AML Compliance Guidelines: Bahrain

The Kingdom of Bahrain has established itself as a leading financial hub in the Middle East, leveraging its robust legal framework and commitment to international standards to combat money laundering (ML) and terrorist financing (TF). 

This document explores Bahrain's Anti-Money Laundering (AML) and Counter-Terrorism Financing (CFT) compliance guidelines, detailing its legislative framework, enforcement mechanisms, and obligations for businesses and individuals.

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Bahrain’s Legislative Framework for AML and CFT

The cornerstone of Bahrain’s AML/CFT framework is Legislative Decree No. (4) of 2001 Concerning the Prohibition of and Combating Money Laundering. This decree criminalises money laundering and imposes strict obligations on individuals and institutions to prevent such activities. The legislation has been amended multiple times to address evolving risks and to align with international standards:

• Law No. 54 of 2006: Introduced prohibitions against financing terrorist organisations and individuals.
• Decree-Law No. (29) of 2020: Strengthened provisions for AML and CFT, addressing emerging challenges such as the use of virtual assets in illicit activities.

There are also supplementary laws:

• Order No. 7 of 2001: Obligations for financial institutions to combat ML.
• Law No. 8 of 2004: Approved Bahrain’s accession to the UN Convention against Transnational Organized Crime.
• Legislative Decree No. 26 of 2002: Approved the Treaty of the Islamic Conference Organisation for Combating International Terrorism.
• Order No. 126 of 2011 and subsequent amendments (e.g., Order No. 6 of 2012): Outlined AML/CFT obligations for businesses registered in the Commercial Register.
• Legislative Decree No. (7) of 2017: Approved the Arabian Treaty for Combating Money Laundering and Terrorism Financing.
• Ministerial Order No. 173 of 2017 (amended by Order No. 108 of 2018): Expanded AML/CFT obligations for entities registered in the Commercial and Audit Registries.

Who Must Comply?

The legislation applies to all individuals and entities within Bahrain, including:

• Natural Persons: Individuals conducting financial transactions.
• Corporate Entities: Banks, financial institutions, law firms, auditing firms, and other businesses outlined in the legislation’s Schedule 1.
• Non-Profit Organisations (NPOs): Organisations susceptible to misuse for financing terrorism.

Bahrain’s AML/CFT laws extend beyond its borders. Criminal activities conducted abroad are prosecutable in Bahrain if the proceeds are dealt with domestically. Additionally, Bahrain cooperates with foreign jurisdictions, recognising money laundering as a crime based on ratified international agreements or reciprocity.

The legislation strictly prohibits:

• Transactions involving proceeds from criminal activity (e.g., transfer, receipt, possession, or concealment).
• Assisting others in laundering proceeds of crime.
• Obstructing investigations by regulatory authorities.
• Financing terrorist organisations or their members, irrespective of whether the activities occur within Bahrain or abroad.

What Is Money Laundering?

Under Article 2 of the legislation, money laundering encompasses:

• Any transaction involving proceeds of crime, directly or indirectly.
• Concealing or disguising the origin, nature, location, or ownership of proceeds.
• Conversion or transfer of property for the purpose of obscuring its illicit origin.

Proceeds of Crime: Defined broadly to include any assets acquired through criminal activity, whether moveable, immovable, tangible, or intangible.

Proof of Underlying Crime: Conviction for the predicate offence is not a prerequisite for a money laundering conviction. Bahraini law permits prosecution for money laundering independently of the underlying crime.

Intent and Knowledge Requirements

To establish a money laundering offence, the perpetrator must have:

• Knowledge or belief that the proceeds are derived from criminal activity.
• Reason to suspect the illicit nature of the funds.

For terrorism financing, the individual must be aware of the organisation’s engagement in terrorist activities.

Penalties for Non-Compliance

Penalties for individuals convicted of money laundering include:

• Imprisonment: A term of up to 7 years.
• Fines: Up to BHD 1,000,000.
• Confiscation: Proceeds of crime and any assets linked to the offence.

Enhanced penalties apply if the offence involves:

• Organised crime groups.
• Abuse of authority or power.
• Efforts to obscure the source of funds.

Terrorist Financing Offences

These offences carry more severe penalties, including between 10 years and life imprisonment and fines ranging from BHD 100,000 to 500,000.

Non-Compliance with Ministerial Orders

Failure to comply with AML/CFT obligations (e.g., record-keeping, reporting suspicious transactions) results in:

• Imprisonment: Up to 2 years.
• Fines: Up to BHD 50,000 for individuals and BHD 100,000 for companies.

Obligations for Businesses and Individuals

Businesses and individuals in Bahrain must adhere to several key obligations to ensure compliance with the country’s AML/CFT framework.

Registration and Record-Keeping: All entities engaged in activities listed in Schedule 1 of Bahrain's AML legislation are required to maintain accurate and up-to-date records of their customers' identities and the details of transactions. These records must be kept for a minimum of five years to ensure that any past transactions can be traced and reviewed if necessary. This helps authorities monitor potential illicit activities and ensures that businesses can provide evidence in case of an investigation.

Reporting Obligations: Businesses are obligated to report any suspicious transactions (STRs) that may indicate money laundering or terrorist financing. These reports should be submitted to the Anti-Money Laundering Department for further investigation. In addition, businesses must disclose large cash transactions (LCTs) that exceed predefined thresholds. This allows authorities to monitor significant financial movements and identify any potentially illegal activities.

Internal Controls: Businesses must establish and enforce robust internal policies and procedures to ensure compliance with AML and CFT regulations. These internal controls should include the implementation of transaction monitoring systems and regular audits to detect irregular activities. Furthermore, businesses are required to train their employees on their obligations under AML/CFT laws to raise awareness and ensure they are equipped to spot potential violations. A compliance officer must also be appointed within the organisation to oversee and ensure adherence to the law, providing guidance on compliance issues and acting as a point of contact for regulatory bodies.

Customer Due Diligence (CDD): Institutions must conduct thorough customer due diligence to verify the identity of their clients before engaging in any financial transactions. This includes identifying the beneficial owners of accounts—those who ultimately own or control the funds being transacted. In addition, businesses are required to continuously monitor ongoing transactions for any signs of irregularities, ensuring that they can detect suspicious activities at the earliest opportunity and take appropriate action, such as reporting to the authorities.

Relevant Authorities

The primary enforcement authority in Bahrain is the Anti-Money Laundering Department, part of the Ministry of Industry, Commerce, and Tourism.

Contact Details:

• Phone: +973 171 113 51 / +973 171 113 60 / +973 171 113 38
• Fax: +973 175 508 36
• Email: aml_awareness@moic.gov.bh

The department collaborates with other regulatory bodies, including:

• The Central Bank of Bahrain (CBB): Regulates banks and financial institutions.
• The Public Prosecution: Handles legal proceedings for AML/CFT cases.

Bahrain is a member of several international organisations, including the Financial Action Task Force (FATF), and has committed to adhering to its AML/CFT recommendations. Bahrain also cooperates with foreign governments under the United Nations Convention against Transnational Organized Crime and other bilateral agreements.

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Practical Steps for Compliance

Businesses in Bahrain must take proactive measures to comply with AML and CFT regulations.

• Conduct Risk Assessments: Businesses are required to assess the potential risks they face in terms of money laundering (ML) and terrorist financing (TF). This involves evaluating the business's exposure to high-risk areas, such as dealing with politically exposed persons (PEPs), handling large cash transactions, or engaging in high-risk industries. By conducting thorough risk assessments, businesses can identify potential vulnerabilities and implement measures to mitigate those risks.
• Implement Strong Controls: To effectively combat money laundering and terrorist financing, businesses must introduce and maintain robust internal controls. This includes implementing transaction monitoring systems that can automatically flag unusual or suspicious activity. Regular audits should also be conducted to ensure compliance with AML/CFT requirements and identify any weaknesses in existing controls. By maintaining strong controls, businesses can detect and prevent illegal financial activities before they escalate.
• Train Employees: Businesses must ensure that their employees are well-informed about their responsibilities under the AML and CFT regulations. Comprehensive training programmes should be provided to staff to increase their awareness of the signs of money laundering and terrorist financing and to educate them about reporting procedures. Proper training helps ensure that employees can effectively identify suspicious activities and take appropriate action to comply with the law.

Conclusion: AML Compliance in Bahrain

Bahrain’s AML/CFT framework reflects its commitment to maintaining a transparent and secure financial environment. Legislative Decree No. (4) of 2001 and its amendments provide robust measures to combat money laundering and terrorist financing, aligning with international standards. Businesses and individuals must remain vigilant, ensuring compliance with the laws to mitigate risks and contribute to a safer financial ecosystem. By fostering collaboration with global partners and implementing stringent regulatory controls, Bahrain continues to reinforce its reputation as a regional leader in AML/CFT enforcement

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