Kuwait Prohibits Crypto for Payments and Investment to Combat Money Laundering

In a move aimed at strengthening efforts to combat money laundering and terrorist financing, the Kuwaiti financial regulator has issued a circular strictly prohibiting the use of cryptocurrencies for payments or investments within the country. The circular, issued by the Capital Markets Authority on July 17, 2023, also imposes an “absolute” ban on all digital asset mining and disallows the recognition of cryptocurrencies as decentralized currencies. In addition, the public has been warned against engaging in any form of crypto-related services provided by companies.

The decision comes in response to a study prepared by the National Committee for Combating Money Laundering and Terrorist Financing, which emphasized the need to adhere to Recommendation 15 of the international requirements set forth by the Financial Action Task Force (FATF). This recommendation categorizes virtual assets as digital representations of value that can be digitally traded, transferred, and utilized for payment or investment purposes. As per Recommendation 15, virtual assets should be treated as “property,” “proceeds,” “funds,” “other assets,” or “equivalents,” explicitly excluding digital representations of fiat currencies and securities.

The key provisions of the circular are as follows:

  1. Prohibition of Using Virtual Assets as Payment: The circular enforces an absolute ban on the use of virtual assets as a means of payment or acknowledging them as decentralized currencies within Kuwait. Individuals and businesses are required to refrain from conducting transactions involving virtual assets as a medium of exchange under this ban.
  2. Prohibition of Crypto Investment: The circular also bans dealing with virtual assets as an investment vehicle, thereby prohibiting any entity from offering investment services related to cryptocurrencies to their clients.
  3. Prohibition of Issuing Crypto-Related Business Licenses: No individual or entity within Kuwait is permitted to issue or grant licenses for providing virtual asset services as a commercial venture on their own behalf or on behalf of others. This regulation applies even if no licenses have been previously issued in this regard.
  4. Exemption of Regulated Securities and Financial Instruments: Securities regulated by the Central Bank of Kuwait and other securities and financial instruments under the purview of the Capital Markets Authority are excluded from this prohibition.
  5. Absolute Ban on Virtual Asset Mining: All activities related to virtual asset or cryptocurrency mining are strictly prohibited.

The circular also emphasizes the responsibility of financial institutions to continuously educate their customers about the risks associated with dealing in virtual assets, especially cryptocurrencies. Customers must be made aware that cryptocurrencies lack legal status, government backing, or any underlying asset, and their prices are subject to extreme volatility driven by speculative trading.

The penalties for non-compliance with the measures outlined in the circular are governed by Article 15 of Law No. 106 of 2013 on Combating Money Laundering and Terrorist Financing. These penalties may be enforced by any regulatory authority without prejudice to any other sanctions imposed by such authorities.

It is evident that the Kuwaiti authorities are taking proactive steps to address potential risks associated with virtual assets while also aligning with international standards recommended by FATF. The circular’s issuance reflects the country’s commitment to safeguarding its financial system and combating illicit financial activities in a rapidly evolving digital landscape.

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