- Banks, exchange and finance companies face penalties for failing to identify and report changes in beneficial ownership
The Central Bank of Kuwait (CBK) has instructed banks and financial institutions under its supervision to strengthen procedures for identifying beneficial owners and promptly reporting any changes to the Ministry of Commerce and Industry. The directive applies to local banks, exchange companies, finance companies, electronic money service providers, electronic payment service providers and electronic payment system operators.
The CBK said institutions must follow the updated procedures in the Guide to the Concept of the Beneficial Owner and notify the Ministry of Commerce and Industry through the reporting mechanism specified by the ministry. Failure to comply could expose violators to the measures and penalties stipulated under Article 15 of Law No. 106 of 2013 on combating money laundering and terrorist financing.
The updated guidance forms part of ongoing efforts to strengthen compliance with beneficial ownership requirements and bring identification practices in line with the latest Financial Action Task Force (FATF) recommendations. The measures are intended to prevent legal entities and legal arrangements from being misused to conceal ownership and control.
Focus on complex structures and endowments
The Ministry of Commerce and Industry has also addressed legal entities and complex institutional structures, including endowments, setting out procedures for identifying changes in the beneficial ownership of entities subject to Central Bank supervision and relevant laws.
The guidance includes safeguards that financial institutions can use to prevent suspected beneficial owners from separating themselves from their assets through complex structures, which can make it more difficult to identify or trace violations, evade tax obligations or conceal illicit funds.
The updated guidance also introduces amendments and additional provisions covering endowments and their beneficial owners. An endowment must be established through an official document registered with the relevant authorities and signed by the endower and two witnesses, or through the courts.
When establishing an endowment, the endower must submit documents to the Ministry of Justice containing detailed information on the endowment’s assets, the endower, the supervisor and the beneficiaries. The Ministry of Justice is required to retain this information in its records. If the Ministry of Endowments and Islamic Affairs appoints a supervisor, it must also maintain the endowment’s details in electronic records.
Three categories of beneficial owners
The updated guidance expands the concept of beneficial ownership to cover endowments in all cases and identifies three categories:
- Endower: The person who establishes the endowment and contributes its assets.
- Supervisor: The person or institution responsible for managing the endowment’s assets.
- Beneficiaries: Individuals or groups who benefit from the endowment and are specifically named or clearly identified as a category.
The guide states that financial institutions and designated financial businesses are required to identify and verify the beneficial owners of endowment-related clients.
Endowments classified as low-risk
According to the guidance, endowments in Kuwait are considered to pose a low risk of money laundering and terrorist financing, mainly because of restrictions on foreign or external involvement and the common use of endowment assets for local or family real estate purposes.
An endowment is defined as preserving the principal of money or property while dedicating its benefits and returns to charitable or benevolent purposes. The guidance identifies three types: charitable, family and joint endowments.
The updated rules emphasize that the beneficial ownership concept applies consistently across these structures, requiring financial institutions to establish who ultimately owns, controls or benefits from the relevant assets.
