Bahrain

 

 

ANTI-MONEY LAUNDERING

 

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 Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Bahrain was undertaken by the Financial Action Task Force (FATF) in 2018. According to that Evaluation, Bahrain was deemed Compliant for 8 and Largely Compliant for 26 of the FATF 40 Recommendations. It was deemed 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.. 

 

SANCTIONS

There are no international sanctions currently in force against this country.

 

The Arab League (comprising 22 Arab member states), of which this country is a member, has approved imposing sanctions on Syria. These include: -

  • Cutting off transactions with the Syrian central bank

  • Halting funding by Arab governments for projects in Syria

  • A ban on senior Syrian officials travelling to other Arab countries

  • A freeze on assets related to President Bashar al-Assad's government

 

The declaration also calls on Arab central banks to monitor transfers to Syria, with the exception of remittances from Syrians abroad.

 

The Arab League has also boycotted Israel in a systematic effort to isolate Israel economically in support of the Palestinians, however, the implementation of the boycott has varied over time among member states. There are three tiers to the boycott. The primary boycott prohibits the importation of Israeli-origin goods and services into boycotting countries. The secondary boycott prohibits individuals, as well as private and public sector firms and organizations, in member countries from engaging in business with any entity that does business in Israel. The Arab League maintains a blacklist of such firms. The tertiary boycott prohibits any entity in a member country from doing business with a company or individual that has business dealings with U.S. or other firms on the Arab League blacklist.

 

BRIBERY & CORRUPTION

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           36

World Governance Indicator – Control of Corruption             52

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

 

ECONOMY

Low oil prices have generated a budget deficit of at least a $4 billion deficit in 2015, 13% of GDP. Bahrain has few options for covering this deficit, with meager foreign assets and a constrained borrowing ability, stemming in part from a sovereign debt rating averaging just above “junk” status.

Oil comprises 86% of Bahraini budget revenues, despite past efforts to diversify its economy and to build communication and transport facilities for multinational firms with business in the Gulf. As part of its diversification plans, Bahrain implemented a Free Trade Agreement (FTA) with the US in August 2006, the first FTA between the US and a Gulf state.

Other major economic activities are production of aluminum - Bahrain's second biggest export after oil - finance, and construction. Bahrain continues to seek new natural gas supplies as feedstock to support its expanding petrochemical and aluminum industries.

In 2011 Bahrain experienced economic setbacks as a result of domestic unrest driven by the majority Shia population, however, the economy recovered in 2012-15, partly as a result of improved tourism. In addition to addressing its current fiscal woes, Bahraini authorities face the long-term challenge of boosting Bahrain’s regional competitiveness—especially regarding industry, finance, and tourism—and reconciling revenue constraints with popular pressure to maintain generous state subsidies and a large public sector.

Agriculture - products:

fruit, vegetables; poultry, dairy products; shrimp, fish

Industries:

petroleum processing and refining, aluminum smelting, iron pelletization, fertilizers, Islamic and offshore banking, insurance, ship repairing, tourism

Exports - commodities:

petroleum and petroleum products, aluminum, textiles

Exports - partners:

Saudi Arabia 3.6%, UAE 2.4%, US 2.2% (2015)

Imports - commodities:

crude oil, machinery, chemicals

Imports - partners:

Saudi Arabia 29.1%, US 9.5%, China 7.6%, Japan 6.6%, Australia 5.1%, India 4.9% (2015)

Investment Climate  -  US State Department

The investment climate in Bahrain is generally good, and has remained relatively stable in the last year, despite the precipitous drop in global oil prices;

Bahrain has a liberal approach to foreign investment and actively seeks to attract foreign investors and businesses;

In an economy largely dominated by state-owned enterprises, the Government of Bahrain aims to foster a greater role for the private sector in economic growth. Government efforts focus on encouraging foreign direct investment in Bahrain, including in the manufacturing and logistics, information and communications technology (ICT), financial services and tourism sectors;

The U.S.-Bahrain Bilateral Investment Treaty (BIT) entered into force in 2001. The BIT provides benefits and protection to U.S. investors in Bahrain, such as 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;

Bahrain permits 100 percent foreign-ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without local sponsors;

The U.S.-Bahrain Free Trade Agreement (FTA) entered into force in 2006. Under the FTA, Bahrain committed to world-class Intellectual Property Rights (IPR) protection;

Despite the Government of Bahrain’s transparent, rules-based government procurement system, U.S. companies sometimes report operating at a perceived disadvantage compared with other firms in certain government procurements;

Some businesses report contracts are not always awarded solely based on price and technical merit;

Many ministries require firms to pre-qualify prior to bidding on a tender, often rendering firms with little or no prior experience in Bahrain ineligible to bid on major tenders;

A period of political and civil unrest began in Bahrain in February 2011. While the situation today is quite different and far more stable than in 2011, demonstrations continue to occur, occasionally developing into violent clashes against police;

Violent clashes, when they occur, sometimes make travel in and around parts of Bahrain potentially dangerous. There are no indications that Westerners or U.S. citizens are being targeted directly, but there have been isolated incidents in which protesters voiced anti-U.S. sentiments and burned U.S. flags. The unrest has had a limited impact on American businesses in Bahrain;

Bahrain’s Ministry of Industry, Commerce and Tourism (MoICT) made several changes to the commercial registration process in 2015 in an effort to enhance efficiency and transparency. The new Business Licensing Integrated System (BLIS) allows GCC companies and individuals to apply, track and get a “primary approval” for a new commercial registration online within two working days;

American citizens and companies, however, are still required to appear in person at the Bahrain Investor’s Center (BIC) to file their applications.

 

Country Links

Central Bank of Bahrain
Financial Intelligence Directorate (FID)
Commercial Registration Services - Search Engine
Other Useful Links
FATF
US State Department
Transparency International
World Bank
CIA World Factbook

Sanctions

No

FATF AML Deficient List

No

Higher Risk

Not on EU White list equivalent jurisdictions
Offshore Finance Centre

Medium Risk

Non - Compliance with FATF 40 Recommendations
US Dept of State Money Laundering Assessment 
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average Score)
Failed States Index (Political Issues)(Average Score)

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