The Ministry of Commerce dissects the concept of the "beneficial owner" at the Chamber of Commerce
- Marwa Al-Juaidan: We aim for a database that prevents entities from being used as a cover
- “Beneficial Owner” registration rate exceeds 98%
- Regulating practices protects compliant merchants and restores competition to its proper foundation
- Abdullah Al-Haraz: Disclosing the beneficial owner does not rectify an illegal situation
- The law does not target foreign partners, but rather those used as fronts
- Imprisonment of up to three years and fines of up to 100,000 dinars for “commercial fronting”
- Emad Al-Zaid: Enforcement of “commercial fronting” regulations depends largely on the executive bylaw
- We had hoped for a greater opportunity to regularize situations before punishment
- The law fills a serious gap and requires careful consideration of its economic impacts
Deputy Minister of Commerce and Industry (Acting) Marwa Al-Juaidan stated that the issuance of the law combating commercial fronting represents a continuation of a legislative journey that began with Article 23 of the Commercial Law issued by Law No. 68 of 1980. She emphasized that the evolution of the business environment and the diversity of economic practices necessitated the establishment of a comprehensive legal framework that directly addresses cases where individuals are enabled to conduct economic activities in violation of the law, or where licenses, records, and trade names are used as a legal cover, or where legally mandated ownership percentages are circumvented.
Al-Juaidan added, in her speech during the seminar on “Beneficial Owner and Combating Commercial Fronting,” hosted by the Kuwait Chamber of Commerce and Industry, that the issue is linked to the integrity of Kuwait’s commercial and economic environment, as well as national efforts to enhance transparency, protect the market, and support the integrity of commercial transactions.
She clarified that the anti-fronting system is inseparable from broader national efforts to combat money laundering and terrorist financing. She noted that concealing the true individual who owns, controls, or benefits from an economic activity may open the door to misusing companies and legal entities for purposes other than their intended ones, whether to hide true ownership, channel funds, or shield actual activities from legal and regulatory oversight.
Al-Juaidan pointed out that Kuwait has worked over the past years to develop the beneficial owner system, considering it one of the most important tools to address the misuse of legal form for unintended purposes. She noted that the system has evolved from a stage of registration and disclosure to a stage of enforcement, verification, and auditing of data accuracy.
She stated that the objective of the system is to create an accurate and up-to-date database of beneficial owners, prevent the use of entities as a cover to hide ownership or ultimate control, and enable competent authorities to access sufficient, accurate, and updated information when needed.
She revealed that Kuwait has achieved tangible progress in this field, with the beneficial owner registration rate rising to more than 98% among targeted entities. This progress resulted from awareness campaigns, the development of electronic systems, service integration, raising compliance levels, and the gradual transition from awareness to enforcement and verification.
She affirmed that these measures are part of Kuwait’s commitment to strengthening its national system for combating money laundering and terrorist financing, in alignment with the standards of the Financial Action Task Force (FATF), particularly those related to the transparency of legal persons and the identification of beneficial owners.
Al-Juaidan explained that the commercial fronting law and the beneficial owner system complement each other. The beneficial owner data helps identify the true individual who owns or controls an entity, while “commercial fronting” determines whether such ownership, control, or activity has been used in violation of the law.
She emphasized that the positive returns of the system primarily benefit compliant merchants, clarifying that those who obtain their licenses under their real names, accurately register their details, and conduct their business within the scope of their licenses were previously facing unfair competition from entities operating outside the legal framework and not bearing the same costs.
She also noted that clear ownership and control facilitate access to bank financing and enhance the ability of Kuwaiti companies to enter into regional and international partnerships that require knowledge of the beneficial owner.
She considered a clear registry to be an asset of the enterprise and a component of its commercial reputation, rather than an administrative burden, stressing that the goal is for compliance to become a competitive advantage rather than a cost to be borne.
Al-Juaidan stated that responsibility is a key pillar of the system, as it is the element that translates rules and legislation from text into practice.
She affirmed that the core message is the necessity for the status of the activity owner to be clear, the actual practitioner to be known, and the beneficial owner to be identified, with activities conducted through proper licenses and legal entities.
For his part, Abdullah Al-Hariz, Director of the Kuwait Business Center Administration at the Ministry of Commerce and Industry, outlined the legislative and regulatory framework for “commercial hiding” and the beneficial ownership system during the seminar. He emphasized that the objective is to achieve a more transparent market, prevent the misuse of licenses and registries, identify who actually conducts the activity, and distinguish between legitimate partnerships and commercial hiding.
He clarified that what is actually prohibited is for a person to conduct an economic activity without having the right to obtain a license, or in violation of the license’s scope, through another person who holds the trade name, license, approval, commercial registry, or any other means of enabling such activity.
He stressed that practicing commerce is not an absolute right; laws impose conditions for its practice and prohibit certain categories from engaging in trade. He pointed out that Article 23 of the Commercial Law regulates the general rule for non-Kuwaiti participation, while Article 25 specifies cases where certain individuals are barred from practicing commerce.
He presented two main scenarios. The first occurs when an activity is prohibited for a person, such as when a court ruling or legal barrier prevents them from practicing commerce, yet they use another person’s license to conduct the activity and reap its profits.
The second scenario involves circumventing foreign ownership restrictions, where the registered share of the Kuwaiti partner is nominal, while actual control and economic ownership lie with the foreign party.
Al-Hariz stated that the law does not fight the foreign partner, but rather the nominal partner, explaining that the focus is on determining whether the registered percentages reflect true ownership or were merely established to bypass legal restrictions.
Al-Hariz noted that the primary penalties under the Commercial Hiding Prevention Law include imprisonment for one to three years, and a fine ranging from 10,000 to 100,000 Kuwaiti dinars, or an amount equivalent to the profits obtained, whichever is greater, or one of these two penalties.
Al-Hariz revealed that the journey of beneficial owner registration has seen a significant increase, with the percentage rising from 4.3% at the beginning of the implementation phase to over 98% currently. He attributed this to media and awareness campaigns, linking services to registration, developing electronic systems, and direct follow-up.
According to the data presented, the total number of registered beneficial owners reached 258,395, including 212,186 Kuwaitis and 46,209 non-Kuwaitis.
Al-Hariz emphasized that the beneficial ownership system and the Commercial Concealment Combating Law operate in an integrated manner. The system helps identify who owns or controls a legal entity, while the Commercial Concealment Combating Law examines whether ownership, control, or operation is conducted legally.
He stressed that disclosure does not rectify a non-compliant situation, clarifying that disclosing a person prohibited from conducting business activities as a beneficial owner does not mean they are now permitted to do so.
For his part, Deputy General Manager of the Kuwait Chamber of Commerce and Industry, Imad Al-Zaid, stated that the Chamber conducted a preliminary study of the Commercial Concealment Combating Law prior to the seminar to extract its key characteristics, noting that the dialogue at the seminar largely confirmed the findings of the study.
Al-Zaid viewed the law as being more restricted than necessary in its articles, wording, and mechanisms, making its successful enforcement heavily dependent on the executive regulations. He expressed reservations about the executive regulations’ capacity to bear this burden, particularly because, in his view, the law did not explicitly mention them nor refer to them clearly.
He noted that the Chamber had hoped the law would grant participants in the phenomenon of “commercial concealment” sufficient opportunity to regularize their status before its enactment, under clear protection from penalties. He also expressed the Chamber’s dissatisfaction with Article 9 concerning rewards for whistleblowers.
Al-Zaid affirmed that the law fills a real and serious gap in regulation and penalties, but it requires greater insight into its economic and social impacts to avoid negative consequences, particularly on the efficiency and economics of professional activities and craft services.
The Ministry views the law as a step toward regulating business activities and enhancing transparency and fair competition, noting that correctly identifying the beneficial owner is inseparable from regulating the business activity itself.
The Ministry of Commerce clarified that its objective is not to restrict business owners, but to ensure that commercial activities are conducted legally and in an organized manner, guaranteeing equal opportunities and legitimate competition. It emphasized that a sound business environment relies on clear and transparent procedures.
Regarding alternatives for activities that may be affected by the law’s implementation, legal alternatives are available. A license holder conducting business illegally can regularize their status, either by modifying the activity or taking necessary steps to cancel the license.
Cancellation procedures take no more than two months at the maximum, depending on the type of legal entity. The Ministry added that it has adopted a gradual approach in implementing certain requirements related to beneficial ownership, confirming that it will issue regulatory decisions and clear guidelines to specify required procedures.
A Mudaraba company is formed between two or more partners and differs from companies with legal personality. However, its nominal use to circumvent laws, competition, or engage in commercial concealment may place it within the framework of legal violations. The executive regulations will provide further clarification on such cases.
If the person concerned does not have a civil ID number, their basic data, including name and passport number, can be registered, accompanied by documents proving their status as the beneficial owner of the foreign company.
Regarding family companies and cases where a partner passes away and their shares are transferred to heirs, the heirs receiving the shares must be treated according to beneficial ownership determination rules, based on each heir’s ownership and the legal status of the company.
In cases where an individual receives a share of profits without being a partner under the articles of association, determining whether that person is the beneficial owner depends on the nature of the relationship and the actual rights they hold within the company, rather than merely on whether they receive a salary or bonus.
The obligation of supervised entities does not exempt them from their responsibility to carry out due diligence procedures and verify the identity of the beneficial owner. Supervisory authorities are tasked with monitoring the extent to which these entities comply with the required procedures.
The Ministry operates within an integrated national system aimed at enhancing the accuracy of beneficial ownership data. The fact that data is held by the Ministry does not absolve supervised entities of their responsibility to verify the information submitted to them and to take appropriate action when indicators or violations are identified.
