Amended PFP laws trigger worries about the business climate and shake investor trust
In a move to strengthen the protection of public funds, Kuwait's Council of Ministers has approved amendments to the Public Funds Protection Law (Law No. 1/1993). These amendments aim to bolster the legal framework against misuse of public funds, broaden the scope of criminalization, and increase penalties for fraud and corruption.
One of the key areas of focus is the potential impact on foreign companies and the independence of listed companies on the Kuwait Stock Exchange (KSE). The amendments imply greater scrutiny and legal exposure for entities involved in public projects or receiving state funding. Foreign companies participating in government contracts or tenders would face tougher compliance requirements, higher risks of penalties, and possible criminal liability if involved in fraud or misuse related to public funds.
The law also holds legal entities accountable, expanding liability beyond individuals to companies themselves. This could potentially create legal conflicts with foreign jurisdictions, as board members of foreign companies, such as Mercedes-Benz, could theoretically fall under Kuwait's asset protection law.
Regarding listed companies' independence on the KSE, while the amendments primarily target misuse of public funds and corruption in government dealings, they indirectly promote greater governance and accountability standards. The increased transparency, harsher penalties for misuse, and strengthened legal oversight likely push companies—especially those investing in government projects or benefiting from state resources—to improve internal controls, thus enhancing their operational independence and governance.
However, experts caution that while protecting public funds is crucial, a balance must be maintained to safeguard the business climate, including foreign investment. The amendments could potentially create excessive legal uncertainty or burdens that could deter investment.
Kuwait is also adopting digital transformation measures to accelerate court procedures, including electronic filing and case management, which may increase legal process efficiency for all companies operating in Kuwait, including foreign firms and listed companies.
These reforms fit within Kuwait's broader national agenda to improve governance, infrastructure development, and economic modernization. However, they have stirred significant concern within government agencies and private sector companies in which the state holds stakes, both domestically and abroad.
Observers predict that the amendments could discourage local and foreign companies from maintaining operations or listing on the Kuwait Stock Exchange. While the details of these amendments are still being finalized, it is essential for companies to stay informed and adapt their strategies accordingly to ensure compliance with the evolving legal landscape.
[1] Al-Sabah, M. (2023). Kuwait's Public Funds Protection Law Amendments: An Overview. Kuwait Times. [2] Al-Sanea, A. (2023). Kuwait's Amendments to the Public Funds Protection Law: Implications for Foreign Investors. Gulf Business. [3] Al-Jarida Daily. (2023). Kuwait Approves Amendments to Public Funds Protection Law. Al-Jarida Daily. [4] Kuwait Ministry of Finance. (2023). Kuwait's National Agenda for Modernization and Development. Kuwait Ministry of Finance. [5] Al-Rashed, S. (2023). Balancing Public Funds Protection and Business Climate in Kuwait's Amended Public Funds Protection Law. Arab News.
- The amendments to Kuwait's Public Funds Protection Law may increase the legal risks and compliance requirements for foreign companies, particularly those engaging in government contracts or listed on the Kuwait Stock Exchange (KSE), making it necessary for them to improve their internal controls for public funds management and ensure their operational independence and governance meet the new standards.
- Given the stricter penalties and expanded liability for misuse of public funds in Kuwait, both domestic and foreign companies operating in the country, including those with state stakes, should closely monitor the evolving legal landscape and adapt their strategies to maintain compliance as the final details of the amendments are being drafted, so as to avoid potential deterrents to investment.
