International Narcotics Control Strategy ReportInternational Narcotics Control Strategy Report -2003
Released by the Bureau of International Narcotics and Law Enforcement Affairs
March 2004
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Kuwait
Kuwait is not a major regional financial sector; it has seven commercial banks and one Islamic bank, all of which provide traditional banking services comparable to those of Western-style commercial banks. Kuwait also has two specialized banks, the Real Estate Bank of Kuwait and the government-owned Industrial Bank of Kuwait, that provide medium and long-term financing. Regulators do not believe that money laundering is a significant problem, and most laundered funds are generated as a byproduct of local drug and alcohol smuggling. Funds and assets generated by criminal activity are subject to forfeiture.
On March 10, 2002, the Emir (Head of State) of Kuwait signed Law No. 35, which criminalizes money laundering. The law stipulates that banks and financial institutions may not keep or open any anonymous accounts or accounts in fictitious or symbolic names and banks must require proper identification of regular and occasional clients. The law also requires banks to keep all records of transactions and customer identification information for a minimum of five years, perform training and establish internal control systems, and report any suspicious transactions. Currency smuggling is also outlawed.
Law No. 35 designates the Public Prosecution Department (PPD) as the sole authority to receive reports on money laundering operations, and to take the necessary actions. Reports of suspicious transactions are referred from PPD to the Central Bank’s financial intelligence unit (FIU) for analysis. The law provides for a penalty of up to seven years’ imprisonment in addition to fines and asset confiscation. The penalty is doubled if an organized group commits the crime, or if the offender took advantage of his influence or his professional position. The law includes articles on international cooperation, and on monitoring cash and precious metals transactions. Provisions of Article 4 of Law No. 35 state that every person shall, upon entering the country, inform the customs authorities of any national or foreign currency, gold bullion, or any other precious materials in his/her possession valued in excess of Kuwait dinars 3,000 (about $ 10,000). There are no similar reporting requirements for outbound currency or precious metals.
The law authorizes the Minister of Finance to set forth the resolutions necessary to ensure its implementation. The Minister of Finance can issue resolutions to enhance combating money laundering operations without the need to amend the legislation. Moreover, banks and financial institutions may face a steep fine (approximately $3.3 million) if found in violation of the law.
In addition to Law No. 35, anti-money laundering reporting requirements and other rules are contained in the Central Bank of Kuwait’s (CBK’s) instructions no. (2/sb/92/2002), which took effect on December 1, 2002, superseding instructions no. (2/sb/50/97). The revised instructions provide for, inter alia: customer identification and the prohibition of anonymous or fictitious accounts (articles 1-5), the requirement to keep records of all banking transactions for five years (article 7), electronic transactions (article 8), the requirement to investigate transactions that are unusually large or have no apparent economic or lawful purpose (article 10), the requirement to establish internal controls and policies to combat money laundering and terrorism finance, including the establishment of internal units to oversee compliance with relevant regulations (article 14 and 15), and the requirement to report to the CBK all cash transactions in excess of KD3,000 (article 20). A detailed appendix to the instructions has guidelines to help bank employees identify suspicious transactions.
In September 2002, insurance companies, exchange bureaus, gold and precious metals shops, brokers in the Kuwait Stock Exchange, and all other financial brokers, were placed under the supervision of the Ministry of Commerce and Industry. Such sectors must abide by all regulations concerning customer identification, record keeping of all transactions for five years, internal control systems, and the reporting of suspicious transactions.
In addition, CBK issued circular no. (2/sb/95/2003) in 2003, which was directed toward money changing companies and which contained similar instructions with respect to combating money laundering and suspicious activities reporting guidelines. A similar order (31/2003) was issued by the Kuwait Stock Market to all companies under its jurisdiction.
Kuwait’s one Islamic bank, Kuwait Finance House (KFH), is licensed and supervised by the Ministry of Commerce and Industry, which apparently does not examine KFH’s books. KFH does, however, produce annual audited financial reports. The CBK will take over supervision of KFH in 2004.
Following the September 11, 2001, attacks against the United States, certain Islamic charity organizations such as the Revival of Islamic Heritage Society (RIHS) and its subsidiary, the Afghan Support Committee (ASC), which operate from Kuwait and have branches in Pakistan and Afghanistan, were suspected of providing funds to al-Qaida. U.S. authorities have designated the branches in Pakistan and Afghanistan as being used to funnel funds to terrorist organizations. There is no indication that such activities occurred with the knowledge of the Kuwaiti head office, which thus remains undesignated.
In August 2002, the Kuwaiti Ministry of Social Affairs and Labor issued a ministerial decree to create a Department of Charitable Organizations. The primary responsibilities of the new department are to receive applications of registration from charitable organizations, monitor their operations, and establish a new accounting system to insure that such organizations comply with the law both at home and abroad. The Department has established guidelines explaining how charities must collect donations and finance their activities. The new Department is also charged with conducting periodic inspections to insure that they maintain administrative, accounting, and organizational standards according to Kuwaiti law. However, in February 2003, a prominent member of the Kuwaiti ruling family, who also held positions with the Cabinet, accused some Islamic movements in the country of financing terrorist acts in Kuwait earlier that year. He warned of the existence of unlicensed charitable associations and organizations in the country, which had infiltrated the Parliament, and go unsupervised by the authorities.
On June 23, 2003, the Central Bank of Kuwait issued resolution no. 1/191/2003 establishing the Kuwaiti Financial Intelligence Unit (KFIU) as an independent entity within the Central Bank. The goals of KFIU are to receive and analyze reports of suspected money laundering from the public prosecution department, to establish a database of suspicious transactions, to conduct anti-money laundering training, and to carry out domestic and international exchanges of information in cooperation with the PPD. KFIU has a staff of seven.
Several cases have been opened under Law No. 35. but the majority of them were closed after investigations did not disclose prosecutable offenses. Only two cases have gone to courts, where they were under litigation at year’s end. The cases reportedly involve money smuggling and failure to report currency transactions, and do not involve banks.
The 2002 law on money laundering does not cite terrorist financing as a crime; however, the definition of criminal activity is broad. Kuwait established a national committee to follow up on all issues concerning terrorism. Two terrorist suspects were charged in late 2002 with “gathering funds for, and financing the establishment of, military training camps abroad.”
The Gulf Cooperation Council represents Kuwait on the Financial Action Task Force (FATF). Kuwait is a party to the 1988 UN Drug Convention. It has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Kuwait should become a party to the UN International Convention for the Suppression of the Financing of Terrorism.
Kuwait is making progress in enforcing its domestic anti-money laundering program. The passage of the CBK’s anti-money laundering clarifying instructions represents a significant step forward. However, KFIU needs to gain experience in dealing with suspicious transactions. The KFIU also needs to assemble and automate various financial databases. Kuwait should also make outbound currency and precious metals declarations mandatory. More interagency cooperation and coordination between KFIU and other concerned parties could yield significant improvements in proactive investigations and international information exchange. A specific counterterrorism finance law should also be enacted.
