Kuwait's Administrative Risk-Based Model for the Prevention of Money Laundering: Costs and Benefits of Compliance with the Financial Action Task Force (FATF) Standards

Abstract

In the period 2013-2015, Kuwait adopted the new administrative risk-based anti-money laundering and combating the financing of terrorism (AML/CFT) regulatory framework. This article analyzes the costs and benefits of the compliance of the new framework with the FATF’s standards, focusing on the structural changes: (1) a move from a hybrid-prosecutorial to a full-fledged administrative model of financial intelligence unit (FIU); (2) adoption of the risk-based approach to prevention of money laundering and terrorist financing (ML/TF); and (3) the enhancement of reporting obligations and preventive measures. There are two main arguments advanced in the article. Firstly, while the new framework is highly compliant with FATF standards and will maintain the already low level of ML/TF in Kuwait, in comparison with the pre-2013 anti-money laundering laws and regulations, the costs of compliance for private parties, particularly financial institutions and their customers, are considerably higher, and likely to continue increasing. Secondly, the new framework faces other challenges: the need for an improvement of data availability and statistics on ML/TF risks across various sectors, and the need for quality supervision of reporting parties. These challenges are analyzed, and suggestions on how to respond to them are provided, along with a cautionary note on the economic and social effects of compliance with the FATF standards.