The State of Kuwait’s anti-money laundering & combatting terrorist financing infrastructure and performance evaluation
| DOI | https://doi.org/10.1108/JMLC-04-2018-0034 |
| Pages | 441-456 |
| Date | 03 February 2020 |
| Published date | 03 February 2020 |
| Author | Mohammed Ahmad Naheem |
| Subject Matter | Financial compliance/regulation,Accounting & Finance,Financial crime |
The State of Kuwait’s anti-money
laundering & combatting terrorist
financing infrastructure and
performance evaluation
Mohammed Ahmad Naheem
Mayfair Compliance, Frankfurt, Germany
Abstract
Purpose –The State of Kuwait operates a US$110bneconomy and serves as an integral part of the global
energy trade, holding over 9% of the world’soil reserves. In addition, Kuwait is making attempts to open its
economy, working towards domestic diversification. This paper aims to understand Kuwait’s internal
financial protection mechanisms and their compliance to international standards. It is imperative to
understand Kuwait’s legal and regulatory system that combats money laundering and terrorist financing
concerns,which further extends to the region’s security discourse. Thispaper focuses on the State of Kuwait’s
internal efforts to propel anti-money laundering/combating terrorist financing (AML/CTF) measures, and
furtherevaluate these measures with respect to internationalevaluations.
Design/methodology/approach –Anti-money laundering and combatting terrorist financing
mechanisms require a layered analysis to understand the legislative and bureaucratic organization of
enforcement. Further, these measures, taken within the domestic framework, must be compared to
international standards, and thus taken into account by observers. This paper studies Kuwait AML/CTF
mechanisms by studying the country’slegislation, regulation and implementation. Thecountry’s legislation
will offer insight into the basic foundation of the country’s stance against money laundering and terrorist
financing. Kuwait’s regulation against money laundering/terrorist financing (ML/TF) will represent the
enforcement mechanisms and risk-assessment tools mandated by the independent regulatory authorities.
Finally, the country’s enforcement levels will provide a deeper understanding of the country’s systemic
approach to successfully combattingML and TF activities. In addition, this paper also studies international
evaluations that present an independent and factual view regarding Kuwait’s AML/CTF structure and its
implementation.
Findings –Following a thorough examination of primary and secondary literature, this paper finds the
State of Kuwait to have taken significant steps in implementing recommended legislative and regulatory
mechanisms. The paper found significantstrategic deficiencies within internal mechanisms pre-2014, which
have been largely resolved in the state’s ex post approach to the Financial Action Task Force’s
recommendations.There is also evidence of an improving enforcement mechanismin the state’s recent efforts
in reducing exposureto ML and TF risks. However, the paper finds certain “strategicdeficiencies”within the
country’sinternal reporting and external publishingadministration.
Practical implications –The State of Kuwait is an important member in the routeto regional stability
and security in the Middle-East and Arabian Gulf region. Kuwait’s northern border abuts with Iraq, and
Please note that this paper was composed and submitted for review to this journal in December
2017 –All the content was current at that point in time (December 2017). The banking and regulation
industries alongside governmental policy-making have evolved greatly since December 2017, with
new material from academic research emerging. These points need to be taken into consideration
when reading this paper.
The author explicitly states that this research article is not a propaganda piece and in no way has
the author received any form of funding or assistance from any party towards this piece of research.
This paper sets out an approach to extend the discussion on the Gulf region from an independent
academic perspective, employing tools that separate AML/CTF analysis from media opinion.
The State
of Kuwait’s
anti-money
laundering
441
Journalof Money Laundering
Control
Vol.23 No. 2, 2020
pp. 441-456
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-04-2018-0034
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
connects the country with the rest of the Middle-East. The upwardregional instability could create internal
security risks for Kuwait. In addition,the State of Kuwait has taken the onus, in addition to the Sultanate of
Oman, to mediate the diplomatic lapse between members of the Gulf Cooperation Council. The
aforementioned positions ascertain a need to examine, and further recommend measures that promote a
strong regionalfinancial system.
Originality/value –This paper finds the government of Kuwait to have taken major steps to create a
framework that is parallel to international standards. However, there have been significant delays in
activating and implementingseveral regulatory procedures. The delay of certain procedures hassince been
rectified by the state. This paper presents a comprehensivequalitative analysis of the country’s legislative,
regulatoryand enforcement structures and further evaluates the internalperformance.
Keywords Kuwait, Anti-money laundering, The Gulf Cooperation Council (GCC),
Combating terrorist financing (CTF), Financial intelligence units (FIUs), MENAFATF
Paper type Case study
Introduction
The State of Kuwait’s importance must be understood in the context of, first, regional
importance in the Middle-East and Arabian Gulf, and second, the country’s role in global
non-renewable energy markets. Kuwait is also a member of the Organization of Petroleum
Exporting Countries(OPEC) and the Gulf Cooperation Council (GCC). Both organizations are
the forerunners of global non-renewable energy exports and contribute to Middle-Eastern
stability and security. Further, the State of Kuwait is currently working towards engaging
in economic diversification along with the remaining five members of the GCC –Bahrain,
Oman, Qatar, Saudi Arabia and the UAE –with each member initiating respective long-
term development plans (Hvidt, 2013). To pursue diversification, one of the key strategies
used by the GCC countries, includingKuwait, has been to increase state-led global financial
investment (Hvidt, 2013)–through Sovereign Wealth Funds –and, through domestic
infrastructure investments that allow foreign capital investment, which facilitates
diversified businesses non-dependent on oil (Townsend, 2015). Understanding the risks
associated with global financial networks, it is important to study Kuwait’s internal
mechanisms that protect the financial system from criminal and terrorist organizations.
Kuwait represents an important regionalentity, with Iraq to the north, and Saudi Arabia in
the West and South. This presents significant security concerns for Kuwait, and remaining
GCC members, as Middle-East hostility could recede into Kuwait’sfinancial systems and
borders. Establishing strong anti-money laundering and combatting of terrorist financing
measures in Kuwait extend beyondthe discussion of financial crimes, because of the nature
of the geostrategic positions, and is important to maintain security throughout the GCC
members.
The current discourse regarding Kuwait’s strategy against money laundering, and the
larger concern of terrorist financing,has been negative. Weinberg (2017) presents a negative
overview of state policies against terrorist organizations and their financial networks.Also,
in 2014, the United Nations Security Council passed several sanctions against Kuwaiti
citizens and entities for alleged terroristfinancing and related activities (Vela, 2014). Gilligan
(2014) wrongly states that Kuwait houses institutions and individuals that are acting on
behalf of extremist groups in collecting ammunition funds in a “jihadi market structure.”
Yayla (2017) also has recently wrongly presented arguments against banks in Kuwait that
continue to support and finance the Islamic State. These accusations are not substantiated
with evidence in all cases, as significant efforts have been taken by the state to create a
“hostile environment”against financiers of terrorist organizations (Weinberg, 2017).
However, this paper finds the government of Kuwait to have taken significant steps in
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