CBK tells banks, ‘End relations with clients who fail to prove transactions legitimacy’

As part of broader regulatory and banking measures aimed at addressing the risks of money laundering and terrorist financing, the Central Bank of Kuwait has directed local banks to apply enhanced due diligence procedures when dealing with clients subject to audit or heightened scrutiny.

Under the new directives, banks are required to monitor such clients for an appropriate period and request additional information and supporting documents to verify that financial transactions are legitimate and comply with regulatory standards.

The Central Bank stressed that if a client fails to provide sufficient data proving the integrity of their transactions, the bank must terminate its relationship with that customer, reports Al-Rai daily.

Sources familiar with the matter explained that, in cases where an account is closed for this reason, banks are prohibited from informing the customer that the decision was linked to suspicions of money laundering or terrorist financing.

Instead, the justification provided must rely on contractual clauses included in account-opening agreements, which grant banks the right to close accounts without disclosing specific reasons.

According to the sources, the measure reflects the Central Bank’s efforts to reduce risks associated with continuing to deal with clients previously flagged for suspicious financial activity.

The move also aims to protect banks from potential legal accountability that could arise if questionable transactions continue without renewed reporting to the Financial Intelligence Unit after earlier notifications have already been submitted.

The directives require banks to adopt strict due diligence standards proportionate to the level of risk associated with each client. During the monitoring period, customers must provide documents demonstrating that their transactions are consistent with the nature of their declared business activities.

If the client fails to submit the required information, or if the documents provided do not sufficiently dispel suspicions, banks must implement Clause 14 of the anti-money laundering and counter-terrorism financing instructions issued on February 16, 2023, which mandates terminating the banking relationship.

The Central Bank further emphasized that concealing the true reason for account closure from the customer forms part of internationally recognized compliance practices designed to strengthen anti-money laundering safeguards and prevent individuals under suspicion from circumventing monitoring systems.

Sources noted that these measures reinforce Kuwait’s legal and regulatory framework for combating financial crimes and align with ongoing legislative reforms in the sector.

They added that the Central Bank’s actions demonstrate the country’s determination to strengthen its position as an effective regional platform in combating money laundering and terrorist financing, thereby enhancing its international standing.

Ending banking relationships with clients who fail to prove the legitimacy of their funds was described as a proportionate and deterrent step aimed at limiting financial risks and preventing the misuse of the banking system.