Kuwait

The International Commitment of the State of Kuwait to Combating Money Laundering and Terrorism Financing The State of Kuwait is an active partner in international efforts to combat Money Laundering and Terrorism Financing, based on its commitment to global standards aimed at protecting the financial and economic systems. This commitment is reflected in its membership in numerous international bodies and agreements, as well as its continuous efforts to enhance its legal and regulatory framework. Kuwait is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF) and is also a member of the Gulf Cooperation Council, which in turn is a member of the Financial Action Task Force (FATF). Kuwait has also signed the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988 and complies with the Financial Action Task Force (FATF) recommendations and international standards regarding Know Your Customer (KYC) procedures. Kuwait implements United Nations Security Council resolutions adopted under Chapter VII of the UN Charter relating to terrorism and its financing. Kuwait is also subject to mutual evaluations by international bodies such as the Financial Action Task Force (FATF), which are conducted to assess compliance with the FATF's Forty Recommendations and the effectiveness of Kuwait’s anti-money laundering and terrorism financing system. These evaluations aim to identify and address deficiencies and to prevent Kuwait from being placed on the FATF's "Gray List," which includes countries subject to enhanced monitoring due to weaknesses in their anti-money laundering and terrorism financing measures. Kuwait's supreme objective is to strengthen its regulatory defenses and supervisory infrastructure, rebuild international confidence, and avoid any inclusion in the Financial Action Task Force's grey list by demonstrating tangible and high-impact reforms that align with global expectations. This includes enhancing supervision over sectors such as money exchange companies, real estate, and gold and precious metals dealers, which are considered medium to high-risk sectors. 1- The Nature of Anti-Money Laundering and Terrorism Financing Anti-Money Laundering and Terrorism Financing constitutes a global and domestic effort aimed at protecting financial and economic systems from exploitation in criminal activities. In the State of Kuwait, money laundering crime is defined as any act that involves concealing, transferring, or possessing funds while knowing they are proceeds from a crime that violates the state's regulations or with the intent to hide or disguise their illicit source. As for Terrorism Financing, it refers to the provision or collection of funds with the intent of using them in terrorist acts. Kuwaiti laws punish these two crimes with the severest penalties, given their serious threat to the state's economic and social security. 2- Legal Basis for the Mandatory Appointment of Compliance Officers The obligation to appoint a Compliance Officer in Kuwait is based on an integrated legal and regulatory framework aimed at enhancing transparency and accountability in financial transactions. Basic Law: Law No. (106) of 2013 concerning Anti-Money Laundering and Terrorism Financing constitutes the legislative foundation that established the requirements for combating these crimes in the State of Kuwait. Regulatory ministerial decisions: The ministerial decisions issued by the Ministry of Commerce and Industry, in cooperation with other entities, detail the implementation mechanisms for Law No. (106) of 2013 and precisely define the role of the Compliance Officer. Among the most prominent of these decisions: Ministerial Decision No. (192) of 2020: This decision established the conditions, duties, and responsibilities of the Compliance Officer for entities subject to the supervision of the Ministry of Commerce and Industry. Ministerial Decision No. (247) of 2019: This decision required companies to submit a certificate from the Public Authority for Manpower confirming the appointment of a Kuwaiti Compliance Officer when renewing their commercial licenses, and explicitly stipulated that "the license shall not be renewed without fulfilling this documentary requirement". Ministerial Decision No. (141) of 2025: This decision represents an amendment to Ministerial Decision No. (192) of 2020, and enters into force as of July 10, 2025. This amendment provides updates to the definitions and conditions for appointment and duties of the Compliance Officer, in addition to enhancing control and enforcement mechanisms. This legislative sequence demonstrates a clear direction by the Kuwaiti legislator toward strengthening the regulatory framework for Anti-Money Laundering and Terrorism Financing, transforming compliance from a mere recommendation into a fundamental requirement for conducting commercial activities. 3- Target categories of the decisions (categories obligated to appoint a Compliance Officer) The categories obligated to appoint a Compliance Officer are defined as "financial institutions and designated non-financial businesses and professions subject to the supervision of the Ministry of Commerce and Industry." These categories include more specifically: Money exchange institutions and companies: under Ministerial Decision No. (409) of 2013. Insurance companies and their agents and intermediaries: pursuant to Ministerial Decision No. (412) of year 2013. Institutions and companies engaged in the profession of real estate brokers and real estate offices: pursuant to Ministerial Decision No. (430) of year 2016. Institutions and companies operating in the field of gold, precious stones, and precious metals trading: pursuant to Ministerial Decision No. (431) of year 2016. Investment companies: These typically fall under the umbrella of "financial institutions" and are therefore required to appoint a Compliance Officer. 4- Role of the Compliance Officer specialized in monitoring financial transactions: The Compliance Officer must supervise the company's or institution's implementation and execution of relevant legal requirements, executive regulations, and ministerial decisions. His duties and responsibilities include the following: Development of Internal Policies and Procedures: He is responsible for developing work policies and procedures, systems, and internal controls related to Anti-Money Laundering and Terrorism Financing, commensurate with the company's size and scope of operations, which must be approved by senior management. Preparation of Risk Assessment Studies: He is tasked with preparing and updating risk assessment studies for clients and transactions. Review of suspicion indicators and notification mechanism : The compliance officer must review the establishment's suspicion indicators, establish a mechanism for notifying the Kuwait Financial Intelligence Unit of suspicious transactions, and maintain records of such notifications. Establishment of reporting mechanism for sanctioned entities: The compliance officer shall establish a mechanism for reporting to the UN Security Council Resolutions Implementation Committee when services are provided to any individual or entity listed on international or domestic sanctions lists. Staff Training: Responsible for training company employees to ensure implementation of obligations stipulated under the law. Record and Transaction Retention ; Must retain records, transactions, and studies and submit them to the relevant authority upon request. Implementation of Due Diligence Measures :  This includes implementing simplified and enhanced due diligence measures on clients and beneficial owners. Personal attendance by the concerned department :  Its role requires personal attendance by the concerned department to complete the required data. Application of provisions to branches ;  The provisions contained in the law and related ministerial decisions apply to all domestic and foreign branches and their subsidiaries. 5- Risks of non-compliance with such decisions and sanctions that may be imposed Failure to appoint a Compliance Officer or non-compliance with Anti-Money Laundering and Terrorism Financing requirements results in severe consequences, including administrative, financial, and criminal penalties, in addition to other risks: A. Risks and penalties arising from failure to appoint a Compliance Officer Non-renewal of commercial licenses: Commercial licenses for the aforementioned companies may not be renewed except upon submission of a certificate from the Public Authority for Manpower confirming the appointment of a Kuwaiti Compliance Officer. Suspension of license issuance or renewal: The issuance or renewal of licenses shall be suspended until compliance with the provisions of Article Three of Ministerial Decision No. (141) of 2025 regarding communication means data, which constitutes an essential component of commercial licensing requirements. b. Risks and penalties arising from improper implementation of financial transactions monitoring (Non-compliance with Anti-Money Laundering and Terrorism Financing Laws): Administrative and Financial Penalties: Written Warnings and Procedural Orders: Regulatory authorities may issue written warnings or orders requiring the institution to undertake specific measures to address the violation. Financial Penalties: A financial penalty may be imposed on the non-compliant financial institution of up to five hundred thousand Kuwaiti dinars per violation. If a legal entity (company) commits a money laundering or terrorism financing offense, it shall be subject to a fine of not less than fifty thousand Kuwaiti dinars and not exceeding one million Kuwaiti dinars, or the equivalent of the total value of the funds involved in the offense, whichever is higher. In the event of providing false information or concealing facts, the legal entity shall be subject to a fine of not less than five thousand Kuwaiti dinars and not exceeding one million Kuwaiti dinars. Employment prohibition and management removal: The violator may be prohibited from working in the relevant sector, or board of directors and executive management members may be removed or their replacement may be required. License suspension or revocation: Activities, operations, or professional practices may be suspended or restricted, or licenses may be suspended or fully revoked. Criminal penalties (for individuals) Imprisonment: Any person who commits a money laundering offense with knowledge that the funds constitute proceeds of crime shall be punished by imprisonment not exceeding ten years and a fine not less than half the value of the funds subject to the offense and not exceeding the full value thereof. Any person who commits a Terrorism Financing offense shall be punished by imprisonment for a period not exceeding fifteen years and a fine not less than the value of the funds that are the subject of the offense and not exceeding twice such value. Penalties shall be enhanced to imprisonment for a period not exceeding twenty years and double the fine in certain circumstances, including where the offense is committed through an organized criminal group or terrorist organization. Confiscation of funds and instruments: In all cases, the confiscation of seized funds and instruments that were the subject of the crime shall be ordered. Other risks: Reputational damage: Non-compliance can lead to severe damage to the company's reputation, affecting its relationships with clients, partners, and investors. Civil liability: Companies may face civil liability as a result of non-compliance. Increased scrutiny: Non-compliance leads to increased scrutiny and oversight by government authorities. These penalties and risks demonstrate that the State of Kuwait adopts a stringent approach in combating money laundering and Terrorism Financing, and the function of the Compliance Officer and implementation of sound procedures are vital to ensure compliance and avoid these severe consequences. Conclusion and Recommendations The function of the Compliance Officer constitutes a fundamental pillar in the Anti-Money Laundering and Terrorism Financing system in the State of Kuwait. The analysis has demonstrated that the appointment of a Compliance Officer is not merely an option, but rather a direct legal obligation that is closely linked to the operational continuity of companies through its connection to the renewal of commercial licenses. The categories subject to this appointment requirement have been clearly defined through various legislations. The developments in conditions and requirements, particularly with the entry into force of Ministerial Decision No. (141) for the year 2025, reflect a trend toward simplifying certain appointment-related procedures while preserving the core duties and responsibilities of the Compliance Officer. This continuous evolution in ministerial decisions demonstrates that the regulatory framework is not static but continuously developing. Based on the above, we recommend the following: Proactive compliance : Obligated companies and institutions must ensure the appointment of a qualified compliance officer in accordance with current and future requirements, and begin adapting to the requirements of Resolution 141 of 2025 before its effective date to ensure continuous compliance and avoid any disruption to their operations. Periodic review of policies and procedures : Compliance officers and senior management must continuously review and update internal policies and procedures to ensure their alignment with the latest legislation and amendments issued. Continuous Training : Despite the removal of the accredited training course requirement in the new resolution, training company employees on Anti-Money Laundering and Terrorism Financing requirements remains vital and necessary to ensure proper understanding and implementation of these requirements at all operational levels. Training must also encompass the identification of indicators of suspicious financial transactions, such as the use of suspicious credit cards or bank accounts, and the appropriate procedures for handling such cases in accordance with internal policies and regulatory legislation. Contact Information Update Companies must ensure that their contact information is updated with the Ministry of Commerce and Industry, as this has become a fundamental requirement for the issuance or renewal of licenses under Decision 141 of 2025. Precise Legislative Monitoring ; It is recommended to monitor any amendments or new ministerial decisions that may be issued in the future, as the regulatory environment in this field is characterized by dynamism and continuous change, requiring constant vigilance and adaptation. This monitoring must include continuous surveillance of prohibition lists issued by the Kuwait Financial Intelligence Unit and international laws relating to prohibited persons, entities, and countries, to ensure no dealings with them. Utilizing Specialized Expertise : Given the complexity and intricacy of these regulations, it is advisable to engage specialized legal experts or firms specializing in financial transactions supervision and enhanced due diligence to ensure procedural integrity and assess exposure to penalty risks, while avoiding any legal or operational risks that may arise from misunderstanding or improper implementation. Importance of Substantive Compliance and Enhanced Due Diligence : It must be emphasized that appointing a Compliance Officer in a nominal or formal capacity, without effectively activating their role in monitoring financial transactions and enhanced due diligence, does not achieve the purpose of legal protection nor does it protect the company from exposure to sanctions. Effective compliance requires continuous work and heightened vigilance, particularly in light of the increasing risks that may arise from the use of suspicious credit cards or bank accounts, or dealings with individuals and nationalities that may fall within prohibited jurisdictions. Therefore, enhanced due diligence of all financial transactions and continuous auditing of clients and transactions is vital to ensure the integrity of procedures and avoid the risks of exposure to sanctions. This requires companies to adopt a dynamic and proactive approach to compliance, which is not limited to adhering to current requirements only, but also includes continuous monitoring of legislative changes and adapting to them effectively. Effective compliance is no longer merely a process that occurs "once and forever" but rather is a continuous process that requires vigilance and adaptation. It must be an approach embedded within the commercial establishment's policies and form part of its permanent operations to ensure protection from liability and safeguard against risks posed by clients who attempt to conceal their funds through fraudulent methods, and financial institutions must not serve as a gateway for such activities. Prepared by / Dr. Fayez Al-Fadhli

The transfer of usufruct rights over industrial plots from the original beneficiary to his heirs constitutes one of the complex legal issues in the State of Kuwait, particularly in light of the absence of an explicit legislative provision that determines the legal nature of this right and its fate after death. The Court of Cassation has addressed this issue, establishing a set of fundamental judicial principles that resolved the controversy surrounding it. This analysis aims to illuminate the reasoning underlying the two judgments rendered in Civil Appeals Nos. 950 and 968 of 2012, and the judgment rendered in Civil Appeal No. 2531 of 2017, which constitute fundamental precedents for understanding the legal nature of industrial plots and the usufructuary's right therein. The Legal Nature of Industrial Plots: Private Property, Not Public Property The Court of Cassation established a principle stipulating that industrial plots owned by the state are not considered public property, but rather are classified as part of the state's private assets.1 This principle is justified on the grounds that these plots lack the element of 'allocation for public benefit,' which distinguishes public property. Since they constitute private property, they are subject to the provisions of private law regarding their exploitation and management1, and the relationship between the state and the beneficiary constitutes a contractual relationship governed by a lease contract or temporary license for usufruct.1 This legal characterization of industrial plots constituted the cornerstone for rejecting the claim brought by one of the heirs who sought the partition of the usufruct right or its sale by public auction. Had the plots constituted public property, they would have been inalienable and immune from attachment, which would align with the court's final determination; however, their characterization as private property compels the court to examine more thoroughly the inherent nature of the right itself. The Distinction Between Personal Rights and Real Rights: The Essence of the Ruling The Court of Cassation accorded paramount importance to the distinction between these two types of rights; whereas a real right (such as the usufruct right stipulated in Article 944 of the Civil Code) constitutes a direct right over property that grants its holder the authority to use and exploit it without interference from the owner 1, a personal right requires intervention from the lessor or owner for its exercise to be possible.1 Accordingly, the court established that the usufructuary's right in the industrial plot constitutes a personal right rather than a real right.1 The plot is leased to the parties pursuant to a lease contract, and their rights therein are constrained by the contractual terms and contingent upon obtaining permission or authorization from the General Authority for Industry.1 Consequently, the provisions governing joint ownership cannot be applied to such rights, whether through partition in kind (by division and allocation) or partition by liquidation (by sale at public auction), as these provisions apply exclusively to joint real rights.1 The court also affirmed that the buildings erected by the usufructuary on the plot do not confer upon him a real right thereto, but rather their fate remains tied to the contract, whereby these structures revert to state property without compensation upon the termination or rescission of the contract.1 This principle prevents any attempt to claim ownership of the buildings separately from the usufruct right, and confirms that the fundamental obligation of the heirs is to preserve the unity of the leased property. Transfer of Right by Inheritance: Co-tenancy in Obligation Rather Than in Ownership Upon the death of the usufructuary, the usufruct right in the plot transfers to his heirs "in co-tenancy".1 However, the court clarified that this co-tenancy does not constitute "co-tenancy in a real property right", but rather "co-tenancy in obligation".1 This solidarity among multiple lessees is implicitly derived from the contractual terms, even where not expressly stipulated.1 The court based this conclusion on the fact that the plot was leased to the heirs collectively without allocating a specific area to each heir individually, and all were jointly liable for the rent.1 This joint liability renders the contractual obligation indivisible vis-à-vis the State. Consequently, the heirs may not seek partition of the plot in kind or its sale, as this would result in fragmentation of the leased property and division of their joint obligation, thereby creating multiple contractual relationships with the State without contractual basis or its consent.1 Based on these considerations, the court rejected the request to sell the usufruct right by public auction, affirming that this act constitutes a waiver of the lease right that was not stipulated in the contract 1, and that it also contravenes Law No. 105 of 1980 concerning the State Property System, which did not authorize the offering of industrial plots or usufruct rights therein for sale by public auction, as the right granted to them is usufruct only. State Obligation and Determination of Inheritance Shares The judicial rulings did not explicitly establish the existence of an obligation upon the General Authority for Industry to transfer usufruct rights to heirs on a mandatory basis.1 Rather, they demonstrated that its role is to "acknowledge" such rights, as evidenced when the Director General of the Authority issued a certificate acknowledging their right in the plot.1 This clarifies that the heirs' right constitutes an inherited right derived from their predecessor based upon an existing contract, rather than a right granted de novo by the Authority. As for the inheritance shares designated for the heirs, the accompanying judicial rulings did not address their particulars. The plaintiff sought thedistribution of the sale proceeds among them, each according to his respective entitlement" 1, which presupposes the existence of the statutory shares without the court having specified them. This is attributable to the fact that the determination of statutory inheritance shares falls within the jurisdiction of personal status courts, rather than within the competence of the civil court that adjudicated the dispute concerning the nature of the inherited right and its susceptibility to partition or alienation. Summary of the principle These judicial rulings constitute a decisive legal precedent, establishing clear principles regarding the legal nature of state-owned industrial plots, resolving the jurisprudential debate concerning the nature of the usufructuary's right thereover, and confirming it as a personal right to which the provisions of joint ownership do not apply. Furthermore, they established a definitive framework governing the transfer of such rights to heirs, affirming that their obligations toward the state constitute joint and indivisible liabilities, thereby precluding any claim for partition of the plot or its alienation. This judicial precedent indicates the necessity of finding consensual solutions among heirs for the joint management of the plot, away from judicial proceedings that have proven ineffective.

Merger... In Accordance with Corporate Laws, Capital Markets, and Competition Protection An analysis of the concept and its impact on the rights of shareholders and contractors Merger transactions experience economic and legal shifts and influence the positions of stakeholders interacting with the merged entities A merger is a voluntary agreement between two companies to unite and consolidate their operations to establish a new legal entity or company The parties to the merger must be prepared to address the risks of contract and agreement breakdowns that may cause transaction instability and give rise to unforeseen legal disputes. The purpose of mergers and acquisitions is to generate significant added value for both parties to the transaction. In cases of acquisition without «competition» approval or the submission of misleading information, financial penalties may be imposed up to a specified percentage of the transaction value. The merger generates a several-fold increase in strength and advancement regarding the stability and growth of the combined entities. Customers and shareholders are entitled to object to mergers if their interests are adversely affected, while regulatory authorities are empowered to consider such objections. The objective of mergers and acquisitions is to achieve substantial added value for both parties to the transaction. Creating opportunities for expansion that open new avenues for unconventional growth. If shareholders believe that their rights have been infringed as a result of the merger, they may seek recourse through the judiciary. The acquiring company is obligated to fulfill all obligations arising from contracts entered into by the acquired company. The capital and business markets have recently undergone economic changes that have prompted numerous entities to expand their operations and economic scope, thereby driving them toward acquisition and merger transactions. Given the economic, commercial, and legal ramifications of these changes on such companies, a series of legal inquiries emerges concerning the consequences and effects resulting from acquisition and merger operations. The importance of the study, prepared by Arkan Law and Consulting Firm, rests in the impact of the merger on contracts concluded between third parties and the merged company or institution, especially when its constitutional and legal framework differs from that of the merging company. This matter is particularly significant as we are on the verge of one of the largest merger transactions between two financial institutions in the banking sector, following the recent completion of similar mergers between banking institutions. The issue arises when the merged banking institution is conventional, and the merging entity is an Islamic banking institution, or vice versa, particularly given that the legislator mandates Islamic banking institutions to comply strictly with Islamic Sharia provisions. Kuwaiti jurisprudence has firmly established the nullity of any contracts contravening Sharia within Islamic banking institutions. This forms the basis for the significance of this study. At the outset of this study, we wish to highlight the distinction between the concepts of merger and acquisition. Despite the similarity in merger and acquisition contracts in terms of the role of intermediaries, asset valuation criteria, and arrangements regarding the fate of contracts linked to those entities and shareholders’ stakes, there are two criteria to differentiate between a merger and an acquisition, namely: - the consideration granted: if the consideration granted to the shareholders is cash rather than a share in the other company, the transaction is regarded as an acquisition rather than a merger; conversely, if the consideration comprises a share in a company, the transaction is deemed a merger and not an acquisition. - Company Capital: If the company has not been dissolved following the purchase of another company’s shares, the transaction is classified as an Acquisition; however, if a new company is established or the acquiring company’s entity continues to exist, it is considered a Merger. On this basis, we undertake this study exclusively, since the significant similarity subjects both scenarios to the same scrutiny, regulatory framework, requirements, and legal issues; therefore, we will explain the concept based on one scenario, namely the Acquisition, as follows: Firstly: The concept of merger according to the Kuwaiti Companies Law - The Kuwaiti Companies Law, as set forth in Law No. 1 of 2016, governs the merger process between companies through a series of provisions aimed at protecting shareholders’ rights and ensuring transparency of operations, and this law comprises: Definition of merger Merger is defined under Article 242 of the Companies Law as a process in which two or more companies combine to form a new legal entity, wherein the assets and liabilities are merged, resulting in the transfer of rights and obligations of the merging companies to the newly established entity. 2.Merger Procedures The law requires the Applicant Company for Merger to submit a formal offer to the Board of Directors of the Target Company. The offer must include all details concerning the merger, including the consideration and other conditions. The law mandates that the Board of Directors of the Target Company act in the best interests of the Shareholders and provide recommendations regarding the submitted offer. Shareholders’ Rights Pursuant to the Kuwaiti Companies Law, when the Board of Directors resolves to approve a merger, shareholders are endowed with several rights to safeguard their interests and ensure their equitable representation. These rights encompass the following: The Right to Receive Information Shareholders have the right to access all necessary information pertaining to the merger process, which must be clear and comprehensive, including details on the terms of the transaction, the anticipated impact on the company and its operations, and the manner in which the merger will affect shareholders’ rights. The Right to Vote The merger transaction must be submitted for a vote at an extraordinary general assembly meeting, and shareholders must approve the transaction by a specified majority of votes, which may be either a simple majority or a two-thirds majority of the shares represented at the meeting, in accordance with the Companies Law and the Articles of Association. The Right to Object Shareholders dissenting to the merger transaction have the right to express their objection during the general meeting, and in certain cases, may also have the right to challenge the approval decision if there is evidence of bias, lack of transparency, or infringement of their rights as shareholders. Minority Shareholders’ Rights 1 - The Right to Protection from Exclusion The Kuwaiti Companies Law guarantees the protection of minority rights of shareholders by prohibiting the majority from adopting decisions that result in their exclusion or the unfair reduction of the value of their shares, while deemphasizing the importance of their decisions through the implementation of multiple rights and procedures aimed at safeguarding those rights. 2 - The right to submit a complaint Minority shareholders are entitled to lodge complaints with judicial authorities if they consider that their rights have been infringed by decisions of the Board of Directors or the majority. Such complaints may be pursued under criminal law in instances of manipulation and breaches committed by the Board of Directors, or through actions seeking the annulment and invalidation of general assembly resolutions that violate the law and the regulatory framework protecting shareholders’ rights and damaging their interests. 3 - The Right to Sell at Fair Value In the event of a merger between companies, minority shareholders have the right to request the sale of their shares at a fair value reflecting the true market value of the shares. The valuation must be transparent and independent to ensure the protection of minority rights, as the Kuwaiti Companies Law guarantees the rights of shareholders, particularly the minority, in the event of a decision to proceed with an acquisition. These rights ensure the fair representation of the interests of all shareholders and provide necessary protection against any practices that may harm them, thereby enhancing the integrity and transparency of acquisition procedures. Secondly: Merger pursuant to the Kuwaiti Capital Markets Authority Law Capital Markets Authority Law No.7 of 2010 establishes the regulatory framework for mergers involving joint-stock companies listed on the Kuwait Stock Exchange, supervised by the Capital Markets Authority. The Law has regulated, pursuant to the provisions of Chapter Nine (Mergers and Acquisitions), several matters, foremost among them: disclosure and the mandatory tender offer for acquisition bids within the framework of the Capital Markets Authority Law, including procedures and requirements related to disclosure and transparency when submitting an acquisition offer for a company listed on the market. This procedure aims to protect the rights of shareholders and other investors by ensuring the availability of necessary information to make informed investment decisions. 1 - Disclosure The Capital Markets Authority law requires parties intending to make a takeover bid for a listed company to provide comprehensive disclosure, including detailed information on: The identity of the merger applicant. The terms and conditions of the offer. The intentions and future plans for the merger regarding the company submitting the application. Any financing arrangements to support the offer. Details regarding any prior communications or agreements made with the Target Company or with members of the Board of Directors. 2 - Mandatory Tender Offer The merger applicant is required to submit a mandatory tender offer to all shareholders of the company subject to the merger and the consequent dissolution of its legal entity, including detailed terms of the offer for the shareholdings in the Target Company, as determined pursuant to the law and the regulations issued by the Capital Markets Authority. Mandatory tender offer requirements include: Submitting the offer to all shareholders, thereby providing them with the opportunity to sell their shares under identical terms. Presenting the offer at the same price and conditions for all the shares concerned. Respecting minority shareholders' rights and ensuring fair and equal treatment for all. 3 - Procedures and timelines Following the initial disclosure, the Merged Company must submit the formal offer within a specified timeframe. The offer must remain open for a designated period to allow shareholders to make an informed decision regarding the merger process, evaluating whether it serves the interests of the company without conflicting with or impairing their rights. Furthermore, the Board of Directors of the receiving company must disclose the final results of the offer immediately upon its closure. 4 - Penalties In the event of non-compliance with these requirements, the relevant parties may be subject to legal penalties, which may include financial fines and other legal measures. This disclosure and mandatory tender offer are mandated by the Capital Markets Authority law, as they are essential to ensuring the transparency and effectiveness of the acquisition process and to safeguarding the interests of all stakeholders in the Kuwaiti capital and commercial markets. Thirdly: Merger under the Kuwaiti Competition Protection Law The Competition Protection Law, issued pursuant to Law No. 72 of 2020, Article 10 of the Law on Economic Concentration, aims to prevent monopolistic practices, promote fair competition in the market, and regulate acquisition as a major commercial practice, in order to achieve the primary objectives of preventing monopoly and ensuring economic balance and transparency in commercial transactions. The Law requires several conditions to complete Merger and Acquisition operations, as follows: Approval of the Competition Protection Authority The Law requires companies seeking to merge with other companies to obtain approval from the Competition Protection Authority if the merger may have a significant impact on market competition; accordingly, the Law prescribes conditions for submitting merger applications to the Competition Protection Authority in order to ensure stringent oversight of such operations, including: Full Disclosure The company intending to effect a merger must submit an application containing all necessary information and data clarifying the nature of the transaction and its anticipated impact on the market. This includes furnishing details concerning the involved companies, their current market shares, the sectors in which they operate, the economic forecasts arising from the merger, and all pertinent data and information that enable the authority to make an informed decision regarding the process. Submission of the approval request to the Authority The request must be submitted prior to the completion of the transaction and obtaining the Authority’s approval, to ensure that the transaction does not result in monopolistic practices, diminish fair competition in the market, or cause economic disruption within the commercial sector of the merged entities, such as: the banking sector, insurance, industrial, consumer sectors, or others. The Applicant's Obligation to Transparency The Applicant Company for Merger must disclose all details pertaining to the transaction, including any potential changes in the company’s policies or organizational structure, the future plan, the objectives of the merger, and other matters relevant to the regulatory authority and stakeholders for their review, in order to ensure the highest level of transparency and fairness. The competitive impact analysis of the merger entails a comprehensive evaluation of the merger process's effect on the market structure and competition among the active companies. The analysis includes: Defining the market in which the merger's impact will be assessed, whether a local market or a specific economic sector. Assessing the market shares of the merged company and the acquiring company making the offer, both before and after the merger. If the combined market share of the two companies is excessively large, this may adversely affect competition. An assessment of how the merger impacts other competitors in the market is required, including the potential for monopoly formation or a reduction in the number of key market players, as well as an analysis of whether the merger will lead to price increases, diminished consumer choice, or a decline in product and service quality. Additionally, consideration must be given to the ease or difficulty of market entry for new firms post-merger, which could mitigate negative effects on competition. The economic concentration condition guaranteed by Competition Law, considered a primary criterion in merger applications, refers to the threshold beyond which the combined market share of the merged companies may impede competition. Under the law, there are legal limits defining a specific economic concentration threshold which, if exceeded by the merger process, may be deemed detrimental to competition and thus necessitate further review or merger rejection. Should the merger exceed these limits, the concerned companies must submit an application to the Competition Committee to obtain approval. The Committee examines the application and performs a competitive impact analysis to determine whether the merger should be permitted, rejected, or subject to specific conditions. In certain cases, the Competition Committee may approve the merger on the condition that the involved companies implement measures to alleviate economic concentration, such as divesting certain assets or permitting the entry of new competitors. Compliance with the requirements of competitive impact analysis and surpassing the economic concentration threshold is essential to ensure that merger or acquisition operations do not harm competition or create monopolies in the market. Failure to comply with these conditions may result in the rejection of the merger or the imposition of legal sanctions on the concerned parties. These regulatory instruments are vital for maintaining a competitive and balanced market, thereby fostering innovation and offering consumers improved options at reasonable prices. The Competition Protection Law prescribes the penalties to be imposed on violators, which consist of the following: 1 - Financial penalties If the acquisition is completed without obtaining the Authority’s approval or if misleading information is submitted, the Authority may impose significant financial penalties on the company concerned. Such penalties may amount to a percentage of the transaction value or take the form of a fixed sum determined by the Authority. 2 - Transaction Cancellation If the acquisition leads to a significant reduction in competition or the creation of a monopoly, the Authority may decide to retroactively cancel the transaction and restore the situation to its state prior to the merger. 3 - Legal Procedures The Authority may initiate legal proceedings against companies that violate the laws, which may result in criminal or civil penalties against the company or its directors should the Authority find evidence of fraud or violations that raise criminal suspicion, falling within the penalties prescribed by Competition Law or the Kuwaiti Penal Code. 4 - Remedial Measures The Authority may require companies to implement specific remedial measures, such as divesting certain assets or separating particular divisions, to ensure the continuation of fair competition in the market. Legal Procedures during the Merger Process: Objections from Affected Parties Inside and Outside the Company «Shareholders of the target or acquiring company may submit objections during the general meetings addressing the merger process. Through this objection, they may raise their concerns or oppose the submitted offer. Furthermore, affected parties outside the company, contractors, or anyone with an interest harmed by the merger process—which may infringe upon their rights and directly or indirectly affect their interests—may initiate legal proceedings through the judiciary. Should shareholders consider that their rights have been harmed as a result of the merger process, they may seek judicial remedies to annul the merger or amend its terms. For instance, if there are doubts concerning the fairness of the proposed offer or the method of executing the merger process, other affected parties, such as competing companies or entities responsible for market competition, may submit a formal objection to the Kuwaiti Competition Committee. Such objection may be grounded on the assertion that the merger process will result in market monopoly or an unjustified diminution of competition. Any party who believes that they may be harmed by the merger process may submit a complaint to the Capital Markets Authority or any other relevant regulatory body. Such bodies may include authorities responsible for overseeing transparency and disclosure in the capital market. Procedures for Objection Submission of Complaints «Affected parties must submit written complaints to the competent authority, whether judicial bodies or the Authority in its capacity as the supervisor of the merger process, notifying the relevant officials within the Authority of the damages and risks resulting from the consummation of the transaction, and detailing the reasons and evidence supporting their objection». Investigation Procedures «The competent authority, such as the Competition Committee or the Capital Markets Authority, may investigate objections submitted by the objectors, clarify these objections, and verify their seriousness and validity. This also includes requesting additional information from the concerned parties and analyzing the merger’s impact on the market». Decision Making «Based on the investigation results, the competent authority may decide to halt the merger process, impose specific conditions and controls to ensure competition, fairness, and transparency in a fair economic market, or reject the objection and permit the process to proceed». The Effect of the Merger on the Contracts of the Merged Company and Its Relations with Third Parties: Transfer of Obligations and Rights Upon completion of the merger process, all obligations and rights stipulated in the executed contracts of the merged company shall transfer to the acquiring company. This means that the acquiring company substitutes the merged company in all contracts and legal relationships with third parties. The Acquiring Company commits to fulfilling all obligations arising from the executed contracts of the Merged Company, including the payment of amounts due, delivery of products or services, and compliance with all other contractual terms. The Acquiring Company must notify third-party contractors (contractors with the Merged Company) of the merger process and confirm the continuation of the contracts without modification. In most cases, contracts do not require modification unless they explicitly exclude the transfer of rights and obligations specifically referenced therein. Contracts of the Merged Company Containing an Arbitration Clause The Acquiring Company is obligated to arbitration in the event of a dispute and assumes liability as a party to the contract, unless the notification expresses the Acquiring Company’s refusal, which legally substitutes the Merged Company, on the basis that the arbitration clause is a special provision requiring explicit and direct consent from the legal representative to arrange an amendment of the agreement with a third party who is not a contracting party of the Merged Company, notwithstanding the third party’s right to rely on this clause, pursuant to the principle of legal substitution. Conversely, third parties are entitled to exercise the same right by requesting that the contracts not be enforceable against them if there is a non-assignment clause and the contract is transferred to others. Accordingly, the clause authorizes them to suspend the contract and grants the right to prior notification of the merger process, whether to continue or terminate the contract. Contracts containing an explicit clause stipulating their cancellation or amendment upon the occurrence of a merger may be terminated by the other party or subject to renegotiation of the contract terms. There are contracts subject to a condition, suspensive term, or pending execution; the Acquiring Company assumes responsibility for their execution and completion, or for negotiating new terms if necessary. Legal and contractual liabilities transfer to the Acquiring Company, including any breaches of contracts assigned from the Merged Company to the Acquiring Company, encompassing liability for damages, compensation arising from such contracts, and all associated legal rights. In summary, a merger entails the transfer of all obligations and rights from the merged company to the acquiring company, thereby rendering the acquiring company the new party to all contracts executed by the merged company. The acquiring company must manage this relationship with due diligence to ensure contractual continuity and safeguard the rights of third parties generally. Specifically, there are inevitably additional issues that will arise in the event of differing legal frameworks governing the two companies, as follows: Merger of the Islamic financial institution into a conventional financial institution, and its impact on the executed contracts prior to the merger process: These legal challenges arise from the divergent legal status of each entity, some operating under the Islamic legal system, others subject to the legal rules and Islamic financial framework governed by Islamic Sharia, and others under the conventional financial system. These challenges will confront the companies subsequent to the completion of the merger transaction, which must be thoroughly prepared to address them, in order to mitigate risks of contract and agreement dissolution, which may result in instability in transactions and contractual relations, provoke litigation disputes with clients, and cause unforeseen losses. Among these challenges are: Contractual Obligations: Existing contracts are generally maintained until they are reviewed by the merging bank. These contracts include: loan agreements, deposit agreements, letters of guarantee, current accounts, overdrafts, and interest accrued during the operation of the current account. All these contractual obligations with clients were concluded under the conventional system; however, according to the acquiring company's framework, they must comply with the Islamic legal system, which mandates amendments to contracts and terms to align with Islamic Sharia, the elimination of all usurious interest, and the establishment of new Islamic transactions that carry a new legal effect and status for prior banking and financial dealings that may precede the creation of the merged financial institution. This necessitates modifying those agreements, requiring the client's consent to enter into new contracts and agreements, which is not permissible under the principle of legal succession, as discussed in this study on legally analogous systems. Usurious Transactions: In the event of any transactions identified as usurious or interest-bearing, the Islamic Bank must consider how to address these transactions to ensure compliance with Islamic Sharia. This may necessitate restructuring certain loans or providing alternative options to clients. Assessment of Assets and Liabilities: The Islamic Bank may be required to conduct a comprehensive evaluation of assets and liabilities to ensure their compliance with Islamic principles. Customer Notification: The merging financial institution subject to the Islamic system must notify the clients of the conventional bank of the new transformations, their impact on them, the new transactional solutions, and the offers made to them, to ensure their continued engagement under the new structure, the signing of the new amendments, and the client's right to reject such amendments. Sharia Supervisory Oversight: Among the requirements of Islamic institutions is the establishment of a Sharia committee responsible for reviewing all contracts and transactions of the financial institution to ensure their compliance with Islamic Sharia. Accordingly, all contracts and dealings of the conventional institution must be presented to this committee for its Sharia opinion prior to commencing operations as a single entity. Completing the acquisition and continuing conventional transactions under the umbrella of the Islamic institution exposes it to violations by the central bank and other regulatory authorities. Given the large volume of such transactions, the scale of violations should not be underestimated, and the acquiring company may face significant issues and penalties. Client’s Refusal to Continue or Amend the Contract: The client may reject the proposals of the financial institution subject to Islamic Sharia for any reason, whether due to unwillingness to participate in that system or due to changes in interest rates and financial benefits affecting the speed of loan repayment and interest reduction. Given the impossibility of continuing his traditional transactions, such dealings will be terminated, and the client will be required to close his account from a procedural standpoint. However, it must be acknowledged that he retains the right to claim compensation for any damages incurred as a result, since the merger served the interests of two institutions rather than the client, who structured his commercial dealings based on loans, facilities, or deposits guaranteeing the continuation of his commercial activities, which he is now obliged to cease in adherence to the new system. Acquisition Conditions A Merger or Acquisition in Kuwait is subject to the supervision of multiple laws and regulatory bodies, aimed at ensuring transparency, protecting the rights of shareholders, merchants, and clients, and promoting fair competition. Transparency and full compliance with applicable laws constitute fundamental conditions for submitting acquisition applications. Failure to comply may result in severe penalties, including: financial penalties, transaction annulment, and legal proceedings. These terms and penalties aim to preserve competitive balance in the market and prevent monopolies that could adversely impact the economy and consumers. Within the framework of multiple laws and regulatory bodies, the mergers and acquisitions process generally proceeds through precise procedures and stages requiring meticulous attention from practitioners in this field, to avoid incurring the penalties stipulated in the relevant regulations. Prepared by / Dr. Fayez Al-Fadhli