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Dispute resolution

Protection of Company Secrets and Non-Competition, and the Right of Recourse against Employees

Introduction: The Problem of Protecting Commercial Secrets in a Competitive Environment Companies in the modern era face a fundamental challenge in maintaining the confidentiality of their commercial information, which constitutes the core of their competitive advantage and the cornerstone of their success. This problem arises from an inevitable paradox: a company invests vast resources in training and developing its employees, granting them, by the nature of their work, broad authority to access its most sensitive operational and commercial secrets, from marketing plans and client lists to pricing strategies. This very investment in human capital is what creates the most significant vulnerability. A company's success and distinction in the market make it a target for competitors, who seek by various means to obtain the information that gives it an edge. The poaching of employees who hold these secrets, or enticing them to leak information, becomes a primary tool in unfair competition, posing a great threat to the continuity of commercial activity and the integrity of the market. From this standpoint, it has become imperative for companies to establish multi-faceted protection mechanisms that are not limited to technical fortifications but extend to include an integrated legal and procedural system aimed at protecting their intangible assets and deterring all illegal practices that threaten the continuation of their success. This study addresses the legal foundations upon which a company can rely, the caveats that must be heeded, and the legal solutions available to ensure its right to confront these challenges. First Axis: The Employee's Liability and the Company's Right of Recourse The company's right to pursue an employee who has leaked its information is not based on a single legal ground, but on an integrated system of liabilities arising from their action, which grants the company multiple and robust options for recourse against them. Contractual Liability: Direct Breach of the Employment Contract The employment contract signed by the employee represents the primary document governing their obligations. In our case, the act of leaking constitutes an explicit and direct breach of their contractual obligations, specifically: Clause 11 (Confidentiality): The employee has breached their explicit undertaking not to disclose or use any trade secrets or confidential information they became privy to by virtue of their work, such as client lists and pricing agreements. Clause 9 (Termination of Contract): This clause grants the company the right to terminate the contract immediately if "gross misconduct" is proven, and leaking confidential information to a competitor is a perfect embodiment of this concept. Right of Recourse: Based on this liability, the company is entitled to dismiss the employee with cause and with forfeiture of their end-of-service benefits and payment in lieu of notice, which is known as "dismissal with forfeiture of benefits." Labor Liability: Violation of Kuwaiti Labor Law Labor Law No. 6 of 2010 for the Private Sector supports the company's position with mandatory provisions that cannot be contravened: Article (61): This article imposes a general legal duty on every worker to "preserve the secrets of the work" and considers disclosure a "breach of the contract". Article (41): This article grants the employer the right to dismiss the worker without notice, compensation, or indemnity if the worker "discloses secrets of the establishment which has caused or would have caused substantial losses to it". Right of Recourse: These articles provide the company with an absolute legal basis to apply the penalty of dismissal with forfeiture of benefits, which is the most severe penalty under labor law. Criminal Liability: Characterizing the Act as a Criminal Offense The employee's act can be legally characterized to fall within the scope of criminalization, which elevates the matter from a mere labor dispute to a crime punishable under public law. Article (240) of the Penal Code (Breach of Trust): This article applies to the situation, as the employee received "documents and other writings" (whether physical or electronic) in trust by virtue of their work. Their use or dissipation of these for a purpose other than the company's interest (by leaking them) constitutes the complete material and moral elements of the crime of breach of trust. Right of Recourse: The company has the right to file a criminal complaint with the Public Prosecution, which subjects the employee to criminal penalties including imprisonment and a fine. Civil Liability: The Right to Compensation for Damages The rules of the Civil Code allow the company to have recourse against the employee to claim financial compensation for all damages it has incurred as a result of their wrongful act. Basis of the Claim: The lawsuit is based on the principle that "every fault which causes harm to another obliges the one who committed it to provide compensation." Scope of Compensation: Compensation includes direct material losses (such as the loss of current clients or future contracts) and moral damages (such as harm to the company's commercial reputation). Right of Recourse: The company has the right to file an independent civil lawsuit to claim potentially substantial financial compensation, and Kuwaiti judicial precedents confirm the success of such lawsuits. Second Axis: Rules and Procedures for Maintaining Employee Compliance To prevent the recurrence of such incidents, the company must adopt an integrated protection strategy that combines contractual fortification with internal procedural oversight. Contractual Rules (Fortification through the Contract) The employment contract is the first line of defense and must include deterrent and legally sound clauses: Confidentiality Clause: This must be comprehensive, as is the case in your current contract, defining confidential information broadly so as not to be limited to specific categories, explicitly prohibiting acts such as copying, commercial exploitation, and personal use, and clearly stating that the confidentiality obligation extends beyond the termination of the employment relationship. Restrictive Covenants Clause: This clause, present in your contract as number (14), is a vital tool to prevent the leakage of employees to competitors. It must clearly include: Non-Competition Clause: Prohibits the employee from working for any direct competitor for a specified period (12 months in your contract) and within a specific geographical area (the GCC countries in your contract). Non-Solicitation of Clients and Employees Clause: Prohibits the former employee from contacting the company's clients or employees with the intent of enticing them to leave the company. Intellectual Property Clause: It must be emphasized that all innovations and works developed by the employee during their employment are the exclusive property of the company, which prevents them from exploiting such works after their departure. Customized and Updated Confidentiality Declarations: As an additional preventive measure, we recommend implementing a system of "Confidentiality Declarations." This is a separate document or an addendum to the contract signed by the employee, which includes a specific list of the confidential and important information, data, and documents they have access to by virtue of their position (e.g., list of major clients, details of strategic deals, specific software codes). The purpose of this procedure is to eliminate any future ambiguity about the nature of the information, so that the employee cannot claim they were unaware that this specific information was considered confidential or important. This declaration must be updated periodically whenever the employee is promoted, moves to a new department, or gains access to new sensitive information. Procedural and Internal Rules (Fortification through Policies) Information Classification and Security Policy: Establish a clear internal policy that classifies data (public, internal, confidential), defines how to handle each category, and requires employees to mark sensitive documents with a "Confidential" stamp. Limited Access Privileges: Apply the "need-to-know" principle, whereby an employee can only access information necessary to perform their duties, through specific permissions on electronic systems. Periodic Training and Awareness: Conduct regular workshops to educate employees on the importance of information confidentiality, explain their legal and contractual obligations, and clarify the severe consequences of leaks. Exit Process: Upon the resignation of any employee, an exit interview must be conducted in which they are reminded in writing of their ongoing confidentiality and non-competition obligations after leaving the company, and they must sign an acknowledgment of returning all company property (devices, documents) in accordance with Clause 19 of the contract. Third Axis: Legal Caveats and Liabilities When dealing with a leak incident, there are caveats and liabilities that the company must be aware of to avoid any adverse legal consequences. Employee's Liabilities (Consequences of Leaking) Labor Liability: Immediate dismissal without any end-of-service benefits. Criminal Liability: Judicial prosecution on charges of breach of trust, which may lead to imprisonment and a fine. Civil Liability: Being judicially ordered to pay substantial financial compensation to the company to redress the harm. Professional Liability: Severe damage to their professional reputation, which hinders future employment opportunities. Caveats Facing the Company (Risks to be Managed) Burden of Proof and Defining the Nature of Information: The company bears the responsibility of proving the leak incident conclusively and, more importantly, proving that the employee knew with certainty that the leaked information was "confidential" or "important." Here, the importance of the "Updated Confidentiality Declarations" we recommended becomes apparent. The employee's signature on a document that explicitly identifies this information closes the door to any argument or defense on their part that they were unaware of its confidential nature, thereby significantly fortifying the company's legal position. Risk of an Unfair Dismissal Lawsuit: If the company does not follow proper legal procedures in the investigation and dismissal (such as not giving the employee an opportunity to defend themselves), the employee may file a claim for "unfair dismissal," which could cost the company financial compensation. For this reason, the previously proposed action plan (general notice, covert investigation, then formal investigation) ensures the integrity of the procedures. Enforceability of Non-Competition Clauses: Despite their presence in the contract, courts may examine the reasonableness of non-competition clauses. If the duration (12 months) or the geographical scope (all GCC countries) is deemed excessive in a way that prevents the employee from earning a livelihood, the court may rule to reduce them or not enforce them. Therefore, these conditions must be proportionate to the employee's position and the nature of the information they possess. Reputational Damage from Public Litigation: Public litigation may harm the company's reputation, even if its position is strong. A balance must be struck between the right to litigate and the potential impact on the company's market image. Conclusion and Recommendations The company possesses a strong and multi-faceted legal right of recourse against the employee who caused the leak of its information, through labor, criminal, and civil tracks. To fortify the company in the future, we recommend the periodic review of contractual clauses (confidentiality, non-competition) and the implementation of strict internal policies for information security, along with adopting the mechanism of "Updated Confidentiality Declarations" as a decisive preventive tool. As for the current situation, scrupulously following the proposed action plan, with a focus on proper documentation of evidence and adherence to legal procedures in the investigation, is the primary guarantee for the company's success in holding the responsible party accountable, redressing the damage, and deterring any similar future attempts.  
Arkan International Legal Consultancy - October 16 2025
Commercial, corporate and M&A

 Entry of Major Corporations into Kuwait

A Brief Legal Report for the Entry of Major Corporations into Kuwait In Accordance with the Public-Private Partnership Law and the Direct Investment Promotion Law In the context of achieving Kuwait Vision 2035, which aims to diversify the national economy and reduce reliance on oil revenues, the State of Kuwait has enacted two strategic legislations to reshape its investment environment. These are Law No. 116 of 2013 on the Promotion of Direct Investment and Law No. 116 of 2014 on Public-Private Partnerships. The primary purpose of their issuance is to open new horizons for foreign capital and expertise, stimulate the role of the private sector in driving development, and accelerate the completion of major vital projects. The importance of these two laws lies in their provision of two integrated yet distinct tracks for entering the Kuwaiti market. The Direct Investment Promotion Law aims to attract global companies to establish independent commercial entities, offering unprecedented incentives, most notably the possibility of 100% foreign ownership and exemptions from taxes and customs duties, with the goal of transferring advanced technology, localizing knowledge, and creating quality job opportunities for citizens. The Public-Private Partnership Law was enacted to regulate the participation of the public and private sectors in financing, developing, and operating large-scale infrastructure projects, thereby alleviating the financial burden on the state budget and leveraging the efficiency and experience of the private sector in managing long-term projects. Together, these two laws form the cornerstone of Kuwait's strategy to enhance its investment attractiveness and support its national economy. Track One: Direct Partnership with the State in Vital Projects such as Infrastructure and Energy Projects Governing Law: Law No. 116 of 2014 on Public-Private Partnerships (the "PPP Law"). Primary Objective: To engage the expertise and financing of the private sector in the development, construction, and operation of major public infrastructure and services projects led by the government (e.g., power and water plants, transportation projects, and waste treatment). Supervising Authority: The Kuwait Authority for Partnership Projects (KAPP), which is the central body managing all project phases from tendering to awarding. Who is this track for? Ideal for companies aiming to build, own, and operate strategic assets for the government under long-term contracts, particularly for vital projects like energy and infrastructure, and the management of commercial facilities and zones, where the government is the primary off-taker of the service or product. Mechanism of Entry and Operation Ownership Structure (for projects exceeding KWD 60 million in cost): 26% to 44% for the winning foreign investor (or consortium). 50% offered for public subscription to Kuwaiti citizens through an Initial Public Offering (IPO). 6% to 24% retained by government entities. Procedures: KAPP issues a public tender for the project and invites companies for pre-qualification. Companies undergo a rigorous qualification process based on technical expertise and financial solvency. The winning investor is selected through a competitive process that ensures transparency. Investor Guarantees and Rights: Long-Term Contracts: The partnership contract can extend up to 50 years, providing investment stability. Risk Allocation: The contract clearly defines the distribution of risks between the government and the investor. Financing Guarantees (Bankability): The law permits the mortgaging of project assets and shares as security to obtain financing from banks. Dispute Resolution: The law allows for recourse to international arbitration if stipulated in the contract. Track Two: Independent Investment and Establishment of a Private Commercial Entity Governing Law: Law No. 116 of 2013 on the Promotion of Direct Investment (the "DIP Law"). Primary Objective: To attract value-added investments that contribute to technology transfer, create jobs for Kuwaitis, and diversify the economy. Supervising Authority: The Kuwait Direct Investment Promotion Authority (KDIPA), which acts as a "One-Stop Shop" to facilitate all licensing procedures. Mechanism of Entry and Operation Ownership Structure (The most prominent feature): Up to 100% foreign ownership of a Kuwaiti company or the establishment of a branch of a foreign company, granting the investor full autonomy and control. Procedures: The investor submits a direct application to KDIPA for an investment license. KDIPA evaluates the application based on the project's contribution to the national economy (such as technology transfer, job creation, strategic returns, and project importance). Investor Guarantees and Rights (Incentives): Tax Exemption: Exemption from income tax (15%) for a period of up to 10 years. Customs Duty Exemptions: Full or partial exemption from customs duties on the import of machinery, equipment, and materials necessary for the project. Strong Legal Guarantees: Protection against expropriation or confiscation, except for public benefit and with fair and prompt compensation. Freedom to Transfer Funds: Guarantee of the freedom to transfer profits and capital abroad without restrictions. Sectoral Restrictions: This law excludes activities related to the extraction of crude oil and natural gas (the upstream/exploration and production sector), but allows investment in the oil services, downstream, and petrochemical industries. Legal Guarantees for the Protection of Foreign Investments To foster a secure and attractive investment environment, both laws provide a set of fundamental guarantees aimed at protecting the rights of foreign companies. Guarantees under the Direct Investment Promotion Law (No. 116 of 2013) This law provides direct and explicit protections for the investor, which are among the most significant attractions for companies seeking autonomy and full control. Protection from Expropriation and Confiscation: Principle: A licensed investment entity may not be confiscated or expropriated except for public benefit and in accordance with the law. Compensation: In the event of expropriation, the law mandates "fair compensation" equivalent to the true economic value of the project at the time of the decision. The compensation must be paid promptly. This guarantee protects the investment from arbitrary actions and ensures against capital loss. Freedom to Transfer Funds: Principle: The law grants the foreign investor the full right to freely transfer their profits, capital, investment proceeds, and any due compensation abroad without restrictions. Importance: This guarantee is vital for international companies, as it ensures their ability to repatriate profits to their home country and manage their global cash flows with flexibility. Dispute Settlement: Principle: Although jurisdiction lies with Kuwaiti courts, the law permits agreements to resort to arbitration to settle any disputes that may arise. Importance: This option gives the foreign investor the ability to choose a neutral and internationally accepted mechanism (such as international arbitration) for dispute resolution. This mitigates concerns about potential bias in local courts and provides an effective and confidential mechanism for resolving conflicts. Kuwait is also committed to international investment agreements, which further enhances legal protection. Guarantees under the Public-Private Partnership Law (No. 116 of 2014) The nature of guarantees under this law differs, as they are primarily based on the contractual framework of the project itself, where the contract is considered the law of the parties (pacta sunt servanda). The Partnership Contract as a Primary Guarantee: Principle: The main guarantee for the investor is the "Partnership Contract" itself, which is a detailed, long-term legal document (up to 50 years) that precisely defines all rights and obligations of both parties (the government and the investor). Importance: The contract provides a stable and predictable long-term legal framework. It includes detailed clauses on risk allocation, payment mechanisms, performance standards, and contract termination conditions, which reduces ambiguity and protects the investor from sudden political or administrative changes. Financing Guarantees (Bankability): Principle: The law enhances the bankability of projects by allowing the investor to mortgage project assets and shares in the project company as security for lenders. Importance: This guarantee is crucial for attracting financing from international and local banks, as it provides lenders with a mechanism to recover their funds if the project defaults, thus making the financing of large-scale projects feasible. Dispute Settlement via Arbitration: Principle: The law explicitly permits recourse to arbitration to settle disputes arising between the contracting parties, provided it is agreed upon in the contract. Importance: As with the DIP Law, this provision gives the foreign investor additional confidence by providing a neutral and effective mechanism for settling complex disputes that may arise in long-term projects, away from traditional judicial proceedings. Strategic Summary for Major Corporations To execute a large-scale infrastructure project for the government (e.g., a power plant): The mandatory track is the PPP Law (KAPP). The company must be prepared for a joint ownership structure and a lengthy, competitive tendering process. To provide specialized services or advanced technology to the Kuwaiti market: The optimal track is the Direct Investment Promotion Law (KDIPA). This track offers complete autonomy and strong financial incentives, allowing the company to operate as an independent commercial entity that can contract with both the government and the private sector. Writer is Managing partner : Dr.fayez Alfadhli Counsal
Arkan International Legal Consultancy - October 13 2025
Dispute Resolution

Anti-Money Laundering in Kuwait: The Expanding Role of the Compliance Officer

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
Arkan International Legal Consultancy - September 8 2025
Dispute Resolution

Judicial Principles on Inheriting Industrial Plots in Kuwait

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.
Arkan International Legal Consultancy - September 8 2025