Move to reduce risks tied to money laundering, terror financing

KUWAIT CITY, Dec 10: According to informed sources, the Central Bank of Kuwait has shown extra concern towards the movement of funds outside the banking system, either between individuals and exchange companies, or between authorized money changers themselves, as these companies are prohibited from importing dinars in “cartons” from abroad, as is customary by them, especially if the amount transferred by shipment exceeds KD 3,000.

They explained that the regulator, within the framework of reducing the risks associated with money laundering and terrorist financing crimes, stopped the shipments of cash that used to arrive in Kuwait through its various outlets, imported from abroad to some exchange companies, especially in light of the continuous development of their methods, reports Al-Rai daily.

Values of the amounts in these shipments sometimes reached KD one million per day. Some exchange companies depend on the formation of cash liquidity from the dinar on more than one source of cash, including buying it from exchange companies and foreign parties, in a way similar to conducting an exchange between the local currency abroad and currency of the country exchanged with its companies.

When Kuwaitis and expatriates are outside Kuwait, they convert dinars into the currency of the country they visit. In this case, liquidity levels are formed from the dinar.

As a result, a balance of the dinar is formed at some foreign companies, most of which are small companies seeking to reduce their cost. On the other hand, there are cash centers that are made up of local companies from foreign currencies that are also formed as a result of foreign currency transfers to local ones by consumers who came to Kuwait. Some local exchange companies have the tradition of coordinating with companies operating in neighboring markets. Majority of them perform similar activity, in order for the dinar sums to be imported cash that existed with these authorities through traditional shipping methods, either by exchanging them for other currencies that are exported from Kuwait or by buying them directly. These amounts usually arrive at Kuwait Airport in cartons, and their values range between a quarter of a million to one million dinars.

Regulations
Exchange companies have been working with this mechanism for years. However, the Central Bank of Kuwait recently informed them that they are not allowed to import cash exceeding KD 3,000 from abroad through traditional shipping systems, and that they must replace this method in favor of transferring through banking systems.

This prompted a hidden rejection of the supervisory decision by these companies. Of course, the Central Bank’s decision is part of a number of procedural steps it has taken in coordination with the relevant regulatory authorities in the matter of combating money laundering and terrorist financing. With the development of this type of crime, it will be possible to use cash shipments transferred to Kuwait to smuggle illegal funds. The concerned local authorities have been waging a wide campaign to combat the phenomenon of money laundering with rapid and strong steps to face its repercussions. The development of tools of this phenomenon required further restrictions on all possible outlets for suspicious money movements, including the cartons of cash that reached Kuwait years ago via shipping.

Remittances
Perhaps the question that arises strongly in this regard is – why do local exchange companies not obtain this cash flowing to them from abroad through transfers received through banking systems, just as their main activity depends on this matter with the remittances of expatriates, where they open a main account in a bank and through it they deposit and withdraw money according to its activity?

The sources say the main reason that motivates exchange companies to import high levels of the liquidity of the dinar through cartons is that these sums will be exchanged at their exchange rate or on demand, in addition to the cost of transporting these funds, which is low when transported by the shipping system, as it is calculated on the kilo price system. In the event that it is transferred through the banking system, it will have to pay additional fees to the banks, which means in the account that the margin of investment return that can be collected from these funds will narrow in the case of transferring them through the usual bank accounts, which leads them to prefer shipping the money through the carton.

The sources revealed that the Central Bank of Kuwait appeared firm in its stance in this regard, indicating that the profit margin is diminishing in the face of money laundering and terrorist financing operations. They added that the Central Bank of Kuwait prohibits exchange companies from accepting cash from customers to pay the value of their required transactions that exceed KD 3,000 or its equivalent in foreign currency within one day, as what exceeds this limit must be paid as a deduction from the customer’s account in a bank or by using another banking method that is permitted payment instrument.