FATF Status

Bahrain is not currently on the FATF List of Countries that have been identified as having strategic AML deficiencies

Compliance with FATF Recommendations

The last follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Bahrain was undertaken in 2022. According to that Evaluation, Bahrain was deemed Compliant for 9 and Largely Compliant for 30 of the FATF 40 Recommendations. It remains Highly effective for 0 and Substantially Effective for 3 of the Effectiveness  & Technical Compliance ratings

US Department of State Money Laundering assessment (INCSR)

Bahrain was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -

Bahrain is a leading financial center in the Gulf region. Bahrain has a primarily service-based economy, with the financial sector providing roughly 18 percent of GDP.  It hosts a diverse group of financial institutions, including 113 licensed banks, 19 money changers, and several other investment institutions, including 151 insurance organizations. The greatest risk of money laundering stems from illicit proceeds of foreign origin that transit the country. Bahrain’s vast banking network, along with its status as a transit point along the Gulf and into Southwest Asia, may attract money laundering activities. Bahrain does not have a significant black market for smuggled goods or known linkages to drug trafficking.

Khalifa bin Salman Port, Bahrain’s major port, provides a free transit zone to facilitate the duty free import of equipment and machinery. Another free zone is located in the North Sitra Industrial Estate. Raw materials intended for processing in Bahrain and machinery imported by Bahraini-owned firms are also exempt from duty; the imported goods may be stored duty-free. These free zones are not a significant source for money laundering or terrorism financing.

EU Tax Blacklist

Bahrain was removed from the EU Tax Blacklist and placed on the Grey List on 13 March 2018..

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           42

World Governance Indicator – Control of Corruption             59

Bahrain presents companies operating or planning to invest in the country with a moderate corruption risk. Petty corruption is not an obstacle for investors to carry out routine government actions, however high-level corruption is more likely to impede businesses. This is particularly the case of public procurement and the extractive industries, where political interference and patronage networks render licensing and contracting opaque. Bahrain has set up a legal anti-corruption framework and the Penal Code criminalizes most corruption offences in both the public and the private sector; including passive and active bribery and abuse of office. Nonetheless, enforcement is poor and officials have engaged in corruption with impunity. For further information - GAN Integrity Business Anti-Corruption Portal

The investment climate in the Kingdom of Bahrain is positive and relatively stable. Bahrain maintains a business-friendly environment and liberal approach to attracting foreign investment and business.

State-owned enterprises (SOE) are the primary engines for growth, but Bahrain aims to expand the private sector’s contribution to the economy to diversify away from hydrocarbon dependency and promote long-term economic growth. The Government of Bahrain’s (GOB) focuses its on attracting foreign direct investment (FDI) in the manufacturing, logistics, infrastructure, information and communications technology (ICT), financial services, tourism, health, and education sectors.

According to the Economist Intelligence Unit, Bahrain’s total foreign direct investment (FDI) stock reached $32.2 billion in 2022, up from $30.3 billion in 2021. Annual FDI inflows rose from $1.75 billion in 2021 to $1.9 billion in 2022. The financial services, manufacturing, logistics, education, healthcare, real estate, tourism, and ICT sectors have attracted the majority of Bahrain’s FDI.

Rising global oil prices have buoyed Bahrain’s post-pandemic economic recovery. The GOB has implemented new policies to address its debt burden, such as increasing the value added tax to 10 percent in 2022. Inflation has increased moderately, but local prices continue to resist more significant global pressures. Bahrain has weathered the knock-on effects of Russia’s war in Ukraine through diversified supply chains of food and other raw materials essential for critical economic functions, including manufacturing and construction.

In November 2021, the government announced a post-Covid economic recovery and long-term development plan focused on five pillars: (1) creating quality jobs for citizens; (2) streamlining commercial procedures to attract $2.5 billion in yearly FDI by 2025; (3) launching $30 billion in major strategic projects; (4) developing strategic priority sectors; and (5) achieving fiscal sustainability and economic stability, including by extending Bahrain’s Fiscal Balance Program to 2024. Since then, the government has released detailed development strategies for the industrial, tourism, financial services, oil and gas, telecommunications and logistics sectors and identified 22 signature infrastructure projects, including the creation of five new island cities, that will stimulate post-pandemic growth and drive the economic recovery plan. The government has not identified funding sources to finance these projects or its sector modernization strategies.

Bahrain’s Vision 2030 outlines measures to protect the natural environment, reduce carbon emissions, minimize pollution, and promote sustainable energy. Endorsed by Bahrain’s Cabinet and monitored by Bahrain’s Ministry of Electricity and Water Affairs, the National Energy Efficiency Action Plan (NEEAP) and the National Renewable Energy Action Plan (NREAP) set national energy efficiency and national renewable energy 2025 targets of 6 and 5 percent, respectively, with the NREAP target increasing to 10 percent by 2035.

To strengthen Bahrain’s position as a regional startup hub and to enhance its investment ecosystem, the GOB launched Bahrain FinTech Bay in 2018; issued new pro-business laws; and established several funds to encourage start-up investments including the $100 million Al Waha Fund of Funds and the Hope Fund to support startup growth. Since 2017, the Central Bank of Bahrain (CBB) has operated a financial technology regulatory sandbox that enables startups to test new cryptocurrency and blockchain technologies and assess regulatory compliance.

The U.S.-Bahrain Bilateral Investment Treaty (BIT) entered into force in 2001 and protects U.S. investors in Bahrain by providing most-favored nation treatment and national treatment, the right to make financial transfers freely and without delay, international law standards for expropriation and compensation cases, and access to international arbitration.

The U.S.-Bahrain Free Trade Agreement (FTA) entered into force in 2006. Under the FTA, Bahrain agreed to eliminate or reduce tariffs on most goods and services, create a more predictable and transparent trading and investment environment, and commit to world-class intellectual property rights protection. The normalization of diplomatic relations between Bahrain and Israel, which also maintains a free trade agreement with the United States, presents unique trilateral trading opportunities for U.S. exporters under common FTA rules of origin regulations.

Bahrain permits 100 percent foreign ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without Bahraini sponsors or local partners. In 2017, the GOB expanded the number of sectors in which foreigners are permitted to maintain 100 percent ownership in companies to include tourism services, sporting events production, mining and quarrying, real estate, water distribution, water transport operations, and crop cultivation and propagation.  In May 2019, the GOB loosened foreign ownership restrictions in the oil and gas sector, allowing 100 percent foreign ownership in oil and gas extraction projects under certain conditions.

The GOB is increasingly looking to collaborate with private sector companies through Public-Private Partnerships (PPPs), which are emerging as a key financing mechanism for large-scale infrastructure projects in the construction, transportation, and climate sectors.

Despite the GOB’s transparent, rules-based government procurement system, U.S. companies sometimes report operating at a disadvantage compared with other firms. Many ministries require firms to maintain a local commercial registration or pre-qualify prior to bidding on a local tender, often rendering firms with no prior experience in Bahrain ineligible to bid on major tenders. Public tenders for large-scale infrastructure projects are routinely opened and closed within a matter of weeks, precluding U.S. companies without an in-country office or existing commercial footprint from identifying local partners or sufficiently scoping a project to complete an offer that meets the tender’s requirements.

In February 2022, Bahrain’s Ministry of Industry and Commerce (MoIC) broke ground on the United States Trade Zone (USTZ) to incentivize U.S. companies to build full turnkey industrial manufacturing, logistics, and distribution facilities in Bahrain to access the wider GCC market.

Country Links

Central Bank of Bahrain

Financial Intelligence Directorate (FID)

Commercial Registration Services - Search Engine