"Commercial Concealment" Encircles the Phenomenon of "Underwriting"
Since the issuance of the “Combating Commercial Concealment” decree, questions have arisen regarding the repercussions of its implementation six months after its publication in the Official Gazette. This has prompted some business owners in Kuwait to review their legal structures and rectify their licensing and registered activities to avoid legal accountability once the law takes effect. Meanwhile, other entities are considering winding down their operations and entering the liquidation phase, particularly those that do not comply with the requirements, most notably the disclosure of the beneficial owner.
Economic and legal experts defined commercial concealment to “Al-Rai” as enabling an unlicensed individual to conduct economic activity for their own account, or using a commercial license or trade name that does not reflect the true identity of the actual owner or manager of the activity. This creates a gap between official data and the actual management and control of the enterprise, a phenomenon known as “Tadmeen,” which the law addresses in its provisions.
Experts warned against the risks of hiding the beneficial owner or allowing commercial licenses to be used in a manner that does not reflect reality. They clarified that commercial concealment is not limited to the traditional practice of renting out commercial licenses for monetary fees; it also includes cases where the activity is managed by a party other than the license holder, obtaining a license in one person’s name to enable another to conduct the activity, or engaging in business activities different from those specified in the commercial license.
The law includes a mechanism to incentivize the disclosure of commercial concealment crimes. It grants non-perpetrators who help uncover the crime a financial reward not exceeding 10% of the total fines collected, provided they submit credible evidence leading to a final conviction.
Experts believe this provision may enhance the ability of regulatory authorities to identify cases where it is difficult to determine the true beneficial owner or the person actually managing the activity behind the legal facade.
In this regard, Mohammed Al-Qattan, Chairman of the Board of Directors of the Kuwait Association for Small and Medium Enterprises, told “Al-Rai” that some existing practices allowed the unregistered party to have full control over the activity and its profits, in exchange for the license holder receiving a fixed monthly or annual fee. He described this as one of the forms of commercial concealment targeted by the law.
Al-Qattan emphasized that liability is not limited to natural persons but extends to legal entities. A legal entity bears joint liability with its employees if the violation is committed in its name or for its benefit.
He noted that most activities that announced a temporary halt in recent days are actually managed either by expatriates under the “Tadmeen” system, despite the commercial license being registered in a Kuwaiti national’s name, or by individuals who do not hold the license but operate the activity as its actual owners.
Al-Qattan ruled out the possibility that the law’s implementation would lead to higher prices for goods and services. He explained that the market is entering a phase of reorganization rather than facing a shortage in supply, and anticipated that many businesses would restructure their operations instead of closing permanently.
He pointed out that the practice of concealment was more prevalent in certain activities that Kuwaiti nationals are less inclined to manage directly, such as auto repair workshops, grocery stores, barbershops, and tailoring shops, expecting significant corrective actions in these sectors.
For her part, entrepreneur and business consultant Aisha Al-Wail told Al-Rai that commercial concealment is not limited to the traditional image of renting commercial licenses, but extends to every case where the actual activity differs from the licensed activity, or where the project is managed by another person without disclosure.
She added that the most prominent forms of concealment involve an individual obtaining a commercial license and then allowing another person to use it and manage the activity in exchange for periodic payments, without any actual relationship between the license holder and the activity. She pointed out that another form involves obtaining the license on behalf of another person, even if the goal is to provide assistance rather than to achieve direct financial benefit.
She emphasized that engaging in an activity not included in the commercial license is a case that warrants attention, stressing the necessity for the actual activity to match the licensed activity. For example, obtaining a license for clothing design does not grant the holder the right to manufacture or sell clothing unless the necessary permits are obtained.
She noted that some business owners confuse marketing, promotion, advertising, and publicity activities, clarifying that providing integrated advertising services, executing commercial campaigns, or filming content for others requires obtaining the appropriate license.
Al-Wail pointed out that the law has provided a period to rectify the situation, starting six months after the publication of the decree in the Official Gazette, calling on license holders to review their activities and ensure the legality of their status.
For his part, lawyer Mohammed Al-Marajah raised legal questions regarding the relationship between the provisions of the Anti-Commercial Concealment Law and the provisions on silent partnerships (Muhassa) stipulated in the Kuwaiti Companies Law, considering that a silent partnership is inherently a concealed company and does not appear to the public.
He explained that a silent partnership is a commercial contract concluded between two or more persons to execute a specific activity or project, and its effects are limited to the relationship between the partners, without having an apparent legal personality or being subject to disclosure procedures and registration in the Commercial Register.
He indicated that the problem arises when one of the silent partners is prohibited or banned from engaging in commercial work, questioning the extent of overlap between the partnership permitted by the Companies Law and the criminalization contained in the Anti-Commercial Concealment Law.
He added that Article (13) of the Anti-Commercial Concealment Law, which stipulates the cancellation of any provision conflicting with the provisions of the decree-law, opens the door for discussion regarding its impact on certain provisions regulating silent partnerships, and whether a conflict actually exists or if the texts can be interpreted as regulating different situations.
Al-Marajah warned that some phrases in the law may require further legislative or regulatory interpretation to determine the boundaries separating commercial concealment from legitimate commercial partnerships, emphasizing that market protection simultaneously requires clear standards so that violations do not become confused with commercial relationships permitted by the law.
• Imprisonment from one to three years for violators
