 of the CPC.

### Adequacy of Resources — Law Enforcement (R.30)
- PPO Financial Crimes Department (FCD):
  - The FCD seems adequately structured, funded, staffed, and resourced.
  - The department has 30 specialized prosecutors on financial crimes (including ML) and 56 legal assistants.
- CID and SSB at MOI:
  - Police authorities did not mention particular difficulties in staffing, funding, or resources.

### Integrity and Training of Competent Authorities (c.30.2–c.30.4)
- Screening at entry, codes of conduct, and inspections by ministry or internal investigations department apply to PPOs and law enforcement agents.
- Concerns raised by judiciary members that some police officers lack ability to deal with complex cases and bring cases without sufficient proof.
- Members of PPO, CID, and Customs received ML training from CBK and MOCI, and additional training from U.S. and U.K. authorities.
- CID officers within the Financial Crimes section have received specialized training in conducting financial investigations (not specially certified).
- Training is provided to administrative, investigative, prosecutorial, and judicial authorities via the Ministry of Justice annual program.
- An extensive and in-depth training specifically on ML and TF offenses, and on seizure, freezing, and confiscation of property is still lacking.

### Statistics (R.32)
- All criminal case statistics are kept within a database in the IT Department of the Ministry of Justice; database can be queried by type of case, defendant, conviction, punishment, etc.
- CID has a sophisticated case tracking system capable of tracking investigation information.

### Analysis of Effectiveness
- AML Law allows an ML conviction based on laundering of property generated by any criminal activity and does not require conviction for the predicate crime.
- CID appears to concentrate on predicate crime investigations and does not consistently follow proceeds to examine potential ML activity.
- Agencies believe most ML cases will be developed through STR investigations; in practice, ML cases are often developed through vigorous investigation of predicate crimes and following proceeds, and require proactive techniques (undercover operations, electronic surveillance).
- All CID investigations were initiated based on PPO requests upon receiving STRs from FIs.
- There is an overall lack of belief among authorities that Kuwait is vulnerable to money laundering; misconceptions include that wealth negates need to launder money and that ML only involves cash.
- The absence of criminalization of TF as an autonomous or predicate offense adversely affects the effectiveness of SSB investigative/compulsory measures.

### Recommendations and Comments
- Authorities are recommended to:
  - Take a more proactive approach to investigating and prosecuting ML and TF.
  - Introduce an autonomous and predicate TF offense required to complete the AML/CFT regime.
  - Ensure law enforcement authorities keep comprehensive statistics on the amount of criminal proceeds seized and confiscated and on the number of ML/TF investigations, prosecutions, and judgments to measure the effectiveness and competence of the AML/CFT system.

### Compliance with Recommendations 27 & 28
- R.27 — PC
  - No autonomous or predicate TF offense as legal basis for investigative/compulsory measures.
  - Investigation and prosecution authorities do not appear to adequately pursue ML cases.
  - Shortage of evidence as to the effectiveness of law enforcement authorities and the lack of statistics.
- R.28 — PC
  - No autonomous or predicate TF offense as a legal basis for investigative/compulsory measures.
  - Shortage of evidence as to the effectiveness of law enforcement authorities and the lack of statistics.

*Source: _cr11268 - 2.6 Law Enforcement, Prosecution and other Competent Authorities—the Framework for the Investigation and Prosecution of Offenses, and for Confiscation and Freezing*

### 319. Pursuant to Article 122 of the Customs Law, officers have the power to require evidence in

### _cr11268 - 319. Pursuant to Article 122 of the Customs Law, officers have the power to require evidence in

### Powers of Customs and Scope of Authority (Articles 122, 115, 175; Customs Law No. 10 of 2003)
- Article 122 grants officers the power to require evidence in support of any information required regarding import or export of goods, including authority to make further enquiries on the origin or use of the cash, but these powers can only be used in case of suspicion of trafficking in goods.
- Customs currently use these powers upon discovery of a false declaration of currency or precious materials or a failure to declare them.
- Customs do not have authority to request and obtain further information from the carrier with regard to the origin of the currency or bearer negotiable instruments and their intended use unless connected to trafficking of goods.
- Article 115 charges Customs officers to keep a record of all information about the transportation of goods.
- Article 175 requires Customs to keep the registers, receipts, data, and other customs documents for five years.

### Restraint, Retention, and Recordkeeping (c. IX.3–IX.4, IX.13, IX.17)
- Power to stop or restrain currency or bearer negotiable instruments for a reasonable time to ascertain whether evidence of ML or TF may be found is limited to trafficking cases.
- Customs officials can request that an order be issued from the PPO for arrest, inspection, banning from travel, retaining of funds, or any other necessary procedures.
- No specific statutory requirement to retain records about:
  - the amount of currency or bearer negotiable instruments declared or otherwise detected, or
  - the identification data of the bearer for use by appropriate authorities when: (i) a declaration exceeds the prescribed threshold; or (ii) there is a false declaration; or (iii) there is a suspicion of ML or TF.
- In practice, information is retained for five years through the Customs automatic currency system, a secure system accessed only through passwords.
- Reports are maintained in a computerized database accessible only by Customs officers in the intelligence unit and upon request from the KFIU.
- An automated system at the Intelligence Division contains all declaration information; information is categorized as intelligence material and disseminated to the KFIU upon request.

### Access to Information by the FIU and Domestic Cooperation (c. IX.5–IX.6)
- Information gathered through the declaration system is not directly available to the FIU.
- The FIU includes a representative of the Customs Authority, who provides required information in case of suspicion against individuals or entities.
- In transportation incidents, information is sent to the PPO as a case of non-declaration after arresting the amounts and the carrier.
- Coordination for law enforcement purposes between relevant authorities is common practice, enhanced by Kuwait’s comparatively small law enforcement community.
- Established coordination exists between Customs, Immigration at the MOI, the department competent for controlling transportation of gold at the MOCI, and the KFIU.
- Coordination between Customs and CID at the MOI is structured within the KFIU, comprising officers from both agencies handling AML/CFT issues arising from the declaration system.

### International Cooperation and Notification Mechanisms (c. IX.7, IX.12)
- Information is exchanged through international and regional conventions to which Kuwait is a party, bilateral treaties, and the Regional Intelligence Liaison Office (RILO).
- RILO exchanges information through several mechanisms (indexing data, exchange on major seizures, reporting cycles, analysis, warnings and bulletins, exchange of information on trends, use of Customs Integrated Network (CIN), etc.).
- When Customs detects unusual cross-border transactions involving gold, precious metals, or gems, it notifies the corresponding agency in the country of origin.
- The RILO could be used to report cases to the country of origin; in the absence of statistics, it is unclear whether authorities use it for that purpose.

### Sanctions, Seizure, and Confiscation (c. IX.8–IX.11, SR.III)
- It is an offense sanctioned by a maximum of one year imprisonment and/or KD 1,000 fine (around US$3,600) (Article 13 of the AML Law) for individuals who do not comply with Article 4 of the AML Law relating to declaring currency in excess of a specified amount being brought into Kuwait.
- In practice, Customs use powers of seizing trafficked goods to seize currency or precious goods, arrest carriers, and prepare a report forwarded to the PPO.
- The PPO has the power to seize and confiscate currency or bearer negotiable instruments being brought into Kuwait and related to ML and TF.
- GAC representation on the National AML/CFT Committee and the CCT ensures receipt of UNSCRs 1267 and 1373 notifications; when listed persons transport currency or financial instruments across borders, persons and funds will be detained and a report forwarded to the PPO.

### Training, Targeting, and Safeguards (c. IX.14)
- All Customs investigators and border staff have received training to identify and assess movements of cash into Kuwait; guidance and instruction have been published in Customs instructions.
- Data relevant to cross-border movement of cash is collated in the Intelligence Division within the Customs Authority.
- Customs investigators and border staff have access to the Customs electronic database; Customs employees who work at the FIU can access the database constantly, including in the absence of a request by the FIU.

### Resources, Standards, and Operational Capabilities (R.30, R.32)
- Customs has approximately 1,000 Customs inspectors throughout Kuwait.
- Approximately 300–350 are stationed at the Kuwait International Airport, with approximately 25 roving inspectors examining passengers and cargo.
- Customs created a 10-person Intelligence Division with investigation powers; of those 10, two are designated to investigate money laundering.
- Customs’ powers to investigate crimes are limited to crimes discovered within Customs areas; they depend on the Ministry of Interior CID and the PPO for follow-up investigations.
- Customs has x-ray machines for examination of cargo and trucks at the northern border, but not sufficient x-ray equipment at the port to examine every container; examinations are primarily performed on inbound shipments.
- There is no unified computer system country-wide.

### Statistics (R.32)
- Statistical Table 14. Number and value of cash courier declarations
  - 2008: No. of declarations 1458; Value in K.D 88 043 000
  - 2009: No. of declarations 1308; Value in K.D 98 023 000

### Analysis of Effectiveness (SR.IX)
- Implementation of SR.IX is based on mechanisms that are inconsistent and incomplete.
- The AML Law covers only inbound reporting of large amounts of currency, gold, and other precious materials; absence of outbound reporting limits Customs’ ability to stop and investigate outbound movement.
- Only where Customs’ Intelligence Department develops evidence that outbound movement involves illegal proceeds will Customs be allowed to seize the property; only a small percentage of outbound transportation of illegal proceeds is identified.
- Smuggling is a widespread form of crime; investigations of smuggling often lead to significant ML cases.
- Absence of criminalization of TF as an autonomous or predicate offense affects effectiveness of SR.IX implementation.
- Insufficient statistics limit assessment of effectiveness of measures in place.

### Recommendations and Comments (paragraph 344)
- Amend the AML Law to provide a clear legal basis for a declaration system when leaving the country and adopt a national strategic approach to detect physical cross-border transportation of currency and bearer negotiable instruments. The system should apply to both incoming and outgoing transportation and be extended to shipment through cargo containers and the mail.
- Define clearly the term “bearer negotiable instruments” to include monetary instruments in bearer form such as:
  - travelers cheques;
  - negotiable instruments (including cheques, promissory notes, and money orders) that are either in bearer form, endorsed without restriction made out to a fictitious payee, or otherwise in such a form that title can pass upon delivery; and
  - incomplete instruments (including cheques, promissory notes and money orders) signed, but with the payee’s name omitted.
- Take legislative steps to align cross-border cash and bearer negotiable instruments powers to enable Customs to request and obtain further information from the carrier regarding origin and intended use in cases of suspicion of ML or TF, and to provide temporary restraint measures and adequate and uniform sanctions.
- Provide Customs authority to stop or restrain cash or bearer negotiable instruments for a reasonable time to ascertain whether evidence of ML or TF may be found where there is suspicion of ML or TF or where there is a false declaration.
- Enhance exchange of information between Customs and the KFIU and create a Customs database to record all declared data related to currencies and bearer financial instruments.

### Compliance with Special Recommendation IX — Summary (SR.IX: PC)
- Factors relevant to rating:
  - Absence of requirement of declaration system for outbound cross-border transportation of cash and bearer negotiable instruments.
  - Absence of clear definition of bearer negotiable instruments.
  - Absence of implementation of the system for outbound transportation.
  - Lack of clear powers to request and obtain further information from the carrier regarding origin and intended use of currency or bearer negotiable instruments.
  - No specific powers to stop or restrain currency and bearer negotiable instruments for a reasonable time to ascertain ML or TF evidence.
  - Lack of proportionate sanctions for false disclosure, failure to disclose, or cross-border transportation for ML and TF purposes.
  - Lack of requirement for retention of records.
  - Absence of criminalization of TF as autonomous or predicate offense affects SR.IX effectiveness.
  - Insufficient statistics upon which to assess effectiveness.

### Preventive Measures — Financial Institutions: Legal Framework for CDD and Record-Keeping (paragraphs 345–353)
- The legal framework consists of the AML Law and Resolution 9 of 2005 (Resolution 9/2005); additional requirements and guidance in instructions and resolutions issued by the CBK, the MOCI, and the KSE.
- Article 3 of the AML Law specifies covered FIs: banks, investment companies, money exchange agencies, and corporations, including insurance companies; Article 3 allows the MOF to determine additional FIs and individuals subject to preventive measures.
- Under Article 3 of the AML Law, the preventive measures regime is limited to:
  - prohibition of opening, establishing or maintaining anonymous accounts;
  - proper identification of clients according to official documents issued by competent authorities;
  - five year record-keeping of all documents related to business transactions;
  - reporting of suspicious financial transactions;
  - adoption of internal AML training programs and internal procedures to detect suspicious transactions.
- Article 5 states the PPO shall determine the competent authority within the PPO to receive reports where there is suspicion of money laundering.
- Articles 6, 7, 11, 12 and 13 provide criminal penalties for money laundering, failing to report a suspicious transaction, disclosure of information regarding specified crimes, and damaging or concealing documents relevant to such crimes.
- Article 19 of the AML Law empowers the Minister of Finance to issue a resolution regarding implementation procedures; Ministerial Resolution 9/2005 was issued pursuant to Article 19.
- Resolution 9/2005 (Article 2) expands covered FIs to include banks, investment companies, exchange companies, exchange organizations, insurance companies, agents and brokers, financial brokerage companies and institutions providing services of keeping and collecting third party funds and companies managing third parties funds; Article 2 also expands to non-FIs, including dealers in precious metals and stones, auditors, real estate agents, and lawyers.
- Resolution 9/2005 (Article 3):
  - Part (b) requires FIs to identify customers who wish to open an account or conduct a transaction over KD 3,000, and outlines acceptable identification forms (civil ID, passport, commercial license, etc.).
  - Part (c) requires document retention of all financial and nonfinancial transactions for a period of five years.
  - Parts (d) and (e) require training of personnel in AML and creation and enforcement of an internal auditing system for detection of suspicious transactions.

*Source: Extract from _cr11268 PDF chapter/section*

### 354. Article 4 of Resolution 9/2005 states that financial institutions who fail to comply with the

### _cr11268 - 354. Article 4 of Resolution 9/2005 states that financial institutions who fail to comply with the

### Supervisory and legal framework for AML/CFT obligations
- Article 4 of Resolution 9/2005: financial institutions who fail to comply with the requirements stipulated in Article 3 (CDD, recordkeeping, training, internal control systems) are subject to the criminal penalties outlined in Article 11 of the AML Law.
- Resolution 9/2005 is an implementing regulation for the AML Law, imposes mandatory requirements with sanctions for noncompliance, and was determined by assessors to serve as secondary legislation falling within the definition of law or regulation.
- Article 3 of the AML Law: FIs and individuals referred to under the same article shall strictly abide by ministerial instructions and resolutions issued by supervisory government authorities regarding the aforementioned articles and any other ministerial instructions and resolutions related to ML operations.
- Neither the AML Law nor Resolution 9/2005 explicitly designates the competent authority or authorities responsible for ensuring FIs’ compliance with AML/CFT requirements; authorities interpret Article 3 as empowering individual supervisory authorities, but assessors consider the requirement unclear and deserving further clarification.

### Roles exercised by supervisory authorities (CBK, KSE, MOCI)
- Despite lack of direct designation, the CBK, the KSE, and the MOCI have exercised their respective statutory powers and assumed responsibility with regard to AML supervisory matters.
- CBK:
  - Governing law: Law No. 32 of 1968 (“Currency, the CBK and the Organization of Banking Business”).
  - Ministerial Resolutions: January 8, 1987 (investment companies) and March 19, 1984 (exchange companies) place investment companies and exchange companies under CBK supervision.
  - Article 71 of the CBK Law establishes CBK authority to issue instructions to banks, investment companies, and exchange companies to further CBK credit or monetary policy or to ensure sound progress of banking business; CBK interprets this as a general power to issue AML/CFT instructions though not explicitly provided.
  - Pursuant to Law 32/1968, Article 71, CBK issued three AML/CFT instructions:
    - Instruction No. (2/BS/92/2002) to banks;
    - Instruction No. (2/IS-IIS/180/2005) to investment companies;
    - Instruction No. (2/RS/95/2003) to exchange companies.
  - Article 85 of the CBK Law provides power to sanction banks, investment companies or exchange companies violating the law or CBK decisions/instructions; sanctions applied include warnings, financial penalties, suspensions and withdrawal of the license.
  - Assessors concluded CBK instructions constitute other enforceable means (OEM) as defined by the FATF.
- KSE:
  - Emiri Decree of 1983: Article 3 gives KSE responsibility for regulating and protecting transactions on the financial market; Article 6 makes the KSE Market Committee responsible for setting general rules and policies.
  - KSE By-Laws: Ministerial Resolution 35/1983 promulgates KSE By-law; Article 21(f) and Article 25 require brokerage companies to satisfy further conditions and abide by the Decree, by-laws, resolutions and instructions issued by the KSE.
  - Pursuant to Article 25, Director of KSE issued Resolution 31 of 2003 “Anti-Money Laundering and Combating the Financing of Terrorism” (Resolution 31/2003) applying to brokerage companies and portfolio management companies.
  - Resolution 31/2003 is not law, decree, or implementing regulation; assessors determined it is not primary or secondary legislation.
  - Article 14 of the Emiri Decree of 1983 and Article 60 of the KSE By-Laws give the Disciplinary Board power to decide cases and issue administrative penalties related to market conduct.
  - Limitations: KSE sanctions for non-compliance are limited to market conduct administrative penalties, are not effective, proportionate or dissuasive; KSE does not in practice supervise brokerage companies for AML/CFT compliance and has never applied a sanction. Assessors determined Resolution 31/2003 is not OEM.
- MOCI:
  - Law No. 32/1969, Article 1: no commercial entity may open an installation/office without a license from the MOCI; applies to all FIs operating in Kuwait.
  - Emiri Decree of 12 August 1986, Article 2: MOCI responsible for supervising commercial companies, commercial registration and public shops per laws and by-laws.
  - Assessors were not provided with legal definition of “commercial companies” and could not determine extent of supervision granted to MOCI; documentation did not grant MOCI explicit authority to supervise and regulate insurance companies and exchange organizations.
  - Minister of Commerce AML/CFT Resolution No. 252 of 2002 applies to: investment companies, insurance companies, brokers and agents, exchange companies and organizations, and other FIs not under the CBK’s supervision.
  - Investment companies and exchange companies named in Resolution 252/2002 are under CBK supervision and must comply with CBK Instructions.
  - Authorities report that, other than insurance companies and exchange organizations, the only FIs not under CBK supervision are brokers and brokerage companies under KSE supervision.
  - Resolution 252/2002 is not law, decree, or implementing regulation; assessors unaware of documents vesting MOCI with explicit supervisory authority over insurance companies and exchange organizations; due to this legal gap MOCI lacks explicit authority to set enforceable requirements or apply sanctions. Assessors determined Resolution 252/2002 does not qualify as OEM.

### Enforcement findings and assessors’ determinations
- CBK: has applied sanctions (warnings, financial penalties, suspensions and withdrawal of the license) under Article 85 for failure to comply with AML Law, Resolution 9/2005, and CBK instructions.
- CBK instructions were determined to constitute other enforceable means (OEM).
- KSE Resolution 31/2003: not OEM; KSE lacks practical supervisory enforcement and has never applied AML/CFT sanctions.
- MOCI Resolution 252/2002: not OEM due to lack of explicit supervisory authority and enforcement powers for MOCI over insurance companies and exchange organizations.

### Risk of Money Laundering or Terrorist Financing
- Kuwait applies a uniform set of AML/CFT measures to the financial system.
- Authorities have not conducted a systemic review or assessment of potential ML and TF risks affecting FIs to serve as basis for applying enhanced or reduced measures.
- CBK, MOCI, and KSE instructions and resolutions have not been structured to recognize the possibility of a risk-based approach to implementation of preventive measures.
- Conclusion: existing AML legal and supervisory framework developed without consideration of ML/TF risk levels.

### Customer Due Diligence (CDD) — scope, thresholds, and identification
- Legal framework for AML/CFT preventive measures and CDD consists of:
  - AML Law;
  - Ministerial Resolution 9/2005 issued by the MOF;
  - supervisory instruments: CBK Instruction for banks (2/BS/92/2002), CBK Instruction for exchange companies (2/RS/95/2003), CBK Instruction for investment companies (2/IS-IIS/180/2005), CBK Instruction for PEPs (2/R B, R B A/R I, R I A/242/2009), KSE Resolution 31/2003, and MOCI Resolution 252/2002.
- Prohibition of anonymous accounts:
  - AML Law explicitly prohibits FIs from opening anonymous accounts or accounts in fictitious names (Article 3).
  - Ministerial Resolution 9/2005 Article 3 states entities set forth in Article 2 shall not maintain or open accounts or conduct transactions of any type, or lease safes keep bonds, securities or commercial paper, notes, jewels or valuable metals or any other valuable item, under anonymous, false or code names.
  - Authorities and private sector state no anonymous accounts or accounts in fictitious or code names exist in Kuwait; prohibition includes numbered accounts.
  - Customer identification requirements at account opening do not allow numbered accounts; titleholder must be an identified natural or legal person.
- When CDD is required:
  - AML Law Article 3: banks, investment companies, money exchange agencies and corporations, insurance companies, and other FIs and individuals determined by the Minister of Finance shall abide by proper identification of clients according to official documents issued by competent authorities.
  - Neither AML Law nor Ministerial Resolution 9/2005 defines “client”; supervisory instructions/resolutions silent on whether “client” includes permanent and occasional customers and natural, legal persons and arrangements.
  - AML Law is silent as to when FIs are expected to implement CDD measures; Ministerial Resolution 9/2005 addresses identification and verification when establishing business relationships.
  - Ministerial Resolution 9/2005 Article 3 requires FIs to identify and verify clients before establishing business relationships and states: “must not open any account or process any transaction worth more than KD 3,000 or the equivalent thereof in foreign exchange without first verifying the identity and capacity of the client and the beneficial owner.”
  - Article 3 of Ministerial Resolution 9/2005 provides a broad requirement but does not indicate extent of application to regular and occasional customers.
  - Observations and concerns:
    - The threshold KD 3,000 appears in the implementing resolution despite AML Law providing identification irrespective of any threshold; this raises concerns that CDD may only be required for transactions above KD 3,000.
    - Standard allows threshold for occasional transactions but requires CDD for regular clients irrespective of threshold; however Ministerial Resolution 9/2005 does not explicitly clarify this distinction.
    - Exchange companies do not open/hold accounts but are supposed to register customers for repeated transactions, making the threshold especially relevant.
    - Authorities acknowledge potential confusion from the KD 3,000 threshold but indicate in practice FIs identify and verify all regular customers irrespective of any threshold.
    - Meetings with FIs confirmed CDD measures are undertaken for regular customers irrespective of any applicable threshold.
    - Recommendation by assessors: Kuwait should review Article 3 of Ministerial Resolution 9/2005 to clarify that the threshold applies only to occasional customers and clarify other cases where CDD measures should be required.
  - Sectoral practice:
    - Banks, exchange companies, investment companies, exchange organizations and insurance companies stated they directly undertake CDD measures.
    - In securities industry: brokerage companies do not perform CDD measures; all brokers’ customers must open an account with the Kuwait Clearing Company (KCC), which undertakes CDD. Brokerage companies rely on KCC’s CDD without further measures.
  - Gaps in law/regulation:
    - No requirements in primary or secondary legislation addressing CDD measures when:
      (i) carrying out occasional transactions that are wire transfers in the circumstances covered by the Interpretative Note to SR.VII;
      (ii) there is a suspicion of ML or TF;
      (iii) the FI has doubts about the veracity or adequacy of previously obtained customer identification data.
    - CBK instructions for banks (Instruction 2/BS/92/2002) and exchange companies (2/RS/95/2003) set requirements for occasional transactions that are wire transfers but are considered OEM and fall short of criterion requirements.
    - Assessors concluded current obligations imposed by primary and secondary legislation present major shortcomings with a large majority of the requirements of this criterion.

- Identification measures and verification sources:
  - AML Law Article 3 provides for proper identification by FIs according to official documents issued by competent authorities but is silent on the identification data to be obtained; these are mainly addressed by Ministerial Resolution 9/2005 and supervisors’ instructions/regulations.
  - Ministerial Resolution 9/2005 Article 3 sets standard customer identification data and verification bases:
    - Natural persons: (i) the Civil ID for citizens and residents and other nationals, provided the card is valid; and (ii) the passport or travel document for persons not living in the state.
  - Civil ID: official document issued by the Public Authority for Civil Information (Law 32/1982); regarded as fundamental and reliable means of establishing true identity in Kuwait. Civil ID contains: holder’s name, picture, address, telephone number, date of birth, and where applicable, the employer’s name, and place of work, among other relevant information.

*Italic: Extracted from content unit _cr11268 - 354. Article 4 of Resolution 9/2005 states that financial institutions who fail to comply with the (source PDF).*

### 395. In the case of legal persons, specifically with regard to companies and institutions, the source

### _cr11268 - 395. In the case of legal persons, specifically with regard to companies and institutions, the source

### Identification documents for legal persons (companies and institutions)
- Primary source document FIs should use: the commercial license issued by the Ministry of Commerce and Industry (MOCI). (para. 395)
- The commercial license provides:
  - name of company or institution
  - address
  - file number
  - expiration date
  - date of issuance
  - license number
  - reference to its Articles of Association
  - certification by the Notary Public by the Ministry of Commerce
  - Authorities and FIs state this license supports the legal status of the company to conduct business in the jurisdiction. (para. 396)
- For legal persons established outside Kuwait, Article 3 requires FIs to obtain “the documents issued or approved by the competent authorities in the state to which non-resident companies, institutions and establishments are associated.” (para. 397)
- CBK Instructions that require written Know Your Client policies and minimum identification data include:
  - Instruction for banks (2/BS/92/2002) under Article 2
  - Instruction for exchange companies (2/ES/95/2003) under Article 2
  - Instruction for investment companies (2/IS-IIS/180/2005) under Article 4
  - Minimum identification data: verifying client ID, client’s profession or business, source of income, purpose for opening the account, and other information. (para. 400)

### Gaps and limitations in identification of legal persons and other arrangements (criterion 5.4)
- Identified weaknesses:
  - Requirement for identifying legal persons that are not companies or institutions (e.g., foundations, anstalt, partnerships, associations) is insufficient and unclear; needs clarification on which “official documents” FIs must obtain. (paras. 398, 399)
  - Current measures do not require identification using reliable, independent source documents, data, or information; requirements for foundations, anstalt, and associations under Ministerial Resolution 9/2005 are limited. (para. 399)
  - Minimum supporting documentation should include legal status, articles of incorporation, registration number, directors, etc. (para. 399)
- Specific provisions and shortcomings:
  - Article 3, paragraph 4 of Resolution 9/2005 requires FIs to identify and verify the identity and capacity of the client and the actual beneficiary; Article 4 requires obtaining “the necessary documents, papers, instruments and judicial rulings establishing that a person has been appointed to represent the concerned company, institution or person.” However, these fall short for other legal persons (foundations, anstalts, partnerships, associations). (paras. 403–404)
  - CBK Instructions require, when an account is opened on behalf of a third party, provision of legal documents supporting representation and the name of the clients benefiting from the account (banks: 2/BS/92/2002 Article 5, Paragraph 5.2; investment companies: 2/IS-IIS/180/2005 Article 3, Paragraph 3.2), but these are not primary legislation and thus not assessed as such here. (para. 405)
  - Article 3, Paragraph 3 of Ministerial Resolution 9/2005 requires a commercial license from MOCI for companies and institutions as a source to verify legal status; the commercial license includes the fields listed above. (paras. 406–407)
  - Additional instructions require licenses and Civil ID or authenticated signature forms for individual firms and commercial companies (banks: Instruction 2/BS/92/2002 Article 3.3–3.4; exchange companies: 2/RS/95/2003 Article 1.3–1.4; investment companies: 2/IS-IIS/180/2005 Article 2.3–2.4). (para. 408)
  - FIs “should ascertain the existence of the firm/company together with the place of business and names of authorized directors and that persons acting on behalf of the company have legal authorization to do so” (banks: 2/BS/92/2002 Article 5, Paragraph 5.3; investment companies: 2/IS-IIS/180/2005 Article 3, Paragraph 3.3). (para. 409)
  - KSE Resolution 31/2003 requires MOCI license, Articles of Incorporation and by-laws for Kuwaiti establishments and companies; Articles of Incorporation and by-laws of non-Kuwaiti companies or other authenticated incorporation documents. (para. 410)
  - MOCI Resolution 252/2002 does not explicitly require insurance companies and exchange organizations to verify the legal status of the legal person or legal arrangement. (para. 411)
  - Kuwaiti legislation does not provide for the creation of trusts or similar legal arrangements; no evidence private sector holds funds under foreign trusts or provides trust services at time of assessment. (para. 412)

### Identification of beneficial owners (criteria 5.5; 5.5.1 & 5.5.2)
- Legal and regulatory position:
  - The AML Law does not establish the requirement to identify and verify the identity of the beneficial owner. (para. 413)
  - Article 3 Paragraph (b) of Ministerial Resolution 9/2005 (secondary legislation) requires identification and verification of the identity and capacity of the client and the beneficial owner. (para. 413)
  - Neither the AML Law nor Ministerial Resolution 9/2005 define “beneficial ownership” or provide guidance on how FIs should address it. (para. 414)
- Recommended legal clarifications (as stated in source):
  - Law should require identification of the natural person(s) who ultimately owns or controls a customer and/or person on whose behalf a transaction is conducted.
  - Law should require identification of persons who exercise ultimate effective control over a legal person or arrangement and natural persons with a controlling interest or who comprise the mind and management of the company. (para. 415)
- Practical and supervisory observations:
  - CBK, MOCI, and KSE have not addressed beneficial ownership in their Instructions/Regulations, leading the private sector to develop inconsistent internal understandings of Article 3 of Ministerial Resolution 9/2005. (para. 416)
  - Article 3, Paragraph 4 of Ministerial Resolution 9/2005 provides for identification of the person appointed to represent a company/institution but not for other legal persons. CBK Instructions (2/BS/92/2002 Article 5, para. 5.2; 2/IS-IIS/180/2005 Article 3, para. 3.2) require identification of the person on whose behalf a transaction is conducted and the name(s) of the client(s) benefiting from the account. (para. 417)
  - Banks and investment companies must obtain an affidavit from the client at account opening stating they are the beneficiary or stating additional beneficiaries (banks: 2/BS/92/2002 Article 5 para. 5.1; investment companies: 2/IS-IIS/180/2005 Article 3 para. 3.1). If doubt remains and the client does not provide legal documentation, the FI shall close the account immediately. Exchange companies are excluded as they cannot hold deposits or maintain ongoing accounts. (para. 418)
  - Requirements to identify and verify the actual beneficial owner applicable to FIs are broad and do not provide the level of detail contained under the FATF standard; neither primary nor secondary legislation specifies reasonable measures for FIs to be satisfied they know who the customer is. (para. 419)
  - No requirements under MOCI Resolution 252/2002 or KSE Resolution 31/2003 for insurance companies, exchange organizations and brokerage companies to identify the beneficial owner. (para. 420)
  - No provisions in primary or secondary legislation or other enforceable means establishing an obligation on FIs to determine for all customers whether the customer is acting on behalf of another person and to take reasonable steps to identify that other person. (para. 421)
  - No provisions requiring FIs to take reasonable measures to understand ownership and control structures of legal persons/legal arrangements and determine natural persons who ultimately own or control the customer. (para. 422)
  - Authorities state they verify beneficial ownership during on-site inspections using relevant and reliable information, but no legal basis was evidenced for this practice. (para. 423)
  - Authorities consider current requirements apply to all legal persons and that beneficial ownership can be obtained from deed of incorporation; in practice, incorporation documents often do not contain ownership/control information, and rarely the ultimate beneficial owners. (para. 424)

### Information on purpose and intended nature of business relationship (criterion 5.6)
- CBK Instructions require a written policy including minimum information to be obtained before establishing a business relationship:
  - banks: 2/BS/92/2002 Article 2, Paragraph 2.1
  - investment companies: 2/IS-IIS/180/2005 Article 4, Paragraph 4.1
  - Minimum required: verifying client ID, client’s profession or business, source of income, purpose in opening the account, and other relevant information. (para. 425)
- Shortcomings:
  - Requirements fall short of requiring banks and investment companies to obtain information regarding the intended nature of the business relationship. (para. 426)
  - Exchange companies (2/ES/95/2003) do not require information on purpose and intended nature of the business relationship; this is attributed to exchange companies being prohibited from holding accounts and having only transaction-based relationships. (para. 427)
  - Securities industry (KSE Resolution 31/2003 Article 2) requires account opening forms to include the purpose of the business relationship but still falls short of requiring information on the intended nature of the business relationship. (para. 428)
  - MOCI Resolution 252/2002 does not require insurance companies or exchange organizations to obtain information on the purpose and intended nature of the business relationship. (para. 429)

### Ongoing due diligence on business relationship (criteria 5.7; 5.7.1 & 5.7.2)
- Legal and regulatory position:
  - No obligation in primary or secondary legislation or other enforceable means for FIs to conduct ongoing due diligence over the course of business relationships or to scrutinize transactions to ensure consistency with the FI’s knowledge of the customer, their business and risk profile, and where necessary, source of funds. (para. 430)
  - CBK Instructions require banks and investment companies to update identification data in a regular and suitable manner and to ensure continued validity of client ID and significant changes to business and accounts (banks: 2/BS/92/2002 Article 2 para. 2.2; investment companies: 2/IS-IIS/180/2005 Article 4 para. 4.2). (para. 431)
- Implementation gaps:
  - No guidance on adequate timeframes for updating customer data. (para. 432)
  - Exchange companies mirror CBK requirements but remain transaction-based due to prohibition on holding deposits. (para. 433)
  - No explicit requirement for FIs to undertake regular reviews to ensure records are up-to-date, particularly for higher-risk categories; CBK Instructions are ambiguous whether proactive regular reviews are required or only updates when customers provide new information. (paras. 434–436)
  - FIs apply inconsistent approaches to updating identification data: some annual, others event-triggered; overall, few regular reviews and limited awareness of high-risk customer categories. (para. 435)
  - MOCI Resolution 252/2002 and KSE Resolution 31/2003 do not require supervised FIs to keep CDD data up-to-date by undertaking reviews, particularly for higher-risk categories. (para. 436)

### Risk—Enhanced due diligence for higher-risk customers (criterion 5.8)
- Current stance:
  - CBK Instructions for banks, exchange companies, and investment companies, and MOCI/KSE Resolutions for insurance, exchange organizations, and brokerage companies set a standard due diligence process to be applied in all cases; there are no specific obligations to apply enhanced procedures for high-risk customers, business relationships, or transactions. (para. 437)
  - Exception: Instruction (2/R B, R B A/R I, R I A/242/2009) with regard to PEPs is covered under Recommendation 6; otherwise CBK does not require enhanced due diligence for higher-risk categories. (para. 438)

*Source: _cr11268 - 395. In the case of legal persons, specifically with regard to companies and institutions, the source*

### 439. The AML Law, the implementing Resolution 9/2005, and the Instructions/Resolutions in place

### _cr11268 - 439. The AML Law, the implementing Resolution 9/2005, and the Instructions/Resolutions in place

### Overview
- The AML Law, Ministerial Resolution 9/2005, and Instructions/Resolutions do not provide for the application of simplified or reduced CDD measures; financial institutions are required to apply the full range of CDD measures to all customers.
- Risk references noted: c. 5.10; c. 5.11; c. 5.12 (as listed in the source).

### Timing of Verification of Identity — General Rule
- "Identification" as used in Ministerial Resolution 9/2005 includes verification, requiring presentation by the customer of a formal document for the purpose of establishing identity.
- Article 3 of Ministerial Resolution 9/2005: identification and verification of the client’s identity, his capacity and the beneficial owner before opening any account or processing any transaction of more than KD 3,000 or equivalent value in foreign exchange.
- Article 3 of the CBK Instruction (2/BS/92/2002): "banks may only open an account, after copies of official documents determining the client ID have been provided."
- CBK Instruction for investment companies (2/IS-IIS/180/2005) mirrors the same requirement.
- CBK Instruction (2/RS/95/2003) for exchange companies: when services involve transactions exceeding KD 300, all exchange companies and their branches must obtain a copy of a document proving the client's identity.
- KSE Resolution 31/2003: verification of identity before establishing a business relationship for brokerage companies, portfolio management companies, and clearing companies, but it falls short of requiring identification and verification of the beneficial owner and is not legally binding.
- MOCI Resolution 252/2005: requires insurance companies and exchange organizations to verify client identity when engaging in a business relationship, without clarifying whether this is before or during establishment of the relationship.
- Financial institutions generally understand they must not perform transactions or establish business relationships without prior verification of customer identity; authorities should review Article 3 of Ministerial Resolution 9/2005 to clarify no threshold is applicable for regular customers.

### Timing of Verification — Treatment of Exceptional Circumstances
- Ministerial Resolution 9/2005 requires proper identification and verification before opening an account or executing a transaction worth more than KD 3,000 or the equivalent in foreign exchange.
- Instructions and Resolutions enacted by supervisory authorities stipulate the same requirement.
- Regulations do not permit FIs to complete verification of customer and beneficial owner following establishment of the business relationship.
- Criterion on exceptional treatment considered "not applicable" given the obligation in Ministerial Resolution 9/2005 for all FIs to identify and verify clients when establishing business relations or conducting transactions for occasional customers.

### Failure to Complete CDD before Commencing the Business Relationship
- AML Law and Ministerial Resolution 9/2005 require identification and verification before opening account or executing a transaction worth more than KD 3,000 or equivalent in foreign exchange.
- CBK Instructions and MOCI/KSE resolutions require FIs to refrain from opening an account, commencing business relations, or performing a transaction when unable to comply with the CDD process.
- Framework prohibits opening accounts or commencing relationships if FIs cannot comply with Criteria 5.3 to 5.5.
- No provisions in primary or secondary legislation, or in other enforceable means, requiring FIs to consider making a suspicious transaction report when unable to complete CDD measures.

### Failure to Complete CDD after Commencing the Business Relationship
- Article 3 of Ministerial Resolution 9/2005: FIs required to identify and verify the customer’s identity before establishing a business relationship and conducting transactions; not permitted to conduct business until requirement is met.
- Regulations silent on actions if a business relationship has already commenced and the FI can no longer be satisfied of the customer's genuine identity.
- No provisions in primary/secondary legislation or other enforceable means requiring FIs to terminate the business relationship and consider making a suspicious transaction report.
- Article 2, Paragraph 2.3, of CBK Instruction for banks (2/BS/92/2002): measures to be taken against any client who does not provide identification data, whether at start or when updating data.
- Article 5, Paragraph 5.5., of CBK Instruction for banks and Article 3, Paragraph 3.4, of CBK Instruction for investment companies: if a client is not operating an account for himself and has not provided legal documentation showing the true beneficiary, the bank shall close the account immediately, considering any liabilities or legal procedures; this is limited to inability to verify true beneficiary and does not address doubts about veracity or adequacy of previously obtained identification data.

### Existing Customers — CDD Requirements
- Article 5, Paragraph 5.1 of CBK Instruction (2/BS/92/2002): banks shall verify the information set forth in Article 5 for all new accounts as well as existing accounts. Article 3 of CBK Instruction (2/IS-IIS/180/2005) mirrors this.
- Article 5 provisions: identification of the client, an affidavit that he is the beneficiary, situations of acting on behalf of third parties, CDD for legal persons, among others, but do not require application of CDD on the basis of materiality and risk or due diligence at appropriate times.
- CBK indicated banks and investment companies required to apply CDD to both new and existing clients with no discretion based on "materiality and risk" and that banks and investment companies have applied CDD to all existing customers; CBK verifies this during on-site inspections.
- MOCI and KSE resolutions contain no reference to applying CDD to customers who opened accounts prior to introduction of AML legislation.

### Existing Anonymous-account Customers
- The AML Law, Ministerial Resolution 9/2005, and supervisory instructions/resolutions prohibit anonymous accounts or accounts in fictitious names.
- Authorities and FIs reported no known existing anonymous or fictitious customers.
- Authorities stated there is no history of anonymous accounts in Kuwait due to long-standing prohibitions.

### Analysis of Effectiveness — Key Findings and Recommendation 5
- Preventive measures under the AML Law are very general, especially regarding customer identification; complemented by Ministerial Resolution 9/2005 and Instructions/Resolutions, but lack required level of detail under the standard.
- Some requirements that should be in law or regulation are addressed in other enforceable means or lower-level instruments (MOCI Resolution 252/2002 and KSE Resolution 31/2003).
- Extent of sectoral supervisory elaboration of preventive measures varies; measures are less robust for FIs supervised by MOCI and MC/KSE.
- Securities sector, insurance companies, and exchange organizations have a lower level of awareness of minimal requirements within the legal framework.
- Despite common understanding that all regular customers should be identified and verified irrespective of thresholds, it is desirable to amend Article 3 of Ministerial Resolution 9/2005 to clarify the threshold applies only to occasional customers.
- Significant deficiencies across sectors in legal framework requiring CDD measures, including:
  - inadequate provisions on timing for undertaking CDD;
  - identification and verification of some legal persons and persons acting on behalf of certain legal persons;
  - identification and verification of the beneficial owner;
  - conduct of ongoing due diligence on business relationships;
  - review of existing records under CDD, particularly for higher-risk categories;
  - performance of enhanced due diligence for higher-risk categories;
  - requirement to apply CDD to existing customers of exchange organizations, insurance companies, and brokerage companies on basis of materiality and risk;
  - not all FIs required to obtain information on purpose and intended nature of the business relationship.
- Absence of a clear definition of "beneficial ownership" under primary or secondary legislation creates inconsistency and lack of transparency over real ownership and control of legal persons; authorities should ensure FIs apply effective preventive measures and properly identify and verify all customers.
- Regulators should clarify the notion of the natural person(s) who ultimately owns or controls the customer to ensure proper implementation by reporting entities.
- Financial institutions commonly request Ministry of Commerce and Industry license for companies but are not knowledgeable of identification data required for other legal persons; further guidance recommended.
- Overall effectiveness of implementation is low, reflecting limited knowledge or understanding of obligations, especially among exchange companies, exchange organizations, securities, and insurance sectors.

### Sector-specific Observations
- Banks and investment companies:
  - Appear to have an acceptable appreciation of AML Law, implementing resolution, and CBK Instructions.
  - In practice obtain sufficient identification and documentation prior to establishing business relationships and verify customer identity per CBK requirements, relying on official documents such as the Civil ID, Ministry of Commerce and Industry license, and Articles of Incorporation.
  - For beneficial ownership, FIs verify Ministry of Commerce and Industry license and Articles of Association, which do not provide ownership and control structure; FIs lack awareness of measures needed to identify and verify beneficial owners.
  - Larger, especially foreign, FIs have stronger internal CDD and enhanced due diligence practices for higher-risk categories, but these are internal practices absent in legal framework.
  - Limited perception of high-risk categories; enhanced due diligence generally not applied except by large FIs.
  - Lack of legal requirement for ongoing due diligence leads to inconsistent approaches; some banks update customer data annually, others less frequently; FIs do not undertake regular reviews of existing records.
  - Authorities should expressly require reviews of existing records, provide guidance, and clarify adequate timeframes for updating customer data.
- Insurance companies, exchange organizations, and brokerage companies:
  - Low level of understanding and inadequate compliance with CDD requirements.
  - CDD measures not effectively implemented; explained by lack of AML/CFT supervision by MOCI and KSE.
  - Brokerage companies, although reporting entities under Ministerial Resolution 9/2005, do not undertake CDD measures, ongoing due diligence, or preventive measures; they often rely on Kuwait Clearing Company for account opening.
  - Private sector monitors accounts mainly to comply with sector-specific law, without an AML component.

### Foreign Politically Exposed Persons (PEPs)
- Requirements for dealing with PEPs are covered under:
  - CBK Instruction (2/RB, R BA/RS, RSA/242/2009),
  - CBK Instruction (2/BS/92/2002) for banks,
  - CBK Instruction (2/IS-IIS/180/2005) for investment companies,
  - which, for the purpose of this assessment, are considered other enforceable means.

*Source: _cr11268 - 439. The AML Law, the implementing Resolution 9/2005, and the Instructions/Resolutions in place*

### 486. The requirements set forth under CBK Instruction (2/R B, R B A/RS, RSA/242/2009)  are

### _cr11268 - 486. The requirements set forth under CBK Instruction (2/R B, R B A/RS, RSA/242/2009)  are

### Politically Exposed Persons (PEPs) — Scope and Coverage
- Paragraph 486: The requirements set forth under CBK Instruction (2/R B, R B A/RS, RSA/242/2009) are specifically related to PEPs and apply to banks and investment companies.
- Paragraph 487: There are no provisions, measures, or requirements in place for exchange companies, insurance companies and agents, exchange organizations, or brokerage companies that address any of the essential criteria (c.6.1 to c.6.4) with respect to PEPs (including:
  - having appropriate risk management systems to determine whether the customer is a politically exposed person,
  - obtaining senior management approval for establishing business relationships with such customers,
  - taking reasonable measures to establish the source of wealth and the source of funds,
  - conducting enhanced ongoing monitoring of the business relationship).

### Risk Management Systems (Articles and Deficiencies)
- Paragraph 488: Article 1 requires banks and investment companies to have a written policy approved by the Board of Directors for dealing with PEPs; the policy shall include the definition and identification of PEPs.
- Paragraph 489: The Instruction does not provide a definition of PEPs in line with the FATF glossary; recommendation that the definition should include individuals entrusted with prominent public functions in a foreign country (examples listed in source).
- Paragraph 490: Article 2 requires specific procedures for accounts/portfolios opened for PEPs; requires “information databases shall be periodically updated” and application to current customers who become PEPs; requires periodical audit of accounts and transactions of these individuals and availability of appropriate control to limit risks.
- Paragraph 491: Article 3 requires banks and investment companies to verify the identity of PEPs when processing any transaction for them, per CBK requirements.
- Paragraph 492: Article 5 allows banks and investment companies to refer to lists of names and positions of PEPs through specialized information and databases, but provides no further guidance.
- Paragraph 492 (finding): Requirements fall short of requiring FIs to perform CDD measures and to put in place appropriate risk management systems to determine whether the potential customer, the customer, or the beneficial owner is a PEP.
- Paragraph 493 (recommendation): The CBK should provide FIs including banks, and investment companies with additional measures to include in written policies and specific procedures when dealing with PEPs.

### Foreign PEPs — Management Approval (c. 6.2; 6.2.1)
- Paragraph 494: Article 1 requires banks and investment companies to obtain senior management approval for establishing business relationships with or conducting any transaction for a PEP.
- Paragraph 495: Article 2 states “databases shall be periodically updated and such procedures shall be applied to current customers, if they become a PEP, as soon as the bank/investment company becomes aware of the customer’s change in status”.
- Paragraph 496 (deficiency): Articles 1 and 2 fall short of criteria 6.2.1 because they do not require senior management approval to continue the business relationship when an accepted customer or beneficial owner is subsequently found to be, or subsequently becomes, a PEP.

### Foreign PEPs — Requirement to Determine Source of Wealth and Funds (c. 6.3)
- Paragraph 497: Article 2.1 of the CBK Instruction for banks, Article 2.1 for exchange companies, and Article 4.1 for investment companies require a board-approved written policy regarding identification of customers; provides minimum information/data before establishing a business relationship or executing a transaction.
- Paragraph 498: Banks, exchange companies and investment companies are required to obtain information regarding the source of income, but the requirement falls short of requiring establishment of the source of wealth.
- Paragraph 499: Requirement falls short of requiring FIs to take reasonable measures to establish the source of wealth and the source of funds of beneficial owners identified as PEPs.

### Foreign PEPs — Ongoing Monitoring (c. 6.4)
- Paragraph 500 (finding): FIs are not required to conduct enhanced ongoing monitoring when they are in a business relationship with a PEP.

### Domestic PEPs — Coverage and International Instrument Ratification (c. 6.5; c. 6.6)
- Paragraph 501: Current requirements do not extend to PEPs who hold prominent public functions domestically.
- Paragraph 502: Kuwait ratified the United Nations Convention against Corruption on February 16, 2007.

### Analysis of Effectiveness — PEPs
- Paragraph 503:
  - Except for banks and investment companies, exchange companies, insurance companies, exchange organizations, and brokerage companies do not appear to understand the need to identify PEPs.
  - The underlying notion of PEPs is not universally understood by FIs in Kuwait.
  - Exchange companies, insurance companies, exchange organizations, and brokerage companies do not have any measures with respect to PEPs.
  - Implementation across banks and investment companies varies: some have enhanced CDD measures and risk management systems; others perform normal CDD without appropriate risk management systems.

### Cross-Border Correspondent Accounts and Similar Relationships — Introduction and Coverage
- Paragraph 504: Only banks, investment companies, and exchange companies engage in cross-border correspondent relationships; authorities indicated insurance companies, exchange organizations, and brokerage companies do not engage in similar cross-border relationships.
- Paragraph 505: CBK Instruction (2/BS/92/2002) for banks, CBK Instruction (2/ES/95/2003) for exchange companies, and CBK Instruction (2/IS-IIS/180/2005) for investment companies establish requirements for cross-border correspondent relationships.

### Requirement to Obtain Information on Respondent Institution (c. 7.1)
- Paragraph 506: Relevant Articles require FIs to make sure sufficient information on the respondent institution is available when executing transactions through correspondents in other countries.
- Paragraph 507 (deficiency): The requirement falls short because it only provides for the need to gather “sufficient information” without clarifying that the information should allow the FI to understand the nature of the respondent’s business and determine from publicly available information the reputation of the institution and the quality of supervision, including whether it has been subject to a ML or TF investigation or regulatory action.
- Paragraph 508: Authorities indicated that “sufficient information” means any information useful and publicly available about the correspondent, including nature of business, reputation, quality of supervision, and whether it has been subject to a money laundering or terrorist financing investigation or regulatory action.
- Paragraph 509 (assessor view): The “need to gather sufficient information” does not address criterion 7.1; private sector meetings revealed FIs generally do not obtain information on quality of supervision and could not indicate what type of information they normally gather.
- Paragraph 510 (recommendation): Requirements should be supported with specific guidelines and further clarification from regulators about expectations to allow FIs to effectively understand the nature of the respondent’s business, reputation, quality of supervision, etc.

### Assessment of AML/CFT Controls in Respondent Institution (c. 7.2)
- Paragraph 511: Relevant Articles require FIs to take reasonable measures to ascertain that the correspondent has proper systems for combating ML and TF.
- Paragraph 512: Authorities claim requirement to “take reasonable measures to ascertain that the correspondent has proper systems” implies obligation to ascertain adequacy and effectiveness; financial institutions also understand obligation is to ascertain that correspondent’s AML/CFT controls are adequate and effective.

### Approval of Establishing Correspondent Relationships (c. 7.3)
- Paragraph 513: Relevant Articles require FIs to obtain the approval of the board of directors before establishing new correspondent relationships.

### Documentation of AML/CFT Responsibilities for Each Institution (c. 7.4)
- Paragraph 514: Relevant Articles state relations with correspondents shall be governed by approved contracts or agreements; “agreements with correspondents shall be conditional on provision of corroborating documentation determining client identity before processing a transaction, and that this documentation shall be retained for perusal, as necessary”.
- Paragraph 515 (assessor view): The obligation to govern relations by approved contracts or agreements does not necessarily imply the obligation to document the respective AML/CFT responsibilities of each institution as required under criterion 7.4.
- Paragraph 516: Assessors did not have access to a contract or agreement to validate that FIs effectively document the AML/CFT responsibilities of each institution.

### Payable-Through Accounts (c. 7.5)
- Paragraph 517: There are no provisions or prohibitions dealing with correspondent relationships involving the maintenance of “payable-through accounts.”
- Paragraph 518: FIs indicated they do not have correspondent accounts used by third parties to transact on their own behalf; therefore, no payable-through accounts in effect.
- Paragraph 519: CBK stated FIs are not allowed to offer any service or products without prior CBK approval; no regulation expressly permits payable-through accounts and before granting approval CBK would require:
  - i) that the financial institution satisfies itself that the respondent financial institution has performed all normal CDD obligations on those customers that have direct access to the accounts of the correspondent financial institution, and
  - ii) that the respondent FI is able to provide all relevant customer identification data upon request.

### Analysis of Effectiveness — Cross-Border Correspondent Relationships
- Paragraph 520: CBK conducts on-site inspections; On-Site Department reviews cross border correspondent relationships including review of contracts and agreements; requirement appears on a checklist for AML compliance under the “CBK Examiners Manual”.
- Paragraph 521: Different levels of awareness among FIs of risks associated with cross border correspondent relationships; some FIs apply appropriate measures, others cannot indicate what measures they put in place beyond normal due diligence; lack of satisfactory evidence of compliance with CBK requirements.

### Misuse of New Technology for ML/TF (c. 8.1)
- Paragraph 522: Article 8 of CBK Instruction for banks and Article 5 for investment companies state “due diligence shall be exerted to identify the risks of using modern technologies to launder money  and finance terrorism, particularly for concealing the identity of the person making the transaction and the sources of associated funds. Appropriate measures must be taken to prevent the use of these methods, when necessary”.
- Paragraph 523: Instruction for investment companies adds “appropriate measures must be taken to prevent the use of these methods to conduct suspicious transactions”.
- Paragraph 524: No requirements in place for exchange companies, insurance companies, exchange organizations, and brokerage companies to address criteria 8.1 with regard to new technologies.

### Risk of Non-Face-to-Face Business Relationships (c. 8.2 & 8.2.1)
- Paragraph 525: Article 8, Section 8.2 for banks states that “as regards transactions processed online or through the internet, the contents of these instructions and especially those related to provision of the client’s personal ID and basic information, shall be complied with.”
- Paragraph 526: Article 5 for investment companies states that “in the case of telephone or online transactions or transactions conducted through the internet, the present Instructions must be complied with, especially with regard to supplying the verified, personal ID of clients and their basic details.”
- Paragraph 527 (deficiency): Provisions fall short of the standard as they do not require FIs to have policies and procedures to address specific risks associated with non-face-to-face business relationships or transactions when establishing business relationships and when conducting ongoing due diligence.
- Paragraph 528: No requirements for exchange companies, insurance companies, exchange organizations, or brokerage companies to address criteria 8.2 or 8.2.1 regarding non-face-to-face transactions.

### Analysis of Effectiveness — Technology and Non-Face-to-Face Transactions
- Paragraph 529: No information pertaining to effectiveness of measures by banks and investment companies to prevent misuse of technological developments in ML schemes or to address non-face-to-face transaction risks.
- Paragraph 530: No legal or regulatory obligation for persons to be present when establishing or opening an account; general understanding among banks, exchange companies and investment companies is potential account-holders must present themselves in person to fulfill identification and verification procedures, but FIs could not indicate measures for non-face-to-face transactions after account opening (e.g., ATM use, trading in securities).
- Paragraph 531: CBK states through its IT unit it tests and ensures adequacy of such systems; no satisfactory evidence provided.
- Paragraph 532: Lack of requirements for exchange companies, insurance companies and exchange organizations, and particularly brokerage companies (many transactions are non-face-to-face), severely impacts effectiveness under this recommendation.
- Paragraph 533: Investors in securities can place orders through a broker by telephone or in person; private sector meetings revealed many orders are currently placed by telephone; no specific requirements in AML Law, Ministerial Resolution 9/2005 or KSE resolutions addressing these risks.

### Recommendations and Comments (Section 3.2.2 — Recommendation 5)
- Paragraph 534 (overall assessment): Significant shortcomings in Kuwait’s AML/CFT framework due in part to many requirements being addressed through OEMs or lower-level texts; measures for customer identification are often too general and lack detail required under the standard; a number of CDD requirements are missing.
- Paragraph 535 (specific): Authorities should review Article 3 of Ministerial Resolution 9/2005 to clarify and ensure no threshold is applied to undertake CDD measures regarding regular customers.
- Paragraph 536 (specific): Neither the AML Law nor Ministerial Resolution 9/2005 provide a definition of what constitutes beneficial ownership; clear need for further clarification from regulators regarding beneficial ownership.
- Paragraph 537 (recommended legislative actions): Authorities should establish, through primary or secondary legislation, clear requirements for FIs to:
  - Undertake customer due diligence (CDD) measures when:
    - Carrying out occasional transactions that are wire transfers in the circumstances covered by the Interpretative Note to SR.VII.
    - There is a suspicion of ML or TF, regardless of any exemptions or thresholds.
    - The FI has doubts about the veracity or adequacy of previously obtained customer identification data.
  - Identify and verify the identity of all types of legal persons, not just companies and institutions, using reliable, independent, data or information (identification data).
  - Verify that any person purporting to act on behalf of a legal person (not only for companies and institutions) is so authorized, and identify and verify the identity of that person.
  - Take reasonable measures to determine, for all customers, whether the customer is acting on behalf of another person; who are the natural persons who ultimately own or control the customer; and also those persons who exercise ultimate effective control over a legal person or arrangement.
  - Conduct ongoing due diligence on the business relationship.

*Source: IMF staff report content as provided in the supplied PDF excerpt.*

### 538. The authorities are recommended to establish, through law, regulation, or other enforceable

### _cr11268 - 538. The authorities are recommended to establish, through law, regulation, or other enforceable

### Customer Due Diligence (CDD) obligations for financial institutions (paragraphs 538–541)
- Authorities are recommended to establish, through law, regulation, or other enforceable means, clear obligations/requirements for FIs to:
  - Understand the ownership and control structure of the customers.
  - Verify the legal status of all legal persons.
  - Obtain information on the purpose and intended nature of the business relationship with regard to insurance companies and exchange organizations.
  - Obtain information on the intended nature of the business relationship with regard to banks, investment companies and brokerage companies.
  - Include the scrutiny of transactions undertaken through the course of that relationship to ensure that the transactions being conducted are consistent with the institutions’ knowledge of their customers, their business and risk profile, and where necessary, the source of funds.
  - Undertake reviews of existing records collected under the CDD process, particularly for higher-risk categories of customers or business relationships.
  - Ensure that documents, data, or information collected by insurance companies, exchange organizations, and brokerage companies under the CDD process are kept up-to-date and relevant.
  - Perform enhanced due diligence for higher-risk categories of customers, business relationships and transactions.
  - Consider making a suspicious transaction report when FIs are unable to comply with Criteria 5.3 to 5.6.
  - Terminate the business relationship and make a suspicious transaction report after the business relationship has commenced, but the FI is no longer satisfied with the veracity or adequacy of previously obtained identification data.
  - Require insurance companies, exchange organizations and brokerage companies to apply CDD requirements to existing customers on the basis of materiality and risk and to conduct due diligence on such existing relationships at appropriate times.
  - Ensure that AML/CFT measures are effectively implemented by FIs, by ensuring an appropriate monitoring of the compliance of FIs with Kuwait’s AML/CFT measures and by imposing sanctions for failure to comply with these measures.
- Recommendation 6 (paragraph 539): The authorities should fully extend the requirements of Recommendations 6 to exchange companies, insurance companies, exchange organizations, and brokerage companies.
- Paragraph 540: The authorities should provide a definition of PEPs in line with the standards.
- Paragraph 541: Banks and investment companies should be required to:
  - perform CDD measures and put in place appropriate risk management systems to determine whether a potential customer, a customer or a beneficial owner is a PEP;
  - obtain senior management approval to continue a business relationship when a customer or beneficial owner is subsequently found to be, or subsequently becomes a PEP;
  - take reasonable measures to establish the source of wealth of customers, and the source of wealth and the source of funds of beneficial owners identified as PEPs;
  - conduct enhanced ongoing monitoring when they are in a business relationship with a PEP.

### Correspondent banking and documentation of AML/CFT responsibilities (Recommendation 7) (paragraph 542–543)
- Paragraph 542: Authorities should require banks, exchange companies and investment companies to:
  - Gather sufficient information about the respondent institution to understand fully the nature of the respondent’s business and to determine from publicly available information the reputation of the institution and the quality of supervision.
  - Document the respective AML/CFT responsibilities of each institution.
- Paragraph 543: Authorities should fully extend the requirements regarding non-face-to-face transactions and new technologies to exchange companies, insurance companies, exchange organizations, and brokerage companies.
- Paragraph 544: All FIs in Kuwait should be required to have policies and procedures in place to address any specific risks associated with non-face-to-face business relationships or transactions. Measures for managing risks should include specific and effective CDD procedures that apply to non-face-to-face customers. The policies and procedures should apply when establishing the customer relationship and when conducting ongoing due diligence.

### Compliance with Recommendations 5 to 8 — Ratings and underlying factors (section 3.2.3)
- Rating summary for R.5: NC
  - Lack of explicit obligations imposed by law or regulation (primary or secondary legislation) for:
    - Undertaking customer due diligence measures when:
      - Carrying out occasional transactions that are wire transfers in the circumstances covered by Interpretative Note to SR.VII;
      - There is suspicion of ML or TF, regardless of any exemptions or thresholds;
      - The FI has doubts about the veracity or adequacy of previously obtained customer identification data.
    - Identifying and verifying the identity of any person purporting to act on behalf of a legal person (not only for companies and institutions).
    - Identifying all types of legal persons, using reliable, independent, data or information (identification data).
    - Taking reasonable measures to determine, for all customers, whether the customer is acting on behalf of another person, who are the natural persons who ultimately own or control the customer, and also those persons who exercise ultimate effective control over a legal person or arrangement.
    - Conducting ongoing due diligence on the business relationship, including the scrutiny of transactions undertaken through the relationship.
  - Lack of measures in law, regulation or other enforceable means that require FIs to:
    - Verify the legal status of all legal persons.
    - Understand the ownership and control structure of the customers.
    - Obtain information on the purpose and intended nature of the business relationship with regard to insurance companies and exchange organizations and the intended nature of the business relationship with regard to banks, investment companies, and brokerage companies.
    - Undertake reviews of existing records collected under the CDD process, particularly for higher-risk categories of customers and business relationships.
    - Ensure that documents, data, and information collected by insurance companies, exchange organizations, and brokerage companies under the CDD process are kept up-to-date and relevant.
    - Perform enhanced due diligence for higher-risk categories of customer, business relationships, and transactions.
    - Consider making a suspicious transaction report when FIs are unable to comply with Criteria 5.3 to 5.6.
    - Terminate the business relationship and consider making a suspicious transaction report after the business relationship has commenced, but the FI is not longer satisfied with the veracity or adequacy of previously obtained customer identification data.
    - Apply CDD requirements to existing customers on the basis of materiality and risk and to conduct due diligence on such existing relationships at appropriate times (insurance companies, exchange organizations and brokerage companies).
  - Effectiveness issues:
    - The effective implementation of the requirements is undermined by factors, such as:
      - The lack of evidence supporting that implementation is effective, especially for exchange companies, insurance companies, exchange organizations, and brokerage companies.
      - The lack of effective supervision of insurance companies, exchange organizations, and brokerage companies.
- Rating summary for R.6: NC
  - No clear definition of PEPs under the legal framework.
  - Lack of requirements for exchange companies, insurance companies, exchange organizations, and brokerage companies with respect to PEPs.
  - Lack of requirements for banks and investment companies to perform CDD measures or to put in place appropriate risk management systems to determine whether a potential customer, a customer, or a beneficial owner is a PEP.
  - Lack of requirements for banks and investment companies to obtain senior management approval to continue a business relationship when a customer or beneficial owner is subsequently found to be, or subsequently becomes a PEP.
  - Lack of requirement for banks and investment companies to take reasonable measures to establish the source of wealth of customers and the source of wealth and the source of funds of beneficial owners identified as PEPs.
  - Lack of requirement for banks and investment companies to conduct enhanced ongoing monitoring when they are in a business relationship with a PEP.
  - Limited effectiveness in the implementation of the measures undertaken by FIs with regard to PEPs.
- Rating summary for R.7: PC
  - Lack of requirements for banks, exchange companies, and investment companies to gather sufficient information about the respondent institutions in order to be able to fully understand the nature of the respondents’ business and to determine from publicly available information the reputation of the institution or the quality of supervision, including whether the institution has been subject to ML investigation or regulatory action.
  - Lack of requirements for banks, exchange companies, and investment companies to document the respective AML/CFT responsibilities of each institution.
- Rating summary for R.8: NC
  - No requirements for exchange companies, insurance companies, exchange organizations, or brokerage companies regarding the misuse of new technologies.
  - No requirements for FIs to have policies and procedures in place to address any specific risks associated with non face-to-face business relationships or transactions.
  - Limited effectiveness in the implementation of requirements related to modern technologies and non-face to face transactions.

### Third Parties and Introduced Business (Recommendation 9) — description, analysis, and recommendations (section 3.3)
- Legal framework (paragraphs 545–556):
  - Paragraph 545: The AML Law, Ministerial Resolution 9/2005, and the instructions and resolutions issued by the competent supervisory authorities do not address the issue of reliance on intermediaries or other third parties to perform some of the elements of the CDD process or to introduce business.
  - Paragraph 546: Authorities claim there is an implied obligation on FIs to perform their own due diligence that the CDD obligation may not be delegated and therefore, that third party-introduced business is not permitted. This view is shared by banks, investment companies, and exchange companies met by the assessment team.
  - Paragraph 547: However, there is no explicit prohibition against the use of intermediaries. In practice, some FIs do rely on others to perform CDD measures, such as life insurance companies relying on insurance intermediaries, or entities in the securities sector with other third parties.
- Sector practices and issues:
  - Banks, exchange companies and investment companies (paragraph 548): Authorities are of the view that these institutions are responsible for performing their own due diligence and are not permitted to rely on intermediaries; meetings showed no intermediaries are conducting CDD at this time.
  - Brokerage companies (paragraphs 549–551):
    - All customers of brokerage companies are introduced business via the Kuwait Clearing Company (KCC), an investment company registered with the CBK.
    - Brokerage companies are required to conduct their own customer identification and verification under the AML Law and Ministerial Resolution 9/2005.
    - It is unclear if the KCC is required to provide copies of identification data and other relevant documentation relating to CDD requirements to brokerage companies upon request.
    - There is no requirement that brokerage companies satisfy themselves that the KCC is regulated and supervised, and has measures in place to comply with CDD requirements.
  - Insurance companies (paragraphs 552–554):
    - Insurance companies can sell directly or through brokers or agents; unclear how much business is obtained through brokers/agents.
    - Insurance companies, agents, and brokers are bound by the AML Law and Ministerial Resolution 9/2005 and are responsible for conducting their own customer identification and verification.
    - Authorities did not provide information about the requirements for insurers accepting business through brokers or agents; the nature of insurer–broker/agent relationships is unknown.
- Effectiveness analysis (paragraphs 555–558):
  - Although no provisions prohibit FIs relying on intermediaries, the CBK and many FIs view such reliance as not permitted.
  - Meetings indicate banks, investment companies, and exchange companies perform all CDD directly.
  - Brokerage companies receive introduced business from the KCC but retain ultimate responsibility for customer identification and verification; implementation issues under Recommendation 5 apply.
  - Insurance companies accept business introduced by brokers/agents; the same CDD implementation issues as Recommendation 5 apply, and the insurer–broker/agent relationship is unclear.
- Recommendations (paragraph 559):
  - Introduce in law, regulation, or OEM the requirements set out in the FATF Recommendation 9, regulating the obligations that must be met by the third parties and the FI to allow such reliance.
  - Require KCC to provide copies of identification data and other relevant documentation relating to CDD requirements without delay to the brokerage companies upon request.
  - Introduce provisions for insurance companies in relation to business introduced by insurance brokers and agents, including requirements to:
    - Take adequate steps to satisfy themselves that copies of identification data and other relevant documentation relating to CDD requirements will be made available from the third party upon request without delay; and
    - Satisfy themselves that the third party is regulated and supervised and has measures in place to comply with CDD and record-keeping requirements.
- Compliance rating for R.9 (section 3.3.3):
  - R.9: NC
    - While in practice some financial institutions do rely on third parties to perform some CDD measures, there is no requirement in law, regulation or OEM to regulate the conditions of this reliance.

### Financial institutions secrecy or confidentiality (Recommendation 4) — access to information (section 3.4, paragraphs 560–564)
- Legal framework (paragraph 560): Kuwaiti secrecy and confidentiality provisions applicable to financial institutions or competent authorities include the CBK Law, Law No. 24/1961, Resolution 9/2005, Resolution 252/2002, the Emiri Decree of August 14, 1983, Resolution 113/1992, Resolution 5/2005, the MOF Resolution issued April 1, 1969, Ministerial Resolution of 1987 and Ministerial Resolution of 1984.
- CBK access (paragraphs 561–562):
  - Article 85b of the CBK Law states that, unless otherwise permitted by law, no director or employee of a bank may disclose any information regarding the affairs of the bank. However, Articles 78 and 82 of the CBK Law and Resolution 113/1992 authorize the CBK to access documents and request information; Articles 89 and 90 of Resolution 113/1992 provide inspection rights for investment funds supervised by the CBK.
  - Articles 16, 17 and 18 of Ministerial Resolution of 1987 provide authority for the CBK to examine investment companies and ask for information; Articles 15 and 16 of Ministerial Resolution of 1984 provide similar authority regarding exchange companies.
- MOCI access (paragraph 563): Absence of secrecy/confidentiality provisions that apply to the MOCI or the entities it supervises means no restriction on MOCI’s ability to obtain AML/CFT information; Article 1, Paragraph 5, of Resolution 252/2002 allows the MOCI to view all documents related to transactions of the institutions it supervises.
- KSE access (paragraph 564): Emiri Decree of 1983 Article 15 prohibits disclosure of traders’ names and trading volumes except to “the market and specialized monitoring parties” (refers to the KSE and the KCC); this provision relates to market conduct and does not apply to AML/CFT. Articles 14 and 18 of Resolution 5/2005 give the KSE authority to obtain information and records from securities firms. In light of the absence of secrecy/confidentiality provisions applying to KSE, KCC or brokerage companies, there is no restriction on KSE’s or KCC’s ability to obtain AML/CFT information from brokerage companies.

*Source: _cr11268 - 538. The authorities are recommended to establish, through law, regulation, or other enforceable*

### 565. LEAs: As set forth under Recommendation 28, the secrecy provisions of Kuwait do not interfere

### _cr11268 - 565. LEAs: As set forth under Recommendation 28, the secrecy provisions of Kuwait do not interfere

### Sharing of information — legal provisions and practice
- Article 28 of the CBK Law: Minister of Finance, based on an opinion of the Board of Directors of the CBK, can determine what information can be disclosed; authorities state this power has not been used.
- Article 4 of the MOF Resolution issued on April 1, 1969: provides the Governor of the CBK authority to provide any information or data requested by other domestic agencies; authorities provided statistics showing the Governor provided information to all requests received from local authorities.
- Criminal cases: CBK can go to the PPO on a case-by-case basis and ask permission to share information; there are no written standards for the Governor of the CBK or the PPO regarding lifting secrecy.
- KFIU (formed within the CBK, part of on-site supervision section): confidential information maintained by the KFIU can be shared domestically with all members of the KFIU, including the CBK, the PPO, the MOCI, the MOI and the Customs authorities; PPO and KFIU enter into an MOU to share information on a case-by-case basis pertaining only to the individual STR.
- International sharing:
  - Article 78 of the CBK Law: allows coordination between the CBK and central banks of foreign countries but appears limited to coordination of examinations of foreign branches and subsidiaries in the context of consolidated supervision.
  - Article 82(3) of the CBK Law: permits the Governor of the CBK to share information with the central banks of other countries within the context of consolidated supervision.
  - Outside consolidated supervision there is no formal procedure for CBK to share information with foreign counterparts; outside that context CBK must go through the PPO and this avenue is limited to criminal matters.
  - KFIU has extremely limited ability to share with foreign FIUs because it lacks independent powers and can only act under instruction from the PPO; any request from a foreign FIU must be channeled through the PPO and can only be satisfied if approved by the PPO.
  - LEAs can share internationally through Mutual Legal Assistance Treaties (MLATs), described as a cumbersome and time-consuming process.
- MOCI and KSE: no secrecy provisions inhibit their sharing domestically or internationally, but assessors are not aware of any framework for MOCI or KSE to share information with other competent authorities.
- Article 85b of the CBK Law: confidentiality provision does not appear to inhibit sharing by financial institutions when required by Recommendations 7 or 9 or Special Recommendation VII.
- Confidentiality provisions for KSE and MOCI likewise do not appear to inhibit sharing by brokerage companies, insurance companies and exchange organizations when required by R.7, R.9 or SR. VII.
- Potential joint-supervision sharing: authorities indicate CBK could potentially share confidential information directly with another competent authority for joint supervision (e.g., bank interest in insurance company), but no such case has arisen and assessors are unaware of legal authority or framework for this sharing.

### Analysis of effectiveness — key findings
- Financial secrecy provisions in law do not inhibit competent authorities from accessing supervised FIs’ information required to perform AML/CFT functions.
- Existing secrecy provisions do not interfere with FIs sharing information with one another as required by R.7, R.9 and SR.VII.
- Inhibitors to domestic sharing:
  - Article 4 of the MOF Resolution (April 1, 1969) vests authority in the Governor of the CBK to provide information; involvement of the Governor may be viewed as an inhibiting obstacle and there are no written standards for the Governor’s determination.
- Inhibitors to international sharing:
  - CBK can share internationally in the context of consolidated supervision or with PPO approval in criminal matters; outside these contexts secrecy provision of the CBK Law prevents appropriate sharing by the CBK.
  - Involvement of the Minister of Finance and/or the PPO in decisions to share internationally outside consolidated supervision is cumbersome and inhibits sharing; there are no written standards for either the MOF or the PPO and no legal framework for the PPO to lift secrecy provisions of the CBK Law.

### Recommendations and required actions (as set out)
- Permit sharing of information between CBK and foreign counterparts outside of the context of consolidated supervision and criminal cases.
- Provide efficient and effective mechanisms by which all domestic authorities can share, on a timely basis, the information necessary to perform their functions in combating ML and TF.

### Compliance with Recommendation 4
- Rating: R.4 — LC
- Basis: The financial secrecy law for the CBK impedes regulatory cooperation and sharing at the international level outside of the context of consolidated supervision and criminal cases.

### Record-keeping and wire transfer rules (R.10 & SR.VII) — legal framework
- Primary and secondary legislation: AML Law and Resolution 9/2005.
- Additional sources: Instructions to Banks, Exchange Companies, Investment Companies issued by the CBK (OEM), KSE Resolution 31/2003 (guidance for brokerage companies), MOCI Resolution 252/2002 (guidance for insurance companies and exchange organizations).
- Wire transfers: can only be conducted by banks or exchange companies and are subject to same requirements as other financial transactions by banks; requirements found in AML Law, Resolution 9/2005, Instructions to Banks, and Instructions to Exchange Companies.

### Record-keeping & reconstruction of transaction records (c. 10.1 & 10.1.1)
- AML Law, Article 3, item 3: covered institutions must maintain all documents relevant to domestic and international transactions, including photocopies of clients’ ID cards, for at least five years from the date of the completion of the transaction.
- Resolution 9/2005, Article 3(c): requires covered entities to enter and record all financial and nonfinancial transactions in official records and keep such records, including customer identification documents, for at least five years from the date such transactions occur.
- CBK Instructions (Banks, Exchange Companies, Investment Companies): require maintenance of records including copies of clients’ personal IDs and documents supporting transactions and correspondence for a period of at least five years from the date of concluding the transaction; include basic data such as amount, currency, parties, type and purpose of transaction; records for closed/terminated/matured accounts to be maintained for five years from date of closure/termination/maturity. These Instructions are OEM and do not satisfy primary/secondary legislation criterion.
- MOCI Resolution 252/2002, Article 1, part 3: covered institutions must maintain original journals and inventory books for at least 10 years from the date on which the transaction is closed, and retain all correspondence, vouchers, and documents related to transactions for five years after completion.
- KSE Resolution 31/2003: covered institutions must maintain records including names and addresses of clients, activities carried out, and names of persons to whom account balances were delivered, for five years beginning from the date accounts were closed.
- Criminal Procedure Code, Article 77: allows investigators to view documents related to an investigation as defined and at the time/place specified in the request; assessors determine this authorizes criminal investigators to extend record-keeping requirement in specific cases.
- Assessors are unaware of any law/regulation/instructions granting financial sector supervisors authority to request FIs to extend record-keeping in specific cases.
- Conclusion: AML Law fulfills requirement that necessary records be maintained for at least five years and that documents retained are sufficient to permit reconstruction of individual transactions and to provide evidence for prosecution (PPO stated documents retained were sufficient).

### Record-keeping for identification data, files, and correspondence (c. 10.2)
- AML Law and Resolution 9/2005: require maintenance of all documents related to transactions, including copies of customers’ IDs, for at least five years from date of transaction completion.
- Decree Law No. 68 of 1980 (Law on Trade), Articles 31 and 32: interpreted to impose additional record-keeping requirements on merchants (applies to businesses licensed by MOCI, including financial institutions): Article 31 requires merchants to keep copies of all correspondence and telegrams sent and received, invoices, and other documents related to work; Article 32 requires retention of original inventory book and books for 10 years from date of closure and retention of correspondence and documents referred to in Article 31 for five years. Assessors determined these requirements are tied to date of closure of merchant’s shop or date of transaction, not termination of an account; Law 68 of 1980 lacks effective proportionate or dissuasive sanctions for non-compliance and enforcement is unclear; assessors determined Law 68 of 1980 does not fulfill the criterion.
- Resolution 252/2002 requires archiving all correspondence and documents related to transactions for five years from date of finalizing the transaction; no reference to retention of account files.
- Resolution 31/2003 requires maintenance of client names/addresses and activity records for five years from account closure.
- CBK Instructions and the two MOCI/KSE Resolutions are not primary or secondary legislation and therefore do not satisfy the legal basis criterion.
- Resolution 9/2005’s reference to retention of all documents is considered sufficient to apply to account files and business correspondence, but its retention trigger is the completion of the transaction, not termination of an account or business relationship.
- Criminal Procedure Code, Article 77, permits investigators to extend record-keeping in specific cases; no law grants supervisors authority to request extension or requires FIs to extend record-keeping on request of a competent authority.

### Availability of records to competent authorities in a timely manner (c. 10.3)
- No provisions in the AML Law or Resolution 9/2005 require FIs to ensure competent authorities have access to all customer and transaction records and information on a timely basis.
- CBK Law, Article 82, Item 3: requires FIs subject to CBK supervision to submit to the CBK all data, information, and statistics it requests, in accordance with the system the CBK establishes; assessors note phrasing denotes regulatory/prudential context, but as it refers to all information it would require FIs subject to CBK supervision to provide all records requested by the CBK.

*Source: _cr11268 - 565 (excerpts).*

### 609. Article 82, Item 2 of the CBK Law states that the nature of the information and documents, as

### _cr11268 - 609. Article 82, Item 2 of the CBK Law states that the nature of the information and documents, as

### Availability of records and CBK authority
- Article 82, Item 2 of the CBK Law: the nature, form and period during which information and documents should be submitted shall be specified by the CBK.
- Article 82, Item 3: exchange of data and information between the institution and the CBK shall be in accordance with arrangements agreed between the CBK and the concerned bank or banking supervision authorities.
- No explicit production period in the CBK Law or CBK Instructions to the Banks, Investment Companies, or Exchange Companies; authorities report production period is determined case-by-case.
- Typical production periods reported:
  - Customer and transaction records: usually 2 business days.
  - Other categories of records: generally not more than 10 business days.
- CBK has applied sanctions to FIs for not providing data within the period specified by the CBK; assessors concluded this fulfills the requirement that information be made available to the CBK on a timely basis.
- Ministerial and resolution coverage:
  - Article 18 of the Ministerial Resolution of August 1, 1987: investment companies shall provide the CBK with information, statements and statistic data required by the CBK.
  - Article 16 of the Resolution of March 19, 1984: CBK may require exchange companies to provide statements, tables, and statistical information necessary for supervision (based on Article 82).
- Limitations:
  - Article 1, part 5 of Resolution 252/2002 enables MOCI to view commercial books, correspondence, vouchers, and documents related to transactions of covered institutions, but Resolution 252/2002 is guidance (not primary or secondary legislation) and does not satisfy the criterion for mandatory availability to competent authorities.
  - No requirement for insurance companies or exchange organizations to ensure all customer and transaction records are available on a timely basis to domestic competent authorities upon appropriate authority.
  - Brokerage requirement (Article 27 of the KSE by-laws) applies to market conduct, not AML/CFT, and sanctions are not effective, proportionate, or dissuasive; does not fulfill the criterion.

### Originator information for wire transfers (applying c. 5.2 & 5.3 in R.5, c.VII.1)
- Only banks and exchange companies are permitted to engage in wire transfer activities (CBK Law).
- Legal identification requirements for originators follow the AML Law and Resolution 9/2005:
  - Article 3, item 2 of the AML Law: banks and exchange companies must properly identify their clients according to official documents issued by competent state authorities.
  - Article 3, part (b) of Resolution 9/2005: prior to processing a transaction of more than KD 3,000 (US$10,900) or equivalent, covered FIs must identify and verify the identity and capacity of the client and the actual beneficiary.
    - Natural persons: Civil ID card (citizens and noncitizen residents) if valid, or passport/travel document for persons not residing in Kuwait.
    - Legal entities/arrangements: commercial license issued by the MOCI; documents proving appointed representatives; official documents for nonlocal entities; documents issued/approved by competent authorities in the state of nonresident companies.
- CBK Instructions expand on electronic transfer CDD and eliminate the KD 3,000 (US$ 10,900) threshold:
  - Transfer documents (domestic and external) must include: the name and identity number of the person or entity requesting the transfer; the amount; the name and address of the beneficiary and his account number (if to an account); the country to which the transfer is to be made; and the name of the intermediary correspondent.
  - If the required data is not provided, the bank or exchange company must refrain from conducting the requested transfer.
- Identification documents and data fields:
  - Civil ID provides name of the originator, a unique reference number in line with the FATF definition and the originator’s address.
  - For nonresidents of Kuwait, a passport provides a unique reference number.
  - For legal persons, the commercial license issued by the MOCI provides name, address, expiration date, date of issuance, and license number.

### Inclusion, maintenance and transmission of originator information (c. VII.2, VII.3, VII.4)
- Instructions to Banks and Instructions to Exchange Companies require transfer documents to incorporate full originator information, including name and identity number of the person or entity requesting the transfer.
- In the absence of required originator information, institutions should not finalize (process outgoing or accept incoming) transfers.
- Requirement applies to both cross-border and domestic wire transfers.
- Under CBK Instructions, the FI in the payment chain is required to ensure originator information accompanying the transfer from a Kuwaiti bank or exchange house is transmitted with the transfer.
- The Instructions do not distinguish whether the bank or exchange company is the originating or beneficiary institution.

### Risk-based procedures and exceptional handling (c. VII.5)
- The sole requirement for handling transfers missing full originator information is to not finalize the transfer; there is no requirement for a risk-based procedure for dealing with such transfers.
- No distinction is made in the CBK Instructions between originating or beneficiary institution roles.
- CBK Instructions contain guidance on extraordinary or unusual transactions applicable to all transactions (not specifically to wire transfers):
  - Item 10 of the Instructions to Banks: special and exceptional attention to large, complex, and unusual transactions.
  - Item 6 of the Instructions to Exchange Companies: special, exceptional efforts regarding complex, large, and unusual transactions.
- No guidance indicates that lack of complete originator information is a factor in assessing whether a wire transfer is suspicious or should be reported to the PPO as a suspicious transaction.

### Monitoring of implementation and application of sanctions (c. VII.6, c. VII.7)
- CBK inspects banks and exchange companies; review of wire transfer transactions is part of CBK supervisory inspections.
- Supervision for wire transfer transactions mirrors deficiencies in AML/CFT supervision of banks and exchange companies (see Section 3, Recommendation 23).
- Administrative penalties in Article 85 of the CBK Law apply to violations of wire transfer requirements.
- CBK reported imposing penalties on banks and exchange companies for violations of Instructions but did not specify if penalties related to wire transfers or provide types of violations or penalty details; assessors could not determine if penalties are effective, proportionate, and dissuasive.
- Further analysis of sanctions applicability and implementation is covered in Section 3.11 under Recommendation 17.
- Further information on supervisory powers and effectiveness of the CBK is covered in Section 3.10 under Recommendation 29.

### Elimination of thresholds and consistency across transfer types (c. VII.8 and c. VII.9)
- CBK Instructions require full originator information in wire transfer documents and deny finalization of transfers lacking such information.
- No distinction between cross-border or domestic wire transfers, nor between originating and beneficiary institutions.
- Instructions effectively eliminate the KD 3,000 threshold for electronic transfers by requiring originator information for all electronic transfers.

### Analysis of effectiveness
- FIs supervised by the CBK appeared aware of record-keeping requirements; banks, investment companies, and exchange companies stated they keep required documents for at least five years.
- Some FIs exceed minimum retention: some retain documents for up to ten years; others retain electronic documents indefinitely.
- Brokerage companies reported maintaining trade records beyond the five year minimum.
- Insurance companies and exchange organizations stated they keep photocopies of Civil IDs and transactional records for at least five years; onsite visits found exchange organizations not implementing ID checks or photocopying for all transactions, particularly large transactions.
- No systematic monitoring of compliance for insurance companies and exchange organizations through supervisory system.
- For wire transfers:
  - Banks: customer identification requirements for wire transfers same as for establishing a business relationship or opening an account.
  - Exchange companies: report requesting ID for all transactions and recording Civil ID or passport number for all transactions; for transactions above KD 300 (USD 1,600), they make a photocopy of the identification.
  - If required information is not available, they will not perform the transfer.
- CBK indicates compliance with Instructions to Banks and Instructions to Exchange Companies for wire transfers is part of overall supervisory process and penalties have been issued, but effectiveness could not be determined without additional information on violations and penalties.
- Further supervisory effectiveness discussion in Section 3.10 under Recommendation 29.

### Recommendations and supervisory comments (Recommendation 10: Record keeping)
- Authorities are recommended to:
  - Establish, by law or regulation, the requirement to maintain records of the identification data, account files, and business correspondence for at least five years following the termination of an account or business relationship.
  - Require FIs to extend the record-keeping requirement if requested by any competent authority in specific cases upon proper authority.
  - Require brokerage companies, insurance companies and exchange organizations to ensure that all customer and transaction records and information are available on a timely basis to domestic competent authorities upon appropriate authority.

### Compliance ratings and factors
- R.10: LC
  - Requirement to maintain records of identification data, account file and business correspondence is tied to a transaction, not to the termination of an account or business relationship.
  - No requirement for brokerage companies, insurance companies or exchange organizations to provide information on a timely basis to domestic competent authorities with appropriate authority.
  - FIs are only required to extend the record-keeping requirement if requested by a criminal investigator in specific cases upon proper authority; this does not extend to other competent authorities, such as financial supervisors.
- SR.VII: LC
  - Shortcomings under Recommendations 17 (sanctions) and 23 (monitoring and supervision) negatively impact this Special Recommendation, including:
    - Lack of clear effectiveness of sanctions applied by the CBK.
    - Lack of statistics regarding violations, penalties or the application of sanctions related to wire transfers.

*Source: _cr11268 - 609. Article 82, Item 2 of the CBK Law states that the nature of the information and documents, as*

### 640. Pursuant to Article 10 of the Instructions for Banks, banks are required to carry out an

### _cr11268 - 640. Pursuant to Article 10 of the Instructions for Banks, banks are required to carry out an

### Investigation, monitoring, and written findings (Articles and entities)
- Article 10 of the Instructions for Banks: banks must carry out an investigation and inquiry of any unusual or suspicious transaction and collect information about the transaction; banks’ findings are required to be in writing.
- Article 8 of the Instructions for Investment Companies: similar requirements for investment companies.
- Article 6 of the Instructions for Exchange Companies: similar requirements for exchange companies.
- No specific requirement for brokerage companies, insurance companies, or exchange organizations to:
  - monitor for complex, unusual large transactions, or unusual patterns of transactions;
  - examine or make written findings with regard to any such complex or unusual transaction.

### Record-keeping of findings of examination (c. 11.3)
- Article 10 of the Instructions for Banks requires a report including full details of the transaction and the grounds on which the decision was made to drop the matter or to refer it to the PPO.
- The report must be retained for a minimum of five years and must be made available to competent authorities.
- Similar retention/reporting requirements are set forth in Article 8 (Investment Companies) and Article 6 (Exchange Companies).
- No such record-keeping requirements exist for brokerage firms, insurance companies, or exchange organizations.

### Special attention to countries not sufficiently applying FATF Recommendations (c. 21.1 & 21.1.1)
- Article 18 of the Instructions for Banks:
  - banks required to give special and exceptional attention to any transaction with a person or body from countries not bound by international resolutions and recommendations “adopted in this regard” (authorities interpret this as AML/CFT-related).
  - requires banks to ascertain that overseas branches and subsidiaries comply with the Instructions for Banks.
  - requires a bank’s board to issue written policies setting forth precautionary measures.
- Article 19 of the Instructions for Investment Companies: similar requirements for investment companies, including board-issued written policies and application to overseas operations.
- Instructions for Exchange Companies: do not include a specific requirement to take special measures or pay special attention regarding transactions or parties from countries not applying FATF recommendations.
- Resolution 252/2002 (insurance companies and exchange organizations): requires filing an STR if a suspicious transaction related to ML or TF comes to attention but does not require special attention to noncompliant countries.
- No other instructions or requirements for insurance companies, exchange organizations, or brokerage companies to give special attention to relationships or transactions from countries not applying FATF Recommendations.
- Article 19 (Investment Companies) advises consulting “lists issued by concerned international institutions” to identify non-compliant States, but:
  - there appear to be no effective measures to advise FIs of concerns about countries not, or insufficiently, applying the FATF Recommendations;
  - the assessment team is not aware of guidance provided by the CBK to banks, investment companies, or exchange companies on this matter.
- Authorities stated Kuwait issued guidance regarding Iran based on a UN issuance, but that guidance was not provided to the assessment team; one issuance does not substitute for an established, effective means for identifying and issuing guidance on noncompliant countries.

### Examinations of transactions with no apparent economic or lawful purpose from countries not sufficiently applying FATF Recommendations (c. 21.2)
- Article 18 (Banks) and Article 19 (Investment Companies) require special attention and written board policies but do not include a specific requirement to examine such transactions and to develop written findings.
- Instructions for Exchange Companies do not require exchange companies to take special measures or to make written findings for transactions from countries not applying FATF Recommendations.
- Articles requiring examination and written findings for large, complex, or unusual transactions (Article 10 of Instructions for Banks; Article 7 of Instructions for Investment Companies; Article 6 of Instructions for Exchange Companies) do not specifically require examination or written findings when such transactions involve countries not sufficiently applying FATF Recommendations.
- No instructions or requirements for insurance companies, exchange organizations, or brokerage companies to give special attention to such transactions or to make written findings.

### Ability to apply countermeasures with regard to countries not sufficiently applying FATF Recommendations (c. 21.3)
- Kuwait does not apply appropriate countermeasures.
- With the possible exception of one issuance regarding Iran, the assessment team is not aware of Kuwait issuing countermeasures, advisories, warnings, or guidance regarding countries that do not or insufficiently apply the FATF Recommendations.

### Analysis of effectiveness — Recommendation 11
- Banks, investment companies, and exchange companies generally understand unusual activity and have systems to monitor large, complex, and unusual transactions.
- Insurance companies, exchange organizations, and brokers do not appear to be engaged in monitoring for large, complex, or unusual transactions.
- Most banks, investment companies, and exchange companies have monitoring systems to identify anomalies and unusual activity; reviews are often based on a CDD process establishing customer benchmarks and include periodic and random reviews.
- Brokerage companies, despite obligations under Article 9 of Resolution 31/2003, generally do not monitor customer accounts for AML; they rely on the KSE’s Surveillance Unit, which monitors securities trading but not AML issues.
- The KCC performs account opening KYC only and does not undertake ongoing monitoring of large or unusual transactions.

### Analysis of effectiveness — Recommendation 21
- Financial institutions with international presence are attentive to geographic risks and monitor those risks.
- There is inconsistency in awareness across FIs about how to determine if a country does not apply, or insufficiently applies, the FATF Recommendations.

### Recommendations and comments (3.6.2)
- Recommendation 11:
  - The authorities are recommended to: Extend the requirements of Recommendations 11 to insurance companies, exchange organizations, and brokerage companies.
- Recommendation 21:
  - The authorities are recommended to:
    - Fully extend the requirements of Recommendations 21 to exchange companies, insurance companies, exchange organizations and brokerage companies.
    - Establish effective measures to ensure that FIs are advised of concerns about the weaknesses of the AML/CFT systems of other countries.
    - Require FIs to examine transactions involving noncompliant countries that have no apparent economic or visible lawful purpose.
    - Apply appropriate counter measures to countries that continue not to apply or continue to insufficiently apply the FATF Recommendations.

### Compliance ratings summary (3.6.3)
- R.11 — PC
  - Summary factors:
    - There are no requirements for insurance companies, exchange organizations, or brokerage companies regarding unusual transactions.
- R.21 — NC
  - Summary factors:
    - There are no requirements for exchange companies, insurance companies, exchange organizations, or brokerage companies regarding business relationships and transactions with persons from or in countries which do not, or which insufficiently, apply the FATF recommendations.
    - There are no effective measures to ensure that FIs are advised of concerns about the weaknesses of the AML/CFT systems of other countries.
    - There are no requirements for banks or investment companies to examine and prepare written findings with regard to transactions involving noncompliant countries that have no apparent economic or visible lawful purpose.
    - Kuwait has not applied appropriate counter measures to countries that continue not to apply to insufficiently apply the FATF Recommendations.

### Suspicious Transaction Reports and other reporting (R.13-14, 19, 25 & SR.IV) — Legal framework and STR requirements
- Legal instruments addressing STR and tipping-off protection: the AML Law and Resolution 9/2005; additional guidance in Instructions to Banks, Instructions to Exchange Companies, Instructions to Investment Companies, Resolution 31/2003, and Resolution 252/2002.
- Article 3, item 4, of the AML Law: broad requirement on all accountable financial institutions to report any suspicious transaction that may come to their knowledge; AML Law does not specify where accountable institutions file STRs.
- Article 5 of the AML Law: the PPO shall determine the competent authority within the PPO to receive reports where there is a suspicion of money laundering.
- Resolution 9/2005, Article 3, part (e): requires covered institutions to establish internal control systems to detect suspicious transactions and to report them to ensure compliance with domestic AML requirements; Resolution 9/2005 does not specify where FIs should file STRs.
- Despite AML Law and Resolution 9/2005 requiring FIs to report suspicious transactions, the AML Law requires filing STRs with the PPO; there is no requirement in law or regulation to report suspicious transactions to the FIU.
- CBK Instructions (Banks, Investment Companies, Exchange Companies) require special and exceptional attention to large and complex transactions and to unusual types of transaction with no clear economic or legal purpose, regardless of size; however, these Instructions are OEM and do not satisfy the criterion.
- Section 10 of the Instructions to Banks: requires special and exceptional attention to large and complex transactions and unusual transactions not commensurate with client’s business, including large or frequent cash amounts attempted to be exchanged or transferred domestically or internationally.
- Where suspicious transactions are found, the three sets of CBK Instructions require the FI to investigate and collect information; findings should be recorded in writing; if suspicions are confirmed, the FI should inform the PPO; the FI must prepare a report of the investigation including full details and grounds for decision to drop or refer with an STR; reports retained for at least five years and made available to competent authorities.
- The Instructions oblige covered institutions to investigate the seriousness of suspicions and decide whether to refer the matter to the PPO with an STR, not the FIU; upon referral to the PPO, Instructions require banks, investment companies, and exchange companies to keep a record of their investigation.
- Resolution 31/2003 (KSE) provisions for brokers:
  - Article 7: brokers must notify the KSE if documents submitted are improper or suspicious.
  - Article 9: brokers must notify the clearinghouse and the KSE (or Office of the Attorney General) if a contract request is inconsistent with previous transactions in size or value, involves large sums, or is inconsistent with market conditions.
  - Resolution 31/2003 does not mention an STR to the PPO or the FIU; as guidance, it does not fulfill the criterion.
- Resolution 252/2002 (MOCI): Article 1, item 4, requires insurance companies and exchange organizations to report to the PPO any suspicious transaction related to ML or TF that comes to their knowledge.
- Resolution 83/2005 (MOCI): Article 3, item 5, directs MOCI’s Department for Combating ML to receive reports about suspicious transactions and to “prepare reports about any violations seized about entities and companies and provide all notices thereupon,” creating some contradiction with Resolution 252/2002 and uncertainty for covered institutions.
- MOCI has not provided guidance on STRs or what should be considered suspicious; as neither resolution is primary or secondary legislation, they do not fulfill the criterion.

### STRs related to Terrorism Financing (c. 13.2)
- AML Law sets a broad requirement to report suspicious transactions and states the PPO shall determine the competent authority within his office to receive reports where there is suspicion of ML.
- Resolution 9/2005 requires entities to report suspicious transactions to comply with money laundering obligations but does not require reporting of TF.
- Due to the definition of ML in the AML Law and the lack of an autonomous TF offense, there is no requirement in law or regulation obligating FIs to file an STR where there are reasonable grounds to suspect that funds are related to TF.

*Source: _cr11268 - 640. Pursuant to Article 10 of the Instructions for Banks, banks are required to carry out an*

### 673. Each of the three sets of the CBK Instructions to Banks, to Investment Companies, and to

### _cr11268 - 673. Each of the three sets of the CBK Instructions to Banks, to Investment Companies, and to

### Reporting obligations for suspicious transactions and terrorist financing
- Each of the three sets of the CBK Instructions to Banks, to Investment Companies, and to Exchange Companies requires covered entities to report a suspicion of TF to the PPO in the same manner as a suspicion of money laundering.
- These Instructions require covered institutions to investigate the seriousness of their suspicion of TF; however, because the CBK Instructions are OEM and not primary or secondary legislation, they do not fulfill the requirements of this criterion.
- Resolution 252/2002 requires covered institutions (insurance companies and exchange organizations) to report suspicious activity related to TF to the PPO, not to the KFIU. Resolution 252/2002 is considered guidance and does not fulfill the requirements of this criterion.
- There is no explicit requirement for brokerage companies to report suspicious activity related to TF.
- STR requirement in the AML Law and Resolution 9/2005 applies regardless of the amount of the transaction; there is no requirement to report attempted transactions suspected of being related to proceeds of criminal activity or TF or transactions to be used for terrorism.
- The STR requirement in the AML Law applies to any suspicious transaction; Resolution 9/2005 and Resolution 252/2002 impose obligations that would apply to STR filing regardless of possible involvement of tax matters.
- Under the AML Law and related instruments, covered institutions are required to report all suspicious transactions; Resolution 9/2005, the three sets of CBK Instructions, and Resolution 252/2002 require reporting to the PPO when funds are suspected to be proceeds of criminal acts that would constitute predicate offenses for ML domestically.
- There is no requirement in law, regulation, or Instructions that any reporting entities report suspicious transactions to the KFIU; STRs are required to be reported to the PPO.

### Protection for reporters, tipping-off, and confidentiality
- Article 14 of the AML Law: natural persons or corporations who, in good faith, report information according to the AML Law are protected from any criminal, civil or administrative liability even if the subject is not convicted and the transactions are found to be lawful; protection applies directly to FIs as corporations and to FIs’ directors, officers, and employees as natural persons.
- The CBK Instructions to Banks, to Investment Companies, and to Exchange Companies extend this protection pursuant to Article 14 of the AML Law and affirm the CBK will not take measures against employees who provide information in good faith, even if the reported transaction is subsequently found to be sound.
- KSE Resolution 31/2003 (Article 14) extends similar protection to employees of the KSE, brokerage firms, portfolio management companies, and the clearing house for good faith reporting, even if suspicions prove groundless.
- Article 85(b) of the CBK Law prohibits disclosure by a natural person who is a member of a bank’s Board of Directors, bank manager, or employee of information regarding affairs of the bank or its customers learned through employment; this would prohibit release of information regarding STR filings by such natural persons but does not apply to the FI itself.
- CBK Instructions:
  - Section 11 (Banks): if investigation is required and documentation/evidence supports suspicion and client must remain unaware “until they conclude,” bank officials must not warn client or related parties; the phrase “until they conclude” was interpreted by assessors as implying prohibition ends upon completion of investigation; CBK officials stated it is not intended to contradict Article 85(b).
  - Section 9 (Investment Companies): prohibits warning or tipping off a client during investigation; if investigation might result in client awareness, company should stop the investigation and notify the PPO.
  - Section 7 (Exchange Companies): prohibits warning or signaling to clients during investigation; if client might become aware, company must stop investigation and provide a detailed report to the PPO.
- Article 11 of the AML Law prescribes punishment for failing to report suspicious financial transactions that come to one’s knowledge, for disclosing information regarding crimes in Article 2, or for damaging/concealing documents relevant to such crimes. Article 11 makes no reference to Article 3 (requirement to report suspicious transactions) or the filing of STRs; assessors determined there is no prohibition against insurance companies, exchange organizations, or brokerage firms, their directors, officers, or employees from disclosing the fact that an STR or related information was reported or provided to the FIU or PPO.
- Confidentiality of KFIU staff:
  - Authorities believe information received by KFIU staff is subject to protections such as Article 11 of the AML Law and civil service confidentiality provisions; however, Article 11 does not ensure confidentiality of the names and personal details of staff of FIs that file an STR.
  - Article 28 of the CBK Law prohibits disclosure by CBK Board members, managers, officials, and employees of information relating to CBK or supervised banks; this prohibition would apply to KFIU members because they are CBK staff.
  - No information was available regarding confidentiality requirements on the PPO and its staff; AML Law requires STRs be reported to the PPO.

### Currency transaction reporting (thresholds, databases, safeguards)
- Section 20 of Instruction to Banks requires banks to provide to the CBK, through an online system and on a daily basis, data on:
  - (i) all cash transactions equal to or in excess of KD 3,000 (US$10,900) or the equivalent in foreign currency by one client in one day (LCT system); and
  - (ii) all foreign currency transactions equal to or in excess of KD 3,000 (US$10,900) by one client in one day (FCT system).
- Section 12 of Instruction to Investment Companies: investment companies shall not accept cash from any client in one day more than KD 3,000 (US$10,900); payment in excess must be noncash.
- Section 13 of Instructions to Exchange Companies: exchange companies must weekly provide CBK via online system all transactions including currency purchases and sales, domestic and foreign transfers, traveler’s checks and precious metals, and other transactions valued at KD 3,000 (US$10,900) or more for one client in one day (EXT report). Data related to domestic government ministries and departments are excluded.
- Only banks can accept cash above KD 3,000 (US$10,900); all other FIs are prohibited from cash transactions above KD 3,000.
- Computerized database and use:
  - Cash transaction reports received from banks and exchange companies to the CBK are maintained in a computer database and used by the FIU (part of the CBK) for analysis and research as part of STR investigations.
  - Reports on cash transactions are under CBK control and subject to CBK safeguards; LCT filings are kept on a secure computer system, data is encrypted, password protected, with only designated individuals having access.

### Guidance and feedback to reporting institutions
- CBK issued Guidelines for the Identification of Suspicious Transaction Patterns as part of Instructions to banks, investment companies, and exchange companies; guidelines give examples in seven broad areas:
  1) ML using cash transactions;
  2) ML using bank accounts;
  3) ML using investment-related transactions;
  4) ML by offshore international activities;
  5) ML involving FI employees and agents;
  6) ML by secured and unsecured lending;
  7) ML through electronic payment means.
- Inconsistency remains among banks, investment companies, and exchange companies as to what activity or level of suspicion requires filing of an STR.
- No guidelines have been issued for brokerage companies, insurance companies, or exchange organizations.
- Feedback:
  - The PPO (designated to receive STRs) has not issued any feedback on STRs received.
  - Authorities state the KFIU does not have authority to give feedback to reporting institutions on STRs.
  - CBK does not provide feedback on STRs during onsite inspections of banks, investment companies, or exchange companies.
  - Banks, investment companies, and exchange companies receive regular feedback from the CBK on LCT, FCT, and EXT reports filed; the CBK will contact an institution if its report has not been received and may request additional information.

### Statistics (R.32) — STRs, FCTs, LCTs, and EXT reports
- Suspicious Transaction Reports by Sector (2005–2009):
  - FIs: 2005: 9; 2006: 9; 2007: 24; 2008: 19; 2009: 30
  - Non-FIs: 2005: 1; 2006: 2; 2007: 0; 2008: 1; 2009: 1
  - Other1: 2005: 3; 2006: 5; 2007: 2; 2008: 4; 2009: 5
  - TOTAL: 2005: 13; 2006: 16; 2007: 26; 2008: 24; 2009: 36
  - Table note: “Other” refers to government agencies or non-government organizations.
- Total Foreign Currency Transaction Reports (2007–2009):
  - 2007: Banks 261,052; Exchange Companies 164,848; TOTAL 425,900
  - 2008: Banks 262,529; Exchange Companies 200,060; TOTAL 462,589
  - 2009: Banks 224,772; Exchange Companies 183,926; TOTAL 408,698
- Large Cash Transaction Reports by Banks (2007–2009):
  - 2007: Number of LCT reports 660; Total Value of LCTs filed (Billion KD) 430; Total Value of LCTs filed (Billion USD) 22.443; 79.251
  - 2008: Number of LCT reports 624; Total Value of LCTs filed (Billion KD) 190; Total Value of LCTs filed (Billion USD) 17.275; 61.001
  - 2009: Number of LCT reports 613; Total Value of LCTs filed (Billion KD) 353; Total Value of LCTs filed (Billion USD) 11.851; 41.848
- Exchange Company Transaction (EXT) Reports (2007–2009):
  - 2007: Number of EXT reports 164,848; Total Value of EXTs filed (Billion KD) 3.040; Total Value (of EXTs filed (Billion USD)) 10.735
  - 2008: Number of EXT reports 200,060; Total Value of EXTs filed (Billion KD) 6.021; Total Value (of EXTs filed (Billion USD)) 21.261
  - 2009: Number of EXT reports 183,926; Total Value of EXTs filed (Billion KD) 6.832; Total Value (of EXTs filed (Billion USD)) 42.021

### Analysis of effectiveness and assessors’ observations
- Major concerns identified by assessors:
  - Lack of a requirement to report attempted transactions is of great concern; FIs frequently refuse clients or transactions when questions arise but do not file STRs because not required or because they do not think they have sufficient information per CBK instructions. Assessors believe suspicious activity is often detected before completion and left unreported, leaving authorities unaware of potential illicit activity.
  - FIs supervised by the CBK are generally well-informed of requirement to report suspicious activity to the PPO and often have automated systems to detect unusual or suspicious transactions; in some cases STR filing requires senior management approval.
  - Major discrepancies among FIs about the definition of “suspicious” and the level of investigation required prior to filing an STR:
    - Some FIs believe only a minimum investigation and a reason to suspect are necessary.
    - Others believe activity is only suspicious if repeated or in very large amounts.
    - Some view the STR filed with the PPO as a formal accusation requiring thorough investigation and proof that illicit activity occurred.
  - Some FIs consider STR requirements overly burdensome due to investigative/proof expectations; assessors believe this discrepancy has led to lack of effective implementation and a narrow intelligence base for KFIU and law enforcement.
- Evidence of limited reporting:
  - Total STRs reported: 19 in 2008 and 30 in 2009 were filed by the same bank; growth in STRs from 2005 to 2009 appears accounted for entirely by an increase in STRs filed by FIs.
- Trends in transaction reporting:
  - Notable increase in number of FCTs reported by exchange companies from 2007 to 2008, which fell in 2009.
  - Quantity of funds reported by banks via LCT reports has been decreasing since 2007, contrasted with a rapid increase in quantity of funds reported by exchange companies under the EXT system.

*Source: _cr11268 - 673. Each of the three sets of the CBK Instructions to Banks, to Investment Companies, and to (excerpt).*

### 706.        The        discrepancy        in        the level of investigation required prior to the filing of an STR co

### _cr11268 - 706.        The        discrepancy        in        the level of investigation required prior to the filing of an STR co

### STR reporting: Findings and issues
- Filing institutions were generally unaware of what happens to the STR after filing with the PPO, unaware that there was an FIU in Kuwait, or unaware that the KFIU reviewed STRs (para. 707).
- Some institutions had been contacted for additional information; all such requests came from the PPO (para. 707).
- Concern existed about confidentiality of having filed an STR and of the information in the report; institutions are often called to the PPO to provide documents or for questioning, sometimes with the related client present (para. 708).
- Institutions reported that once a case is filed the related client often learns that the FI filed an STR, because PPO questioning reveals information only the FI could have provided (para. 708).
- Among brokerage companies, there was a view that detection of suspicious transactions was the responsibility of the KSE and the KCC, given their access to all financial and trading information; brokerage companies viewed it as preferable for KSE and KCC to conduct reviews rather than brokerage companies themselves (para. 709).
- Insurance companies and exchange organizations were either unaware of the filing requirement or unclear to whom they should report; a conflict between Resolution 252/2002 and Resolution 83/2005 may perpetuate confusion (para. 710).
- Kuwait has no income tax and tax matters are not covered as a predicate offense for money laundering in Kuwait; while this does not affect the AML Law’s broad STR requirement, it may affect implementation of STR filing with respect to tax matters and the potential for the Kuwaiti financial system to be used in tax evasion from another country (para. 711).

### Recommendations on STR reporting, protection, and feedback (paras. 712–714)
- Recommendation 13 and SR.IV: STR Reporting
  - Establish in law or regulation that STRs be filed with the FIU.
  - Extend the requirement in law or regulation to file an STR with the FIU when the funds are suspected or have reasonable ground to be suspected to be linked or to be related to, or to be used for terrorism, terrorist acts, or by a terrorist organization or those who finance terrorism.
  - Extend the requirement in law or regulation to file an STR with the FIU to explicitly apply to attempted transactions.
  - Issue additional guidance on STR reporting.
- Recommendation 14: Protection for STR reporting / Tipping off
  - Prohibit brokerage companies, insurance companies, and exchange organizations from disclosing the fact that an STR or related information is being, or has been, provided to the competent authorities.
  - Extend the prohibition against release of information regarding STR filings by the Board of Directors, managers, or employees of banks, investment companies, and exchange companies to include the FI itself.
- Recommendation 25: Feedback and Guidelines for FIs with respect to STR and other reporting
  - Issue clear guidance on STR reporting, and provide both specific and general feedback on STRs.

### Compliance ratings and factors underlying ratings (para. 3.7.3)
- R.13: NC
  - There is no requirement in law or regulation that STRs be filed with the FIU.
  - Due to the lack of an autonomous TF offense, there is no obligation in law or regulation to make an STR when there are reasonable grounds to suspect funds are related to TF.
  - There is no requirement in law or regulation to report attempted transactions.
  - Lack of effective implementation of the requirement to report suspicious transactions.
- R.14: PC
  - There is no prohibition against banks, investment companies, or exchange companies from disclosing that an STR or related information was reported or provided to the FIU or PPO.
  - There is no prohibition against brokerage companies, insurance companies, and exchange organizations, their directors, officers, or employees from disclosing that an STR or related information was reported or provided to the FIU or PPO.
- R.19: C
  - This recommendation is fully observed.
- R.25: NC
  - Lack of guidelines for brokerage companies, insurance companies or exchange organizations.
  - Limited guidelines on STR reporting provided by the CBK to relevant institutions.
  - Lack of adequate and appropriate feedback from competent authorities.
- SR.IV: NC
  - Due to the lack of an autonomous TF offense, there is no obligation in law or regulation for FIs to report to the FIU when they suspect or have reasonable grounds to suspect funds are related to, or are being used for, terrorism, terrorist acts, or by terrorist organizations or those who finance terrorism.
  - There is no requirement in law or regulation for FIs to report attempted transactions, regardless of amount, when there are reasonable grounds to suspect those funds are related to, or are being used for, terrorism, terrorist acts, or by terrorist organizations or those who finance terrorism.

### Internal controls, compliance, audit, and foreign branches: Key findings (paras. 715–737)
- Legal framework: AML Law, Resolution 9/2005, Resolution 252/2002, Instructions to Banks, Instructions to Investment Companies, Instructions to Exchange Companies, Resolution 31/2003, and Resolution 113/1992 set out requirements for internal controls, compliance management, audits, employee training, and employee screening (para. 715).
- FATF application to foreign branches/subsidiaries: Instructions to Banks and Instructions to Investment Companies require FIs to apply FATF recommendations to foreign branches and subsidiaries (para. 716).
- Establish and maintain internal controls to prevent ML and TF (c. 15.1)
  - AML Law Article 3, parts 5 and 6 require training programs and appropriate internal supervisory procedures to detect and prevent suspicious operations, but: the AML law’s internal procedures requirement does not apply to TF, and there is no requirement that internal procedures be communicated to employees or cover, at a minimum, CDD, recordkeeping, detection of unusual transactions, or the reporting obligation (para. 717).
  - Resolution 9/2005 Article 3, paragraph (e) requires internal control systems to detect suspicious transactions and report them; paragraph (d) requires periodic training. However, Resolution 9/2005 does not require FIs to establish or maintain internal procedures, policies, or controls to prevent ML or TF or to communicate these to employees (para. 718).
  - Instructions to Banks Article 14.1 and Instructions to Investment Companies Article 16.1 require banks and investment companies to prepare board-approved policies and procedures on combating ML and TF, including definitions and detection methods; neither Instruction requires informing personnel of internal policies and procedures (para. 719).
  - Instructions to Investment Companies Article 17.4 requires informing officers and staff of domestic and international AML/CFT requirements and documenting training, but does not explicitly require informing personnel of the investment company’s internal policies and procedures (para. 720).
  - Instructions to Exchange Companies Article 11 and Article 12.1 require knowledge of ML/TF risks and board-approved written policies and procedures, but do not explicitly require communication of internal policies and procedures to employees (paras. 721–722).
  - CBK Instructions and Resolution 9/2005 require internal procedures and training but do not explicitly require that internal policies and procedures address CDD, record retention, detection of unusual transactions, and STR reporting (para. 723).
  - Resolution 31/2003 Article 13 requires brokerage companies to adopt policies to improve employee performance in discovering ML/TF activities but does not require establishment of procedures, policies, or internal controls or communication of those policies to employees (para. 724).
  - Resolution 252/2002 Article 2 requires insurance companies and exchange organizations to develop programs including employee training and internal control systems to halt attempted ML/TF and to review and develop internal policies and procedures, but does not require communication of the internal control system to employees (paras. 725–726).
  - Overall, AML Law, Resolution 9/2005, and Resolution 252/2002 include requirements on CDD, record retention, detection of unusual transactions, and STR reporting obligations, but there is no explicit requirement that covered entities address these topics within their internal policies, procedures and controls (para. 727).
- Develop appropriate compliance management arrangements (c. 15.1.1)
  - Instructions to Banks Article 15 requires a full-time, independent unit/department reporting directly to the chairman of the board, staffed with experienced individuals, to ensure compliance and establish policies, rules, and procedures on ML and TF (para. 728).
  - Instructions to Investment Companies Article 20 requires a compliance unit or officer reporting directly to the chairman of the board with tasks to ascertain compliance and monitor policy adherence, with staff possessing necessary AML/CFT expertise (para. 729).
  - There is no specific requirement that the head of the unit or the compliance officer be at management level in Instructions to Banks or Instructions to Investment Companies (para. 730).
  - No requirement that exchange companies, brokerage companies, insurance companies, or exchange organizations develop appropriate compliance management arrangements, including designation of an AML/CFT compliance officer at management level (para. 731).
- Access to data by compliance staff (c. 15.1.2)
  - No requirement for banks or investment companies that the AML/CFT compliance officer and other appropriate staff have timely access to customer identification data, CDD information, transaction records, and other relevant information (para. 732).
  - No requirement that exchange companies, brokerage companies, insurance companies, or exchange organizations designate an AML/CFT compliance officer (para. 733).
- Independent audit of internal controls (c. 15.2)
  - Instructions to Banks Article 13 requires an annual internal audit to review adequacy of internal procedures and AML/CFT compliance; audit report must be submitted to senior management (para. 734).
  - Instructions to Banks Article 14.2 requires an external auditor report reviewing internal audit system and providing a clear opinion on compliance with domestic laws and bank policies (para. 734).
  - Instructions for Investment Companies Article 16.2 requires an annual internal audit plan with findings submitted to the company board; there is no requirement for an external audit for investment companies (para. 735).
  - Instructions for Exchange Companies Article 12.4 requires the external auditor’s report on final financial statements to include a statement on the degree of compliance with domestic AML/CFT legislation and CBK Instructions; there is no requirement for an internal audit for exchange companies (para. 736).
  - No specific requirement that required audits be adequately resourced and independent; varying internal/external audit requirements create uncertainty on audit implementation (para. 737).
  - No requirement for brokerage firms, exchange organizations, or insurance companies to have an adequately resourced and independent audit requirement with respect to AML/CFT compliance (para. 738).

*Source: Extracted paragraphs 706–738 from the provided IMF content unit.*

### 739. Article 3, part 5, of the AML Law requires covered institutions to adopt a training program for

### _cr11268 - 739. Article 3, part 5, of the AML Law requires covered institutions to adopt a training program for

### Training requirements and scope (Articles, Resolutions, Instructions)
- Article 3, part 5, of the AML Law requires covered institutions to adopt a training program for their executives and employees to ensure their continuous recognition of the new developments in the field of combating ML operations. (para. 739)
- Article 3, paragraph (d), of Resolution 9/2005 requires covered institutions to train personnel and concerned officers periodically in advances in the field of combating and detecting ML and to inform such personnel and officers of the requirements of the law and ministerial resolutions issued to implement the law. Additional requirements exist for banks, investment companies and exchange companies pursuant to CBK instructions, and guidance for insurance companies and exchange organizations pursuant to Resolution 252/2002. (para. 740)
- Banks:
  - Articles 16.3 and 16.5 of the Instructions to Banks require all officers and staff, including the chief executive officer, his deputies, assistants, department directors, and all newly-appointed concerned employees be informed of all matters related to ML and TF, including domestic legislation, supervisory instructions, related sanctions, and measures to be followed in the event of detecting any suspicious transaction linked to ML or TF. (para. 741)
  - Article 16.4 states training programs should be continued on a regular basis to make concerned employees aware of all new developments in the field of ML and TF and ways of combating these, and to improve their capacities and skills in detecting, tracking, and countering these operations. (para. 741)
- Investment companies:
  - Article 17 of the Instructions to Investment Companies requires training programs ensuring (i) the chairman and board members are fully aware of ML and TF risks and adopt policies, rules, and procedures to avoid use for such operations; (ii) newly-appointed employees are trained in all matters relating to ML and TF and prevention; and (iii) continuation of training programs on a regular basis to keep employees aware of new developments and improve detection, tracking, and countering capacities. (para. 742)
- Exchange companies:
  - Article 9 of the Instructions to Exchange Companies requires concerned employees to participate in training programs to identify ML and TF patterns specific to exchange companies and how to detect and combat them. (para. 743)
  - Article 11 requires owners and employees to be fully knowledgeable of ML and TF risks, adopt protective policies and procedures, and be fully acquainted with domestic requirements including legislation, supervisory instructions, related penalties, and procedures for suspected transactions. (para. 743)
- Insurance companies and exchange organizations:
  - Article 2 of Resolution 252/2002 requires development of special programs relating to work procedures and proper control systems to combat ML and TF; part (a) states the program should include employee training and the establishment of internal control systems to halt attempted ML or TF before they occur. (para. 744)

### Employee screening procedures (c. 15.4)
- Banks:
  - Article 14.3 of the Instructions to Banks states banks shall establish a minimum level of appropriate qualifications for appointment and shall investigate new applicants to prevent hiring persons about whom there is suspicion who may expose the bank to ML or TF risk. Assessors view this as not equivalent to a requirement to put in place a screening procedure to ensure high standards when hiring new employees. (para. 745)
- Exchange companies:
  - Article 12.2 of the Instructions to Exchange Companies requires establishing a minimum suitable requirement for hiring and investigating candidates to avoid hiring persons under suspicion of ML or TF or who might expose the exchange company to ML or TF. Assessors view this as not equivalent to a requirement to put in place a screening procedure to ensure high standards when hiring new employees. (para. 746)
- Investment companies:
  - Article 16.3 requires measures to prevent appointment of new employees about whom there is suspicion or who may expose the company to ML or TF; explicit requirement to review the criminal record of new employees. Assessors view this as not equivalent to a requirement to put in place a screening procedure to ensure high standards when hiring new employees. (para. 747)
- Brokerage, insurance, exchange organizations:
  - There is no requirement for brokerage companies, insurance companies, or exchange organizations to put in place screening procedures to ensure high standards when hiring employees. (para. 748)

### Independence and designation of AML compliance function (c. 15.5)
- Banks:
  - Article 15 of the Instructions to Banks requires the AML unit or department be independent and report directly to the chairman of the board. (para. 749)
- Investment companies:
  - Article 10 of the Instructions to Investment Companies requires the AML unit or officer report directly to the chairman of the board, but does not require that the unit/officer be able to act independently. (para. 749)
- Exchange companies, exchange organizations, insurance companies, brokerage firms:
  - There is no requirement for these entities to appoint an AML compliance officer. (para. 750)

### Application of AML/CFT measures to foreign branches & subsidiaries (c. 22.1 and sub-elements)
- Scope:
  - Article 18 of the Instructions to Banks states the Instructions shall apply to all domestic and external (foreign) branches and subsidiary companies, especially if they operate in countries not bound by international resolutions and recommendations; banks are required to ascertain compliance of their foreign branches and companies with these Instructions according to an appropriate procedure. No guidance is provided by the CBK to define the appropriate procedure; in the event of failure to apply these instructions, the bank is only required to notify the CBK. (para. 751)
  - Article 19 of the Instructions to Investment Companies states the Instructions shall apply to investment companies and their subsidiary banking and finance companies, especially if they operate in countries not bound by international resolutions and recommendations; investment companies are required to ascertain compliance of their foreign subsidiary companies with these instructions according to an appropriate procedure. No CBK guidance defines the appropriate procedure. (para. 752)
- Assessors’ interpretation and limitations:
  - Assessors determined the Arabic word translated as “ascertain” is stronger than the English but that the requirement to ascertain compliance by foreign branches and subsidiaries is not the same as the requirement to ensure their compliance. CBK does not define or provide guidance on the “appropriate procedure”; the procedure is left to the discretion of the bank or investment company. (para. 753)
  - As a result, banks and investment companies are not specifically required to ensure foreign branches and subsidiaries observe AML/CFT measures consistent with home country requirements and FATF recommendations. If noncompliance is determined, banks are only required to notify the CBK and investment companies have no required action. (para. 754)
  - There is no requirement for exchange companies, brokerage firms, insurance companies, or exchange organizations to ensure their foreign branches and subsidiaries observe AML/CFT measures consistent with home country requirements and the FATF Recommendations to the extent local laws permit. Authorities state exchange companies, insurance companies and exchange organizations do not have foreign branches or subsidiaries; CBK must approve any establishment of a branch or subsidiary of Kuwaiti exchange companies in a foreign jurisdiction and does not intend to approve such establishments. (para. 754)
- Particular attention to branches & subsidiaries in certain countries (c. 22.1.1):
  - Article 18 and Article 19 state CBK Instructions apply to foreign branches and subsidiaries, especially if they operate in countries not bound by international AML/CFT resolutions and recommendations “adopted in this regard.” Authorities interpret “adopted in this regard” as relating to AML/CFT. Banks and investment companies are required to ascertain compliance of branches and companies with these Instructions. (para. 755)
  - Exchange companies, brokerage firms, insurance companies, and exchange organizations are not required to ensure foreign branches and subsidiaries observe AML/CFT measures; however, these entities do not have foreign subsidiaries or branches at this time. (para. 756)
- Differences in AML/CFT requirements between home and host country (c. 22.1.2):
  - There is no requirement to apply the higher standard where home and host country minimum AML/CFT requirements differ. Authorities state all branches and subsidiaries of Kuwaiti banks and investment companies are operating in countries where AML/CFT requirements are more stringent than those of Kuwait. (para. 757)
- Requirement to inform home country supervisor if foreign branches & subsidiaries are unable to implement AML/CFT measures (c. 22.2):
  - Article 18 of the Instructions to Banks requires banks to ascertain compliance of their foreign branches and companies; in the event of failure to apply these Instructions, banks are required to notify the CBK. (para. 758)
  - Article 19 of the Instructions to Investment Companies requires ascertainment of compliance but has no requirement to notify the CBK of noncompliance. (para. 759)
  - There is no requirement that exchange companies, brokerage firms, insurance companies, or exchange organizations inform their home country supervisor when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures. Authorities note none of these entities have foreign branches or subsidiaries. (para. 760)
- Consistency of CDD measures at group level (c. 22.3):
  - Based on private sector meetings, assessors determined consistent CDD measures are applied at the group level by financial institutions with an international presence. AML/CFT requirements and training are established at headquarters, applying the highest relevant AML/CFT standard; policies and procedures are disseminated to domestic and foreign branches and adapted as necessary to host country requirements. (para. 761)

### Analysis of effectiveness
- Training, controls, and compliance in practice (Recommendation 15):
  - Banks, investment companies, and exchange companies largely comply with requirements on internal controls, compliance, and audit; they had procedures covering CDD, record retention, detection of unusual and suspicious transactions, and reporting obligations. These policies were conveyed to employees at hire and through periodic training. The cycle of training varied, but was, at a minimum, once every one to two years or when new requirements were issued. Assessors determined a training cycle of once every two years is not adequate. (para. 762)
  - Compliance officers/units at banks, investment companies, and exchange companies were knowledgeable and had access to customer and transaction data necessary to perform duties. In most cases they developed internal AML/CFT procedures, training, and used sample testing. (para. 763)
  - Ability of compliance officers/units to act independently varied; compliance officers could report to senior management above the next reporting level but often required approval from the legal department or Chairman of the Board before taking certain actions such as filing an STR. (para. 764)
  - CBK reviews internal and external audits during on-site and off-site inspections. All banks, investment companies and exchange companies are required to hire a reputable auditing firm recommended by the CBK to conduct an Internal Control Review (ICR) annually; the ICR is sent directly to the CBK by the auditing firm. (para. 765)
  - Brokerage firms, insurance companies, and exchange organizations either lacked AML/CFT procedures, policies, or controls or were not implementing them effectively. Some entities had AML/CFT policies but long-time employees were unaware until initial training the week before assessors’ visit. These entities do not have designated AML compliance officers or units and showed little or no implementation of employee training requirements depending on the firm visited. (paras. 766–767)
- Application to foreign branches and subsidiaries (Recommendation 22):
  - CBK performs an on-site examination of each foreign branch of its financial institutions at least once every two years and reviews for compliance with Kuwaiti AML standards. (para. 768)
  - Requirement exists that banks and investment companies apply CBK Instructions to foreign branches and subsidiaries, especially in countries not bound by international AML/CFT resolutions and recommendations. Private sector found internal policies and procedures to implement this requirement but they were not effective; absent CBK guidance, few institutions knew how to determine which countries do not or insufficiently apply the FATF Recommendations. (para. 769)
  - CBK states it has never encountered a situation where the host country did not permit observance of AML/CFT measures consistent with Kuwait’s requirements; CBK approves establishment of each foreign branch and subsidiary and states it will not grant approval until assured there are no concerns regarding AML/CFT implementation. Thus, all branches and subsidiaries of Kuwaiti banks and investment companies are operating in countries where AML/CFT requirements are more stringent than Kuwait’s. (para. 770)

### Recommendations (from 3.8.2; Recommendation 15 and related)
- Require FIs to communicate their internal procedures, policies, and controls to their employees; internal procedures, policies, and controls should contain requirements on CDD, record retention, detection of unusual transactions, and STR reporting obligations. (para. 771)
- Extend the requirement to establish internal procedures to brokerage companies. (para. 771)
- Require banks and investment companies to ensure the compliance officer or head of the compliance unit be at the management level. (para. 771)
- Require exchange companies, brokerage companies, insurance companies, and exchange organizations to develop appropriate compliance management arrangements, including, at a minimum, designation of an AML/CFT compliance officer at the management level. (para. 771)
- Require all FIs to ensure AML/CFT compliance officer and other appropriate staff have timely access to customer identification data and other CDD information, transaction records, and other relevant information. (para. 771)
- Require that the audit function of banks, investment companies, and exchange companies be adequately resourced and independent and perform sample testing. (para. 771)
- Ensure that the varying requirements for banks, investment companies, and exchange companies for internal/external audits qualify as an adequately resourced and independent audit function to test for compliance with internal procedures, policies, and controls. (para. 771)
- Require the brokerage companies, insurance companies, and exchange organizations to maintain an adequately resourced and independent audit function to test for compliance with laws, regulations and internal procedures, policies and controls with regard to AML/CFT. (para. 771)
- Require banks, investment companies, brokerage companies, insurance companies, and exchange organizations to put in place screening procedures to ensure high standards when hiring new employees. (para. 771)
- Ensure that brokerage companies, insurance companies, and exchange organizations are implementing the requirements of the AML Law and Resolution 9/2005 regarding employee training; training should focus on how systems, sectors, and entities can be exploited for ML and TF, not only on laws and regulations. (para. 771)
- Ensure effective implementation by brokerage companies, insurance companies, and exchange organizations of requirements to:
  - Establish and maintain internal procedures, policies and controls to prevent ML and TF; and
  - Establish ongoing employee training to keep employees informed of new developments, including information on current ML and TF techniques, methods and trends; and provide clear explanation of all aspects of AML/CFT laws and obligations, in particular requirements concerning CDD and suspicious transaction reporting. (para. 771)

*Source: _cr11268 - 739. Article 3, part 5, of the AML Law requires covered institutions to adopt a training program for*

### 772. The authorities are recommended to:

### _cr11268 - 772. The authorities are recommended to:

### Recommendations on extending AML/CFT requirements (paragraph 772)
- Fully extend the requirements of Recommendation 22 to exchange companies, insurance companies, exchange organizations, and brokerage companies.
- Require banks and investment companies to ensure that their foreign branches and subsidiaries observe AML/CFT measures consistent with the Kuwaiti requirements and the FATF Recommendations, to the extent that host country laws and regulations permit.
- Require the branches and subsidiaries in host countries to apply the higher standards where the minimum AML/CFT requirements of the home and host countries differ.
- Require investment companies to inform their home country supervisor when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures because it is prohibited by host country laws, regulations, or other measures.

### Compliance with Recommendations 15 & 22 (section 3.8.3)
- R.15 — PC. Summary of factors underlying rating:
  - Brokerage companies are not required to establish and maintain internal procedures, policies, and controls to the prevention of TF.
  - FIs are not specifically required to communicate their internal procedures, policies, and controls to their employees and are not specifically required to contain requirements on CDD, record retention, the detection of unusual transactions, and the STR reporting obligations.
  - There is no requirement for banks or investment companies that the compliance officer or the head of the compliance unit be at the management level.
  - There is no requirement for exchange companies, brokerage companies, insurance companies, or exchange organizations to develop appropriate compliance management arrangements, including, at a minimum, the designation of an AML/CFT compliance officer at the management level.
  - There is no requirement that FIs ensure that compliance officer and other appropriate staff have timely access to customer identification data and other CDD information, transactions records, and other relevant information.
  - For banks, investment companies, and exchange companies:
    - There is no requirement that audits be adequately resourced and independent to test for compliance with internal procedures, policies, and controls.
    - It is unclear whether audits are required to perform sample testing of procedures, policies, and controls.
    - There is no requirement that brokerage companies, insurance companies, or exchange organizations maintain an adequately resourced and independent audit function to test compliance (including sample testing) with AML/CFT procedures, policies and controls.
    - There is no requirement that banks, investment companies, exchange companies, brokerage companies, insurance companies, or exchange organizations put in place a screening procedure to ensure high standards when hiring new employees.
  - There is a lack of effective implementation by brokerage companies, insurance companies, and exchange organizations of requirements to:
    - Establish and maintain internal procedures, policies and controls to prevent ML and TF;
    - Establish ongoing employee training to ensure that employees are kept informed of new developments, including information on current ML and TF techniques, methods and trends; and that there is a clear explanation of all aspects of AML/CFT laws and obligations, and, in particular, the requirements concerning CDD and suspicious transaction reporting.
- R.22 — NC. Summary of factors underlying rating:
  - There are no requirements for FIs to ensure that their foreign branches and subsidiaries observe AML/CFT measures consistent with home country requirements and the FATF Recommendations, to the extent that local (i.e., host country) laws and regulations permit.
  - There is no requirement that, where the minimum AML/CFT requirements of the home and host countries differ, the branches and subsidiaries in host countries apply the higher standard.
  - There is no requirement that investment companies, exchange companies, brokerage companies, insurance companies, or exchange organizations inform their home country supervisor when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures.

### Shell banks — description and analysis (section 3.9, paragraphs 773–785)
- Legal framework:
  - 773: There is no explicit prohibition in primary, secondary legislation or other enforceable means that would explicitly prohibit the establishment of shell banks in Kuwait.
  - 774: The CBK Law 32/1968 defines banks under Article 54 with functions including receipt of deposits, discount/purchase/sale of commercial papers, granting of loans and advances, issuing and collecting cheques, dealing in foreign exchange and precious metals, and other credit operations; branches of any bank operating in the State of Kuwait shall be considered as one bank.
  - 775: Article 59 of the CBK Law requires registration in the Register of Banks at the CBK to start operations and prohibits non-registered institutions from practicing banking business or using terms that may mislead the public; only those registered in the Central Bank Register of Banks or Register of Investment Companies may receive money for investment from third parties.
  - 776: Article 60 states that registration or refusal of registration is decided by the Minister of Finance on the recommendation of the Board of Directors of the CBK. The CBK Law does not require that a bank have a physical presence in Kuwait to receive a license.
  - 777–778: Authorities indicated Ministerial Decree 39 sets out requirements for Kuwaiti banks to have a domestic address; Article 1 of Ministerial Decree 39 lists register data including the address of the major branch or the address of the center supervising work in Kuwait for branches of foreign banks.
  - 779: Assessment team view — the obligation to provide an address of the major branch or center supervising work in Kuwait is not sufficient to protect Kuwait from establishment of shell banks; it does not properly reflect “meaningful mind and management” as per the FATF definition and does not reflect the need to have physical presence in the country in which it is incorporated or licensed.
- Prohibition of correspondent banking with shell banks:
  - 780: Article 6.1 of CBK Instructions for Banks (2/BS/92/2002) — banks shall only deal with correspondents licensed by competent official bodies and “there shall be no dealings with any shell banks.”
  - 781: Article 13 of CBK Instructions for Investment Companies (2/IS-IIS/180/2005) — “investment companies shall not enter into any relation with shell banks or companies or continue dealing with them.”
  - 782: Article 5.1 of the Instructions for Exchange Companies — “transactions should be executed only with correspondents licensed by the competent official authorities ... Exchange companies must not transact with shell banks.” However, this does not prohibit exchange companies from entering into, or continuing correspondent relationships with shell banks as required by criteria 18.2.
  - 783: Conclusion — banks and investment companies are not permitted to enter into, or continue, correspondent banking relationships with shell banks, but exchange companies are only prohibited to conduct transactions with shell banks (gap vis-à-vis criterion 18.2).
- Requirement to satisfy respondent FIs’ prohibition on use of accounts by shell banks:
  - 784: Article 6.3 of the Instructions for Banks, Article 6.3 of the Instructions for Investment Companies, and Article 5.3 of the Instructions for Exchange Companies require that, when executing transactions through correspondents in other countries, FIs shall ensure sufficient information is available and that there shall be no dealings with correspondents or entities dealing with or allowing their accounts to be used by shell banks.
- Effectiveness:
  - 785: CBK indicated there are no shell banks operating in Kuwait. Banks, investment companies and exchange companies informed the assessment team that none have correspondent relationships with shell banks. CBK officials report reviewing all agreements regarding correspondent banking relationships during on-site inspections. CBK practice includes review of proposed agreements and documentation prior to an exchange company entering into a new correspondent relationship.

### Recommendations on shell banks (paragraphs 786)
- Amend the CBK licensing requirements with a view to clearly prevent the establishment of shell banks in Kuwait.
- Require that banks seeking a license have and maintain a physical presence in the country in accordance to the FATF standard.
- Prohibit exchange companies from entering into, or continuing, correspondent relationships with shell banks.

### Compliance with Recommendation 18 (section 3.9.3)
- R.18 — PC. Summary of factors underlying rating:
  - There are not sufficient legal provisions preventing the establishment or continued operation of shell banks. There is no requirement that banks seeking a license have or maintain a physical presence in Kuwait in accordance to the FATF standard.
  - There is no prohibition on exchange companies from entering into, or continuing, correspondent banking relationships with shell banks.

### The supervisory and oversight system — competent authorities and SROs (section 3.10, paragraphs 787–801)
- Competent authorities and sectoral responsibilities:
  - 787–789: The three primary supervisory authorities are the Central Bank of Kuwait (CBK), the Market Committee/Kuwait Stock Exchange (MC/KSE), and the Ministry of Commerce and Industry (MOCI).
  - 788: The CBK supervises banks, investment companies and exchange companies.
  - 789: The insurance sector and exchange organizations fall under MOCI; the securities sector supervision rests with the Market Committee/Kuwait Stock Exchange.
- Legal/designation issues:
  - 790: Under the AML Law, there is no designation of competent authorities with responsibility for ensuring that FIs adequately comply with requirements to combat ML and TF; the Law does not identify the authorities responsible for AML/CFT supervision.
  - 791: Article 3 of the AML Law requires banks, investment companies, money exchange agencies and corporations, insurance companies and other financial institutions, and individuals determined by a resolution issued by the Minister of Finance, to “strictly abide by the Ministerial instructions and resolutions issued by supervisory authorities ... and also any other Ministerial instructions and resolutions related to money laundering operations.” The list of financial institutions is complemented by a Ministerial Resolution issued on October 7, 2005 by the MOF pursuant to Article 19 of the AML Law.
  - 792: Article 2 of Resolution 9/2005 extends the provisions of the AML Law to other financial companies and institutions, covering all of the financial activities defined by the FATF.
  - 793–794: Despite lack of explicit designation in the AML Law, CBK, MOCI and MC/KSE have assumed responsibility in practice and enacted AML regulations or instructions for entities subject to their control; supervisors consider Article 3 and sectoral laws give them authority to supervise FIs on AML matters.
  - 795: Assessors consider the requirement under Article 3 does not appear clear and deserves further clarification; recommend designation of competent authorities with responsibility for ensuring FIs comply with AML/CFT requirements either under the AML Law or Ministerial Resolution 9/2005.
- Statistical table (Competence to regulate and supervise by sector) — selected figures preserved exactly as presented:
  - Commercial Banks :
    - Conventional 21
    - Specialized Banks 15
    - Islamic Banks 1
    - (As % of financial sector) 70.68 50.62 1.15 18.92
    - Competent Supervisory Authority: Central Bank of Kuwait
  - Investment Companies:
    - Islamic and Conventional 46 54
    - (As % of financial sector) 13.89 12.60
    - Competent Supervisory Authority: Central Bank of Kuwait
  - Exchange Companies 38
    - (As % of financial sector) 0.19
    - Competent Supervisory Authority: Central Bank of Kuwait
  - Investment Funds 112
    - (As % of financial sector) 2.64
    - Competent Supervisory Authority: Central Bank of Kuwait (90 % of the investment funds are managed by banks and investment companies). They are subject to the requirements set forth under the CBK Instruction for banks and investment companies.
  - Exchange Organizations 159
    - (As % of financial sector) N/A
    - Competent Supervisory Authority: Ministry of Commerce and Industry (MOCI)
  - Insurance Companies 32
    - (As % of financial sector) N/A
    - Competent Supervisory Authority: Ministry of Commerce and Industry (MOCI)
  - Brokerage Companies (securities brokers) 14
    - (As % of financial sector) N/A
    - Competent Supervisory Authority: Market Committee/Kuwait Stock Exchange (KSE)
  - Table note: 1. Due to their nature, specialized banks are not included in the total number of conventional banks or total assets of commercial banks.
- CBK overview and powers:
  - 796: CBK empowered as bank supervisory authority by Law No. 32/1968; responsible for supervision, regulation and registration of deposit and non-deposit taking financial institutions.
  - 797: Article 15 objectives of the CBK include issuance of currency, securing stability of Kuwaiti currency, directing credit policy, controlling banking system, serving as Banker to the Government and rendering financial advice to the Government.
  - 798: Law No. 32/1968 grants CBK broad powers including issuing instructions to banks to realize credit or monetary policy or ensure sound progress of banking business (Article 71).
  - 799: CBK has supervisory jurisdiction over banks, investment companies, exchange companies and investment funds; powers vested under CBK Law, Ministerial Resolutions and Law No. 31/1990 and Ministerial Resolution 113/1992.
  - 800: CBK supervises banks and investment companies operating under Islamic law; AML obligations that apply to conventional FIs apply equally to those subject to Islamic principles.
  - 801: Chapter III, Section 2 of the CBK Law provides framework for registration and deletion of banks; bank supervisory actions are taken in practice by the CBK, though some authority (licensing and closure) is shared with the Minister of Finance.

*Source: _cr11268 - 772. The authorities are recommended to:*

### 802. The CBK Law provides the CBK with responsibility primarily for the banking sector. However,

### _cr11268 - 802. The CBK Law provides the CBK with responsibility primarily for the banking sector. However,

### CBK legal mandate and supervisory scope
- Article 55: The Board of Directors of the CBK may—upon approval of the Minister of Finance—subject all or some of the institutions and companies referred to in the same Article, including financial and investment companies, to all or some of the provisions of Chapter III (Organization of the banking business), or to any rules which the Board of Directors may draw up for purposes of supervision and which are in harmony with the nature of the activities of such institutions and companies.
- The authorities indicated that the CBK Law, especially Chapter III (Organization of banking business), the provisions related to supervision (Section 5), and the powers to monitor and inspect also extend to AML/CFT matters.
- Legal instruments empowering CBK supervision:
  - MOF based on Articles 55, 59, and 90 of Law No. 32/1968 empowered the CBK with the supervision of exchange companies, investment companies and investment funds.
  - Ministerial Resolution issued on March 10, 1984 grants the CBK control over exchange companies.
  - Ministerial Resolution issued on January 8, 1987 grants the CBK control over investment companies.
  - CBK supervision of investment funds under Law No. 31/1990 and Ministerial Resolution 113/1992.
- Scope of supervision and AML/CFT coverage:
  - Approximately 90 percent of investment funds are managed by entities already subject to the supervision of the CBK (banks and investment companies) and the authorities have stated that in terms of AML/CFT compliance, they are subject to the requirements set forth under CBK Instruction for banks and investment companies.
- CBK AML instructions issued:
  - Instruction (2/BS/92/2002) for banks.
  - Instruction (2/ES/95/2003) for exchange companies.
  - Instruction (2/IS-IIS/180/2005) for investment companies.
- Statutory powers of inspection and information collection:
  - Articles 78, 79 and 81–84 of Law No. 32/1968 provide for collection of all necessary information from the FIs in the form and frequency that the CBK considers necessary.
  - CBK has legal right to compel production of or to obtain access to all records, documents or information relevant to monitoring compliance, based on Articles 78 and 82 of the CBK Law.
  - Article 78, paragraph (a): CBK may, at any time, inspect banks and financial companies and institutions subject to its supervision, including branches, companies and banks that operate abroad and are subsidiaries of Kuwait banks; coordination with central banks or supervision authorities in concerned countries.
  - Article 78, paragraph (b): Authorized CBK inspection staff have the right to see accounts, books, records, instruments and all documents deemed necessary; may require board members or officials to submit data; reviews carried out within premises of the bank or institution.
  - Article 78, paragraph (c): CBK shall make a comprehensive report on inspection findings including recommendations to rectify unsound positions.
  - Article 82: CBK may ask banks to submit statements, information and statistical data as necessary; banks must submit all data, information and statistics requested in accordance with the system the CBK lays down.
  - Supervisory power to compel production or obtain access is not predicated on the need to obtain a court order.

### Supervision of exchange companies, investment companies and funds (Ministerial Resolutions)
- Exchange and investment companies:
  - Articles 13 and 16 of Ministerial Resolutions (1984 and 1987) provide that pursuant to Article 71 of the CBK Law, the CBK shall provide exchange companies and investment companies with instructions necessary to regulate their business and achieve cash or credit policy adopted by the CBK.
  - Article 14 (1984) and Article 17 (1987): CBK “shall set a system to inspect exchange companies/investment companies to verify the safety of their business and financial status, and to verify the validity of information and data sent to the CBK and other issues that the CBK deems necessary to control.”
  - Article 16 (1984) and Article 18 (1987): CBK may require statements, tables, and statistical information it deems necessary to execute its supervisory tasks.
- Investment funds:
  - Article 89 of Ministerial Resolution 113/1992: CBK “shall have the right to control and inspect investment funds and systems of these funds and any other instruction issued by the supervisory authority.”
  - Article 90: Control and inspection personnel have the right to view fund books, records, and any other documents or statements required; fund managers or custodians may not withhold documents for any reason.

### Ministry of Commerce and Industry (MOCI) role and limitations
- Legal and supervisory framework:
  - MOCI is responsible for supervision of the insurance sector and exchange organizations in Kuwait as well as other non-financial business and professions; Article 1 of Law No. 32/1969 grants power to license all commercial businesses in Kuwait.
  - Article 2 of the Emiri Decree of 12 August 1986 states MOCI shall be responsible for supervising commercial companies, performing functions of commercial register and establishments according to laws and by-laws.
  - Assessors were not provided with a legal definition of “commercial companies” and could not determine the extent of supervision granted to MOCI under the Emiri Decree; documentation did not grant MOCI explicit authority to supervise and regulate insurance companies and exchange organizations.
  - No provision under sector legislation (e.g., Insurance Law) grants authority to MOCI over insurance sector and exchange organizations.
  - MOCI acts as the de facto supervisor; in the absence of clear legal basis, measures are not enforceable.
- MOCI resolutions and AML powers:
  - Resolution 252/2002 imposes AML obligations on FIs and non-FIs subject to MOCI control; for FIs, requirements apply to insurance companies, insurance agents and exchange organizations.
  - Article 1 of Resolution 252/2002 allows MOCI to monitor activities of insurance companies and exchange organizations to ensure compliance.
  - Article 1, paragraph 5 of Resolution 252/2002 allows MOCI to “view commercial books, correspondence, vouchers, and documents related to transactions.”
  - Resolution 313/2004 and Resolution 221/2007: judicial officer has right to inspect shops and commercial companies to verify application of legal provisions and resolutions with right to view records, documents and commercial books; provide authority to close shops and companies for non-compliance; inspector capacity granted to any officer having spent at least 2 calendar working years at the specialized unit for combating ML or having followed specialized courses in the field.
  - Notwithstanding Resolutions 252/2002, 313/2004 and 221/2007, due to lack of clear legal basis for MOCI to supervise the insurance sector and exchange organizations, these resolutions are not enforceable.

### Market Committee / Kuwait Stock Exchange (KSE) and securities regulation
- Fragmentation and regulatory responsibilities:
  - Kuwait securities market governed by several laws and regulated by more than one regulatory authority; main legislation is the Emiri Decree of 1983 (ED of 1983) and Ministerial Resolution 35/1983.
  - Securities market regulated by Market Committee/Kuwait Stock Exchange (MC/KSE), the CBK and the MOCI.
  - MC/KSE, CBK and MOCI are responsible for regulating and supervising securities market, issuers, intermediaries and other institutions.
  - MOCI: responsible for granting commercial licenses (Law 32/1969).
  - CBK: responsible for supervision of collective investment schemes.
  - KSE: generally responsible for supervision and regulation of securities trading and prudential regulation of trading and for part of market intermediaries (brokerage companies and the Kuwait Clearing Company, KCC).
- Institutional arrangements and powers:
  - 14 brokerage companies under supervision of the KSE.
  - KCC acts as KSE’s Central Clearing and Settlement Agent and as Securities Depositary and Registry; KCC constituted as an investment company and is, in terms of AML, supervised by the CBK.
  - Articles 3 and 6 of the Emiri Decree define responsibilities of KSE and Market Committee.
    - Article 3: KSE responsible for surveillance of the financial market including organizing and protecting trading securities; organizing announcement of interests and issuing/dealing with financial reports; specifying methods ensuring soundness of information and protecting traders; developing financial market to serve economic development; developing market links with other regional and global markets.
    - Article 6: MC responsible for setting general rules and policies for KSE within goals of Article 3.
  - Pursuant to Article 16 of the Emiri Decree, KSE issued Ministerial Resolution 35/1983 (KSE By-law).
    - Article 21, paragraph (f) of Resolution 35/1983: brokerage companies shall satisfy requirements of any further conditions laid down by the Stock Exchange Committee.
    - Article 25: all brokers must abide by Emiri Decree, its by-laws, and all resolutions and instructions issued by the KSE.
    - Article 27 of Resolution 35/1983: brokers obligated to “provide the KSE with data, information, and statistics in the form and dates specified by the Administration” and KSE has right to ascertain authenticity and accuracy of such statements and information in any manner it deems appropriate; this power is not predicated on the need to obtain a court order.
- Gaps in AML authority and supervision:
  - Emiri Decree and Resolution 35/1983 are limited strictly to prudential supervision and silent on AML requirements within the securities industry.
  - As of the assessment date, rules regarding inspection and surveillance powers of MC/KSE are not clear under the Emiri Decree; Decree does not clearly provide power of MC/KSE to monitor and ensure compliance with laws and regulations by brokerage companies and KCC.
  - Resolution 31/2003 provides requirements for brokerage companies, portfolio management companies and clearing houses; for AML compliance authorities indicated KCC and portfolio managers are subject to CBK supervision because KCC is an investment company and portfolio management operated by investment companies and banks.
  - There are no rules under the Emiri Decree or Resolution 35/1983 regarding comprehensive inspections and investigations.
  - Resolution 31/2003 is silent regarding power of MC/KSE to monitor activities of brokerage companies to ensure compliance with AML Laws and regulations.
  - KSE inspects brokerage companies and the Clearing House for market conduct and violations of trading rules, clearing, settlement and depositary rules; no regular/routine inspection conducted to ensure compliance with the AML Law, regulations or Ministerial Resolution 31/2003.
  - Current organizational structure of the KSE does not include an AML Department/Unit.
- Capital Market Law developments:
  - New Capital Market Law passed by the National Assembly in March 2010: Law No. 7/2010 establishes the Financial Markets Authority and regulates trading in securities in Kuwait, but it is not in place.
  - In September 2010, the Kuwait Cabinet approved a decree for the appointment of the members of the Council.
  - As of the assessment date, the Law was under a transitional period in which the Authority had to issue the executive by-laws within six months of issuance of the decree naming members of the Council; some details will be contained in executive by-laws and until issued full extent of the regulatory regime is unknown.
  - Article 163: after the transitional period, the Emiri Decree and other regulations shall be cancelled.
  - The authorities expect to have such law in place in April/May 2011.
  - Enactment of the Capital Market Law and creation of the Capital Market Authority described as an important step toward creation of a single, independent and accountable supervisor for the securities industry.

### Adequacy of resources — Central Bank of Kuwait (R.30)
- Organizational structure highlights:
  - On-Site Supervision Department is responsible for supervising activities of banks, investment companies, exchange companies and investment funds in prudential as well as AML related issues.
  - On-Site Supervision Department comprises three Units: i) Compliance Unit; ii) Anti-Money Laundering Unit; and iii) Inspection Unit.
  - CBK can rely on the Off-Site Department which in practice coordinates activities with the On-site Supervision Department.
- Unit responsibilities:
  - Inspection Unit: conducts regular comprehensive inspections of banks, investment companies, exchange companies and mutual funds to ascertain financial soundness, adherence to articles of association and relevant laws, resolutions and instructions; assesses adequacy of internal control systems; prepares and executes inspection plans; follows up on rectification of remarks and violations; coordinates with Off-Site Surveillance Section.
  - Anti-Money Laundering Unit: 1) propose policies, regulations and instructions issued by the CBK regarding combating ML/FT, counterfeiting, financial and banking fraud and security matters in FIs subject to CBK supervision; and 2) coordinate with Inspection Section the inspection of FIs to assess extent of compliance with requirements to combat money laundering.
  - Compliance Unit: receives and studies complaints from customers of supervised FIs; suggests enforcement of penalties on FIs in violation and takes charge of enforcing those penalties; cooperates with inspection team and follows up on procedures resulting from complaints.
- Staffing levels (as of the mission date):
  - On-Site Supervision Department had 59 staff, with the following breakdown:
    - Compliance Unit (6 staff).
    - Anti-Money Laundering Unit (10 staff).
    - Inspection Unit (43 staff).

*Source: _cr11268 - 802. The CBK Law provides the CBK with responsibility primarily for the banking sector. However,*

### 856. The Off-site Supervision Department follows up on the off-site supervisory work conducted on

### _cr11268 - 856. The Off-site Supervision Department follows up on the off-site supervisory work conducted on

### Off-site Supervision Department: scope, structure and resources
- Follows up on off-site supervisory work conducted on banks, investment companies, exchange companies and mutual funds’ activities to ascertain the soundness and stability of the position of the banking and financial system units.
- Studies applications for the foundation of new banking and FIs, the establishment of new investment funds, and the opening of branches for existing FIs.
- Department composition and staffing (as of the mission date): total staff 109, with the following breakdown:
  - Policies and Technical Studies Section: 7 staff
  - Off-Site Supervision Section: 45 staff
  - Banking and Financial Units Affairs Section: 16 staff
  - Banking and Financial Statistics Section: 21 staff
  - Credit Section: 20 staff
- AML supervision responsibility lies with the “Anti-Money Laundering Section” and the “Inspection Section.”
- CBK statements on resourcing:
  - CBK stated it has adequate structure funding and technical resources to perform its duties.
  - Salary scale is competitive with the private sector and turnover rate is low.
- Legal budget foundation:
  - Pursuant to Article 14 of the CBK Law “the CBK shall have a special budget which shall be prepared in a commercial pattern” and “...with the approval of the Minister of Finance, the Board of Directors shall lay down all rules and regulations concerning the administrative and financial affairs of the Bank, including staff and accounting matters, without being limited in all this by the provisions of the Public Tenders and Civil Service Laws.”

### Ministry of Commerce and Industry (MOCI): organization, AML role and capacity
- No organizational chart available for the MOCI.
- Supervision split across two departments:
  - “Department for Insurance Companies”
  - “Department for Exchange Organizations”
- These departments monitor compliance with obligations under the insurance law (Law 24/1961) and sectoral ministerial resolutions.
- MOCI could not provide the relevant sectoral law/resolution that regulates the activities of exchange organizations.
- Anti-Money Laundering Unit within MOCI:
  - In charge of supervising compliance with the AML Law and regulations by insurance companies, exchange organizations, real estate agents and dealers in precious metals and stones.
  - Insurance and Exchange Organizations Departments request the Anti-Money Laundering Unit’s opinion when a FI requires a new license or requests license renewal.
  - Staffing: 25 staff for AML-related reviews (of which 10 normally go on inspections).
  - Coverage: sectors combined over 4,000 entities (32 insurance companies, 159 exchange organizations, as well as 3,000 real estate agents and 837 jewelry shops).
  - Assessment: MOCI is not appropriately staffed to effectively perform its functions.
- Private sector feedback:
  - MOCI has undertaken few AML-related inspections.
  - Unclear to inspected entities which section undertakes the inspection (AML Unit or Insurance/Exchange Organizations Department).
- Conclusion: lack of human resources, adequate funds and other necessary resources, coupled with deficiencies related to supervision and sanctions, impacts overall effectiveness of AML supervision.

### Market Committee / Kuwait Stock Exchange (MC/KSE): structure, powers and AML oversight
- Organization does not permit MC to fulfill assigned duties: regulator and KSE are merged under one management and one organizational structure; MC has no technical staff and relies on KSE staff.
- KSE resources defined by Emiri Decree, Article 12; KSE revenues derived from:
  1) proceeds of the services rendered by the Stock Exchange
  2) the income of the funds invested by the Stock Exchange
  3) the proceeds of the penalties imposed in accordance with the provisions of such Decree
  4) any fees or charges imposed or levied for the benefit of the Stock Exchange
  5) any other revenues approved by the Stock Exchange Committee
- No specific Unit devoted to AML issues.
- KSE does not undertake inspections within the securities industry to ensure brokerage companies comply with requirements to combat money laundering and terrorist financing.
- As of the mission date:
  - MC as regulator does not have adequate powers and resources to perform its functions.
  - KSE lacks adequate powers and resources.
- Law No. 7/2010 establishing the Financial Markets Authority and regulating trading in securities was passed in March 2010, and will be in place in April/May 2011; authorities indicate new Capital Markets Law will provide a new structure and resources for effective supervision.

### Integrity of competent authorities and confidentiality provisions (30.2)
- CBK confidentiality: Article 28 of the CBK Law prohibits disclosure by Board members, managers, officials, or employees of information relating to the affairs of the CBK or its customers or affairs of other banks subject to control, unless otherwise permitted by law.
- CBK staff are civil servants subject to the Civil Service Law, which provides for high integrity standards, including confidentiality and good conduct; new employees undergo background checks and security clearance including criminal record checks and interviews.
- Civil Service Law, Section 2: appointees must have a good reputation and never have been sanctioned criminally.
- CBK has an internal hiring procedure providing additional integrity standards.
- MOCI and MC/KSE staff also subject to the Civil Service Law.
- Securities industry confidentiality: Article 15 of the Emiri Decree states data and information related to traders’ names and trading volumes shall not be announced or disclosed other than to the market and specialized monitoring parties, except upon a judicial judgment. Requirements are broad and do not indicate whether they apply equally to Board, managers, and staff. MOCI could not provide assessors with standards concerning confidentiality.

### Training for competent authorities (30.3)
- CBK appears to be the only supervisory authority providing some AML-related training.
- CBK training activities:
  - Ongoing AML training programs for staff.
  - “In-house trainings” with external consultants.
  - Institute of Banking Studies (IBS) where employees are trained.
  - External workshops and training organized by Federal Reserve System, MENAFATF, Cambridge University, the American Embassy and Foreign Ministry and US Treasury Department.
  - From 2005 to 2010, 53 staff members of the CBK received AML/CFT training via workshops or seminars.
- MOCI training:
  - From 2005 to 2009 included eight training sessions; assessment team unable to assess quality and depth.
- No information provided on training for MC/KSE staff.
- Recommendation summary (Recommendation 30):
  - CBK appears adequately funded and structured, with sufficient technical and other resources.
  - Resources to supervise insurance companies, exchange organizations and brokerage companies are inadequate.
  - MOCI and KSE are not adequately structured, funded, staffed, or provided with sufficient technical staff and other resources to fully and effectively perform their functions.
  - Professional standards for MOCI and KSE, including confidentiality standards, cannot be regarded as appropriate.
  - MOCI and KSE are not adequately providing training to their staff for combating ML and FT as required under criteria 30.3.

### Sanctions framework: availability, scope, and enforcement powers
- No provisions in the AML Law delegating adequate powers of enforcement and sanction to an authority or designating an authority to impose sanctions against FIs, their directors or senior management for failure to comply with AML/TF requirements, consistent with FATF Recommendations.
- Law No. 35/2002 stipulates penalties for breaches of AML requirements under Section III for money laundering, failing to report suspicious transactions, disclosure of information regarding crimes in Article 2, and damaging or concealing documents relevant to such crimes.
- Article 11 of the AML Law:
  - Failure by a person required to report a suspicious financial transaction to do so, disclosure of information regarding crimes in Article 2 that comes to his knowledge through his position, or damaging or concealing documents relevant to such crimes, shall be punished by imprisonment of not more that three years and a fine of KD 5 000 at minimum and KD 20 000 at maximum or one of these two penalties in addition to dismissal from his job.
  - Any person proved to be negligent in carrying out obligations stipulated in Article 2 shall be punished by a fine not exceeding one million KD.
- Article 4 of Ministerial Resolution 9/2005: failure of institutions, companies and persons mentioned in Article 2 to comply with requirements in Article 3 (CDD, recordkeeping, training, internal control systems) deemed a violation and punishable by penalties set forth in Article 11 of the law, without prejudice to any more severe punishment provided by law.
- Authorities’ enforcement approach:
  - CBK, MOCI and KSE enforce AML compliance through exercise of general sanctioning powers under sectoral Law/Decree/Resolution.
  - Failure to comply with AML measures in AML Law, Ministerial Resolution 9/2005 and instructions/resolutions issued by supervisors is sanctioned on the basis of powers granted under the CBK Law, Resolution 252/2002 and Emiri Decree of 1983.
- Statutory range of sanctions by sector (high-level extracts):
  - Banks (Law No. 32/1968 Article 85): Warning; financial penalty not in excess of KD 50,000 (approximately US$180, 000); temporary suspension of some/all operations usually carried out by the CBK with banks; prohibition from carrying out certain operations or other business limitations; request removal/replacement of responsible employee; consider a Board member unfit for board membership; appoint a temporary controller; dissolve Board and appoint commissioner; delete bank from Register of Banks.
  - Exchange Companies (Article 17, Ministerial Resolution 1984): Same sanctions as for banks.
  - Investment Companies (Article 21, Ministerial Resolution 1987): Same sanctions as for banks.
  - Investment Funds (Article 92, Ministerial Resolution 113/1992): Warning; discharge officers of fund money investment and management and obligate fund manager to appoint other persons; discharge custodian and obligate appointment of another custodian; discharge fund manager and appoint another; fund liquidation.
  - Insurance Companies & Exchange Institutions (MOCI) (Resolution 204/2004): Warning; Closure; (authorities could not provide the legal basis for applying sanctions).
  - Brokerage Companies (Emiri Decree Article 14): Notification; Warning; Suspension of violator from work for a period set by the Market Committee and procedures regarding benefits received; Confiscation of all or part of the Bank Guarantee; Suspension of trading in securities issued by violating companies/parties until violation is eliminated; Cancellation of membership; Compulsory advance deposit of underlying stock or money for the trader.
- CBK enforcement specifics:
  - Powers set out in Section 9 of the CBK Law.
  - Article 85 (Law No. 32/1968) provides sanctions for violations, failure to submit required documents/statements or submission of discrepant statements.
  - Article 79 of the CBK Law: refusal to submit information to CBK, or submission of false information, liable to imprisonment and fine.
  - Maximum financial penalty that can be imposed by the CBK is KD 50,000 (approximately US$180,000).
  - Deletion from the register of banks requires decision of the Minister of Finance after approval of the Board of Directors of the Central Bank; involvement of the MOF in license revocation compromises CBK independence as a supervisor.
  - Assessors consider CBK should have sole power to revoke licenses for FIs under its supervision.
  - Warnings and temporary suspension of operations usually carried out by CBK with banks imposed by decision of the Governor; other penalties in Article 85 imposed by decision of the Board of Directors.
  - Enforcement power extends to directors and senior management per Article 85, paragraph 3, which holds Board members, Executive Staff, General Managers, Deputies, Assistants, Sector Managers, and Branch Managers responsible for deliberate acts causing violations or failure to submit required documents/statements or submission of discrepant statements.
  - Ministerial Resolution (1984) Article 17 and Ministerial Resolution (1987) Article 21 allow CBK to impose Article 85 penalties on exchange companies and investment companies for violations or failure to provide required information.
- Insurance sector and exchange organizations:
  - Article 3 of Resolution 252/20002 states “all legal actions shall be taken against any violation to provisions of such resolution. The penalties established in Law No 35/2002 shall be imposed on any such violator.”
  - Authorities could not provide provisions in law or regulation that grant MOCI powers to regulate, supervise and apply sanctions against insurance companies and exchange organizations. In absence of a clear basis for MOCI’s supervisory role, measures are not enforceable.

*Source: _cr11268 - 856. The Off-site Supervision Department follows up on the off-site supervisory work conducted on*

### 903. Resolution 204/2004 sets forth the range of sanctions that can be imposed by the MOCI on

### _cr11268 - 903. Resolution 204/2004 sets forth the range of sanctions that can be imposed by the MOCI on

### Enforcement powers and scope of sanctions (MOCI, KSE, CBK)
- Resolution 204/2004 provides a range of sanctions that can be imposed by the MOCI on insurance companies and exchange organizations, but the current legal framework only allows for the application of warnings and closures.
- The MOCI does not have adequate powers of enforcement and sanction against insurance companies and exchange organizations.
- The MOCI indicated that Ministerial Resolution 181/2003 provides the MOCI with the power to apply sanctions to the insurance companies, but documentation to support this was not provided.
- For the securities industry:
  - The KSE is empowered to apply administrative sanctions on brokers and listed companies (Emiri Decree, Article 14).
  - Article 14 authorizes the Disciplinary Board of the Stock Exchange to decide cases relating to stock brokers and companies whose securities are listed in the market regarding violations of the Decree, KSE rules and decisions, or ethics of the profession.
  - Article 60 of the KSE By-Laws mirrors Article 14 of the Emiri Decree.
  - The range of sanctions for securities brokers includes withdrawal, restriction, or suspension of license where applicable.
  - The MC/KSE does not have legal authority to levy financial sanctions (e.g. fines).
  - The KSE cannot impose sanctions against directors and senior management.
- The MOCI and the MC/KSE need the power to issue pecuniary sanctions and a larger spectrum of sanctions aligned with the seriousness of irregularities.
- The CBK has a broad range of sanctions under the CBK Law and has applied sanctions in practice against FIs for AML/CFT non-compliance, but the sanctioning regime lacks effectiveness in practice in some cases.

### CBK sanctions: empirical data and assessment (2006–2009)
- From 2006 to 2009 the CBK imposed 62 sanctions against FIs for non-compliance with AML/CFT requirements:
  - 11 against banks,
  - 16 against investment companies,
  - 35 against exchange companies.
- Aggregate sanctions imposed (2006–2009):
  - 5 warnings,
  - 53 financial penalties,
  - 2 partial suspension for business,
  - 2 ruling out.
- The value of fines imposed from 2006 to 2009 appear to range on average, between US$25,000 and US$ 50,000.
- The CBK indicated the most common violations leading to sanctions:
  1. failure to maintain a copy of the customer identification card;
  2. failure to provide an approved policy for the prevention of ML/FT;
  3. false information required for the FCT and LCT system operations;
  4. failure to establish training programs for personnel;
  5. violating specific instructions regarding freezing assets by a delay notification about considering the names mentioned in the lists;
  6. failure to conclude contracts with correspondents;
  - (and other violations).
- The CBK determines sanctions mainly based on: primary violation, previous sanction, duration of the situation, situation remained the same after detecting it, impact on the customer.
- Data limitations and assessors’ findings:
  - The CBK provided totals by year and by FI type but not the correlation between specific violations and specific penalties.
  - Example: in 2006 three banks were sanctioned for three specific violations and a total financial penalty of KD 42,500 was imposed for those three violations, but no breakdown per violation was provided.
  - Assessors concluded that in some cases aggregate financial penalties were sufficient, but due to lack of disaggregated supporting information they could not determine whether sanctions were dissuasive and proportionate in all cases.
  - The involvement of the MOF in licensing and revocation (deletion from the register of banks must be imposed by a decision of the MOF, after approval of the CBK Board) negatively impacts the efficiency of the system.

### MOCI sanctions: scope, practice and data (2007–2009)
- The MOCI imposed two types of sanctions on insurance companies and exchange organizations: warnings and closure orders.
- Statistical summary (MOCI sanctions 2007–2009) — Offense/non-compliance issue: Failure to check the identity of the customer
  - Exchange Organizations:
    - 2007: Warning 48; Closure 3
    - 2008: Warning 50; Closure 17
    - 2009: Warning 41; Closure 8
  - Insurance Companies:
    - 2007: Warning 20; Closure 0
    - 2008: Warning 26; Closure 4
    - 2009: Warning 31; Closure 0
- The MOCI has only two penalty types (warning and closure) and no monetary penalty; therefore sanctions are not proportionate and dissuasive.
- The MOCI did not provide sufficient documentation to validate the sanctions applied or to determine whether they were effective, proportionate and dissuasive.
- The MOCI indicated that a common violation was lack of identification of the customer, but provided no further information.
- At the time of the on-site visit, the MC/KSE had not applied any sanctions for purely AML violations, and the KSE does not have a broad range of sanctions over brokerage companies for AML non-compliance.
- Overall, statistical data suggest sanctions are not effectively implemented, especially by the MOCI and the KSE, and the sanctioning regime needs to be strengthened.

### Market entry, fit and proper criteria, and ownership controls
- Supervisory responsibilities for market entry:
  - CBK: banks, exchange companies and investment companies.
  - MOCI: insurance companies and exchange organizations.
  - KSE: brokerage companies.
- Legal framework and licensing requirements:
  - Article 1, Law No. 32/1969 “Regulating Commercial Shop licenses”: no commercial entity may open without a license from the MOCI unless under special laws, decrees, or resolutions.
  - Article 5, Law No. 32/1969: license shall not be granted to an applicant who became bankrupt during the first year of practicing business, or convicted in certain crimes (bankruptcy, forgery and commercial deceit, robbery, swindling, treachery, forgery, or using forged document); failure to abide by requirements leads to sanctions in article 28 of the Commercial Law.
  - Registration of corporations governed by Commercial Code 68/1980; legal persons must register within the Department of Corporation at the MOCI.
  - CBK Law (Chapter III, Section 1) establishes bank formation rules:
    - Article 56: banking business may only be practiced by institutions set up as joint-stock companies with shares placed for public subscription; applications to establish banks are presented to the CBK Board for recommendations before incorporation formalities.
    - Article 59: no banking institution may start operations until registered in the Register of Banks at the Central Bank.
    - Article 60: registration or refusal effected by a decision of the Minister of Finance on recommendation of the CBK Board; the Minister issues regulations for registration on the CBK recommendation.
    - Article 61: registered banks shall notify the CBK of amendments to Memorandum or Articles of Association.
  - Article 68: conditions to be a member of a bank’s Board of Directors or occupy executive positions:
    - Not to have been adjudged guilty in an offense involving dishonesty or breach of trust;
    - Not to have been declared bankrupt;
    - No to have abstained from payment, even once;
    - To be of good reputation;
    - To have adequate experience in banking, financial or economic affairs in compliance with CBK Board resolution rules and regulations;
    - Not to be a member of Board of Directors or staff in any other bank operating in Kuwait.
  - Chairmen must notify CBK of board nominees thirty days prior to General Assembly meeting; CBK may object within 21 days under a resolution stating reasons, resulting in exclusion of nominee.
- Deficiencies and concerns:
  - Licensing supervisory process is deficient regarding ownership issues; no effective controls over banks’ ownership structure.
  - Article 57 of Law 32/1968 sets a maximum individual ownership ratio at 5 percent of a bank’s capital unless prior consent obtained from the CBK; excess must be disposed within a CBK-specified period. This does not prevent criminals or associates from holding beneficial or controlling interests.
  - The CBK’s “Application Form for Approval of Ownership Exceeding 5 percent of Bank Capital” requires experience, education, financial position and reputation data, and whether the applicant has been convicted of a crime against honor or integrity in Kuwait or abroad; however, no policy prevents a criminal or their associate from being approved to hold 5 percent or more.
  - Article 25 of Law 68/1980 prohibits persons convicted of certain offences (bankruptcy offenses with fraud, deceit, theft, cheating, betrayal of trust, forgery, or use of fraudulent documents) from engaging in any commercial activity, but:
    - no definition of “commercial activity” was provided by the authorities;
    - assessors could not determine the extent to which Law 68/1980 applies beyond commercial license requirements;
    - only a limited number of criminal offenses would prohibit an individual from engaging in commercial activity even if provision applies to FIs.
  - There are no legal or regulatory measures to prevent criminals or their associates from holding or being the beneficial owner of a significant or controlling interest or holding a management function (executive or supervisory boards, councils) in a financial institution.
  - Existing requirements do not provide for the implementation of “fit and proper” tests for shareholders and for rejection of acquisition by unsuitable parties.

*Source: IMF on-site assessment text (excerpts provided).*

### 944. In the same way, there are no controls over the ownership structure of investment companies and

### _cr11268 - 944. In the same way, there are no controls over the ownership structure of investment companies and

### Licensing and ownership controls for non-bank FIs
- There are no controls over the ownership structure of investment companies and exchange companies.
- The CBK Law is silent on the licensing procedures for exchange companies and investment companies regulated by the CBK.
- There are no “fit and proper” tests for shareholders, directors or executive managers of investment companies or exchange companies.
- Ministerial Resolution of 1984 and Ministerial Resolution of 1987 do not contain the same provisions that apply to banks with regard to fit and proper requirements for directors and senior management.
- Article 7 of Ministerial Resolution of 1984 and Article 6 of Ministerial Resolution of 1987 specify registration information required for exchange companies and investment companies, including: registration date and number; company name and style; legal capacity of the company; incorporation date; capital; reserves; name of board members and general manager; names of associate partners if it is a general partnership or limited partnership company (as for exchange companies only); third party partners’ names in the case of non-Kuwaitis in the company, etc.
- The CBK’s right to object to appointment of members of the board of directors in the banking sector does not extend to exchange companies and investment companies under CBK supervision.
- There are no controls over the ownership of FIs subject to the supervision of the MOCI.
- There is no information available with regard to the licensing requirements for exchange organizations.

### Insurance sector licensing requirements (MOCI)
- Article 23 of the Insurance Law (Law No. 24/1961) requires insurance agents to: i) be Kuwaiti national of at least twenty-one years of age; good conduct and behavior; not convicted of any felony or misdemeanor that is dishonorable or affecting public morals and not declared bankrupt unless rehabilitated; and be registered in the Chamber of Commerce and the Commercial Register; or ii) be a company established in Kuwait provided that no less that 51 percent of its capital is owned by Kuwaitis. In the case of a partnership, all conditions required for an individual agent shall also be fulfilled by all the partners.
- Article 25 of Law No. 24/1961 requires every insurance company or branch thereof to obtain a license from the President to perform insurance operations in Kuwait and may not exercise such activities before obtaining the said license. The registration of the Insurance Company in the commercial register is not in itself tantamount to a license for the exercise of insurance operations.
- The requirements in place fall short of complying with Criteria 23.3 and 23.3.1.

### Securities sector market entry (Kuwait Stock Exchange)
- Standards for market entry are minimal and are contained in the KSE bylaw.
- Article 21 of Ministerial Resolution 35/1983 sets requirements to carry out brokerage business, including: i) It shall be a Kuwaiti company and all partners shall be Kuwaiti nationals; ii) The brokers shall be Kuwaitis, having attained at a minimum secondary school educational qualifications, or having secured an adequate experience with satisfactory training to a level acceptable to the Committee; brokers shall have a good reputation; iii) The director of the company, the partners authorized to perform management functions, or those acting as brokers should have not been declared bankrupt, whether in Kuwait or abroad, nor been convicted of any felony or imprisoned for any crime of immoral act or breach of trust, unless rehabilitated.
- Article 21 states the company shall satisfy any further conditions laid down by the Stock Exchange Committee.
- Article 22 provides that all applications submitted for registration in the Broker’s Register shall be considered by the Stock Exchange Committee whose decision shall be final.
- Article 23 requires each company to appoint its own representative to conduct brokerage on its behalf in the Stock Exchange who shall be of good conduct and behavior.
- There are no controls over the ownership structure of market intermediaries in the securities markets.
- Overall standards for market entry are weak and fall short of complying with Criteria 23.3 and 23.3.1.

### Assessors’ conclusions on licensing and fit-and-proper controls
- Financial institutions (FIs) in Kuwait are not subject to appropriate licensing requirements.
- There are no prudential controls over the ownership of FIs and no application of fit and proper tests on directors and senior management of: investment companies, exchange companies, insurance companies, exchange organizations, or brokerage companies.
- Recommendation (implicit): Legal framework should include at a minimum vetting of owners, directors, managers and the ability for the supervisor to evaluate them on the basis of fit and proper, including expertise and integrity.

### Money/value transfer and exchange service licensing and registration
- Financial institutions providing money or value transfer services, or a money or currency changing service in Kuwait should be licensed and registered.
- Money or currency changing services are being provided by banks, exchange companies and exchange organizations. Pursuant to Article 1 of Law No. 32/1969, these financial institutions must obtain a license from the MOCI.
- Banks and exchange companies are the only FIs authorized to provide money or value transfer service in Kuwait, and they must be registered by the CBK.
- Article 59 of the CBK Law: no banking institution is allowed to start operations until it has been registered in the Register of Banks at the CBK.
- A similar requirement is imposed on exchange companies under Article 7 of Ministerial Resolution of 1984.
- Exchange organizations are licensed by the MOCI for prudential and AML related matters. Other than Law 32/1969, the MOCI could not provide assessors with the specific provision that applies to the registration of exchange organizations.

### CBK: ongoing supervision, organization, and inspection procedures
- The CBK has legal authority to undertake on-site inspections of all entities for which it is responsible; powers primarily in Section 5 of the CBK Law.
- Banks, exchange companies and investment companies are subject to ongoing supervision performed by the Supervision Department.
- Article 71 of the Central Bank Law gives the CBK authority to establish rules, regulations and instructions necessary for credit or monetary policy or to ensure the sound progress of the banking industry.
- Legal framework complemented by Ministerial Resolution of 1984, 1987 and Ministerial Resolution 113/1992 (regulate exchange companies, investment companies and investment funds, respectively).
- Two CBK departments with regulatory responsibilities for prudential and AML/CFT regulation: the Supervision Department (On-Site Supervision Department with three sections; Off-Site Supervision Department with five sections).
- On-Site Supervision Department responsibilities: on-site supervision over banks, investment companies, exchange companies and investment funds; ensure compliance with AML Laws and regulations.
- On-Site Supervision Department units: Compliance Unit; Anti-Money Laundering Unit; Inspection Unit.
- AML supervision responsibility: AML Unit and Inspection Unit; AML Unit coordinates with Inspection Unit to inspect all CBK-controlled FIs.
- CBK conducts comprehensive and targeted on-site inspections planned with Off-Site Department and conducted based on standardized written procedures covering controls such as: CDD (opening of account, scoring system, update of information, etc), AML policies, STR (quantity, number), Large Cash Transactions Reports (LCT), Foreign Cash Transactions (FCT), monitoring of transactions and training.
- Inspection Unit conducts comprehensive inspections; AML Unit performs targeted inspections.
- Three inputs to decide between comprehensive and targeted inspections: i) input from the Off-Site Department (financial data and other review reports), ii) reports from previous on-site examinations, iii) review of STR feedback (quality and quantity).
- CBK analyzes Internal Report Systems: FIs must provide CBK with reports on adequacy of internal control systems prepared by local audit firms; external auditors provide opinions on regulations and internal control systems quality and quantity.
- CBK uses a Supervision Manual requiring examiners to check a list including: 1) Existence of anonymous accounts; 2) Recordkeeping; 3) Occasional accounts; 4) KYC policy approved by the Board; 5) Representation; 6) Existence of the company/legal persons; 7) Intermediaries and specific requirements; 8) Purpose of the account/income of customer; 9) Online banking and transfers; 10) Correspondent banking relationships; 11) Shell banks; 12) STRs; 13) Training programs; 14) Manual for red flags; 15) UN Lists and software for including the lists; 16) PEPs; 17) NPOs; 18) Wire transfers; 19) Unusual and complex transactions; 20) Internal policies approved by the Board; and 21) External auditor report and content.
- An examination report is drafted after the onsite visit outlining findings and corrective measures required; report is sent to the FI management.
- Sample inspection report parts: Part 1- Secret and not disseminated information to the bank (main data of the bank, situation of the bank, summary and recommendations, financial centre of the bank, among other relevant information), and Part II- Shared with the bank (capital adequacy, nature and quality of assets, profits, liquidity, internal audit and policy, AML/CFT compliance, accuracy of the submitted documents, non-compliance and sanctions, IT systems, among other relevant information).
- CBK indicated there is no risk-based approach with regard to supervision but steps are being taken to move to a risk-based approach expected to be in place by the fourth quarter of 2011.
- Mutual funds are part of the inspection on banks and investment companies and thus not included as stand-alone examinations.
- Average inspection team size: 3–5 inspectors from both head office and branch levels.
- Inspection frequency indicated by authorities: on-site visits to banks at least once a year; investment companies, once every two years; exchange companies, at least once a year. Frequency determined by internal policy and examination plan approved by management.
- Supervised sector counts: 21 banks, (345 local branches and 16 foreign branches), 38 exchange companies (231 local branches), and 100 investment companies (30 branches).
- Inspections conducted in the last three years (per authorities): 2007 (13 banks, 60 investment companies, and 32 exchange companies); 2008 (14 banks, 40 investment companies, and 33 exchange companies); 2009 (12 banks, 49 investment companies and 31 exchange companies).
- CBK stated examination of any new FI takes place two years after their registration by the CBK.
- Observed gap: banks and to some extent exchange companies from 2007 to 2009 have not been subject to an onsite inspection once every year as indicated.

### MOCI supervision (insurance companies and exchange organizations)
- Assessors could find no statutory provision giving the MOCI authority to supervise insurance companies or exchange organizations generally. MOCI’s granting of supervisory responsibility to the Anti-Money Laundering Unit lacks necessary statutory power.
- Insurance companies and exchange organizations are supervised by two Departments: Department for Insurance Companies and Department for Exchange Organizations, mainly monitoring compliance with the Insurance Law and relevant ministerial resolutions.
- MOCI supervises insurance companies and exchange organizations both generally and specifically for AML matters, but supervision appears limited and ineffective.
- Scope of inspections over insurance companies and exchange organizations is limited; MOCI verifies compliance with Resolution 252/2002, which is broad and does not provide enough information.
- MOCI Anti-Money Laundering Unit staffing: 25 staff for AML related reviews (of whom 10 normally go on inspections).
- AML Unit is responsible for verifying compliance not only by insurance companies and exchange organizations, but also by other non-designated financial businesses and professions, such as real estate agents and dealers in precious metals and stones. Combined, these sectors total nearly 4,000 entities.
- Number of AML/CFT onsite examinations appears very low compared to the number of FIs under MOCI supervision.
- Assessors found the quality of MOCI on-site inspections to be unsatisfactory.
- Private sector reports: few AML-related inspections by MOCI; unclear to FIs which MOCI section undertakes inspections (AML Unit or Insurance/Exchange Organizations Department).
- Level and frequency of AML inspections minimal; frequent visits from Insurance Department mostly target prudential matters.
- AML Department does not have standardized procedures.
- Private sector suggests overall low awareness of AML/CFT requirements.

### KSE supervision of brokerage companies
- KSE carries out prudential supervision relying on auditors’ reports.
- No regular/periodic inspection plan is in place or was made available.
- Authorities indicated they do not undertake inspections of brokerage companies to ensure compliance with AML/CFT requirements.
- Except for Resolution 31/2003, no guidance and feedback is being provided to the securities sector with respect to their AML obligations.

*Source: assessment extract from document _cr11268 (sections 944–993).*

### 995. The following table provides details on the number of AML/CFT inspections performed by the

### 3.11 Money or Value Transfer Services (SR.VI)

### 3.11 Money or Value Transfer Services (SR.VI)

### Description and Analysis (summary)
- Legal Framework:
  - Requirements regarding money or value transfer services can be found in the CBK Law.
  - The CBK is responsible for licensing, regulating, and supervising MVT service operators in Kuwait.
  - The only legal MVT service operators in Kuwait are banks and exchange companies.
  - Article 59 of the CBK Law prohibits institutions other than those registered in the Register of Banks from practicing bank business or using terms that may mislead the public as to the nature of the institution.
- AML/CFT obligations for authorized MVT operators (as applied via the AML Law, Resolution 9/2005, and/or the Instructions to Banks or to Exchange Companies):
  - identify their customers;
  - report suspicious transactions;
  - report cash transactions greater than KD 3,000 (US$10,900);
  - maintain records for five years;
  - establish policies, procedures, and internal controls to prevent ML and TF; and
  - pay attention to complex and large transactions.
- Oversight and registration:
  - The CBK is the only authority designated to register and license legal persons that perform money or value transfer services.
  - The CBK maintains a current list of the names and addresses of licensed and registered MVT service operators and is responsible for compliance with the licensing and registration requirements.
- Informal MVT activity:
  - Assessors were made aware of a small informal system used by expatriate communities; several individuals reported existence of informal MVT providers but many stated the number has decreased and is thought to be relatively small.
  - Assessors attribute the decrease to Kuwaiti authorities’ efforts to lower commissions in the formal MVT sector.
  - CBK officials indicated they are not aware of any informal MVT system in Kuwait.
  - Article 59, paragraph 4 of the CBK Law gives the CBK power to ascertain by any means it deems fit whether entities violate the prohibition against unregistered banking business, but CBK provided no examples of exercising this power to close informal MVT providers.
  - The PPO has convicted an exchange company for conducting transfers illegally. No other evidence was provided regarding attempts to prevent operation of informal MVT operations.
- Cross-application of sector-wide deficiencies:
  - The application of FATF Recommendations to MVTS providers suffers from the same deficiencies identified in relation to the rest of the financial sector (see Sections 3.1 to 3.10 of the report).

### Recommendations and Comments
- Authorities are recommended to:
  - Make efforts to determine the size and scope of the informal money/value transfer system operating in Kuwait and to effectively monitor this sector.
  - Take action to address the deficiencies identified in relation to the implementation of the FATF Recommendations, as identified in sections 3.1 of this report in relation to MVTS providers.

### Compliance with Special Recommendation VI
- Rating: SR.VI — PC
- Summary of factors underlying rating:
  - Lack of effective system to identify and monitor a potential small informal money/value transfer system operating in Kuwait.
  - The application of the FATF Recommendations to MVTS providers suffers from the same deficiencies identified in relation to the rest of the financial sector (see Sections 3.1 to 3.10 of this report).

---

*Source: _cr11268 - 3.11 Money or Value Transfer Services (SR.VI)*

### 1074. The legal framework for requirements for DNFBPs can be found in the AML Law,

### _cr11268 - 1074. The legal framework for requirements for DNFBPs can be found in the AML Law,

### Legal framework and reporting requirements
- Legal framework cited: the AML Law, Resolution 9/2005, and Resolution 252/2002.
- Article 3, item 4 of the AML Law: broad requirement to report suspicious transactions.
- Article 5 of the AML Law: the PPO shall determine the competent authority within the PPO to receive reports where there is suspicion of money laundering.
- Resolution 9/2005, Article 3, part (e): requires covered institutions to establish internal control systems to detect suspicious transactions as soon as they occur and to report them; obligations apply to dealers in precious metals and stones, real estate agents, and lawyers.
- No requirement in law or regulation that suspicious transaction reports (STRs) by DNFBPs be sent to the FIU.
- Resolution 252/2002, Article 1, item 4: requires dealers in precious metals and stones to report to the PPO any suspicious transaction related to ML or TF that comes to the knowledge of the covered institution.
- Resolution 83/2005, Article 3, item 5: directs the MOCI’s Department for Combating ML to receive reports about suspicious transactions and to “prepare reports about any violations seized about entities and companies and provide all notices thereupon,” creating a contradiction with Resolution 252/2002.
- The MOCI has not provided guidance on STRs or what should be considered suspicious.

### Application of FATF Recommendations to DNFBPs (R.13, R.14, R.15, R.21)
- Recommendation 13 (suspicious transaction reporting):
  - Suspicious transaction reporting requirements in Resolution 9/2005 and Resolution 252/2002 are the same as for FIs, but deficiencies described in Section 3 apply equally to DNFBPs.
  - There is no requirement in law or regulation that DNFBPs report to the FIU.
  - Due to lack of an autonomous TF offense, no obligation in law or regulation to file an STR when there are reasonable grounds to suspect funds are related to TF.
  - No requirement in law or regulation to report attempted transactions.
- Recommendation 14 (protection for reporting):
  - Article 14 of the AML Law: natural persons or corporations who, in good faith, report information according to the AML Law will be protected from any criminal, civil or administrative liability, even if the subject is not convicted and the transactions are found lawful; this applies to DNFBPs brought under the AML Law by Resolution 9/2005.
  - There are no provisions in the AML Law or Resolution 9/2005 that prohibit tipping-off.
  - No prohibition against DNFBPs disclosing that an STR or related information is being provided to competent authorities.
- Recommendation 15 (internal controls, compliance management):
  - Resolution 9/2005, Article 3, part (e), requires covered institutions to set and promote internal control systems for financial companies and institutions, but assessors determined this does not apply to DNFBPs because it specifically mentions financial companies and institutions.
  - Resolution 252/2002, Article 2: dealers in precious metals and stones must develop special programs including training of employees and establishment of internal control systems; no requirement to communicate the internal control system to employees.
  - No requirements for real estate agents and lawyers to establish and maintain internal procedures, policies, and controls to prevent ML and TF and to communicate these to employees (other than detection of suspicious transactions).
  - No requirement for DNFBPs to develop appropriate compliance management arrangements, maintain an adequately resourced and independent audit function, establish ongoing employee training, or put in place procedures to ensure high standards when hiring employees.
- Recommendation 21 (higher-risk countries):
  - No requirements for DNFBPs related to transactions from countries that do not sufficiently apply the FATF Recommendations.
  - No requirements for DNFBPs to examine transactions that have no apparent economic or visible lawful purpose.

### Analysis of effectiveness of STR regime for DNFBPs
- From 2005 to 2009, only five STRs were filed by non-FIs.
- Lawyers were unaware that Resolution 9/2005 applied to their profession and therefore have not implemented its requirements.
- For other DNFBPs, implementation was mixed, with a general lack of awareness or understanding of the requirements.
- Confusion exists among DNFBPs about whom to report to (PPO vs. MOCI) and whether reporting is their responsibility; some would contact police or believe reporting is not their business.
- Contradicting reporting requirements in Resolution 252/2002 and Resolution 83/2005 contribute to confusion.

### Recommendations and required actions (from the assessment)
- Fully extend the requirements of Recommendations 13, 15, and 21 to all DNFBPs operating in Kuwait.
- Prohibit DNFBPs from disclosing the fact that an STR or related information is being provided to the competent authorities.
- Ensure the effective implementation of the AML/CFT provisions by DNFBPs.

### Compliance rating summary related to Recommendation 16 (R.16) and underlying factors
- R.16 rating: NC
- Applying R.13:
  - There is no requirement in law or regulation that DNFBPs report to the FIU.
  - Due to lack of an autonomous TF offense, there is no obligation to file an STR for suspected TF.
  - No requirement to report attempted transactions.
- Applying R.14:
  - There is no prohibition against DNFBPs disclosing that an STR or related information is being provided to competent authorities.
- Applying R.15:
  - Other than for detection of suspicious transactions, no requirements for real estate agents and lawyers to establish and maintain internal procedures, policies, and controls and to communicate them to employees.
  - No requirement for DNFBPs to develop compliance management arrangements, maintain an independent audit function, establish ongoing employee training, or ensure high hiring standards.
- Applying R.21:
  - No requirement for DNFBPs related to countries that do not or insufficiently apply the FATF Recommendations.
  - No requirement for DNFBPs to examine transactions with no apparent economic or lawful purpose.

### Regulation, supervision, and monitoring of DNFBPs (R.24-25)
- Legal framework cited for regulation/supervision/monitoring: AML Law, Resolution 9/2005, Resolution 252/2002, Law No. 23/1980, Resolution 83/2005, Resolution 313/2004, Resolution 221/2007, Resolution 51/2009, and Law No. 42/1964.
- Casinos: Article 205 of Law No. 16 of 1960 prohibits gambling; casinos and internet casinos are prohibited in Kuwait; criterion 24.1 not applicable.
- Licensing: Article 1 of Law No. 35/1969 requires a license from the MOCI to open a business or practice a profession unless controlled by special laws; licensing information requirements include shareholder names, manager Civil IDs, company address, phone number, purpose, amount of capital, proof of payment, and at least 51 percent Kuwaiti ownership.
- AML Law and Resolution 9/2005 do not explicitly designate the competent authority responsible for ensuring compliance by covered institutions; Article 3 indirectly empowers supervisory authorities to ensure compliance via ministerial instructions and resolutions.
- No risk assessment has been conducted to determine an appropriate monitoring system.

### MOCI supervision of real estate agents and dealers in precious metals and stones
- MOCI has assumed regulatory, supervisory, and monitoring responsibility for real estate agents and dealers in precious metals and stones and issued Resolutions 83/2005, 313/2004, 221/2007, and 51/2009 to create an AML Unit within MOCI.
- The AML Unit has the right to examine entities under MOCI supervision and to issue sanctions including warnings and temporary closures for 15–30 days.
- Assessors could not find documentation clearly vesting MOCI with explicit authority to supervise and regulate real estate agents beyond Law No. 32/1969 and Article 2 of Law 23/1980 (supervision of precious metals and stones).
- MOCI conducts on-site examinations but visits rarely review AML/CFT compliance in practice; inspections often limited to verifying commercial license display and a cursory ledger check.
- The MOCI AML Unit monitors:
  - 32 insurance companies
  - 3,600 real estate agents
  - 195 exchange organizations
  - 837 jewelry dealers
  - Total entities: over 4,600
- AML Unit staffing and activity:
  - AML Unit staff: 25 employees
  - On-site examiners: 10
  - On-site examinations or visits conducted in 2009: 436
  - Less than 10 percent of entities subject to AML/CFT obligations received an on-site visit in 2009.
  - On-site examiners discovered 142 violations in 2009; over 30 percent of on-site visits found violations.
  - 24 violations in 2009 resulted in temporary closures for 15 to 30 days.
  - AML Unit reported temporarily closing dealers 34 times over the last three years.
  - In the last four years, no sanctions were issued against any of the 3,600 real estate agents licensed in Kuwait.
  - Off-site review function: remaining 15 employees; off-site reviews generally occur at annual or bi-annual license renewal and typically involve review of an original ledger recording all transactions.
- Assessors concluded the MOCI AML Unit lacks sufficient technical and other resources to perform its functions effectively.
- Due to legal gaps, assessors determined real estate agents and dealers in precious metals and stones are not subject to effective monitoring systems for AML/CFT compliance.

### Lawyers and the Kuwait Lawyers Association (KLA)
- Legal regulation: Law No. 42/1964 Regulates the Legal Profession Before the Courts.
  - Articles 1 and 6: persons practicing legal practice must be listed in the registry of active lawyers maintained at the HQ of the Lawyers society (KLA).
  - Article 36: disciplinary action is within a council including the head of court of first instance or deputy and other judges and lawyers.
  - Article 35: most severe disciplinary sanction is striking out the lawyer from the registry.
- KLA is a self-regulatory organization representing and regulating the profession but:
  - KLA is not engaged in regulating, supervising, or monitoring lawyers for AML/CFT purposes.
  - At the time of the on-site mission, the KLA was unaware that lawyers were covered by Resolution 9/2005.
  - Assessors determined lawyers are not subject to effective systems for monitoring compliance with AML/CFT requirements.

### Guidance, feedback, and outreach for DNFBPs (R.25)
- CBK issued Guidelines for the Identification of Suspicious Transaction Patterns; these guidelines do not apply to DNFBPs.
- No guidelines have been issued for DNFBPs pertaining to AML/CFT compliance or filing STRs.
- MOCI principal guidance: Resolution 252/2002, which provides little beyond the AML Law and Resolution 9/2005.
- MOCI’s AML Unit issued pamphlets and materials to real estate agents and dealers in precious metals and stones outlining obligations but without implementation guidance.
- KLA issued no guidelines to lawyers regarding AML obligations under the AML Law and Resolution 9/2005.
- PPO is designated to receive STRs but has not issued feedback on STRs received.
- KFIU does not have the authority to give feedback to reporting institutions on STRs; therefore, no feedback has been provided to DNFBPs with respect to STRs.

### Effectiveness conclusions
- MOCI’s limited AML supervision of real estate agents and dealers in precious metals and stones was found to be ineffective by assessors; inspections are primarily administrative and cursory, rarely verifying identification, copies of ID, internal controls, or awareness of STR requirements.
- Lawyers and other DNFBPs demonstrate low awareness and implementation of AML/CFT obligations.

*Source: _cr11268 - 1074. The legal framework for requirements for DNFBPs can be found in the AML Law,*

### 1113. With respect to lawyers, there appears to be no supervision or monitoring of the lawyers with

### _cr11268 - 1113. With respect to lawyers, there appears to be no supervision or monitoring of the lawyers with

### DNFBPs: lawyers, real estate agents, dealers in precious metals and stones (R.24 & R.25)
- Finding: "With respect to lawyers, there appears to be no supervision or monitoring of the lawyers with respect to AML obligations."
- Recommendations to authorities:
  - Ensure that real estate agents, dealers in precious metals and stones, and lawyers are subject to effective systems for monitoring and ensuring compliance with AML/CFT requirements. Consider conducting a risk assessment to determine the risk of ML or TF in each sector to determine the appropriate level of monitoring for each sector.
  - Designate a competent authority or an SRO responsible for monitoring and ensuring compliance of real estate agents and dealers in precious metals and stones. This authority or SRO should have adequate power to perform is function, including powers to monitor and sanction in line with Recommendation 17 and 23, and sufficient technical and other resources to perform its functions.
  - Establish guidelines to assist DNFBPs in implementing and complying with their AML/CFT obligations.
- Ratings and relevant factors:
  - R.24: NC
    - DNFBPs are not subject to effective systems for monitoring and ensuring compliance with AML/CFT requirements.
    - Absence of a clear legal framework for monitoring and ensuring compliance of real estate agents or dealers in precious metals and stones.
  - R.25: NC
    - Lack of guidelines for DNFBPs to assist in implementing and complying with AML/CFT obligations.
    - Lack of adequate and appropriate feedback from competent authorities.

### Other Nonfinancial Businesses and Professions — Modern and Secure Transaction Techniques (R.20)
- Legal framework and scope:
  - Finding: "there appears to be no specific provision in the legal framework that addresses" modern and secure techniques of money management.
  - Article 2 of Resolution 9/2005 includes "sole proprietor companies and institutions that trade in jewels, valuable stones and precious metals, and other valuable movable property." Otherwise, there are currently no AML/CFT requirements for nonfinancial businesses and professions (NFBPs) in Kuwait. The term "other valuable movable property" is not defined.
  - Assessors are unaware of any efforts by Kuwaiti authorities to apply Recommendations 5, 6, 8–11, 13–15, 17, or 21 to NFBPs.
- Modernization measures taken:
  - Authorities report efforts to reduce reliance on cash by promoting secure cards (ATM, credit, and debit cards) at points of sale, with incentives such as minimal or no fees.
  - Result reported: "20 percent growth in the use of debit cards."
  - Kuwait has instituted free online bill paying services for certain items, such as utility bills.
  - Currency: "the largest currency denomination is a KD 50 (US$176) bank note."
- Effectiveness analysis:
  - Assessors: the 20 percent growth in debit card use indicates measures have been effective in reducing reliance on cash, but "there remains a marked reliance on cash" particularly among the large expatriate community; more efforts are needed.
- Recommendations to authorities:
  - Consider conducting a risk assessment as to the extent to which NFBPs are at risk of being misused for ML and TF.
  - Consider applying Recommendations 5, 6, 8-11, 13-15, 17, and 21 to nonfinancial businesses and professions (other than DNFBPs) that are at risk of being misused for ML and TF.
  - Continue to take measures to encourage the development and use of modern and secure techniques for conducting financial transactions that are less vulnerable to money laundering.
- Rating and factors:
  - R.20: PC
    - No consideration has been given to applying Recommendations 5, 6, 8–11, 13–15, 17 or 21 to NFBPs that are at risk of being misused for ML and TF.
    - Although Kuwait has taken some important steps to reduce the reliance on cash as a payment method, there is still a very high reliance on cash, especially among the large expatriate community.

### Legal Persons — access to beneficial ownership and control information (R.33)
- Registration and verification regimes:
  - Partnerships: governed by Law No. 15/1960; must register with the Department of Partnerships (DOP) within the MOCI and provide names of shareholders/owners; manager of the company; their Civil IDs; address; phone number; purpose; amount of capital being paid in; proof of an individual’s payment for 5 percent or more of the capital; and the existence of one or more Kuwaitis owning at least 51 percent of the company.
  - For partnerships, DOP must seek appropriate information to identify beneficial owners; if local, provide copy of Memorandum of Association; if foreign, certified proof of commercial registration in country of origin and Memorandum of Association showing name of all shareholders certified by the Ministry of Foreign Affairs.
  - The DOP verifies information against valid identity documents at registration; law requires any change to be reported to the commercial register annually and approved by the authorities.
  - Corporations: governed by Commercial Code No. 68/1980; must register with the Department of Corporations (DOC). DOC verifies information at registration, but "there are no requirements to update the information related to the beneficial ownership and control of legal persons throughout the life of the corporation."
  - Law No. 2/1999, Article 1: each shareholder must notify the Kuwait Stock Exchange (KSE) whenever his interest in a listed company exceeds 5 percent. Article 4: the KSE shall take required measures to verify accuracy of this and other data.
  - Foreign companies: must be registered in Kuwait; at least 51 percent of the shares must be held by Kuwaiti residents; branches may be registered on the basis of their Memorandum of Association and must provide proof of the commercial registration in their country of origin.
- Access to registries and information:
  - Legal persons required to be registered in the commercial registry maintained by the DOC.
  - "The DOP and DOC have different systems of central registration." Main ownership and control details for all legal persons are registered with and maintained by the DOP. All information stored on the DOP database is accessible by investigatory authorities.
  - DOP usually provides information upon request from Parliament, the Council of Ministers, the CBK, the Ministry of Justice, the PPO, or the Ministry of Interior.
  - "The DOC does not update the registry with regard to the transfers of shares. Consequently, the information in the Registry concerning ownership and beneficial ownership is not reliably up-to-date and accurate."
  - The CBK and the KSE have access to information pertaining to the ownership of corporations as set forth above.
  - Requests regarding beneficial ownership and control of legal persons are usually answered "after two to three days" from the relevant department at the MOCI.
- Other elements:
  - Article 101 of Commercial Code No. 15/1960: "the shares of companies established in Kuwait must be nominal. Consequently, the issuance of shares in bearer form is not permitted in Kuwait."
  - There are no mechanisms in place in Kuwait for financial institutions (FIs) to obtain official beneficial ownership and control information.
- Recommendations:
  - Update the DOC databases regularly and include all the information related to the changes in ownership and control information of corporations.
  - Respond to requests from competent authorities in a timely fashion and include adequate, accurate, and current information on the beneficial ownership and control of legal persons.
- Rating and factors:
  - R.33: NC
    - Changes in ownership and control information of corporations are not kept up-to-date.
    - Absence of adequate, accurate, and current information related to corporations that can be obtained in a timely fashion by competent authorities.

### Legal Arrangements (R.34)
- Finding: "The Kuwaiti legislation does not provide for the creation of trusts or other similar legal arrangements."
- At time of assessment: "there was no information available that would indicate that the private sector holds funds under foreign trusts and/or provides other trust services."
- Rating:
  - R.34: NA — "Not applicable. There are no legal arrangements such as trusts in Kuwait."

### Non-Profit Organizations (SR.VIII)
- Legal framework and types:
  - Law No. 24/1962 (NPOs and associations) and Law No. 14/1994 (foundations) distinguish NPOs, associations, and foundations.
  - DOCF (Department of Charitable Organizations and Foundations) established August 2002 within MOSAL to register and supervise charities and foundations; DNPO retains responsibility for NPOs not allowed to conduct charitable activities (Associations).
- Sector composition and permissions:
  - "Currently, there are 10 charities approved by MOSAL. Five are authorized to distribute funds for specific projects outside of Kuwait and, therefore, transfer funds abroad."
  - "There are also 71 registered foundations which are supervised by the DOCF." (text also contains a figure later indicating "Number of Foundations 70"; both figures appear in the source.)
  - "There are also 72 associations that are still registered and supervised by the DNPO."
  - Charities are allowed to collect donations, including Zakat; foundations and associations are prohibited from collecting donations and transferring funds abroad but are not prohibited from receiving funds from companies and individuals.
  - Two charities (Kuwait Zakat House and Public Secretary of Awkaf) are managed and supervised by the State Audit Bureau and are public charities licensed by MOSAL that receive funds from the Government solely.
- Review, outreach, and supervision:
  - Authorities reviewed domestic regulations on NPOs and issued several resolutions regulating charities. DOCF established guidelines for charities explaining donation collection procedures and regulating financial activities.
  - A working group composed of the DOCF and the charities chairman ensures charities understand regulations.
  - DOCF issues guidance, holds coordinating meetings, encourages charities to provide donors with understanding of the charity sector, monitors fundraising activities, and regularly issues warnings in the media on rules and risks of fundraising.
  - MOSAL publishes authorizations for approved projects with details on collection methods (the K-Net automated system and other ways), charity names, administrators, and complaint/inquiry telephone numbers.
  - MOSAL formed a Coordination Committee including representatives from the Ministry of Interior, the MOCI, the Ministry of Mass Communication, the Ministry of Awqaf and Islamic Affairs, Kuwait Municipality, and internal ministry management divisions to:
    - examine objectives of NPOs;
    - study new applications procedurally and ensure they fulfill legal provisions;
    - study community needs for association activities;
    - prepare notes for the cabinet on NPO applications for approval.
  - Committee has undertaken outreach to promote transparency, accountability, and public confidence in NPO administration and management.
- Supervision specifics:
  - Law No. 24/1962 (as amended) requires NPOs to be registered and sets out a general monitoring framework. MOSAL (DOCF and DOA) accepts registration requests and declarations based on MOSAL decisions.
  - NPOs must maintain information on purpose and objectives and identity of founders; any modification of purpose must be reported to the relevant department.
  - The ministry must be informed about general assembly sessions and "should send a representative to attend the general assembly sessions."
  - The general assembly is typically in charge of electing the board of directors and adopting annual financial statements. "All activities and accounts of the assembly are subject to the supervision of the Ministry."

*Source: Excerpt from the IMF mutual evaluation report content unit _cr11268 (pages and paragraph numbers as in source).*

### 1149. If the purpose of an NPO is charitable, it has to be authorized by the DOCF and stricter

### _cr11268 - 1149. If the purpose of an NPO is charitable, it has to be authorized by the DOCF and stricter

### Regulation and oversight of charitable NPOs (DOCF responsibilities)
- The DOCF's primary responsibilities:
  - Receive applications for registration from charitable organizations.
  - Monitor charitable organizations' operations.
  - Establish a new accounting system to ensure compliance with the law both at home and abroad.
  - Conduct periodic inspections to ensure administrative, accounting, and organizational standards according to Kuwaiti Law.
  - Mandate certification of charities’ financial activities by external auditors.
  - Limit ability to transfer abroad only to select charities approved by MOSAL.
- DOCF has established guidelines for charities explaining donation collection procedures and regulating financial activities.

### Fund transfers, authorization, and monitoring
- MOSAL requirements for transfers abroad:
  - All transfers of funds abroad must be made between authorized charity officials after getting an approval from the MFA.
  - MFA reportedly monitors all transactions funneled to charities abroad.
  - Applications must be approved by the NPO supervisory authority abroad and submitted to the MFA by the recipient charity.
  - Banks and money exchange businesses are not allowed to transfer charitable funds outside of Kuwait without prior permission from MOSAL.
  - The application typically includes: types of projects, objective of establishment, names of beneficiary countries, methods of collecting donations, and a copy of the ad assumed to be published.
  - Any wire transactions must be reported to the CBK, which maintains a monthly database of all transactions conducted by the charities.
- Assessment caveat: "Despite these restrictions, it was not clear for the assessment team if it is implemented in practice."

### Collection methods and restrictions
- Unauthorized public donations, including Zakat collections in mosques, are prohibited and supervised by MOSAL.
- MOSAL pilot program requires charities to raise donations through:
  - Sale of government-provided coupons (voucher system).
  - Electronic bank transfers or K-Net.
  - Checks.
- MOSAL encourages electronic collection using electronic kiosks and hand-held collection machines that generate electronic records subject to MOSAL supervision.
- Coordination Committee assists in ensuring implementation of these requirements.
- K-Net: "K-Net is an automated system that was developed recently by MOSAL. The donors can use their credit and debit cards to donate to the NPOs."

### Scope of fundraising by associations and foundations
- Authorities state associations and foundations are prohibited from collecting funds, but they can receive donations by transfer and checks; therefore, stricter NPO requirements for charities are not applied to them.

### Information maintained by NPOs and public availability (c. VIII.3.1)
- Under Article 21 and 23 of Law No. 24/1962, MOSAL should maintain a register including:
  - Name of the NPO, location, number and names of board members, financial statements, name of the chairman and his deputy, the treasurer, secretary, and objectives.
- This information is not accessible to the public.

### Inspections and sanctions for oversight violations (c. VIII.3.2)
- Paragraphs 11 and 21 of Ministerial Decree No. 104/2002 require DOCF to conduct regular inspections of administrative, technical, organizational, and accounting aspects and to examine documents and correspondence related to projects.
- MOSAL powers under Law No. 1959 and Law No. 24/1962 include:
  - Right to refer unauthorized collectors of donations to the PPO.
  - Under Articles 27 and 31: (i) dissolve the association itself or its board members when necessary; (ii) fine (KD 50) any person or authority found guilty of collecting money without permission; (iii) refer the case to the PPO for investigation and prosecution.
  - PPO may freeze bank accounts, if warranted.
- MOSAL can send warnings and notifications and recommend referral to concerned authorities; this power has been used frequently. Other civil, administrative, or criminal sanctions have never been used against NPOs.

### Licensing, registration, and publishing of associations (c. VIII.3.3)
- MOSAL responsibilities:
  - Receive applications for licensing from NPOs.
  - Investigate criminal records of founders with assistance of the MOI.
  - Review objectives and procedures of applications for compliance with law and regulations.
- Publication and legal personality requirements:
  - MOSAL undertakes publication of its system after registering and completing provisions of Decree of the Cabinet No. 29/2004.
  - No association can undertake activities unless registered, licensed, and has published its system per Article 2 of Law No. 24/1962.
  - No association or club can start activities unless it gains legal personality and is registered, licensed by MOSAL and authorized by a Ministerial Resolution.
- MOSAL registry contains: name, location, number of board, fiscal year, names of chairman and deputy, treasurer, secretary, and objectives; summary of system published after registration.

### Maintenance of records by NPOs and availability to appropriate authorities (c. VIII.3.4)
- Article 23 of Law No. 24/1962 requires NPOs to maintain a register at headquarters including:
  - Names of members, subscribing members, books and minutes of meetings of the board and general assemblies, accounts ledgers, revenues and expenses, and donations supported with approved documents.
- Article 23 does not specify the period NPOs are required to maintain records.

### Information sharing, STRs, and international contact (c. VIII.4 & c. VIII.5)
- Domestic cooperation and information sharing occur under the AML/CFT Committee and the coordination committee where all concerned authorities are represented.
- MOSAL receives lists issued by MFA to implement UNSCRs 1267 and 1373 to check against its register.
- To date, no STR related to NPOs has been sent to the KFIU through the PPO.
- MFA designated as point of contact for international requests about an NPO suspected of TF or terrorist support; MFA has ongoing relations with MOSAL and can transmit information promptly.

### Recommendations and comments (Section 5.3.2)
- Actions recommended for Kuwait:
  - Apply AML/CFT requirements for charities to foundations and associations.
  - Review NPOs legislation to require NPOs to maintain, for a period of at least five years, and make available to appropriate authorities, records of domestic and international transactions sufficiently detailed to verify funds were spent consistent with organizational purpose and objectives.
  - Conduct systematic on-site inspections of international projects to ensure funds spent consistent with charities' purpose and objectives; perform risk assessments to tailor inspection extent and mission staffing.
  - Although not required under the standards, the FIU is encouraged to analyze information that NPOs currently report when making international transfers.
  - Conduct outreach to raise awareness on risks of terrorist abuse and protective measures, directed to the entire NPO sector including associations and foundations.
  - Strengthen sanctions for noncompliance with registration requirements to ensure they are effective and dissuasive.

### Compliance with Special Recommendation VIII (SR.VIII)
- Rating: PC
- Factors underlying rating:
  - The association and foundations supervision regime is not comprehensive like the one in place for charities.
  - Absence of requirement to maintain records for five years.
  - Lack of outreach to the NPO sector.
  - Sanctions for noncompliance with registration requirements are not effective and dissuasive.

### National cooperation and coordination (Sections 6.1, R.31 & R.32)
- Legal framework and committees:
  - Two mechanisms: National AML/CFT Committee and Committee on Combating Terrorism (CCT).
  - Responsibility for AML/CFT policy issues falls primarily on the Ministry of Finance, which chairs the National AML/CFT Committee.
  - The CCT, chaired by the Ministry of Foreign Affairs, has no statutory objectives and is primarily a channel for UNSCR 1373 notifications; no regulation establishes the Committee or its procedures.
- Composition and remit:
  - Decision 11/2004 assigned Chair of National AML/CFT Committee to the Governor of Central Bank of Kuwait.
  - National AML/CFT Committee members include: CBK, MOI, MFA, PPO, MOCI, Ministry of Finance, Ministry of Social Affairs and Labor, KSE, General Administration of Customs, and Union of Kuwaiti Banks.
  - Main responsibilities include strategy and policy drafting, preparing AML/CFT legislation and implementing regulations, coordinating positions of ministries, monitoring trends, serving as communication channel, representing Kuwait internationally, and proposing training and awareness programs.
  - Decree establishing the KFIU (Decree No. 10/2003) provides that representatives of (i) MOCI; (ii) CDI at the MOI; and (iii) GDC should be members of the KFIU.
- Effectiveness analysis:
  - National AML/CFT Committee prepared the draft AML/CFT Law (pending Parliamentary approval) and organized training and meetings.
  - Committee has not adopted procedures to oversee compliance by ministries/departments.
  - Committee has not developed effective mechanisms for domestic coordination among policy makers, law enforcement, supervisors, and other competent authorities.
  - CCT lacks statutory objectives and is mainly a distribution channel for UNSCR 1373 communications.
  - No mechanisms for consultation between competent authorities and regulated institutions have been put in place.
- Statistics:
  - "No statistics are maintained."
- Recommendations (6.1.2):
  - Put in place effective mechanisms enabling concerned authorities to cooperate and coordinate domestically on development and implementation of AML/CFT policies and activities.
  - Ensure CCT plays an enhanced role in cooperation for implementation of UNSCRs 1267 and 1373.
  - Develop comprehensive statistics in AML/CFT relevant areas (including domestic investigations, prosecutions, property frozen, seized and confiscated, convictions, and on international cooperation).
- Compliance ratings:
  - R.31: PC — Lack of effective mechanisms to enable concerned authorities to coordinate domestically; absence of coordination and mechanisms between CCT members for UNSCR implementation.
  - R.32: NC — Absence of comprehensive statistics in relevant AML/CFT areas.

*Source: Extract from the provided IMF country-report content unit.*

### 1187. An inter-ministerial committee, the Committee on combating terrorism (CCT), has been

### _cr11268 - 1187. An inter-ministerial committee, the Committee on combating terrorism (CCT), has been

### Counter‑terrorism coordination and implementation of UNSCRs
- Paragraph 1187: An inter‑ministerial committee, the Committee on combating terrorism (CCT), has been established to ensure coordination of implementation of UNSCR 1373, but no legal measures have been taken to ensure that the authorities may rely on an effective freezing mechanism (see write up under SR.III and Recommendation 31).
- The National AML/CFT Committee does not ensure effective coordination in the implementation of UNSCR 1267.
- Paragraph 1188: Authorities report no persons or legal entities listed under UNSCR 1267 have been identified in Kuwait. Four persons designated under UNSCR 1373 were identified in 2008 in Kuwait.

### Ratification and implementation of international conventions (Additional Element—c. 35.2)
- Paragraph 1189: Kuwaiti parliament is still considering accession to:
  - (i) the 1998 Arab Convention for the Suppression of Terrorism;
  - (ii) the 1999 Convention of the Organization of the Islamic Conference on Combating International Terrorism;
  - (iii) the 2004 Gulf Cooperation Council Convention for the Suppression of Terrorism.

### Recommendations (paragraphs aggregated around 1190)
- Authorities are recommended to:
  - Take the necessary measures to fully implement the Vienna and Palermo Conventions (refer to Section 2.1 for more details).
  - Sign, ratify, and fully implement the 1999 International Convention for the Suppression of Terrorism Financing.
  - Take the necessary measures to comply with and fully implement UNSCR 1267 and 1373 (and their successor resolutions) as recommended under SR.III.

### Compliance ratings and underlying factors (section 6.2.3)
- R.35 — PC:
  - Kuwait has not ratified the 1999 ICSFT.
  - Vienna and Palermo are not fully implemented:
    - Smuggling of migrants and TF are not predicate offenses for ML.
    - Criminal liability only applies to companies, and not to other legal persons.
- SR.I — NC:
  - Kuwait is not party to and has not implemented the ICSFT.
  - Kuwait has not implemented the UNSCRs 1267 and 1373.

### Mutual Legal Assistance (MLA) — Legal framework (R.36-38, SR.V; paragraphs 1191–1192)
- Law No. 5/2006 approves the Palermo Convention and its Protocols; Palermo text reproduced verbatim, but not all provisions are “self‑executing” (e.g., Article 12.1 relating to confiscation requires national legislation).
- MLA requests are channeled through the MFA and dealt with by the PPO, which acts as the central authority for all MLA requests concerning criminal matters (including AML/CFT).
- Director of the PPO’s Resolution 8/2009 established the “Office of the PPO for Criminal Execution and International Cooperation Affairs” to handle MLA requests; the office comprises a director, a deputy director, and 25 members from the PPO.

### Widest possible range of MLA (c. 36.1; paragraphs 1193–1197)
- Through Law No. 5/2006, Kuwait affords the widest measure of MLA in investigations, prosecutions, and judicial proceedings in relation to offenses covered by the Palermo Convention, including money laundering.
- Measures that may be taken upon request include:
  - Taking evidence or statements from persons;
  - Effecting service of judicial documents;
  - Executing searches, seizures, and freezing;
  - Examining objects and sites;
  - Providing information, evidentiary items, and expert evaluations;
  - Providing originals or certified copies of relevant documents and records, including government, bank, financial, corporate, or business records;
  - Identifying or tracing proceeds of crime, property, instrumentalities, or other things for evidentiary purposes;
  - Facilitating the voluntary appearance of persons in the requesting State Party.
- These measures may be granted on the basis of multilateral or bilateral agreements or, where no such agreement exists, on the basis of reciprocity.
- PPO may, at request of a competent judicial authority in another country, search or seize property, proceeds, or instrumentalities connected with an ML offense on the basis of a bilateral MLA treaty or reciprocity (Article 17 of the AML Law).
- Kuwaiti criminal courts may execute a final judgment delivered by a foreign court and proceed with confiscation on basis of a bilateral MLA treaty or reciprocity (Article 18 of the AML Law).
- Paragraph 1198: The AML Law requirement that MLA requests to “follow or seize property, proceeds or instrumentalities” should come from a “competent judicial authority” is rather restrictive and may slow or hamper effective and timely cooperation (Article 17 of the AML Law).

### Timeliness and efficiency (c. 36.1.1, c. 36.3; paragraphs 1199–1205)
- Paragraph 1199: As provided by the Palermo Convention, Kuwaiti authorities endeavor to ensure “speedy and proper execution”; PPO indicated to the assessment team that, in practice, one month is the average time needed by the central authority (the PPO) to handle an MLA request.
- Paragraph 1200 and 1205: Statistics provided by the authorities show actual processing times are consistently much longer, ranging from few months to nearly two years; this raises questions about the efficiency of the process.
- Paragraph 1203: Authorities indicated that, in practice, no request for MLA in the ML or TF areas was ever refused in the last ten years and that there was no request which contradicted the Kuwaiti legal system.

### Conditions, confidentiality, and fiscal matters (c. 36.2, c. 36.4, c. 36.5; paragraphs 1201–1208)
- Grounds for refusal of MLA under Kuwaiti law are aligned with relevant provisions of the Palermo Convention, including conformity with the Convention, prejudice to sovereignty/security/ordre public, domestic law prohibitions, or incompatibility with Kuwait’s legal system.
- MLA may be postponed if it interferes with an ongoing investigation, prosecution, or judicial proceeding (Paragraph 25 of Article 18 of the Palermo Convention).
- Dual criminality is strictly required only for extradition; Kuwaiti law does not generally require dual criminality for MLA.
- Paragraph 1206: Kuwait has never refused cooperation on the grounds that the offense also involves fiscal matters (tax evasion is not a crime in Kuwait).
- Paragraphs 1207–1208: Kuwait does not decline MLA on grounds of bank secrecy or other secrecy/privacy requirements; the PPO has wide powers to request and obtain information from FIs, businesses, and nonfinancial professions.

### Availability of investigative powers, jurisdictional issues, and SR.V (c. 36.6–36.8; paragraphs 1209–1214)
- Paragraph 1209: All powers granted to relevant authorities in domestic cases may be made available for use in response to requests for MLA (see Section 2.6).
- Paragraph 1210–1211: Kuwait’s jurisdiction provisions are described in the Kuwaiti Penal Code (Articles 11 to 17); in case of conflict of jurisdiction, competent authorities are required to consult to determine which country will exercise jurisdiction.
- Paragraph 1212: Investigative powers under Recommendation 28 are available for direct requests from foreign judicial or law enforcement authorities.
- Paragraph 1213–1214: Although Kuwait has no provision criminalizing TF as such, authorities state Kuwait does not require dual criminality for provision of MLA; the assessment team notes lack of TF criminalization may constitute an obstacle to effective international cooperation in practice.

### Dual criminality specifics and international cooperation under SR.V (c. 37.1–37.2; paragraphs 1215–1217)
- Paragraph 1215: In line with paragraph 9 of Article 18 of the Palermo Convention, Kuwait provides assistance irrespective of dual criminality for MLA; this applies to measures including less intrusive and noncompulsory measures.
- Paragraph 1216: Beyond reproduction of paragraph 9 of Article 18 in Kuwaiti law, there is no additional domestic provision detailing how dual criminality is to be applied in practice for MLA requests; additional internal guidance could aid requesting States.
- Paragraph 1217: For TF specifically, absence of TF criminalization and lack of legal provision or case law supporting non‑requirement of dual criminality may in practice impede effective cooperation; there has been only one MLA request to Kuwait relating partly to TF in the last ten years (from Bosnia and Herzegovina) and it is still pending.

### Provisional measures including confiscation and property of corresponding value (c. 38.1–38.2; paragraphs 1218–1222)
- Paragraph 1218: The Palermo Convention and the AML Law provide the legal basis for execution of foreign criminal court decisions, including foreign confiscation orders and provisional measures (Articles 12 and 13 of the Palermo Convention).
- Paragraph 1219–1220: PPO may search or seize property, proceeds, or instrumentalities at request of a competent judicial authority in another country on the basis of a bilateral MLA treaty or reciprocity; requirement that such requests come from a “competent judicial authority” is restrictive and may hamper timely cooperation. Kuwaiti criminal courts may execute foreign final judgments and proceed with confiscation on the basis of a bilateral MLA treaty or reciprocity, but authorities provided no statistics about the number of cases where this occurred.
- Paragraphs 1221–1222: Article 12.1(a) of the Palermo Convention requires States Parties “to adopt, to the greatest extent possible within their domestic legal systems, such measures as may be necessary to enable confiscation of: (a) Proceeds of crime derived from offences covered by this Convention or property the value of which corresponds to that of such proceeds [..].” Article 14, Paragraph 3, refers to actions States Parties may take on requests under Articles 12 and 13, including value‑based confiscation.

*Source: _cr11268 - 1187. An inter-ministerial committee, the Committee on combating terrorism (CCT), has been established among other things to ensure the coordination of the implementation of UNSCR 1373 (IMF assessment excerpt).*

### 1223. In spite of the ratification of the Palermo Convention, no provision has been adopted in the

### _cr11268 - 1223. In spite of the ratification of the Palermo Convention, no provision has been adopted in the

### Confiscation, coordination of seizure and confiscation actions
- Kuwait has not adopted in national law an express provision allowing for confiscation of property of corresponding value, nationally or at the request of another State (para 1223).
- The absence of such provisions illustrates the need to go beyond mere ratification of international conventions, particularly for “non self-executing provisions” that require national implementing action (para 1223).
- Coordination of seizure and confiscation actions (c. 38.3):
  - Kuwait has no specific arrangement with other countries for the coordination of seizure and confiscation actions (para 1224).
  - Kuwait could, however, coordinate joint investigations, including seizure and confiscation measures, on a case-by-case basis if needed (para 1224, para 1226).

### International cooperation in CFT (SR.V) and limitations
- Although TF is not criminalized as such in Kuwaiti law, authorities indicated they are able to cooperate with other countries in CFT cases in relation to identification, seizure, or confiscation of property, proceeds, and instrumentalities (para 1225).
- The Palermo Convention provisions do not apply to TF per se because TF is not a criminal offense in Kuwait and therefore does not fall within “serious offenses” in Article 2.b of the Convention (para 1225).
- No completed TF-related MLA cases have occurred (one case is pending); the limited number of cases prevents assessment of effectiveness or determination that Kuwait can respond to MLA requests in TF matters in a timely and effective manner (para 1225).
- Confiscation of property of corresponding value is not possible in Kuwait (para 1226).

### Asset Forfeiture Fund and sharing of confiscated assets
- Asset Forfeiture Fund (c. 38.4):
  - No special fund is established in Kuwait (para 1227).
  - Authorities considered establishing such a fund but decided against it; current process deposits confiscated assets in accounts of the MOJ and includes them on its publicly available balance sheet (para 1227).
- Sharing of Confiscated Assets (c. 38.5):
  - Kuwait has ratified the UN Convention against Corruption which contains specific provisions relating to the return of assets (para 1228).
  - Authorities would share confiscated assets on a case-by-case basis as provided by Article 14.3.b of the Palermo Convention (para 1228).

### Recognition and execution of foreign orders (Additional Element R.38)
- Criminal confiscation orders from foreign courts:
  - Pursuant to Article 18 of the AML Law, criminal courts may, in executing a final foreign judgment, proceed with confiscation of properties, proceeds, or instrumentalities connected with an ML offense on the basis of a bilateral MLA treaty or reciprocity (para 1229).
  - Authorities provided no data on the number of such cases (para 1229).
- Foreign noncriminal confiscation orders:
  - Handled by the Civil Court under the Civil Procedure Code; execution is discretionary and left to the President of the Civil Court (para 1230).
  - No data provided on the number of cases (para 1230).
- These provisions apply equally to terrorism and TF but no cases have occurred (para 1231).

### Statistics on MLA and related activity (applying R.32)
- MLA requests, 2000 to 2010:
  - Number of MLA requests received from foreign countries: 8 (from 2000 to 2010) (para 1232).
  - Number of MLA requests sent to foreign countries: 1 (from 2000 to 2010) (para 1232).
  - Most concerned ML; only one related partly to TF (para 1232).
  - No request for MLA was made by Kuwait to another country in the TF area (para 1232).
- Table of MLA requests (selected rows as provided):
  - 2000 — Germany/Kuwait — Received on 8/16/2000 — Requested actions: Investigation/Request for information on account at an exchange house — Actions taken: Seizure — Crime: ML
  - 2003 — United States of America/Kuwait — Received on 10/6/2003 — Requested actions: Accounts — Actions taken: Reply on 8/10/2005 — Crime: ML
  - 2006 — Egypt/Kuwait — Received on 1/13/2006 — Requested actions: Accounts and assets — Actions taken: Letter from PPO to MFA of 2/14/2007 — Crime: ML
  - 2007 — Egypt/Kuwait — Received on 12/27/2006 — Requested actions: Accounts; copy of documents; origin of funds — Actions taken: Letter from PPO to MFA of 2/14/2007 — Crime: ML
  - 2007 — Kuwait/UAE — Received on 1/16/2007 — Requested actions: Seizure; witness statement — Actions taken: Under investigation by UEA — Crime: ML
  - 2009 — Belgium/Kuwait — Received on 1/13/2009 — Requested actions: Accounts — Actions taken: Letter from PPO to MFA dated 5/9/2010 — Crime: ML
  - 2009 — United States of America/Kuwait — Received on 6/9/2009 — Requested actions: Accounts; documents; deposits/transfers — Actions taken: Letter from PPO to MFA dated 3/22/2010 — Crime: ML
  - 2010 — Bahrain/Kuwait — Received on 3/28/2010 — Requested actions: Witness statements; accounts; search and seizure — Actions taken: Letter from PPO to MFA of 9/20/2010 — Crime: ML
  - 2010 — Bosnia and Herzegovina/Kuwait — Received on 10/12/2010 — Requested actions: Witness statements; information about a charity — Actions taken: Waiting information from the Ministry of Social Affairs and Labor — Crime: ML/TF/tax evasion (table following para 1232)

### Recommendations (6.3.2: Recommendations 36–38 and SR.V)
- Recommendation 36 (para 1233):
  - Ensure that cooperation in the AML/CFT area relating to 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, thus recognizing differences in legal systems.
  - Ensure the handling of MLA requests in a rapid, constructive, and effective manner.
- Recommendation 37 (para 1234):
  - Adopt provisions in Kuwaiti law that contain some details about the manner in which the authorities implement paragraph 9 of Article 18 of the Palermo Convention.
- Recommendation 38 (para 1235):
  - Adopt legislation which specifically allows (nationally and at the request of another country) for value-based confiscation.
- SR.V (para 1236):
  - Adopt legislation that specifically criminalizes TF.
  - Ensure the handling of MLA requests in TF cases in a rapid, constructive, and effective manner.

### Compliance ratings and key factors (6.3.3)
- R.36 — LC
  - International cooperation in search or seizure is slowed or hampered because requests can be executed only when emanating from a competent “judicial” authority in another country.
  - MLA not provided, in most cases, in a rapid manner.
- R.37 — LC
  - Lack of clarity in Kuwaiti law as to manner of giving effect to Article 18, paragraph 9 of the Palermo Convention.
- R.38 — LC
  - No value-based confiscation.
- SR.V — NC
  - Lack of criminalization of TF.
  - Impossibility to assess effectiveness of MLA and extradition regimes relating to TF due to limited number of cases.

### Extradition (R.37, R.39, SR.V) — legal framework and practice
- Legal framework (para 1237):
  - General provision on extradition in Law No. 5/2006, which transposes the Palermo Convention into Kuwaiti law; not all Convention provisions are directly applicable.
- Dual criminality and mutual assistance (c. 37.1 & 37.2; para 1238):
  - Dual criminality is a requirement for extradition.
  - Authorities assess dual criminality by looking at the underlying conduct rather than the denomination of the offense.
  - MLA requests (including noncompulsory or less intrusive measures) do not require dual criminality.
- Case volume and assessability (para 1239):
  - Only one extradition case relating to ML and none relating to TF at time of on-site visit; effectiveness cannot be assessed.
- ML and TF as extraditable offenses (c. 39.1 & SR.V.4; para 1240):
  - Pursuant to Article 16 of the Palermo Convention, ML is an extraditable offense.
  - Only one ML extradition case occurred (in 2005).
  - Authorities stated extradition for conduct amounting to TF is possible despite TF not being explicitly criminalized; no TF extradition requests occurred.
- Extradition procedures and channels (paras 1241–1243):
  - Extradition procedure similar to other crimes; regulated by Law No. 5/2006 and relevant bilateral/regional treaties.
  - Requests for extradition must be sent in Arabic and by original copy; not accepted by fax or e-mail.
  - Requests are channeled through the MFA and handled by the PPO; PPO for Criminal Execution and International Cooperation Affairs is central authority (Director of the PPO’s Resolution 8/2009).
  - Lack of specific TF criminalization may hamper extradition where dual criminality is required.
- Extradition of nationals and prosecution alternative (paras 1244–1245):
  - Extradition of Kuwaiti nationals is not possible pursuant to Article 28 of the Kuwaiti Constitution.
  - Kuwait has bilateral agreements and, in lieu of extradition of nationals, prosecutes nationals domestically (aut dedere, aut iudicare); no examples provided.
- Efficiency of extradition process (para 1246):
  - PPO handles requests “without undue delay” per Resolution 8/2009.
  - Authorities indicate an average execution time for a properly made extradition request is between six weeks and two months maximum from receipt.
  - Only one ML extradition and no TF extraditions means effectiveness cannot be assessed.
- Simplified procedures (paras 1247–1248):
  - Bilateral and multilateral agreements include simplified extradition procedures, direct transfer between Ministries, and procedures for urgent cases.
  - Lack of explicit TF criminalization hampers effectiveness where dual criminality is required.

### Extradition statistics and recommendations
- Extradition statistics (para 1249 and table notes):
  - Only one extradition case concerned ML; there was no extradition case relating to TF (para 1249).
  - Table notes indicate extraditions from Kuwait to: Qatar, Bahrain, Pakistan, Egypt, Iran, KSA, UAE, Syria, Bulgaria, and Philippine; one case in 2005 was an Iranian national extradited to Iran; requests to Kuwait from: Bahrain, Egypt, UAE, Us, Syria, KSA and Jordan (table notes).
- Recommendations and comments (6.4.2):
  - Kuwait’s extradition regime is largely based on relevant international conventions and bilateral agreements and appears compliant with standards, but limited case volume prevents assessment of effectiveness.
  - Lack of explicit TF criminalization is a cause of concern and an obstacle to an effective CFT extradition regime.
- Compliance ratings (6.4.3):
  - R.39 — LC: Impossibility of assessing effectiveness of extradition system in ML/TF area.
  - R.37 — LC: Impossibility to assess effectiveness due to limited number of cases.
  - SR.V — NC: No criminalization of TF; impossibility to assess effectiveness of MLA and extradition regimes relating to TF due to limited number of cases.

*Source: _cr11268 - 1223. In spite of the ratification of the Palermo Convention, no provision has been adopted in the*

### 6.5 Other Forms of International Co-Operation (R.40 & SR.V)

### 6.5 Other Forms of International Co-Operation (R.40 & SR.V)

### Description and Analysis — Law enforcement agencies, FIU, and supervisors
- Law enforcement authorities in Kuwait provide international cooperation through Interpol and direct police-to-police contact. The CDI in the MOI receives and replies to request of information from counterparts.
- The CID and SSB have cooperated and shared information with foreign law enforcement authorities in relation to ML offenses. They also replied to one request related to three persons involved in TF. Channels include Interpol and Attaché offices maintained by Kuwait in a number of countries.
- Kuwaiti law enforcement authorities have signed MOUs with counterparts in a large number of countries. Direct assistance is generally not subject to conditions or restrictions. Information-sharing ability extends to information subject to confidentiality. Customs exchange information bilaterally and through RILO offices. LEAs, specifically the PPO, have made several investigations on behalf of foreign counterparts.
- Number of requests made by the MOI:
  - 2008: ML cases 6; FT cases 2
  - 2009: ML cases 5; FT cases 3
  - 2010: ML cases 4; FT cases 1
- There is uncertainty surrounding police law provisions that prevent dissemination of information; assessors view these as not adequate controls and safeguards to ensure information received is used only in an authorized manner.
- The FIU (KFIU) cannot share information with foreign FIUs because it can only act under instruction from the PPO. Any request from a foreign FIU must be channeled through the PPO and can only be given if approved by the Prosecutor. The KFIU is not implementing the Egmont Group Statement of Purpose and its Principles for Information Exchange.
- Central Bank of Kuwait (CBK):
  - Article 28 of the CBK Law: "unless otherwise permitted by law, no member of the Board of Directors, manager, official or employee of the CBK shall disclose any information he has access to by reason of the duties of his office when that information relates to the affairs of the bank or its customers or the affairs of other banks subject to the supervision of the CBK." Assessors determined that, due to the broad language, it applies to the release of AML/CFT information.
  - CBK indicated sharing arrangements with the 16 countries where Kuwaiti banks have foreign branches or ownership interests in a foreign bank, or vice versa. These arrangements are pursuant to consolidated supervision and are limited to banks where both Kuwait and the foreign country share supervision.
  - Outside consolidated supervision, the CBK must go through the PPO to provide information. This affects correspondent banking relationships, cross-border transactions (including cross-border wires), and inquiries where a foreign country seeks information about specific accounts (including tax evasion). Going through the PPO is limited to criminal matters.
  - Assessors were not informed whether the process of going through the PPO has been formalized and placed in writing, nor of standards applied by the PPO to permit or refuse information sharing.
- MOCI and Kuwait Stock Exchange (KSE):
  - Neither MOCI nor KSE has any sharing agreements with foreign countries on a formal or informal basis. Authorities stated neither MOCI nor KSE are required to have such arrangements or to go through the PPO to obtain or provide international assistance, but assessors were not informed of the legal basis or framework allowing such sharing.
  - The KSE is the second largest market by capital value in the Gulf region and was created to protect investors and develop the securities market. The lack of active international sharing and framework for such sharing adversely affect KSE’s functions.
- Statistics: Law enforcement authorities, the FIU, and supervisory authorities do not maintain statistics on number of requests for assistance made or received nor on treatment of such requests.

### Analysis of Specific FATF Criteria (selected findings)
- Clear and effective gateways to engage in international sharing (c. 40.2):
  - CBK only shares confidential information internationally within the context of consolidated supervision. Outside that context, the CBK must go through the PPO. No clear gateway for international sharing outside consolidated supervision and criminal matters.
  - KSE and MOCI do not have effective gateways for international sharing directly with foreign counterparts.
- Exchanges both spontaneous and upon request (c. 40.3):
  - CBK can share AML/CFT information spontaneously and upon request only where a consolidated supervision sharing arrangement exists.
  - Where no agreement exists, CBK must seek PPO authorization, preventing spontaneous sharing.
  - No framework exists for MOCI or KSE to determine spontaneous sharing.
- Authorized to conduct inquiries on behalf of foreign counterparts (c. 40.4):
  - CBK may conduct inquiries on behalf of foreign counterparts only pursuant to consolidated supervision sharing agreements.
  - For countries without agreed arrangements, CBK can conduct inquiries only after PPO approval; no framework for inquiries outside criminal matters.
  - No framework or legal support authorizes KSE or MOCI to undertake such inquiries for foreign countries; assessors were not informed of any instances where this occurred.
- Exchanges subject to disproportionate or undue restrictions (c. 40.6):
  - Requirement for CBK to go through PPO in absence of sharing agreement places undue restrictions on sharing AML/CFT information.
  - Unclear what restrictions might apply to MOCI or KSE as no inquiries were reported.
- Requests not to be refused due to fiscal matters (c. 40.7):
  - Authorities stated cooperation may not be refused merely due to fiscal matters, but assessors were not informed of any written process permitting sharing of information related to fiscal matters.
- Requests not to be refused on secrecy/confidentiality grounds (c. 40.8):
  - Article 28 of the CBK Law contains a broad confidentiality provision. Assessors determined Article 28 prohibits the CBK from sharing confidential information internationally outside consolidated supervision.
  - No secrecy provisions affect MOCI or KSE. DNFBPs: attorneys are subject to normal confidentiality constraints (Articles 11 and 35 of Law 42/1964).
- Safeguards to ensure confidentiality of shared information (c. 40.9):
  - Authorities stated information shared with CBK would be subject to controls and safeguards, but assessors were not informed of any legal or written process dictating international AML/CFT information sharing or ensuring information received is used only in an authorized manner.
  - Any information received by CBK would be subject to Article 28 confidentiality, but this does not ensure use only in the manner authorized.
  - No controls or safeguards were identified for MOCI or KSE, as they have not engaged in international sharing.
- Mechanisms to permit prompt and constructive exchange with non-counterparts (c. 40.10):
  - No process was identified by which CBK, MOCI, or KSE could engage in exchange of information with non-counterparts.

### Analysis of Effectiveness — key conclusions
- The level of cooperation by competent authorities with international counterparts is not as wide ranging as it should be.
- KFIU cannot share information with foreign FIUs.
- Law enforcement agencies are not proactive enough in requesting information on ML/TF and underlying predicate offences from counterparts. They are not authorized to conduct investigations on behalf of foreign counterparts and need stronger controls and safeguards to ensure information received is used only in an authorized manner.
- Absence of clear and effective gateways for CBK to share information outside consolidated supervision and criminal matters; absence of clear and effective gateways for MOCI and KSE.
- Requirement for CBK to go through PPO in certain cases represents an undue restriction; lack of clear authority to share matters dealing with fiscal matters; secrecy impediments to CBK’s ability to share outside consolidated supervision.
- Absence of clear safeguards for confidentiality of information by MOCI and KSE.
- Absence of clear restrictions on competent authorities regarding unauthorized use of confidential information.
- Lack of statistics and overall effectiveness in international cooperation.

### Recommendations and Comments (authorities are recommended to)
- Empower the FIU to exchange information with its counterparts.
- Establish controls and safeguards to ensure that information received by LEAs is used only in an authorized manner.
- Provide for an efficient and effective mechanism by which the CBK, the MOCI and the KSE can share ML and TF information with international counterparts. The mechanism should ensure:
  - The provision of the widest range of international cooperation to their foreign counterparts in a rapid, constructive and effective manner;
  - The ability to exchange information spontaneously and upon request in relation to both ML and the underlying predicate offenses;
  - A clear legal framework to conduct inquiries on behalf of foreign counterparts; and
  - Controls and safeguards to ensure that information received by competent authorities are used only in an authorized manner consistent with national provisions on privacy and data protection.
- Maintain statistics on the number of requests for assistance made or received by law enforcement authorities, the FIU and supervisors, including whether the request was granted or refused and the response time.

### Compliance with Recommendation 40 and Special Recommendation V — Ratings and summary factors
- R.40: PC
  - FIU is not able to exchange information with its counterparts.
  - Lack of controls and safeguards to ensure that information received by LEAs is used only in an authorized manner.
  - Outside consolidated supervision:
    - International cooperation by the CBK is limited and the PPO’s approval is required. The necessity for the CBK to go through the PPO in certain situations represents an undue restriction to sharing.
    - Lack of clear gateways for sharing by the CBK, except in criminal matters.
    - Lack of spontaneous sharing by the CBK.
    - Secrecy constraints against the CBK sharing confidential information.
    - Lack of clear authority for the CBK to conduct inquiries for foreign counterparts without the authority of the PPO.
  - International cooperation by the KSE is insufficient.
  - For the MOCI and the KSE, there is a lack of:
    - clear gateways for international sharing;
    - proven spontaneous sharing;
    - proven ability to conduct inquiries for foreign counterparts; and
    - clear safeguards for maintaining the confidentiality of information.
  - Lack of clear authority for competent authorities to share with regard to fiscal matters.
  - Lack of clear prohibition against supervisors using information for unauthorized purposes.
  - Lack of statistics and overall effectiveness.
- SR.V: NC
  - Lack of TF criminalization limits the ability to provide cooperation by all concerned authorities.
  - Lack of overall effectiveness of the exchange of information relating to TF.
  - Lack of statistics.

*Source: _cr11268 - 6.5 Other Forms of International Co-Operation (R.40 & SR.V)*

### 7.            OTHER            ISSUES

### 7. OTHER ISSUES

### 7.1 Resources and Statistics
- Recommendations to the authorities:
  - Allocate more resources to the competent authorities.
  - Provide specialized training to the staff of competent authorities and develop professional standards, including confidentiality standards to control and safeguard the information.
  - Develop comprehensive statistics in all relevant areas of the fight against ML and TF (including statistics on domestic investigations, prosecutions, property frozen, seized and confiscated, convictions, and on international cooperation, on-site examinations conducted by supervisors, and sanctions applied).
  - Regularly review the effectiveness of the AML/CFT system.
- Ratings and factors underlying ratings:
  - R.30 NC
    - Overall, the allocation of resources is uneven, particularly in view of the rapid development and diversification of the economy.
    - Overall, Professional standards, including confidentiality standards are not fully developed.
    - Lack of specialist skills training in law enforcement authorities including prosecution agencies, FIU, supervisors (MOCI and KSE), and other competent authorities involved in combating ML/TF.
  - R.32 NC
    - Competent authorities have yet to develop comprehensive statistics in all relevant areas of the fight against ML and TF (including statistics on domestic investigations, prosecutions, property frozen, seized and confiscated, convictions, and on international cooperation, on-site examinations conducted by supervisors, and sanctions applied).
    - Overall, there are no statistics available on formal requests for assistance made or received by supervisors, relating to or including AML/CFT.
    - No evidence of reviews of effectiveness of Kuwait’s AML/CFT system.

### Ratings of Compliance with FATF Recommendations — Key findings (selected)
- Legal systems
  - 1. ML offense — LC
    - Smuggling of migrants and TF are not predicate offenses for ML.
    - Reluctance to undertake ML prosecutions without prior convictions for the predicate offense.
  - 2. ML offense—mental element and corporate liability — LC
    - Criminal liability only applies to companies, and not to other legal persons.
  - 3. Confiscation and provisional measures — LC
    - Impossibility to confiscate property of corresponding value.
    - Lack of evidence of the effectiveness of the confiscation framework.

- Preventive measures (selected recommendations)
  - 4. Secrecy laws consistent with the Recommendations — LC
    - The financial secrecy law for the CBK impedes regulatory cooperation and sharing at the international level outside of the context of consolidated supervision and criminal cases.
  - 5. Customer due diligence — NC
    - Lack of explicit obligations imposed by law or regulation (primary or secondary legislation) for multiple CDD measures including when: carrying out occasional transactions that are wire transfers in the circumstances covered by Interpretative Note to SR.VII; suspicion of ML or TF; doubts about previously obtained customer identification data.
    - Lack of requirements to identify and verify any person purporting to act on behalf of a legal person (not only for companies and institutions).
    - Lack of measures to identify all types of legal persons using reliable, independent data.
    - Lack of measures to determine ultimate beneficial owners and those who exercise ultimate effective control.
    - Lack of ongoing due diligence obligations, enhanced due diligence for higher-risk categories, and record-review requirements for existing customers, particularly for insurance companies, exchange organizations, and brokerage companies.
    - Effectiveness issues: lack of evidence supporting effective implementation, especially for exchange companies, insurance companies, exchange organizations, and brokerage companies; lack of effective supervision of these sectors.
  - 6. Politically-exposed persons — NC
    - No clear definition of PEPs under the legal framework.
    - Lack of PEP-related requirements for exchange companies, insurance companies, exchange organizations, and brokerage companies.
    - Lack of requirements for banks and investment companies to perform CDD or risk management to identify PEPs, to obtain senior management approval to continue relationships with PEPs, to establish source of wealth/source of funds for PEPs, or to conduct enhanced ongoing monitoring.
    - Limited effectiveness in FI implementation regarding PEPs.
  - 7. Correspondent banking — PC
    - Lack of requirements for banks, exchange companies, and investment companies to gather sufficient information on respondent institutions to understand respondent business, reputation, supervision quality, or prior ML investigations/regulatory action.
    - Lack of requirements to document respective AML/CFT responsibilities of each institution.
  - 8. New technologies & non face-to-face business — NC
    - No requirements for exchange companies, insurance companies, exchange organizations, or brokerage companies regarding misuse of new technologies.
    - No requirements for FIs to have policies/procedures addressing risks associated with non face-to-face business; limited effectiveness of existing requirements.
  - 9. Third parties and introducers — NC
    - No requirement in law, regulation or OEM to regulate conditions under which FIs rely on third parties to perform some CDD measures.
  - 10. Record-keeping — LC
    - Record-keeping requirement tied to a transaction, not to termination of an account or business relationship.
    - No requirement for brokerage companies, insurance companies or exchange organizations to provide information on a timely basis to domestic competent authorities with appropriate authority.
    - FIs required to extend record-keeping only if requested by a criminal investigator in specific cases; requirement does not extend to requests by supervisors.
  - 11. Unusual transactions — PC
    - No requirements for insurance companies, exchange organizations, or brokerage companies regarding unusual transactions.
  - 12. DNFBP–R.5, 6, 8–11 — NC
    - Lack of explicit CDD obligations for DNFBPs comparable to those for FIs (occasional transactions above thresholds, suspicion of ML/TF, doubts about customer ID data, identifying occasional customers, legal persons, beneficial owners).
    - Lack of measures requiring DNFBPs (including lawyers) to verify legal status of all legal persons, understand ownership/control structures, perform enhanced due diligence, consider filing STRs when unable to comply with CDD criteria, obtain information on purpose/nature of relationship, conduct ongoing due diligence and transaction scrutiny, and keep CDD information up-to-date.
    - Recordkeeping tied to transactions not account termination; no requirement to provide timely information to competent authorities.
    - No DNFBP requirements related to PEPs, payment technologies, introduced business, and unusual transactions.
  - 13. Suspicious transaction reporting — NC
    - No requirement in law or regulation that STRs be filed with the FIU.
    - Due to lack of autonomous TF offense, no obligation to make an STR when there are reasonable grounds to suspect funds are related to TF.
    - No requirement to report attempted transactions.
    - Lack of effective implementation of the requirement to report suspicious transactions.
  - 14. Protection & no tipping-off — PC
    - No prohibition against banks, investment companies, or exchange companies from disclosing that an STR or related information was reported or provided to the FIU or PPO.
    - No prohibition against brokerage companies, insurance companies, and exchange organizations, their directors, officers, or employees from disclosing that an STR or related information was reported or provided to the FIU or PPO.
  - 15. Internal controls, compliance & audit — PC
    - Brokerage companies are not required to establish and maintain internal procedures, policies, and controls to prevent TF.
    - FIs are not specifically required to communicate internal procedures to employees or contain requirements on CDD, record retention, detection of unusual transactions, and STR reporting.
    - No requirement that compliance officer/head of compliance be at management level for banks or investment companies.
    - No requirement for exchange companies, brokerage companies, insurance companies, or exchange organizations to designate an AML/CFT compliance officer at management level.
    - No requirement to ensure compliance officers and appropriate staff have timely access to customer ID data, CDD information, transaction records, and other relevant information.
    - For banks, investment companies, and exchange companies: no clear requirement that audits be adequately resourced and independent, perform sample testing, or that non-bank FIs maintain independent audit functions; no requirement for hiring screening procedures to ensure high standards.
    - Lack of effective implementation by brokerage companies, insurance companies, and exchange organizations of requirements to establish internal procedures, policies and controls, and to provide ongoing employee training.
  - 16. DNFBP–R.13–15 & 21 — NC
    - No legal/regulatory requirement that DNFBPs report to the FIU.
    - Due to lack of autonomous TF offense, no obligation to file an STR when there are reasonable grounds to suspect funds relate to TF.
    - No requirement to report attempted transactions.
    - No prohibition against DNFBPs disclosing that an STR is being provided to competent authorities.
    - Other than detection of suspicious transactions, no requirements for real estate agents and lawyers to establish and maintain internal procedures, policies, controls, compliance management, audit functions, employee training, or hiring standards.
    - No DNFBP requirements related to countries that do not or insufficiently apply the FATF recommendations; no requirement to examine transactions with no apparent economic or visible lawful purpose.
  - 17. Sanctions — NC
    - Lack of a clear designation of the authorities empowered to apply sanctions.
    - Absence of a clear basis for the MOCI to apply sanctions to insurance companies and exchange organizations for not complying with AML/CFT requirements.
    - Lack of a sanction regime with respect to directors and senior management of insurance companies, exchange organizations, and brokerage companies.
    - Lack of a sufficient range of sanctions. Sanctions are not proportionate and dissuasive (MOCI, KSE).
    - The involvement of the Minister of Finance in applying one of the sanctions set forth under the CBK Law (deletion from CBK’s Register), undermines the effectiveness of the sanctioning regime.
    - Lack of penalties/sanctions in the securities sector despite the low level of compliance of the sector with AML/CFT provisions.
    - The sanctioning regime, especially for the MOCI and KSE, is not effective.

*Source: _cr11268 - 7.            OTHER            ISSUES*

### 18. Shell banks

### 18. Shell banks

### Key deficiencies (PC)
- There are not sufficient legal provisions preventing the establishment or continued operation of shell banks. There is no requirement that banks seeking a license have or maintain a physical presence in Kuwait in accordance to the FATF standard.
- There is no prohibition on exchange companies from entering into or continuing correspondent banking relationships with shell banks.

---

### 19–25: Other reporting, NFBPs, higher-risk countries, branches, supervision, guidance

### Other forms of reporting (Recommendation 19) (C)
- This recommendation is fully observed.

### Other NFBP & secure transaction techniques (Recommendation 20) (PC)
- No consideration has been given to applying Recommendations 5, 6, 8–11, 13–15, 17 or 21 to NFBPs that are at risk of being misused for ML and TF.
- Although Kuwait has taken some important steps to reduce the reliance on cash as a payment method, there is still a very high reliance on cash, especially among the large expatriate community.

### Special attention for higher-risk countries (Recommendation 21) (NC)
- There are no requirements for exchange companies, insurance companies, exchange organizations, or brokerage companies regarding business relationships and transactions with persons from or in countries which do not, or which insufficiently, apply the FATF recommendations.
- There are no effective measures to ensure that FIs are advised of concerns about the weaknesses of the AML/CFT systems of other countries.
- There are no requirements for banks or investment companies to examine and prepare written findings with regard to transactions involving noncompliant countries that have no apparent economic or visible lawful purpose.
- Kuwait has not applied appropriate counter measures to countries that continue not to apply to insufficiently apply the FATF Recommendations.

### Foreign branches & subsidiaries (Recommendation 22) (NC)
- There are no requirements for FIs to ensure that their foreign branches and subsidiaries observe AML/CFT measures consistent with home country requirements and the FATF Recommendations, to the extent that local (i.e., host country) laws and regulations permit.
- There is no requirement that, where the minimum AML/CFT requirements of the home and host countries differ, the branches and subsidiaries in host countries apply the higher standard.
- There is no requirement that investment companies, exchange companies, brokerage companies, insurance companies, or exchange organizations inform their home country supervisor when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures.

### Regulation, supervision and monitoring (Recommendation 23) (PC)
- Lack of a clear basis for the MOCI to supervise the insurance sector and the exchange organizations to ensure compliance with AML/CFT requirements.
- Lack of provisions related to the control by supervisory authorities of the ownership structure of FIs to prevent criminals and their associates from holding or being the beneficial owners of a significant controlling interest.
- Lack of ability for the CBK, MOCI, and KSE to apply fit and proper test on directors and senior management of investment companies, exchange companies, insurance companies, exchange organizations, and brokerage companies.
- No supervision of brokerage companies for compliance with AML/CFT obligations.
- The insurance sector and the exchange organizations are not effectively supervised for compliance with AML/CFT requirements.
- Low awareness by the FIs under the supervision of the MOCI of the AML/CFT requirements.

### DNFBP—regulation, supervision and monitoring (Recommendation 24) (NC)
- DNFBPs are not subject to effective systems for monitoring and ensuring compliance with AML/CFT requirements.
- Absence of a clear legal framework for monitoring and ensuring compliance of real estate agents or dealers in precious metals and stones.

### Guidelines & Feedback (Recommendation 25) (NC)
- Lack of guidelines for brokerage companies, insurance companies or exchange organizations.
- Limited guidelines on STR reporting provided by the CBK to relevant institutions.
- Lack of adequate and appropriate feedback from competent authorities.
- There is an insufficient amount of guidance by the CBK for FIs on how to implement and comply with their AML/CFT obligations.
- Lack of guidelines for DNFBPs to assist in implementing and complying with AML/CFT obligations.
- Lack of adequate and appropriate feedback from competent authorities to DNFBPs.

---

### 26–34: Institutions, enforcement, statistics, beneficial ownership

### The FIU (Recommendation 26) (NC)
- Absence of a clear legal basis for establishing the KFIU and providing it with its powers and functions.
- No clear guidance on filing STRs has been issued by the KFIU.
- Insufficient tactical, operational and strategic analysis of STRs and other related information.
- Absence of a legal basis to request additional information from FIs and DNFBPs.
- The KFIU is not authorized to disseminate financial information to domestic agencies for investigation or when there are grounds to suspect ML or TF.
- Inadequate operational independence and autonomy to ensure that the KFIU is free from undue influence or interference.
- Inadequate protection of information and premises.
- No publication of periodic reports.

### Law enforcement authorities (Recommendation 27) (PC)
- No autonomous or predicate TF offense as legal basis for investigative/compulsory measures.
- Overall, investigation and prosecution authorities do not appear to adequately pursue ML cases.
- Shortage of evidence as to the effectiveness of law enforcement authorities and the lack of statistics.

### Powers of competent authorities (Recommendation 28) (PC)
- No autonomous or predicate TF offense as a legal basis for investigative/compulsory measures.
- Shortage of evidence as to the effectiveness of law enforcement authorities and the lack of statistics.

### Supervisors (Recommendation 29) (NC)
- Lack of a clear basis and supervisory authority/powers for the MOCI to ensure compliance by the insurance companies and the exchange organizations with AML/CFT requirements.
- Lack of powers to monitor compliance and conduct inspections of the FIs subject to the MOCI’s control.
- The supervisory powers of the KSE to monitor and inspect are not adequate and lack a clear process.
- Lack of AML/CFT inspections of brokerage companies to monitor compliance.
- AML/CFT inspections on exchange organizations and insurance companies are limited in scope and are not effective.
- Lack of examinations procedures in place for the supervision of the insurance companies, exchange organizations, and brokerage companies.
- MOCI and KSE do not have adequate powers of enforcement and sanction against FIs, their directors, and senior management.
- The CBK’s power with respect to the revocation of licenses is dependent on the decision of the Minister of Finance.
- Lack of effectiveness.

### Resources, integrity, and training (Recommendation 30) (NC)
- Overall, the allocation of resources is uneven, particularly in view of the rapid development and diversification of the economy.
- Overall, professional standards, including confidentiality standards are not fully developed.
- Lack of specialist skills training in law enforcement authorities including prosecution agencies, FIU, supervisors (MOCI and KSE), and other competent authorities involved in combating ML/TF.

### National cooperation (Recommendation 31) (PC)
- Lack of effective mechanisms in place which enable the concerned authorities to coordinate domestically with each other concerning the development and implementation of policies and activities to combat ML and TF.
- Absence of coordination and mechanisms between the CCT members for the implementation of UNSCR 1267 and 1373.

### Statistics (Recommendation 32) (NC)
- Competent authorities have yet to develop comprehensive statistics in all relevant areas of the fight against ML and TF (including statistics on domestic investigations, prosecutions, property frozen, seized and confiscated, convictions, and on international cooperation, on-site examinations conducted by supervisors, and sanctions applied).
- Overall, there are no statistics available on formal requests for assistance made or received by supervisors, relating to or including AML/CFT.
- No evidence of reviews of effectiveness of Kuwait’s AML/CFT system.

### Legal persons–beneficial owners (Recommendation 33) (NC)
- Changes in ownership and control information of corporations are not kept up-to-date.
- Absence of adequate, accurate, and current information related to corporations that can be obtained in a timely fashion by competent authorities.

### Legal arrangements – beneficial owners (Recommendation 34) (N/A)
- Not applicable. There are no legal arrangements such as trusts in Kuwait.

---

### 35–40: International cooperation and other cooperation issues

### Conventions (Recommendation 35) (PC)
- Kuwait has not ratified the 1999 UNCSFT convention.
- Vienna and Palermo are not fully implemented:
  - Smuggling of migrants and terrorism financing are not predicate offenses for ML.
  - Criminal liability only applies to companies, and not to other legal persons.

### Mutual legal assistance (Recommendation 36) (LC)
- International cooperation in the area of search or seizure of property, proceeds or instrumentalities is slowed down, or hampered, as requests can be executed only when emanating from a competent “judicial” authority in another country.
- MLA not provided, in most cases, in a rapid manner.

### Dual criminality (Recommendation 37) (LC)
- Lack of clarity in internal Kuwaiti law as to manner in which it gives effect to Article 18, paragraph 9 of the Palermo Convention.

### MLA on confiscation and freezing (Recommendation 38) (LC)
- No value-based confiscation.

### Extradition (Recommendation 39) (LC)
- Impossibility of assessing the effectiveness of the extradition system in the ML/TF area.

### Other forms of co-operation (Recommendation 40) (PC)
- FIU is not able to exchange information with its counterparts.
- Lack of controls and safeguards to ensure that information received by LEAs is used only in an authorized manner.
- Outside the context of consolidated supervision:
  - International cooperation by the CBK is limited and the PPO’s approval is required.  The necessity for the CBK to go through the PPO in certain situations represents an undue restriction to sharing.
  - There is a lack of clear gateways for sharing by the CBK, except in criminal matters.
  - There is a lack of spontaneous sharing by the CBK.
  - There are secrecy constraints against the CBK sharing confidential information.
  - There is a lack of clear authority for the CBK to conduct inquiries for foreign counterparts without the authority of the PPO.
- International cooperation by the KSE is insufficient.
- For the MOCI and the KSE, there is a lack of:
  - clear gateways for international sharing;
  - proven spontaneous sharing;
  - proven ability to conduct inquiries for foreign counterparts; and
  - clear safeguards for maintaining the confidentiality of information.
- Lack of clear authority for competent authorities to share with regard to fiscal matters.
- Lack of clear prohibition against supervisors using information for unauthorized purposes.
- Lack of statistics and overall effectiveness.

---

### Nine Special Recommendations (SR.I–SR.IX)

### SR.I Implement UN instruments (NC)
- Kuwait is not party to and has not implemented the ICST Convention.
- Kuwait has not implemented the UNSCRs 1267 and 1373.

### SR.II Criminalize terrorist financing (NC)
- No specific provision criminalizing TF.

### SR.III Freeze and confiscate terrorist assets (NC)
- There is no law and procedure in place to implement UNSCRs 1267 and 1373, or to handle freezing requests from other countries.
- There is no authority responsible for the designations, or a legal basis for the freezing/seizing orders.
- Implementation of freezing orders, when it occurs, takes more than “a matter of hours.”
- No coordination mechanism in place for the implementation of UNSCRs 1267 and 1373.
- No communication mechanisms or guidance for institutions not subject to the CBK supervision.
- Lack of an appropriate review mechanism.
- Lack of clear monitoring and sanctioning procedures to verify implementation of freezing requests.
- No criminalization of TF.

### SR.IV Suspicious transaction reporting (NC)
- Due to the lack of an autonomous TF offense, there is no obligation in law or regulation for FIs to report to the FIU when they suspect or have reasonable grounds to suspect funds are related to, or are being used for, terrorism, terrorist acts, or by terrorist organizations or those who finance terrorism.
- There is no requirement in law or regulation for FIs to report attempted transactions, regardless of amount, when there are reasonable grounds to suspect those funds are related to, or are being used for, terrorism, terrorist acts, or by terrorist organizations or those who finance terrorism.

### SR.V International cooperation (NC)
- Lack of criminalization of TF.
- Impossibility to assess the effectiveness of the mutual legal assistance and extradition regimes relating to TF due to the limited number of cases.
- Lack of TF criminalization limits the ability to provide cooperation by all concerned authorities.
- Lack of overall effectiveness of the exchange of information relating to TF.
- Lack of statistics.

### SR.VI AML/CFT requirements for money/value transfer services (PC)
- Lack of effective system to identify and monitor a potential small informal money/value transfer system operating in Kuwait.
- The application of the FATF Recommendations to MVTS providers suffers from the same deficiencies identified in relation to the rest of the financial sector (see Sections 3.1 to 3.10 of this report).

### SR.VII Wire transfer rules (LC)
- The shortcomings identified under Recommendations 17 (sanctions) and 23 (monitoring and supervision) have a negative impact on this Special Recommendation. The applicable shortcomings include:
  - Lack of clear effectiveness of sanctions applied by the CBK; and
  - Lack of statistics regarding violations, penalties or the application of sanctions related to wire transfers.

### SR.VIII Non-profit organizations (PC)
- The association and foundations supervision regime is not comprehensive like the one in place for charities.
- Absence of requirement to maintain records for five years.
- Lack of outreach to the NPO sector.
- Sanctions for noncompliance with registration requirements are not effective and dissuasive.

### SR.IX Cross-Border Declaration & Disclosure (PC)
- Absence of requirement of the declaration system for outbound cross-border transportation of cash and bearer negotiable instruments.
- Absence of clear definition of bearer negotiable instruments.
- Absence of implementation of the system for outbound transportation of currency and bearer negotiable instruments.
- Lack of clear powers to request and obtain further information from the carrier with regard to the origin of the currency or the bearer negotiable instruments and their intended use.
- No specific powers to be able to stop or restrain currency and bearer negotiable instruments for a reasonable time in order to ascertain whether evidence of ML or TF may be found.
- Lack of proportionate sanctions for false disclosure, failure to disclose, or cross-border transportation for ML and TF purposes.
- Lack of requirement for the retention of records.
- The absence of criminalization of TF as autonomous or predicate offense will affect the effectiveness of the implementation of SR.IX.
- Insufficient statistics upon which to assess the effectiveness of the measures in place.

---

### Table 2 — Selected Recommended Action Plan (extracts)

### Criminalization and prosecution (2.1 & 2.2)
- Recommendation 1:
  - Effectively undertake prosecutions for ML also in cases where no prior conviction for the predicate offense has been obtained.
  - Criminalize the following categories of offenses: smuggling of migrants and terrorism financing.
- Recommendation 2:
  - Extend criminal liability to all legal persons, not just the companies licensed by the MOCI.
- Criminalization of Terrorist Financing (SR.II):
  - The authorities should criminalize TF in accordance with SR.II.

### Confiscation, freezing, seizing (2.3 & 2.4)
- Make provision allowing for 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. In particular, the authorities should adopt legislation that provides for the freezing of terrorist assets in the context of UNSCRs 1267 and 1373, and their respective successor Resolutions, and for the proper handling of freezing requests from other countries (including a specific procedure for the implementation of UNSCRs 1267 and 1373).
- Ensure that the implementation of the freezing orders takes place within “a matter of hours”
  - 137 It rather takes over two/three days under the current system.
- 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.

### Financial Intelligence Unit (2.5)
- Address the legal basis that established the KFIU as a national center 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 FIs and other reporting parties with guidance regarding the manner of reporting, including the procedures to be followed when reporting.
- Ensure that the KFIU (i) reinforce its access, on a timely basis to the financial, administrative and law enforcement information; (ii) request on regular basis additional information from reporting entities; (iii) enhance the quality of its STR operational and tactical analysis; and (iv) conduct strategic analysis.
- Protect the security of the information held by the KFIU and disseminate it in accordance with the law.
- Ensure that the KFIU publishes periodically annual reports, typologies and trends of ML/TF.
- Ensure that the KFIU periodically reviews the effectiveness of the system to combat ML and TF and improves its collection of statistics.
- Provide the KFIU with its own dedicated staff and supply it with the appropriate IT equipment and analytical databases to accomplish its mission. The staff should receive in-depth training on the core functions of the FIU.

*Source: _cr11268 - 18. Shell banks*

### 2.6     Law     enforcement,

### _cr11268 - 2.6     Law     enforcement,

### 2.6 Law enforcement, prosecution and other competent authorities (R.27 & 28)
- Take a more proactive approach to investigating and prosecuting ML and TF.
- Introduce an autonomous and predicate TF offense required to complete the AML/CFT regime.
- Ensure that law enforcement authorities keep comprehensive statistics on the amount of criminal proceeds seized and confiscated and on the number of ML/TF investigations, prosecutions, and judgments to measure the effectiveness and competence of the AML/CFT system.

### 2.7 Cross-Border Declaration & Disclosure (SR IX)
- Amend the AML Law to provide a clear legal basis for a declaration system when leaving the country and adopt a national strategic approach to detect the physical cross-border transportation of currency and bearer negotiable instruments. The system should apply to both incoming and outgoing transportation of currency and bearer negotiable instruments and should be extended to the shipment of currency and bearer negotiable instruments through cargo containers and the mail.
- Define clearly the term “bearer negotiable instruments” to include monetary instruments in bearer form such as: travelers cheques; negotiable instruments (including cheques, promissory notes, and money orders) that are either in bearer form, endorsed without restriction made out to a fictitious payee, or otherwise in such a form that title can pass upon delivery; and incomplete instruments (including cheques, promissory notes and money orders) signed, but with the payee’s name omitted.
- Take legislative steps to align the cross-border cash and bearer negotiable instruments powers to Customs to request and obtain further information from the carrier with regard to the origin of the currency or bearer negotiable instruments and their intended use in cases of suspicion of ML or TF and the temporary restraint measures, and the adequate and uniform level of sanctions.
- Provide Customs with the authority to stop or restrain cash or bearer negotiable instruments for a reasonable time in order to ascertain whether evidence of ML or TF may be found, where there is a suspicion of ML or TF; or where there is a false declaration.
- Enhance the exchange of information between the customs and the KFIU and create a database at the Customs to record all declared data related to currencies and bearer financial instruments.

### 3. Preventive Measures–Financial Institutions

#### 3.1 Risk of money laundering or terrorist financing
- (No discrete bullets in source; see subsequent sections for specific preventive measures.)

#### 3.2 Customer due diligence, including enhanced or reduced measures (R.5–8)
- There are significant shortcomings in Kuwait’s AML/CFT framework. This is due, in part, to the fact that a number of requirements that should be set out in primary or secondary legislation are addressed through OEMs or other lower-level texts.
- In most cases, the measures in place for customer identification are too general and lack the level of detail required under the standard. In addition, a number of CDD requirements are missing.
- The authorities should review Article 3 of Ministerial Resolution 9/2005 in order to clarify and make sure that no threshold is applied to undertake CDD measures regarding regular customers.
- Neither the AML Law nor Ministerial Resolution 9/2005 provide a definition of what constitutes beneficial ownership, creating a clear need for further clarification from regulators as to what is expected in the whole area of beneficial ownership.
- In order to address the shortcomings in the financial sector, it is recommended that the authorities establish, through primary or secondary legislation, clear requirements for FIs to:
  - Undertake customer due diligence (CDD) measures when:
    - Carrying out occasional transactions that are wire transfers in the circumstances covered by the Interpretative Note to SR.VII.
    - There is a suspicion of ML or TF, regardless of any exemptions or thresholds.
    - The FI has doubts about the veracity or adequacy of previously obtained customer identification data.
  - Identify and verify the identity of all types of legal persons, not only companies and institutions, using reliable, independent, data or information (identification data).
  - Verify that any person purporting to act on behalf of a legal person (not only for companies and institutions) is so authorized, and identify and verify the identity of that person.
  - Take reasonable measures to determine, for all customers, whether the customer is acting on behalf of another person; who are the natural persons that ultimately own or control the customer; and also those persons who exercise ultimate effective control over a legal person or arrangement.
  - Conduct ongoing due diligence on the business relationship.
- The authorities are recommended to establish, through law, regulation, or other enforceable means, clear obligations/requirements for FIs to:
  - Understand the ownership and control structure of the customers.
  - Verify the legal status of all legal persons.
  - Obtain information on the purpose and intended nature of the business relationship with regard to insurance companies and exchange organizations.
  - Obtain information on the intended nature of the business relationship with regard to banks, investment companies and brokerage companies.
  - Include the scrutiny of transactions undertaken through the course of that relationship to ensure that the transactions being conducted are consistent with the institutions’ knowledge of their customers, their business and risk profile, and where necessary, the source of funds.
  - Undertake reviews of existing records collected under the CDD process, particularly for higher-risk categories of customers or business relationships.
  - Ensure that documents, data, or information collected by insurance companies, exchange organizations, and brokerage companies under the CDD process are kept up-to-date and relevant.
  - Perform enhanced due diligence for higher-risk categories of customers, business relationships, or transactions.
  - Consider making a suspicious transaction report when FIs are unable to comply with Criteria 5.3 to 5.6.
  - Terminate the business relationship and make a suspicious transaction report when the business relationship has commenced and the FI is no longer satisfied with the veracity or adequacy of previously obtained identification data.
  - Require insurance companies, exchange organizations and brokerage companies to apply CDD requirements to existing customers on the basis of materiality and risk and to conduct due diligence on such existing relationships at appropriate times.
  - Lastly, authorities should ensure that the AML/CFT measures are effectively implemented by FIs, by ensuring an appropriate monitoring of the compliance of FIs with Kuwait’s AML/CFT measures and by imposing sanctions for failure to comply with these measures.

#### Recommendation 6
- The authorities should fully extend the requirements of Recommendations 6 to exchange companies, insurance companies, exchange organizations, and brokerage companies.
- The authorities should provide a definition of PEPs in line with the standards.
- Banks and investment companies should be required to: perform CDD measures and put in place appropriate risk management systems to determine whether a potential customer, a customer or a beneficial owner is a PEP; obtain senior management approval to continue a business relationship when a customer or beneficial owner is subsequently found to be, or subsequently becomes a PEP; take reasonable measures to establish the source of wealth of customers, and the source of wealth and the source of funds of beneficial owners identified as PEPs, and conduct enhanced ongoing monitoring when they are in a business relationship with a PEP.

#### Recommendation 7
- The authorities should require banks, exchange companies and investment companies to:
  - Gather sufficient information about the respondent institution to understand fully the nature of the respondent’s business and to determine from publicly available information the reputation of the institution and the quality of supervision.
  - Document the respective AML/CFT responsibilities of each institution.

#### Recommendation 8
- The authorities should fully extend the requirements regarding non-face-to-face transactions and new technologies to exchange companies, insurance companies, exchange organizations, and brokerage companies.
- All FIs in Kuwait should be required to have policies and procedures in place to address any specific risks associated with non-face-to-face business relationships or transactions. Measures should include specific and effective CDD procedures that apply to non-face-to-face customers, and should apply when establishing the customer relationship and when conducting ongoing due diligence.

#### 3.3 Third parties and introduced business (R.9)
- Introduce in law, regulation, or OEM the requirements set out in the FATF Recommendation 9, regulating the obligations that must be met by the third parties and the FI to allow such reliance.
- Require KCC to provide copies of identification data and other relevant documentation relating to CDD requirements without delay to the brokerage companies upon request.
- Introduce provisions for insurance companies in relation to business introduced by insurance brokers and agents, including requirements to:
  - Take adequate steps to satisfy themselves that copies of identification data and other relevant documentation relating to CDD requirements will be made available from the third party upon request without delay; and
  - Satisfy themselves that the third party is regulated and supervised and has measures in place to comply with CDD and record-keeping requirements.

#### 3.4 Financial institution secrecy or confidentiality (R.4)
- Permit sharing of information between CBK and foreign counterparts outside of the context of consolidated supervision and criminal cases.
- Provide for an efficient and effective mechanisms by which all domestic authorities can share, on a timely basis, the information necessary to perform their functions in combating ML and TF.

#### 3.5 Record keeping and wire transfer rules (R.10 & SR.VII)
- Establish, by law or regulation, the requirement to maintain records of the identification data, account files, and business correspondence for at least five years following the termination of an account or business relationship.
- Require FIs to extend the record-keeping requirement if requested by a competent authority in specific cases upon proper authority.
- Require FIs to ensure that all customer and transaction records and information are available on a timely basis to domestic competent authorities upon appropriate authority.

#### 3.6 Monitoring of transactions and relationships (R.11 & 21)
- Recommendation 11: Extend the requirements of Recommendations 11 to insurance companies, exchange organizations, and brokerage companies.
- Recommendation 21:
  - Fully extend the requirements of Recommendations 21 to exchange companies, insurance companies, exchange organizations and brokerage companies.
  - Establish effective measures to ensure that FIs are advised of concerns about the weaknesses of the AML/CFT systems of other countries.
  - Require FIs to examine transactions involving noncompliant countries that have no apparent economic or visible lawful purpose.
  - Apply appropriate counter measures to countries that continue not to apply or continue to insufficiently apply the FATF Recommendations.

#### 3.7 Suspicious transaction reports and other reporting (R.13, 14, 19, 25, & SR.IV)
- Recommendation 13 and SR.IV: STR Reporting
  - Establish in law or regulation that STRs be filed with the FIU.
  - Extend the requirement in law or regulation to file an STR with the FIU when the funds are suspected or have reasonable ground to be suspected to be linked or to be related to, or to be used for terrorism, terrorist acts, or by a terrorist organization or those who finance terrorism.
  - Extend the requirement in law or regulation to file an STR with the FIU to explicitly apply to attempted transactions.
  - Issue additional guidance on STR reporting.
- Recommendation 14: Protection for STR reporting/Tipping off
  - Prohibit brokerage companies, insurance companies, and exchange organizations from disclosing the fact that an STR or related information is being, or has been, provided to the competent authorities. The prohibition against the release of information regarding STR filings by the Board of Directors, managers, or employees of banks, investment companies, and exchange companies should be extended to include the FI itself.
- Recommendation 25: Feedback and Guidelines for FIs with respect to STR and other reporting
  - Issue clear guidance on STR reporting, and provide both specific and general feedback on STRs.

#### 3.8 Internal controls, compliance, audit and foreign branches (R.15 & 22)
- Recommendation 15: Internal policies and controls/screening, training, audit
  - Require FIs to communicate their internal procedures, policies, and controls to their employees. It should be required that the internal procedures, policies, and controls contain requirements on CDD, record retention, the detection of unusual transactions, and the STR reporting obligations.
  - Extend the requirement to establish internal procedures to brokerage companies.
  - Require banks and investment companies to ensure that the compliance officer or head of the compliance unit be at the management level.
  - Require exchange companies, brokerage companies, insurance companies, and exchange organizations to develop appropriate compliance management arrangements, including, at a minimum, the designation of an AML/CFT compliance officer at the management level.
  - Require all FIs to ensure that the AML/CFT compliance officer and other appropriate staff have timely access to customer identification data and other CDD information, transactions records, and other relevant information.
  - Require that the audit function of banks, investment companies, and exchange companies be adequately resourced and independent and perform sample testing.
  - Ensure that the varying requirements for banks, investment companies, and exchange companies for internal/external audits qualify as an adequately resourced and independent audit function to test for compliance with internal procedures, policies, and controls.
  - Require the brokerage companies, insurance companies, and exchange organizations to maintain an adequately resourced and independent audit function to test for compliance with laws, regulations and internal procedures, policies and controls with regard to AML/CFT.
  - Require the banks, investment companies, brokerage companies, insurance companies, and exchange organizations to put in place screening procedures to ensure high standards when hiring new employees.
  - Ensure that brokerage companies, insurance companies, and exchange organizations are implementing the requirements of the AML Law and Resolution 9/2005 regarding employee training. Such training should not only focus on understanding the laws, regulations and instructions in place, but should also focus on how various systems, sectors, and individual entities can be exploited for the purposes of ML and TF.
  - Ensure effective implementation by brokerage companies, insurance companies, and exchange organizations of requirements to:
    - Establish and maintain internal procedures, policies and controls to prevent ML and TF; and
    - Establish ongoing employee training to ensure that employees are kept informed of new developments, including information on current ML and TF techniques, methods and trends; and that there is a clear explanation of all aspects of AML/CFT laws and obligations, and in particular, requirements concerning CDD and suspicious transaction reporting.
- Recommendation 22: Application of AML/CFT measures to foreign branches and subsidiaries.
  - Fully extend the requirements of Recommendation 22 to exchange companies, insurance companies, exchange organizations, and brokerage companies.
  - Require banks and investment companies to ensure that their foreign branches and subsidiaries observe AML/CFT measures consistent with the Kuwaiti requirements and the FATF Recommendations, to the extent that host country laws and regulations permit.
  - Require the branches and subsidiaries in host countries to apply the higher standards where the minimum AML/CFT requirements of the home and host countries differ.
  - Require investment companies to inform their home country supervisor when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures because it is prohibited by host country laws, regulations, or other measures.

#### 3.9 Shell banks (R.18)
- Amend the CBK licensing requirements with a view to clearly prevent the establishment of shell banks in Kuwait.
- Require that banks seeking a license have and maintain a physical presence in the country in accordance to the FATF standard.
- Prohibit exchange companies from entering into, or continue correspondent relationships with shell banks.

#### 3.10 The supervisory and oversight system–competent authorities and SROs Role, functions, duties and powers (including sanctions) (R.23, 29, 17 & 25)
- Designate under the AML Law or its implementing resolution, the competent authorities with responsibility for ensuring that FIs adequately comply with the AML/CFT requirements and provide them with adequate powers of enforcement and sanction.
- Provide for an adequate range of sanctions (MOCI, KSE).
- Provide the legal basis for the MOCI to apply sanctions for noncompliance by the insurance sector and the exchange organizations with the AML/CFT provisions.
- Establish sanctions for directors and senior management of insurance companies, exchange organizations, and brokerage companies that fail to comply with the AML/CFT requirements.
- Provide the CBK with the sole power to revoke licenses for those FIs that fall under its supervision.
- Ensure that the supervisors, especially the MOCI and the KSE, use their sanctions powers effectively.
- Ensure that licensing requirements or other legal or regulatory measures prevent criminals or their associates from owning or controlling FIs and provide supervisory authorities with the ability to establish prudential controls over the 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 the legal basis for the MOCI to ensure compliance by the insurance companies and the exchange organizations with the AML legal framework. (supervisory powers to monitor and inspect)
- Provide the MOCI and the KSE with adequate powers to monitor and ensure compliance by FIs with the AML/CFT requirements.
- Ensure adequate and effective AML/CFT supervision of the securities sector, the exchange organizations and the insurance sector.
- Conduct AML/CFT inspections on FIs subject to the supervision of the KSE.
- Strengthen MOCI’s AML/CFT supervision, including thorough the development of standardized written procedures.
- Issue guidelines concerning AML/CFT requirements to all FIs. Such guidelines should be designed to assist FIs implementing effectively and complying with their respective AML/CFT requirements.

#### 3.11 Money value transfer services (SR.VI)
- Make efforts to determine the size and scope of the informal money/value transfer system operating in Kuwait and to effectively monitor this sector.
- Take action to address the deficiencies identified in relation to the implementation of the FATF Recommendations, as identified in sections 3.1 of this report in relation to MVTS providers.

*IMF staff report excerpt.*

### 4.       Preventive       Measures–Nonfinancial Businesses and Professions

### 4.       Preventive       Measures–Nonfinancial Businesses and Professions

### 4.1 Customer due diligence and record-keeping (R.12)
- Introduce requirements for DNFBPs related to PEPs, payment technologies, introduced business and unusual transactions. The effective implementation of the AML/CFT provisions should be ensured.
- Address the shortcoming identified with respect to Recommendations 5 and 10 in Section 3 of this report, as they also apply to DNFBPs. The effective implementation of the AML/CFT provisions should be ensured.

### 4.2 Suspicious transaction reporting (R.16)
- Fully extend the requirements of Recommendations 13, 15, and 21 to all DNFBPs operating in Kuwait.
- Prohibit DNFBPs from disclosing the fact that an STR or related information is being provided to the competent authorities.
- Ensure the effective implementation of the AML/CFT provisions by DNFBPs.

### 4.3 Regulation, supervision, monitoring, and sanctions (R.17, 24, & 25)
- Ensure that real estate agents, dealers in precious metals and stones, and lawyers are subject to effective systems for monitoring and ensuring compliance with AML/CFT requirements. They should consider conducting a risk assessment to determine the risk of ML or TF in each sector in order to determine the appropriate level of monitoring for each sector.
- Designate a competent authority or an SRO responsible for monitoring and ensuring compliance of real estate agents and dealers in precious metals and stones. This authority or SRO should have adequate power to perform is function, including powers to monitor and sanction in line with Recommendation 17 and 23, and sufficient technical and other resources to perform its functions.
- Establish guidelines to assist DNFBPs in implementing and complying with their AML/CFT obligations.

### 4.4 Other designated non-financial businesses and professions (R.20)
- Consider conducting a risk assessment as to the extent to which NFBPs are at risk of being misused for ML and TF.
- Consider applying Recommendations 5, 6, 8-11, 13-15, 17, and 21 to nonfinancial businesses and professions (other than DNFBPs) that are at risk of being misused for ML and TF.
- Continue to take measures to encourage the development and use of modern and secure techniques for conducting financial transactions that are less vulnerable to money laundering.

### 5. Legal Persons and Arrangements & Non-profit Organizations

### 5.1 Legal Persons–Access to beneficial ownership and control information (R.33)
- Update the DOC databases regularly and include all the information related to the changes in ownership and control information of corporations.
- Respond to requests from competent authorities in a timely fashion and include adequate, accurate, and current information on the beneficial ownership and control of legal persons.

### 5.2 Legal Arrangements–Access to beneficial ownership and control information (R.34)
- N/A.

### 5.3 Nonprofit organizations (SR.VIII)
- Apply AML/CFT requirements for charities to foundations and associations.
- Review the NPOs legislation to require NPOs to maintain, for a period of at least five years, and make available to appropriate authorities, records of domestic and international transactions that are sufficiently detailed to verify that funds have been spent in a manner consistent with the purpose and objectives of the organization.
- Conduct systematic on-site inspections of international projects to ensure that funds have been spent in a manner consistent with the purpose and objectives of the charities. A risk assessment of the projects could effectively enable the MOSAL to tailor the extent of such on-site inspections and the staffing of the missions.
- Although it is not a requirement under the standards, the FIU is encouraged to analyze the information that the NPOs are currently reporting when making international transfers.
- Outreach focused on raising awareness on the risks of terrorist abuse and the measures available to protect against such abuses should be directed to the entire NPO sector, including associations and foundations.
- Strengthen the sanctions for noncompliance with registration requirements to ensure that they are effective and dissuasive.

### 6. National and International Cooperation

### 6.1 National cooperation and coordination (R.31)
- Put in place effective mechanisms which enable the concerned authorities to cooperate, and where appropriate, coordinate domestically with each other concerning the development and implementation of policies and activities to combat ML and TF.
- Ensure as a matter of priority that the CCT play an enhanced role in the cooperation for the implementation of UNSCRs 1267 and 1373.
- Develop comprehensive statistics in the relevant areas of the fight against ML and TF (including statistics on domestic investigations, prosecutions, property frozen, seized and confiscated, convictions, and on international cooperation).

### 6.2 The Conventions and UN Special Resolutions (R.35 & SR.I)
- Take the necessary measures to fully implement the Vienna and Palermo Conventions (please refer to Section 2.1 for more details).
- Sign, ratify, and fully implement the 1999 International Convention for the Suppression of Terrorism Financing.
- Take the necessary measures to comply with and fully implement UNSCR 1267 and 1373 (and their successor resolutions) as recommended under SR.III.

### 6.3 Mutual Legal Assistance (R.36, 37, 38 & SR.V)
Recommendation 36:
- Ensure that cooperation in the AML/CFT area relating to 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, thus recognizing the differences in legal systems.
- Ensure the handling of MLA requests in a rapid, constructive, and effective manner.

Recommendation 37:
- Adopt provisions in Kuwaiti law that contains some details about the manner in which the authorities implement paragraph 9 of Article 18 of the Palermo Convention.

Recommendation 38:
- Adopt legislation which specifically allows (nationally and at the request of another country) for value-based confiscation.

SR.V:
- Adopt legislation that specifically criminalizes TF.
- Ensure the handling of MLA requests in TF cases in a rapid, constructive, and effective manner.

### 6.4 Extradition (R. 39, 37 & SR.V)
- Kuwaiti’s extradition regime is largely based on the relevant international conventions to which Kuwait is a Party and the bilateral agreements concluded by Kuwait and appears compliant with the standards. However, while the assessment team acknowledges that Kuwait cannot control the number of extradition requests it receives, it remains a fact that the effectiveness of the system cannot be properly assessed as there was only one case relating to ML and no case relating to TF.
- The lack of an explicit provision criminalizing TF remains a cause of concern and is an obstacle to an effective extradition regime in the CFT area.

### 6.5 Other Forms of Cooperation (R. 40 & SR.V)
- Empower the FIU to exchange information with its counterparts.
- Establish controls and safeguards to ensure that information received by LEAs is used only in an authorized manner.
- Provide for an efficient and effective mechanism by which the CBK, the MOCI and the KSE can share ML and TF information with international counterparts. Requests for cooperation should not be refused on the grounds of laws that impose secrecy or confidentiality requirements on FIs and DNFBPs, and should not be subject to disproportionate or unduly restrictive conditions. The mechanism should include:
  - The provision of the widest range of international cooperation to their foreign counterparts in a rapid, constructive and effective manner;
  - The ability to exchange information spontaneously and upon request in relation to both ML and the underlying predicate offenses;
  - A clear legal framework to conduct inquiries on behalf of foreign counterparts; and
  - Controls and safeguards to ensure that information received by competent authorities are used only in an authorized manner consistent with national provisions on privacy and data protection.
- Maintain statistics on the number of requests for assistance made or received by law enforcement authorities, the FIU and supervisors, including whether the request was granted or refused and the response time.

### 7. Other Issues

### 7.1 Resources and statistics (R.30 & 32)
- Allocate more resources to the competent authorities.
- Develop professional standards, including confidentiality standards to control and safeguard the information.
- Provide specialized training to the staff of competent authorities.
- Develop comprehensive statistics in all relevant areas of the fight against ML and TF (including statistics on domestic investigations, prosecutions, property frozen, seized and confiscated, convictions, and on international cooperation, on-site examinations conducted by supervisors, and sanctions applied).
- Regularly review the effectiveness of the AML/CFT system.

### 7.2 Other relevant AML/CFT measures or issues
- (No specific bullet points in source text.)

### 7.3 General framework – structural issues
- (No specific bullet points in source text.)

### Annexes (selected items referenced)
- Annex 1: Details of All Bodies Met During the On-Site Visit (listing 1.–12. with sub-items a.–f.).
- Annex 2: Copies of Key Laws, Regulations, and Other Measures, including "Law No 35 of 2002 For Combating Money Laundry Processes" (full text excerpts in source).

- Key statutory provisions from Law No 35 of 2002 (selected articles as presented):
  - Article 1: Defines "Money Laundry process" and scope.
  - Article 2: Defines "Money laundry convict" and conduct constituting the offense.
  - Article 3: Obligations for banks, investment companies, institutions, insurance companies and other financial corporates and persons defined by resolution from minister of finance, including:
    - Do not keep any unidentified accounts or accounts with fake or code names or open any of these.
    - Verify the ID of their customers upon official documents issued from competent authorities in the state.
    - Maintain all documents and papers related to national and international transactions including copies of the customers' ids for at least 5 years from the date of transaction completion.
    - notifying any suspicious financial transaction
    - Adopt a policy to train officers and personnel to insure they are aware and updated in the field of money laundry.
    - Adopt work procedures and internal audit systems enough to detect any of such processes upon occurrence and prevent using them in passing suspicious transactions.
  - Article 4: Obligates persons entering Kuwait to notify customs authority of possessions of national or foreign currencies or gold alloys or any other valuable items pursuant to rules issued by the minister of finance.
  - Article 5: Public prosecutor shall define the competent authority within public prosecution to receive reports about money laundry processes.
  - Article 6: Penalties for crimes under Article 2 — imprisonment for period not more than 7 years and a fine not less than half the value of subject amounts, and not more than the full value of these funds, and confiscation.
  - Article 7: If crime is through an organized group or using authority or power, imprisonment sanction in Article 6 shall be doubled and fine to be not less than the value of subject funds and not more than double their value, and confiscation.
  - Article 8: Public prosecutor may order to pan the convict from disposing his money in part or in full till penal procedure is settled; court procedures for claims described.
  - Article 9: Penal claim shall not expire for crimes set forth in article 2 occurring after effective date; sanctions shall not expire; Articles 81 and 82 from penal code shall not apply.
  - Article 10: Court may discharge from sanctions in Articles 6 and 7 if convict notified competent authorities with this crime and criminals thereof before perpetration.
  - Article 11: Penalties for failure to report under Article 3(4) — imprisonment not more than 3 years and a fine not less than 5000 KD and not more than 20000 KD or both, with job discharge. Fine for default in any liabilities in Article 3 up to 1000000 KD.
  - Article 12: Corporate liability — company fined not more than 1000000 KD if crime was for its interest or in its name; possible cancellation of business license; confiscation and publication requirements.
  - Article 13: Violation of Article 4 — imprisonment not more than 1 year and fine not more than 1000 KD or both.
  - Article 14: Immunity for bona fide reporters from criminal, civil and administrative liability.
  - Article 15: Minister of finance may define an award for persons who guide or facilitate detention of money laundry transactions.
  - Article 16: Public prosecution shall alone investigate, dispose and prosecute reports related to crimes set forth in this law; criminal court is competent authority.
  - Articles 17–19: International cooperation and execution of foreign confiscation rulings subject to bilateral agreement or reciprocity; procedures and court processes described.
  - Article 19–20: Minister of finance issues procedural rules; ministers and prime minister to apply the law.

*Source: _cr11268 - 4.       Preventive       Measures–Nonfinancial Businesses and Professions*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11268.pdf_