Lawyers Association Seminar Discussed Dimensions of the Commercial Concealment Law and Its Implications
Former Minister of Justice and professor of criminal law at the College of Law, Kuwait University, lawyer Dr. Muhammad Bozbar, stated that “the use of the term ‘counter’ by the Kuwaiti legislator in the new decree-law concerning commercial concealment reflects the scale of the phenomenon, and that we are dealing with a major issue when measured against subsequent and prior laws, such as those combating drugs and corruption. Consequently, the weight of this law stems from the use of the word ‘counter’.”
Dr. Bozbar clarified, in his remarks during a discussion session organized by the Kuwait Lawyers Association under the title “The Commercial Concealment Law... A Technical and Legislative Perspective,” that “the meaning of concealment, as outlined in the context of this law, is stated clearly and at length. First, no person is permitted to engage in commercial activity without a license, which is a matter already settled in commercial law and commercial regulations. However, the law further specifies that, based on the license you have obtained, you must not enable others who are unqualified or unable to obtain such licenses within the legal frameworks prescribed by law. This is what we know in Kuwait as ‘inclusion’ (tadmeen), or what we refer to in Kuwaiti law as ‘empowerment’ (tamkin).” In other words, you must not allow others to use your license to conduct business and generate profits from it; this is the apparent intent of this law.
He added: “Accordingly, there is a licensed individual who is necessarily a Kuwaiti citizen, as non-citizens do not have the primary natural eligibility for licensing, apart from direct investment, which is a completely different subject. There is also the concealer, who may be a foreigner or a Kuwaiti. Newspapers have reported that the law includes Kuwaitis. A Kuwaiti employee is entitled to obtain a license but is not permitted to manage it. This issue has thus raised questions. We know that when a law is enacted, it must be general and abstract. Therefore, we have two distinct parties, and there must be a scope in which this activity is conducted in a concealed manner.”
Bozbar pointed out that the aspect that caught his attention and prompted him to speak on this matter was the stipulated penalties. He noted that the ultimate purpose of this law is to serve as a supplementary criminal law that complements the provisions of the Penal Code. Expressing respect and emphasizing that there should be no negligence toward those responsible for its implementation, he added, “It is worth noting that this law emerged suddenly, without us having seen a draft or a white paper to gauge opinions prior to its issuance. Nevertheless, the law was issued in this form, addressing serious penalties not exceeding three years, which falls within the category of misdemeanors, as well as substantial financial penalties, imposing fines starting from 10,000 dinars and reaching up to 100,000.”
He stated that “the Kuwaiti legislator has continued its recent approach of incorporating the liability of legal persons into criminal laws. Previously, we only saw this in anti-money laundering laws specifically, but it has now begun to be applied more broadly across other legislation.”
He also highlighted the incentive mechanism employed by the law, which encourages reporting. He explained that this represents a new approach by the legislator, given its use of the concept of “counter.” Thus, it was necessary to provide an opportunity for society to participate in the reporting process and enable it to reach violators. To this end, a reward of up to 10% of the collected fines is allocated in cases of conviction.
He clarified that the legislator, within the framework of the anti-hiding concept, is fully aware that the issue under discussion has long been ingrained in Kuwaiti society, with a large number of people involved and no household without a story of this kind. Consequently, it was understood that there must be room for reconciliation and settlements before applying such a law, whether before initiating legal proceedings, during their course, or before a verdict is issued, provided there is disclosure of the hiding arrangement and the nature of the amounts collected. Upon reconciliation, penalties will be imposed on the offender, which will not be free but will carry a value set by the legislator as an additional penalty in this context, without excluding the application of administrative measures against foreigners if they are the ones hiding the commercial activity.
Buzaber outlined his views on several key points that the law may have omitted, either willingly or by oversight. The first is the omission of companies with a hidden nature, specifically the *musha’a* (partnership) company. The Companies Law, whether the old version from the 1980s or the 2016 law, clearly stipulated a range of business projects and company types, including the *musha’a* company. As its name implies, every person has a share; it is a company with a hidden nature that does not possess an independent legal personality, despite being licensed. He questioned whether this law applies to this widely prevalent type of company in Kuwait.
He emphasized that the law’s preamble, which references the Companies Law, provides justification that the legislator reviewed all contents of the Companies Law and took them into account. He likened the *musha’a* company to “an iceberg where what is visible above the surface is smaller than what lies beneath,” expressing surprise at the simplistic approach to dealing with it without clearly and explicitly addressing its concept in criminal matters, and whether it falls under the punishable offense of hiding. He stressed the necessity of finding a solution for it through executive regulations or decisions issued by the Minister of Commerce at a later stage.
He continued: “The second point is the issue of reporting. Opening the door for everyone to report companies could pose a significant problem and lead to disputes on a family level regarding the resolution of family conflicts.” He pointed out that the legislator, in Article 132 of the Penal Code, and previously in Article 49 (which was annulled by the Constitutional Court), granted immunity to parents and first-degree relatives in cases of concealment, out of concern for the family. However, this new law opens the door to reporting without considering the vast number of companies managed within the framework of family businesses.
Buzaber noted that the reward value of 10% of fines is considered very high, compared to the reporting allowance in the Anti-Corruption Authority, which leaves the determination of its percentage or fixed amount to the Board of Directors without a written statutory percentage. He asked: “Will the whistleblower here enjoy protection and a secure channel as is the case in the Anti-Corruption Law?” He affirmed the importance of this point to ensure the seriousness of reporting with the lowest social cost in family businesses and *musha’a* companies.
In the third point, Dr. Buzaber observed that “the six-month period prescribed for implementing the law and regularizing affairs is insufficient in the view of market players, given the volume of companies and the requirements needed for reorganization, such as obtaining licenses, restructuring bank accounts, and lease agreements. I believe it is neither sufficient nor adequate,” noting that combating such a large-scale issue requires more time.
He added: “As for the fourth point regarding the overlap with anti-money laundering laws, Article 8 allows the Minister to open the door for reconciliation upon the submission of a voluntary disclosure.” He questioned the classification of financial proceeds from illegal activities in such cases, which may fall under the Money Laundering Law given that their source is illegal.
He also asked: Is there voluntary protection and additional protection under Article 8 for those who disclose, ensuring they are not prosecuted for managing illicit funds after reconciliation and disclosure? He called for complete clarity on this matter.
In the fifth point, he highlighted the individualization and proportionality of penalties for the de facto manager, noting a problem regarding the article on de facto management: whether the de facto manager can be punished with the same penalty as the concealer—three years’ imprisonment and fines up to 100,000—in the event of failing to fulfill his responsibilities and duties.
Bouzbour expressed concern that a concealer might withdraw the de facto manager, even if the latter is acting in good faith or is unaware. The problem is that the article may subject him to the same severe penalty under the pretext of dereliction of duty. He stressed the lack of proportionality between the penalty for the concealer and that for the person called upon to assume de facto management. There are calls for penalties to be proportionate to the principles observed in penal laws, requiring the presence of knowledge, intent, and will.
He hoped that within the six-month period, regulatory bylaws would be issued, with a review of penalties and consideration of graduated punishment. We will await the outcomes of practical application and review the matter.
He outlined a roadmap to correct the course, which includes, first, proposed solutions and alternatives: penalties would be addressed by amending Article 5 to ensure individualized punishment, so that the penalty for the de facto manager corresponds to the degree of his contribution and criminal intent, distinguishing between intentional acts and administrative error. Second, a “safe harbor” through the adoption of a voluntary disclosure system shielded from money laundering prosecution, and extending the reconciliation period to one full year starting from the issuance of the executive bylaws. Third, protecting the family fabric by restricting the scope of the financial reward in Article 9 to exclude relatives up to the fourth degree, preventing the law from being exploited to settle family accounts. Fourth, exempting partnerships by adding explicit legislative text that excludes partnership companies and closed family arrangements from the scope of absolute criminalization, respecting their legal nature.
For his part, Mohammed Al-Baghl, head of the Economics Department at Al-Jarida, said that any new legislation must have a specific philosophy, i.e., purposes, objectives, and outcomes. If the law is economic in nature, one of its objectives should be to address structural imbalances in the Kuwaiti economy, such as correcting labor market distortions by creating jobs, businesses, and small projects that encourage work outside the government sector, which has become a burden on the state budget and wastes the efforts, innovations, and initiatives of Kuwaiti youth through bureaucracy and disguised unemployment exceeding 83 percent in the public sector.
Al-Baghl added that it is important for the law, given its economic nature, to create jobs and services that raise the volume of GDP, noting that the share of small and medium-sized projects is currently below 3 percent. If measured against those actually engaged in the workforce, this share may not reach half a percent of the economy’s size. Furthermore, it must be considered whether the law will provide the public treasury with non-oil revenues, such as fees or, later, taxes, or whether it will provide technology, attract foreign investment, or stimulate domestic investment.
He stressed that when a law addresses structural imbalances, it is possible to predict whether it will be beneficial to the economy even before its implementation, because the success of any project, law, or economic measure is linked to the extent to which it addresses structural imbalances in the Kuwaiti economy.
Al-Baghl added that another matter linked to this law concerns its timing. During crises and wars, such as the ones we are witnessing on the regional scene involving geopolitical tensions, Iranian aggression against Gulf Cooperation Council (GCC) countries, the closure of the Strait of Hormuz, and the impact on supply and trade flows, economic policies tend to be facilitative. Consequently, one observes changes in decisions in many countries during periods of crisis and war, and even in tense situations, including leniency in lending to businesses, postponement of payments and rents, and tolerance toward activities, as well as flexibility in changing purposes from luxury items to goods and consumer and industrial products that the market needs. Sometimes, ordinary or administrative violations related to labor or permits, among others, are overlooked. This does not, however, imply tolerance for serious violations such as monopoly, commercial fraud, or human trafficking.
Al-Baghl clarified that the priority in current circumstances, especially given the supply shock resulting from the closure of traffic in the Strait of Hormuz, is to ensure the availability of goods and products in the market. The economic or commercial wheel must keep turning; therefore, it is natural that it requires flexibility and adaptation to new conditions. He pointed out that a flexible approach to market needs does not mean accepting errors, but rather facilitating commercial movement and choosing the appropriate timing for implementation.
Al-Baghl considered that discussing the importance of the anti-concealment commercial law in raising Kuwait’s rating by the Financial Action Task Force (FATF), noting that concealment confuses the supervisory landscape in dealing with the actual person behind the activity, is a valid argument. However, it leads us to address the cause rather than the result. The cause here is the difficulty some groups face in accessing the market to engage in direct and full commercial activity, such as expatriates or Kuwaiti public sector employees.
He stated that addressing the cause is fundamental to enhancing transparency in market transactions. This requires opening the door for residents to conduct business without the need for partnership. Notably, the Foreign Investment Law allows foreigners outside Kuwait to own a company with 100 percent ownership, whereas the Kuwaiti Companies Law caps resident ownership at 49 percent. It is here that stories of concealment arise.
He added that concealment is also linked to Kuwaiti citizens, specifically government employees who, facing a difficult business environment characterized by high rents, difficult financing, and entrenched bureaucracy, find no incentives to leave government jobs for self-employment.
He emphasized that addressing the cause rather than the result, and having incentives in laws rather than just penalties, is what enhances the efficiency of the economic landscape. He considered that those registered under Chapter Five, i.e., business owners, have been more exposed to shocks in their commercial activities due to the repercussions of the “corona” crisis, extending to the regional war in the area. Unfortunately, most activities and opportunities are offered to large companies and do not reach entrepreneurs in small and medium-sized businesses, whether in terms of state-owned markets or land.
He stressed the need for a clear clarification of the difference between concealment activities prohibited under the anti-concealment commercial law and muhasasa (silent partnership) companies permitted under the Commercial Companies Law, so that those complying with one law do not fall under the penalties of another. He explained that many companies dealing in spare parts, tires, food, and other goods are muhasasa entities, and it is important to clarify the legality of their activities under the new law.
He called for the establishment of a mechanism to protect business operators from the risk of malicious reports, emphasizing that it is essential for anyone engaged in business activities, partnerships, or relationships with others—whether citizens or expatriates—to be assured that the provision offering a financial reward of up to 10 percent to whistleblowers on commercial concealment crimes will not lead to a proliferation of malicious reports among competitors, business rivals, or even personal adversaries. He stressed the need for a mechanism that prevents and penalizes those filing malicious reports, as well as for clarifying the extent to which the commercial concealment law applies to professionals governed by specific legislation, such as engineers, doctors, lawyers, and others.
Al-Baghl called on the Minister of Commerce and Industry, along with his legal and technical team, to hold transparent and open meetings to explain the Anti-Commercial Concealment Law, clarify who it applies to, its scope, how to avoid violating its provisions, and the mechanisms for regularizing situations. He also urged the ministry to address the potential economic and commercial implications of implementing the new law, particularly for entities providing basic services such as plumbing, ironwork, and car repair, or regarding potential increases in labor costs. He underscored the importance of publishing draft laws before their approval to allow experts to discuss them and offer opinions and comments, thereby contributing to improving their quality.
For his part, former Deputy Director of the National Fund for the Care and Development of Small and Medium Enterprises, Eng. Fares Al-Anazi, strongly endorsed the issuance of the law, stating, “We have been very late in implementing economic reforms, but I remain optimistic. As the saying goes, ‘It is better to come late than never.’”
He added that there is no doubt that commercial concealment, or the market for hidden subcontracting, poses a significant threat to many entrepreneurs, initiative-takers, and those interested in entering the commercial sector. He noted that the situation in Kuwait specifically is distorted and harmful, unlike in most economically advanced countries.
He argued that for the picture to be clearer, it is illogical for a single nationality to dominate certain commercial activities.
He pointed out that there are undoubtedly negative accumulations, which he believes have persisted for over 40 years, but the new legislation leaves the previous phase behind and offers a better path.
He highlighted that the current reality of commercial activity and the economic situation is very important. He urged leaving behind these staggering figures, speaking in terms of numbers, as they are clear: out of 300,000 to 400,000 Kuwaitis, 90 percent of Kuwaiti workers in this figure are employed in the public sector, while the percentage of Kuwaitis working in the private sector of all kinds does not exceed 4 percent.
He considered that “with this law, there is a great opportunity for Kuwaiti youth to enter the labor market today. Many entrepreneurs wished to engage in certain activities but were unable to do so because of the dominance of other nationalities.”
He added, “But I believe this law will contribute significantly to providing real job opportunities and a genuine market, because the current situation is wrong. It is incorrect to call it ‘concealed.’ Some Gulf countries have preceded us in this matter, and thank God, this issue has been addressed, as it will create opportunities for those who are serious.”
For his part, Nafe Al-Mutairi, a member of the board of directors of the Kuwaiti Association for the Defense of Public Funds and a lawyer, stated that the legislator intervened by enacting laws and provisions to combat commercial concealment, aiming to protect and preserve the structure of the national economy and confront a long-standing, complex phenomenon that has persisted for more than 50 years. He simultaneously emphasized the necessity of achieving a balance between oversight and the freedom of the banking sector, which represents the main artery of the economic sector.
Al-Mutairi noted that banks serve as the primary engine of the economy through the credit and commercial facilities indispensable to any store or business venture. They provide loans and guarantees, serving as a barometer for the national economy via the banking sector.
He emphasized that the bank is the vital artery in this regard, providing numerous services that stores cannot do without; indeed, a store might not even survive without banking services. This includes cash flow management, safeguarding funds, and measuring the national economy through banks. Consequently, the legislator has dedicated thousands of laws and regulations to protect this sector.
He pointed out that commercial banks bear corresponding obligations under this law. They have a positive duty to scrutinize and investigate the existence of concealment crimes before providing such banking services. This responsibility falls on them based on the documents, activities, and requests for banking facilities and other services they receive. Since they offer many such services—such as overdrafts, letters of guarantee, and facility contracts that take the form of consumer loans—banks must examine these documents to determine whether a concealment crime is involved.
He questioned whether these funds were obtained through loans or credit facilities from the bank, noting that these regulations cast a shadow over such transactions. Investigators, the government, or the authority responsible for enforcing the law may confiscate such money. He further asked: What is the bank’s position if the capital it provided to the investor has already been withdrawn?
He also addressed another issue: the management or the authority responsible for enforcing the law may seize or confiscate the profits accrued from the loan under this law. This creates a commingling of the funds provided by the bank and the profits, meaning the bank’s contribution effectively goes to the investor.
Al-Mutairi stated that the law enforcement authority may confiscate equipment, machinery, and all assets the store has acquired to conduct its commercial operations. If there are debts attached to this equipment or if there are shares involved, these can be recovered. These items constitute one of the elements subject to confiscation by the judicial police officer.
There is also a potentially more critical issue: one of the supplementary penalties is the closure of the store. If the store is closed, what guarantee is there for continued cash flow to enable the store to repay the bank?
Furthermore, the bank, as an institution or legal entity, is subject to this law, and the legislator has prescribed penalties for it. Additionally, the manager, chairman of the board, or the branch manager responsible is also subject to the law and may face penalties.
The ultimate conclusion of this point is that money is the lifeblood of society. If this money faces such obstacles in its circulation, many investors may hesitate to deposit funds in economic institutions like banks. This would lead to a decline in profits and cash flows. Since part of the capital has been subject to this law, it has been withdrawn from the market and transferred to the state treasury.
