Central Bank of Kuwait Warns Banks and Exchange Companies: Keep a Close Eye on Attempts to Conceal Ownership in Ledgers
- The risks of “money laundering” in waqf (endowment) are low due to restrictions on foreign intervention and the real estate or family purposes of the endowment.
- Protective arrangements for endowed assets prevent the suspicious beneficiary from creating a barrier that is difficult to trace.
- New procedural safeguards within complex institutional structures reveal the beneficiary in the legal entity.
- Disposition of the waqf requires an official document signed by the founder and two witnesses, or authenticated by the courts.
- Failure by the entity to comply with prescribed procedures exposes it to anti-money laundering penalties.
The Central Bank of Kuwait has emphasized to all local banks, exchange companies, financing companies, electronic money service providers, electronic payment service providers, and electronic payment system operators, in addition to the procedures that must be observed, to identify any changes that may emerge regarding the determination of the beneficial owner in a legal entity or legal arrangement, and to report this to the Ministry of Commerce and Industry according to the notification mechanism used by the Ministry.
The Central Bank confirmed that non-compliance with the updated procedures in the guide on the concept of the beneficial owner exposes the violating entity to the measures and penalties stipulated in Article (15) of Law No. 106 of 2013 concerning the prevention of money laundering and the financing of terrorism.
It pointed out that the update of the guide on the concept of the beneficial owner comes within the framework of continuous efforts to enhance compliance with beneficial owner identification requirements using the latest methods, as outlined in the recommendations of the Financial Action Task Force (FATF), which must be followed to prevent the misuse of legal persons and legal arrangements to conceal ownership and control rights.
In this regard, the Ministry of Commerce addressed legal entities and complex institutional structures, including waqf, and specified the procedures that must be observed to identify any changes that may emerge among any of the units under the supervision of the Central Bank and law enforcement agencies in determining the beneficial owner in a legal entity or legal arrangement.
In this context, protective arrangements have been defined that allow banks, exchange companies, financing companies, electronic money service providers, electronic payment service providers, and electronic payment system operators to provide safeguards that deprive the suspicious beneficial owner of creating a barrier between themselves and their assets in this sector. This is a method used by some to complicate the detection of their violations or to trace them, or to exploit their assets to evade tax obligations or hide illicit funds.
In this context, amendments and additions related to waqf operations and its beneficial owner have been made. It was emphasized that such disposition must be proven by an official document before official authorities, signed by the founder and two witnesses, or through the courts. Furthermore, the founder of the waqf must, upon establishing the endowment, submit documents to the Ministry of Justice containing detailed information about the waqf’s assets, the identity of the waqf, the trustee, and the beneficiary. These three individuals are considered the beneficial owners according to FATF standards.
According to the instructions, the Ministry of Justice retains this information in its records. In the event that the Ministry of Awqaf and Islamic Affairs appoints a trustee, the Ministry must keep details of the waqf in electronic records.
The “waqf” (endowment) constitutes one of the channels for charitable work. It is defined as the retention of the principal asset and the dedication of its usufruct, meaning that a property or asset is earmarked and its disposal through sale or gift is prohibited, while its revenues and yields continue to be spent on charitable and benevolent activities. There are three types of waqf: charitable, descendant, and joint. The waqif (founder) is the person who owns movable or immovable property and wishes to dedicate it as a waqf.
According to the data, unlike legal entities, waqfs in Kuwait pose a low risk of “money laundering and terrorist financing,” due to restrictions on foreign interference and the predominant use of waqf assets for local or family real estate purposes.
According to the guidance on the concept of the beneficial owner, the beneficiary of the waqf may be a specified natural person, a specified legal entity, or an unspecified public entity, subject to conditions set by the waqif. The mutawalli (trustee) or waqf board represents the individual or legal entity that administers the waqf in accordance with the waqif’s stipulations in the waqf deed and its type, whether it involves real estate, movable property, cash, usufruct waqf, or intangible rights.
While the three categories of obligations vary significantly in scope and nature, the concept of the ultimate beneficial owner underpinning all of them is identical. Financial institutions and specified financial businesses are required to identify and verify the beneficial owners of waqf donors and customers.
Under the updated instructions on the concept of the beneficial owner, the definition of actual ownership is expanded to include, in all cases, natural persons who perform the following roles in relation to a waqf:
3. Beneficiaries: Individuals or groups benefiting from the waqf who have been explicitly named or identified by the waqif.
