The importance of being able to work remotely has been emphasized more so than ever in the early-2020 period. With that necessity, the release of the Insurance Authority (‘IA’) Board of Directors’ Resolution No. 18 of 2020 Concerning the Electronic Insurance Regulations (the ‘Electronic Insurance Regulation’) should serve as the tool to allow insurance companies and insurance-related professions (i.e. insurance agents, actuaries, insurance brokers, surveyors & loss adjusters, and insurance consultants) the opportunity to perform a greater number of insurance related functions electronically.

Notwithstanding, the Electronic Insurance Regulation necessitates that a considerable number of procedures and safeguards be implemented in respect of all electronic and smart insurance operations performed by licensed insurance companies, and insurance-related professions within the UAE.

The Electronic Insurance Regulation will be effective from the date following publication in the Official Gazette (which has not occurred at the date of this publication), however, companies registered with the IA shall be permitted the opportunity to rectify their positions pursuant to the provision of the Electronic Insurance Regulation within six months from the date that these regulations come into force.

Some of the most salient procedures to be implemented and/or rectified, include:

  1. Develop an Action Plan – The insurance companies shall develop a specific action plan for electronic and smart insurance operations, approved by the company’s board of directors, or the owner of the sole proprietorship, as applicable, prior to submitting it to the IA.
  2. Application – The insurance companies and insurance-related professions shall apply to obtain the IA’s approval on the classes of insurance products (noting that certain lines of insurance are not permitted to be sold through websites) that will be sold through its website.
  3. Website Management – The insurance companies shall establish an IT department to manage the website or obtain IA approval to outsource the management to a third party.  

If outsourcing this service, a special provision in the ‘outsourcing contract’, stating that the third party will comply with the provisions of the Electronic Insurance Regulation, the code of professional practice issued by the IA, and any other related legislation, shall be agreed prior to outsourcing the development, management or maintenance of the website or outsourcing any other operations related to the website.

Further, certain tests are required to be conducted, and measures taken, to ensure the integrity of the websites and commitment to cyber security standards, to avoid, inter alia, illegal access, breaches of confidentiality, and viruses.

In any event, the insurance companies and insurance-related professions remain responsible before the IA. 

  • Transparency – There is a defined ‘pre-contract’ phase, whereby the person who applies to acquire insurance coverage through the website (the ‘Client’) can assess their insurance needs by having their attention drawn to a number of specified particulars of the policy.

Otherwise, the insurance companies are required to:

  • provide all necessary information (as stipulated in the Electronic Insurance Regulation) through its website or smart application and must clearly disclose it to Client’s who wish to enter into a contract of insurance; and
  • use a ‘step by step’ approach for the disclosure of essential information of the policy, to ensure the Client has read specified details related to the insurance application and they understand the legal consequences of their declaration, as determined by the nature of the product.

The insurance companies and the insurance agents shall communicate with the Clients by using at least two of the Client’s preferable means of contact such as email, registered mail, SMS or telephone.

With regard to the sale of the insurance policies, the insurance company and insurance agent shall issue dated electronic insurance policies and the issued electronic versions shall include all the contents of the policy, including the insurance application, policy terms, limits of coverage and the annexes. They shall provide the Client with a copy of the entire policy in all available ways and means. Additionally, they must provide the Client with a thorough electronic copy of the policy in (PDF) format, which shall be sent by e-mail or other electronic means as soon as they are issued. The commencement and expiry dates of the insurance coverage shall be clearly stated in the policy. The insurance broker shall comply with the aforementioned rules when issuing the insurance certificate.

When issuing a policy through the website, the insurance company, and the insurance agent or broker shall provide a special department for ‘post-sale’ services on the website, where the Client will be able to benefit from the following operations:

  • obtaining any additional services relating to the policy;
  • making amendments to the policy such as adding, renewing or cancelling;
  • checking the status of the policy (valid, expired, cancelled);
  • checking the start and end date of the policy as well as the value and policy number;
  • viewing the premiums schedule; and
  • viewing the paid premiums including the amount and date of payment.

The insurance company, the insurance agent and the insurance broker shall notify the Client before the date of expiry by at least one month so that the Client is able to renew the policy or acquire insurance coverage from a different company.

Further, the Companies shall provide, through their website, all the information necessary to the customer or the third party (the injured third party) to lodge complaints and follow – up their status.

  • Advertising – The insurance companies and insurance-related professions, or the party outsourced to perform the business related to the company’s website, when conducting advertisement and promotion of the electronic operations shall comply with the provisions of the code of professional practice issued by the IA, and must obtain the prior written approval therefrom.
  • Price Comparisons – Insurance companies and insurance-related professions are prohibited from dealing with price comparison websites, save for insurance brokers. Where the insurance company is dealing with an insurance broker, who is dealing with price comparison websites, the insurance company shall commit to the prices and coverage apparent on the price comparison website.

Furthermore, there are a considerable number of procedures and rules with which the price comparison websites, that assess insurance products, must comply with. Failure to comply with those rules may lead to the IA issuing warnings or prohibiting them from dealing with the insurance broker for a period not exceeding six months, and in the event of a repeat violation, the price comparison website’s registration shall be cancelled.

  • Selling and Marketing Insurance Policies – The insurance companies (and the insurance agent) are responsible for verifying the identity of their Client’s, and their documentation submitted, prior to selling or issuing any insurance policy through its website. The broker shall also commit to the same before issuing an insurance certificate.

The insurance companies and the insurance-related professions are required to comply with the regulations combating money laundering crimes and the financing of terrorism or illegal organizations and they must inform the competent authority in accordance with electronic regulations or other approved means for any suspected activities that take place through their website.

Further, the insurance companies and the insurance-related professions are required to establish an electronic account for each Client and implement procedures to protect their accounts.

  • Payment of Electronic Policy Premium – The payment can be made by direct debit from a bank account or credit card payment or any other payment method adopted by the UAE Central Bank.
  • Claims – The insurance companies shall provide electronic claim forms and permit the uploading of electronic copies of such documents. Upon acceptance of the claim, the companies shall provide the claimant with a reference number. The original claim documents may be requested by the insurance company prior to reimbursement.

The purpose of this article is to highlight the more salient features of the Electronic Insurance Regulation, whereby this is not an exhaustive list of the steps to be taken to comply therewith.

The IA is permitted to conduct periodic or challenge inspections to ensure compliance with the Electronic Insurance Regulation, hence compliance should be adopted to avoid warnings, temporary suspension of the electronic system or smart application, or in the case of failure to rectify the situation within a specified period, the cancellation of the approval granted (whereby the company may not submit a new application for approval before the lapse of one year from the date of cancellation). Further, websites practicing insurance activities in the UAE without obtaining the necessary licenses from the IA shall be blocked, in coordination with the competent authorities in the UAE.

Should you wish to obtain a bespoke analysis/assessment of the relevant measures to be taken by your company, or any clarification on the above, please don’t hesitate to contact one of the Al Zu’bi & Partners lawyers from our insurance team on the details listed below:

Al Zu’bi & Partners Legal Consultants

Dubai Office:
T. +971 4554 8182 | F. +971 4554 8183     
     
Raghad Hammad        rhammad@zubipartners.com
Adam Tighe                 atighe@zubipartners.com

 

Bahrain is a parliamentary democracy, with the king as a constitutional monarch and the prime minister as the premier. Due to its previous position, English common law and procedure has played a significant role in the development of law in Bahrain, which is also influenced by Islamic law. Most legislation is now based on Egyptian, therefore, civil law, models.

A new constitution was promulgated in February 2002 and elections are now held regularly. Bahrain is a member of a number of international organisations, including the World Trade Organisation and the Organisation of Arab Petroleum Exporting Countries (it is not a member of OPEC but follows its policies).

It is a member of the Gulf Cooperation Council. In its efforts to eliminate money laundering, the Central Bank of Bahrain (the central bank and banking regulator for Bahrain) has made it mandatory for banks to adhere to the Financial Action Task Force’s 40 recommendations and a law (Decree Law No. 4/2001) has been promulgated. In 1997 it also introduced a system of reporting “unusual or suspicious” deposits, whether in cash or by bank transfer, and in practice the “know your customer” system is universally adopted. It is a member of IAIS and has implemented provisions of Solvency II.

The insurance industry

Prior to the 1980s, branches of foreign companies largely carried out insurance in Bahrain, many of them British, such as Norwich Union and Lloyd’s of London. Subsequently, a number of local insurance companies have been formed, such as Al Ahlia Insurance, Bahrain Kuwait Insurance, and companies from other countries have become established, e.g., AXA and New India. Owing to the relatively small size — in global terms — of the local companies, much of the risk is reinsured on the international market. A major development is the rise of Islamic insurance and reinsurance, which has resulted in the establishment of a number of local takaful companies.

Domestic insurance laws and product-specific legislation

These are now contained in the Central Bank of Bahrain and Financial Institutions Law (Law No. 64/2006) whereby all types of financial institutions (banks, advisers, insurance companies and related activities, stock exchange, money dealers, etc.,) are covered by a single law. Previously, there were the Insurance Companies and Organisation Law (Decree Law No. 17/1987) and regulations made thereunder, and a short law which imposed an obligation for motorists to take out third-party insurance (Decree Law No. 3/1987, as amended). Such provisions of the earlier laws that are not inconsistent with the 2006 law remain in force.

Pursuant to that law the Central Bank has issued a rulebook of which Volume 3 deals with insurance. Volume 3 sets out general requirements of various types of insurance companies, including life insurance and general insurance. Volume 3 contains separate sector guides to which the general requirements do not apply. There are separate requirements for captive insurance, insurance intermediaries and managers and takaful/retakaful.

Regulation under the present regime

The basic rule is that no “financial activity”, including insurance, may be carried out in Bahrain except by an institution that holds a licence from the Central Bank.

Types of insurance companies

The main types of licensed institutions in the insurance industry may be summarised as follows:

Insurance providers

Insurance firms, except for captive insurers and insurance firms that are in run-off and whose licence is restricted from entering into new contracts of insurance, must maintain a cash deposit with a retail bank that is licensed to do business in Bahrain, for the following amounts:

  • BHD 50,000 ($132,500) for life insurance and/or savings and fund accumulation categories.
  • BHD 75,000 ($199,000) for any insurance category of general insurance for all insurance categories.
  • BHD 150,000 ($398,000) for firms that solely effect reinsurance contacts.

Captive insurers do not have to make a cash deposit. Locally incorporated insurers must apply 10 percent of basic profits annually to the statutory reserves until they reach 50 percent of the paid-up capital.

A captive insurer is an insurer owned by, and whose sole “customer” is, a non-insurance corporation. When an insurer is winding down its activities prior to closure it is said to be in “run-off”.

Licences may be granted to branches of foreign insurance companies, but the Central Bank of Bahrain may seek a letter of guarantee from the parent company in support of the application for a licence.

Insurance brokers

Insurance brokers must maintain a cash deposit with a retail bank licensed to do business in Bahrain for the following amounts:

  • BHD 2,500 for life insurance and savings and fund accumulation categories; and
  • BHD 5,000 for general insurance for all insurance categories.

These may be locally incorporated companies or branches of foreign companies. Local companies must maintain at all times the greater of:

A minimum net assets value of BHD 50,000 ($132,500).

4% of fiduciary liabilities.

4% of annual income from global insurance broking activities.

There are no such requirements for branches of foreign companies, however, financial statements of the parent company must be submitted to the Central Bank of Bahrain for review in order to assess the financial stability of the group on a global basis.

Insurance consultants

These must be locally incorporated companies. Such companies merely advise on insurance without acting as broker. Branches of foreign companies do not meet the legal status requirements of insurance consultants.

Insurance managers

These may be locally incorporated or branches of foreign companies. Their role is very limited, although it may be combined with that of an insurance consultant. They have a purely administrative role otherwise, providing services to insurance companies.

Insurance exchange operators

Actuaries, managers and loss adjusters

These must all be registered with the Central Bank.

Distinction is made in the CBB law between long-term insurance and other types of insurance

“Long-term insurance” means life assurance and fund accumulation, i.e., endowment assurance. Long-term insurance companies, and companies that operate these types of companies, must keep separate accounts for long-term business, which must be stated in a separate balance sheet. Distribution of profits shall be limited to the account of the realised surplus that the company’s actuary determines.

Insurance companies must set aside 10 % of the net profits annually in a statutory reserve, until this reaches 50 % of the paid up capital. The reserve may not be distributed. The Central Bank must approve all forms of policies that are issued in Bahrain and they may not be marketed abroad without the Central Bank’s approval. Insurance companies require the approval of the Central Bank for any disposal of more than 5% of their costs for more than 30 days.

Takaful business

A takaful business is one that is operated on Islamic lines, whereby the operator must organise and operate the business on the Al Wakala model.

Licensing

A Bahrain company that applies for an insurance licence must be a:

Bahrain joint stock company; or

Bahrain branch of a foreign company authorised as an insurance (or reinsurance) company in its own jurisdiction. Apart from the company itself, the Central Bank must be satisfied as to the suitability of the company’s controllers (i.e., holding 10 %. A controller of Bahraini insurance licensee is a natural or legal person who, either alone or with his associates:

Holds 10 % or more of the issue and paid up front capital of the company) or having 10 % or more of voting power; or is able to exercise significant influence on the management, in the licensee or parent undertaking; or

Is able to exercise more than 10 %of the voting power over the licensee or the parent undertaking.

The Central Bank must also be satisfied with the directors and managers, and the “close links”, i.e., associated companies (parent, subsidiary, owner or controller of 20 percent or more of the voting powers).

Other significant factors which require approval are:

Adequate financial resources.

Acceptable systems and controls, including for the prevention of money laundering and financial crimes and ongoing risk monitoring;

External auditors.

Maintenance of books and records.

Licensing procedures require submission of the prescribed forms, cover letter, business plan, corporate documents, board resolutions etc. Conditional approval is given as phase one. After this, the applicant must complete phase two, which requires proof of the cash deposit, a guarantee from the applicant’s major shareholder and relevant ancillary details, such as address and contact details, auditor’s acceptance to the act, etc.

Enforcement and investigation

The Central Bank uses its own inspectors to undertake on-site examinations of licensees as an integral part of its regular supervisory efforts. In addition, it may commission special investigations of insurance licensees in order to help it assess their compliance with the legal requirements.

Investigators will normally be required to report on one or more of the following aspects of an insurance licensee’s business:

a)         Accounting and other records, which must be retained for a minimum of 10 years;

b)         Actuarial estimates;

c)         Internal control systems;

d)         Returns of information provided to the Central Bank;

e)         Operations of certain departments; and/or

f)          Other matters specified by the Central Bank.

In the event of non-compliance with the legal requirements, the level of financial penalty applied is determined by the nature of the contravention and the amount of additional supervisory attention and resources taken up by a licensee’s behaviour and by limits set in the Central Bank of Bahrain Law. Financial penalties also apply to persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law. Depending upon the nature of non-compliance, the fine can be multiplied by the number of violations. Other sanctions include cancellation or amendment of licence and criminal sanctions.

Complaints procedure

All insurance licensees must have appropriate customer complaints handling procedures and systems for effective handling of complaints made by customers. Customer complaints procedures must be documented appropriately and their customers must be informed of their availability.

All insurance licensees must appoint a customer complaints officer and publicise his or her contact details at all departments and branches. The customer complaints officer must be of a senior level at the insurance licensee and must be independent of the parties to the complaint to minimize any potential conflict of interest.

In the case of an overseas insurance licensee, a local complaints officer must be present and must report all complaints to the head office complaints unit.

Creditor hierarchy

In the event of insolvency or bankruptcy, the court fees and employees would have priority followed by secured creditors (with respect to the assets over which they have been granted a security). The remaining creditors will rank pari passu with regard to the remainder of the debtor’s assets.

Data protection

Law No. 30 of 2018 promulgating the Personal Data Protection Law covers data protection in Bahrain.

The legislation imposes civil and criminal penalties for the misuse of a person’s personal data unless consent is granted by the person to whom the data relates.

Corporate governance

The annual report of insurance firms must contain details of any shares in the firm held by its directors and chief executive or general manager. The following information relating to corporate governance must also be included in the firm’s annual report:

(a)        Information about the board and board committees (if any). This must include details of board membership (including a summary of each board member’s professional experience, qualifications, date of appointment and other directorships held); details of the membership and mandates of any board committees; and the number of board and any board committee meetings held during the financial year in question;

(b)        Information about the managerial structure. This must include a summary of the chief executive officer’s or general manager’s professional experience, qualifications and date of appointment; a summary of any management committees, their mandates and membership; and a summary of the senior management structure and reporting lines; and

(c)        Information about the firm’s basic organisational structure. This must include a clear description of the lines of business and legal entity structures.

Remuneration

The board must establish a remuneration committee of at least three directors which must:

(a)       Review the insurance licensee’s remuneration policies for the approved persons, which must be approved by the shareholders;

(b)       Make recommendations regarding remuneration policies and amounts for approved persons to the whole board, taking account of total remuneration including salaries, fees, expenses and employee benefits; and

(c)       Recommend board member remuneration based on their attendance and performance.

Current situation

At present the following are number of the licensees:

•          Bahrain insurance firms: 23.

•          Foreign branches: 12.

•          Offshore companies: 11.

•          Offshore insurance brokers: 4.

•          Offshore insurance consultants: 2.

•          Onshore insurance brokers: 34.

•          Insurance managers: 4.

•          Insurance pools and syndicates: 2.

•          Loss adjustors: 12.

•          Insurance consultants: 3.

•          Registered actuaries: 30.

This articles was published on Thomson Reuters Regulatory Intelligence in April 2020)

Legislative Decree Law No. 23 of 2016 promulgating the Financial Trusts Law (Trusts Law) replaces the old law passed in 2006 governing the same. It serves as a centrepiece of the series of legal reforms introduced in the last few years to develop the country’s investment potential,  and promote Bahrain as a stable, flexible and competitive place to build and maintain wealth in the region, alongside the three updates to the Commercial Companies Law, and the establishment of the PCC Law and the Investment Limited Partnerships Law.   

The new Trusts law, developed by the CBB, is a practical and refined piece of legislation.  Unlike the old law, it allows for the creation of all forms of trust structures, providing both individuals and organisations with a long-term holding vehicle for maintaining and securing assets.  This is particularly useful in the domestic market, where large and established family businesses may have previously looked overseas to create trusts to protect the transfer of wealth from one generation to the next.

Main features of the new Trusts law

As is the case with comparable legislation in other developed jurisdictions, the Trusts law allows for the creation of a trust by virtue of a trust instrument, which transfers ownership of assets such as property, rights, powers, and discretionary authorities to a trustee or trustees.  Such trustee must act in accordance with the powers and duties specified in the trust instrument, with a view to achieving the purpose of the trust and the interests of the beneficiary or beneficiaries.  Under the law, trusts may be utilised for a variety of charitable and non-charitable purposes, including being structured as pension trusts, securitisation trusts or investment vehicles.

A trust, when created, will only be valid if created under a notarised trust deed and signed by the settlor and trustee(s), as the case applies.  The deed must also specify the trust executor (who may be the same person as the settlor, but not the trustee) and, if applicable, the trust protector, who shall exercise the relevant functions allocated to it on the trust deed. 

All trusts in Bahrain must be registered on the CBB’s trust register, however, such register may only be accessed through the issue of a court order or directly by concerned CBB employees, allowing for near complete confidentiality surrounding the trust.   A trust deed will be deemed invalid and will not be registered by the CBB where formal trust creation requirements have not been met, where there is no duration specified, where no licensed trustee has been appointed, or where the trust has violated public morality or the law.

Trustees have the widest scope of powers and obligations under the new Trusts Law and must act only for the benefit of the beneficiaries, for the purposes of the trust or in accordance with the settlor’s instruction or direction.  Importantly, they must ensure that trust property is kept separately from their own assets at all times, can be easily distinguished from the same, and must continue to perform their duties under the trust deed upon resignation for as long as no other trustee is available. Furthermore, where the trust is terminated before its expiry date or where the trustee is removed or resigns, the trustee must, within reasonable time, distribute all trust property to its beneficiaries and inform the CBB of the same.

Unless expressly exempted in the trust deed, any trustee who breaches the provisions of the new Trusts Law or their duties as a trustee will be held liable for:

  • Loss or diminution of the trust property as a result of the breach;
  • Any gain acquired by the trustee as a result of said breach; and
  • Profit lost by the trust if such a breach did not occur

In the event of an actual or potential breach, the courts may order several remedial measures, such as obliging the trustee to perform its duties, preventing the trustee from committing a breach of the trust, ordering the trustee to amend the breach by paying back or compensating for damages arising from the breach or ordering the trustee to be suspended from assuming trusteeship for a maximum of ten years. The court also retains the power to decrease or deny the trustee’s fees, invalidate acts made by the trustee, or order any other appropriate measures to be taken upon consideration of the individual circumstances of the breach.

A notable feature and benefit of the new Trusts Law is its formal recognition of trusts established and governed by the laws of other jurisdictions.   Parties to a trust agreement may effectively agree upon the law governing the trust and its ultimate dissolution, removing any risk of uncertainty for foreign investors who may otherwise be hesitant to set up a trust in Bahrain.  Article 56 of the Trusts law provides that the Bahraini Court may issue orders regarding the implementation, administration or enforcement of a foreign trust; the trustee’s powers; the trustee’s appointment, removal, remuneration or performance; the beneficiary; and the appointment or removal of the trust protector or executor.  It should be noted, however, that foreign law trusts shall not be recognised if they are inconsistent with Bahrain law provisions, irrespective of the applicable law stated in the trust deed. 

The Trusts law presents a new opportunity for both local and overseas individuals and organizations to maintain and build upon their assets, in a secure, predictable and flexible legal environment. Since its introduction in late 2016 the CBB has, after having overseen the law’s implementation and having consulted industry leaders on their thoughts,  regarding the legislation, already made several adjustments to the terms of the law, ensuring that it remains flexible and effective for all the country’s investors.

(This article was published on Oxford Business Group The Report: Bahrain 2020 Edition)

Law No. 22 of 2018 known as the Reorganization and Bankruptcy Law (New Law), was published in the Official Gazette on June 7, 2018 and came into effect on December 7, 2018. This repealed and replaced the Bankruptcy and Composition Law of 1987. The New Law brings  innovation in bankruptcy dealings to the GCC, and encourages investment by laying out transparent and flexible regulations for insolvency.

The New Law applies to both commercial companies established in Bahrain (including companies that are created by law or decree and that are fully or partially owned by the government), and individual traders in Bahrain who are engaged in commercial activities. The New Law does not apply to companies excluded by law or Central Bank of Bahrain licensees, which are instead covered by the insolvency provisions of the Central Bank of Bahrain and Financial Institutions Law of 2006, as amended. The New Law does not apply to personal, family or household debts or swaps or other derivatives.

The High Civil Court has jurisdiction over matters related to bankruptcy and reorganization. Under the New Law, both creditors and debtors can file an insolvency case. If the petition is granted, the High Civil Court will immediately appoint a bankruptcy trustee to take control of the debtor’s assets and carry out the duty to act in the best interest of the estate and achieve the best possible recovery for the creditors.

Perhaps the most important feature of the New Law is the moratorium, which automatically applies upon the start of a bankruptcy case and lasts until the end of the case. This prohibits even secured creditors from seizing assets, blocks actions to collect debts, and aims to preserve value of assets while the best recovery plan for the creditors is crafted, negotiated and implemented. Another distinguishing factor of the New Law is that it follows, in part, the model of Chapter 11 of the US Bankruptcy Code by introducing debtor-friendly reorganisation provisions. In doing so, the New Law focuses heavily on maximising the value of debtor assets and allows for extensive flexibility. The maintenance ongoing contracts is allowed in order to keep reciprocal benefits, as is assignment contracts to gain value. Due to this, automatic bankruptcy termination clauses in contracts are generally unenforceable from a Bahrain. The New Law also allows for business to continue if this will achieve a better result for the creditors,  and grants the right for debtors to obtain loans or financing without the approval of the High Civil Court.

The New Law is the first in the GCC to cover cross-border insolvency provisions to protect foreign investment, making it a novel development required by modern global business. Chapter 5 of the New Law addresses requests filed in Bahrain by foreign courts in relation to foreign bankruptcy proceedings, requests filed in foreign countries in relation to Bahrain insolvency cases, foreign proceedings taking place concurrently in respect of the same debtor and foreign requests for participation in Bahrain insolvency procedures. In so doing, the cross-border provisions aim to encourage cooperation between the courts of Bahrain and those of foreign countries, and ensure equitable and efficient administration of cross-border bankruptcy cases to protect the interests of both creditors and debtors.

Furthermore, the New Law focuses on transparency in insolvency proceedings by introducing the reorganisation and bankruptcy register, made available online by the Ministry of Justice, Islamic Affairs and Waqf. Comprehensive details of each reorganization and bankruptcy case listed  on the register are available at https://www.moj.gov.bh/ar/reorganization-bankruptcy-cases.

The New Law is a significant development in Bahrain’s regulatory environment. It is set to aid investment by providing certainty in the way insolvency cases will be handled going forward. By focusing on well-rounded precision and adaptability, the New Law is an amalgam of the most effective and innovative provisions of insolvency regimes globally that have been successful in achieving the best returns for both debtors and creditors.

(This article was published on Oxford Business Group The Report: Bahrain 2020 Edition)

The last several years have seen the introduction of a series of laws designed to further develop Bahrain’s financial sector, facilitate local and foreign investment, and promote the country as a simple, secure and cost-effective place to do business in the Middle East.  The suite of new legislation introduced since 2014 includes three rounds of amendments to the Commercial Companies Law in 2014, 2015 and 2018, the introduction of the Financial Trusts Law and the Protected Cell Companies Law (PCC Law) in 2016, and the 2018 Investment Limited Partnerships Law.

The PCC Law, Law No. 22 of 2016, was developed by the Central Bank of Bahrain (CBB) in coordination with the Bahrain Economic Development Board. It is the first of its kind in the GCC, adding to the range of structures available by allowing a new and innovative mechanism for structuring and raising finance for investment.  

Main features of a protected cell company (PCC)

A PCC is a distinct legal entity, regulated by the CBB that is made up of a core and one or several parts called cells.  The cells of the company do not have their own legal personality, and are governed by a single board of directors that is responsible for overseeing the operation and management of the PCC and all of its cells as a whole. The PCC law allows for both the creation of new PCCs and for the conversion of existing companies into PCCs, provided the CBB has given their approval for the same.  Once established and approved by the CBB, there is no limit to the number of cells a PCC can create.  While though there is no minimum capital requirement for establishing the core or of any of the cells, the CBB shall regulate the minimum capital requirement where applicable. The most distinguishing feature of a PCC is its separation of assets and liabilities.  By segregating the assets and liabilities of a company cell from the core and other cells, such assets are only available to the creditors and shareholders of that particular cell. As such, the mechanism strengthens investors’ rights and powers to protect their assets from the wider company and its creditors.  Notably, the PCC Law also allows PCCs to give transacting third parties rights of recourse to both the assets of the company core and the appropriate cell for any liability that may arise from such transaction.

Importantly, PCCs may only undertake certain activities as listed in Article 3 of the PCC Law.  Such activities are limited to:

  • Private investment undertakings;
  • Collective investment undertakings;
  • Securitisation;
  • Insurance captive; and
  • Any other financial services subsequently listed by the CBB.

Benefits of the PCC Law to investors

Immediate benefits of the PCC company structure include improved efficiency of company administration, cost savings and improved investor confidence. PCC companies are flexible and easy to establish, to operate and to liquidate, and there is no minimum capital requirement. Existing companies may be converted into PCCs and once the PCC is established, repeat transactions or other common operations among the cells can be processed in an efficient and cost-effective manner.

The most notable advantage of the PCC structure is that the insolvency of one cell does not ordinarily affect the solvency of either the core or any other cells.   As such, the structure allows investors to easily limit exposure to creditors and shareholders between cells and the core, and individual cells may enter into a range of transactions without fear of placing the PCCs assets as a whole at risk.

The PCC Law forms an important part of the recent reforms to Bahrain’s Companies Law framework. The law was not introduced until late 2017 and, as such, fully gauging its effects on Bahrain’s investment landscape has been a bit difficult to date.  Nevertheless, such reforms bring Bahrain firmly in line with international best practices and affirm its reputation as an accessible destination for local, regional and global investors.

(This article was published on Oxford Business Group The Report: Bahrain 2020 Edition)

Almost a year after its introduction in the UAE and Saudi Arabia, value-added tax (VAT) was officially introduced in Bahrain on January 1, 2019  in accordance with the 2017 Unified Agreement for Value- Added Tax of the Cooperation Council for the Arab States of the Gulf.

The legal framework for VAT, an indirect tax on consumer spending which forms part of Bahrain’s Economic Vision 2030, is set out in Royal Decree No. 48 of 2018, supplemented by Resolution No. 12 for of 2018 on the issuance of the Executive Regulations of the Value Added Tax Law, issued under Law No. 48 of 2018 (VAT Law).

Similar to the VAT frameworks in other GCC member states, the application of VAT extends to goods and services made or rendered within Bahrain, as well as to imports, and shall be applied at the standard rate of 5%, unless the law provides for a specific exemption from the same.  A National Bureau for Revenue (NBR) has also been established and is responsible for the implementation and administration of VAT in Bahrain.

It is important to note that the year 2019 is a transitional year for VAT in Bahrain. Specific rules have been put in place to this effect until December 31, until which suppliers of goods and services shall enjoy the flexibility of a temporary increase to mandatory VAT registration thresholds, a three-phased mandatory VAT registration deadline depending on the value of goods or services supplied, longer tax reporting periods and special treatment for taxable transactions entered into prior to 2019. 

From January 1, 2020 the permanent legal framework governing VAT in Bahrain will be implemented in its entirety. VAT applies at a prima facie rate of 5% on the supply of goods and services, if such supply is made:

•   By a taxable person (i.e. a person or business who supplies goods and services, or receives goods or services from a non-resident in accordance with the reverse charge mechanism, or is an importer);

•   In Bahrain; and

•   The supply is not specifically exempt from VAT or subject to the zero-rate.

In order to prepare for the introduction of VAT, all taxable persons as described above should perform a preliminary estimate of their expected annual revenue for each commencing year, then apply to the NBR for VAT registration within 30 days, if the expected values of their annual supplies exceed the applicable mandatory threshold.  From 2020, such threshold shall be set at BHD37,500 ($99,500).

Any VAT collected on the supply of goods and services must be retained by the supplier and subsequently paid to the NBR within 30 days of the end of each tax period.  VAT invoices must also be provided to customers of the supplier within 15 days of the end of each tax period. Taxable individuals and businesses should ensure they are well prepared for these time frames in order to allow for sufficient cash flow and compliance with the law.

Certain goods and services are exempt from VAT, either through the application of a 0% VAT rate or by total exemption.  In such cases, no VAT is chargeable by the supplier nor payable to the NBR.  For example, the sale or lease of vacant land and buildings, goods and services for disabled persons, and gifts carried by travelers will be exempt from VAT. 

Other goods and services may be subject to VAT at a rate of 0%, including:

•     Oil, gas and oil derivatives;

•     The supply and imports of food products;

•     Transport;

•     Construction of new buildings;

•     The supply and import of certain medicines and medical equipment;

•     The supply and import of investment gold, silver and platinum with a purity level not less than 99% that is tradeable on the global bullion market (subject to obtaining a certificate);

•     Educational services, as well as the supply of related goods and services to nurseries, pre-schools, primary, secondary and higher education institutions;

•     Supply of goods under a Customs duty suspension scheme; and

•     The supply and import of pearls and precious stones (subject to obtaining a certificate).

Penalties

Penalties for non-compliance are severe, and taxable individuals are advised to ensure they understand all the VAT obligations and time frames relevant to their situation. Taxable suppliers who fail to register for VAT may face penalties up to BD10,000 ($26,500).  A penalty of up to BD5,000 ($13,300) may be imposed on any person who:

  • Prohibits employees responsible for implementing the law to be carried out;
  • Fails to notify the NBR of changes to details of information;
  • Fails to display prices of goods or services inclusive of VAT;
  • Fails to provide information at the NBR’s request;
  • Fails to comply with conditions related to issuing the tax invoice;
  • Violates any other provision of the VAT Law.

In addition, the following actions may be regarded as tax evasion, which may result in a period of imprisonment in addition to any fines imposed:

•     Failing to register for VAT within 60 days of the registration deadline;

•     Failing to pay VAT within 60 days of the payment deadline;

•     Failing to provide a tax invoice to a customer; and

•     Charging VAT on non-taxable items.

Implications of VAT for Businesses

Following the introduction of VAT, further developments in taxation in Bahrain may be expected in the coming years in furtherance of Economic Vision 2030, including the possible introduction of remittance tax, expatriate tax and corporate tax.

The introduction of VAT and other taxes will no doubt present challenges to businesses of all sizes, however, small and medium-sized enterprises who do not have a dedicated accounting department should be especially rigorous when it comes to familiarizing themselves with the VAT rules and deadlines, and in implementing the necessary internal systems to ensure compliance with the same at all times.

(This article was published on Oxford Business Group The Report: Bahrain 2020 Edition)

Bahrain’s new Law for the Encouragement and Protection of Competition (Competition Law) was published in the Official Gazette on July 19, 2018 and its provisions – with the exception of Chapter 2 –  came into effect on February 1, 2019. Chapter 2 establishes and relates to the Authority for Encouragement and Protection of Competition, came into force on August 1, 2018. While the authority had not yet been formed, as of October 2019, Decree No. 8 of 2019 stipulates that the Consumer Protection Directorate of the Ministry of Industry, Commerce and Tourism will assume the functions and powers of the authority in this interim period.

The provisions of this legislation, Law No. 31 of 2018, apply to any act or arrangement that results in hindering competition in Bahrain. Provisions of the Competition Law also apply extraterritorially to economic activities that have an effect on competition in Bahrain.

In accordance with Article 3 of the Competition Law, all arrangements that target or result in hindering competition in Bahrain are prohibited, particularly arrangements that target or result in the following:

  • Affecting the prices of products by raising, reducing or fixing by sham, fictitious transactions or any other means.
  • Limitation in production, marketing, technical advancement or investment.
  • Sharing markets or sources of supply.
  • Knowingly disseminating incorrect information about products and prices.
  • Collusion on bids for auctions or tenders.
  • Fabricating a sudden abundance of products leading to unreal prices that affect other competitors; and
  • Collusion of purchase rejection, sale or provision from a specific facility or facilities to prevent or obstruct activities of the same.

Any arrangement which falls under these descriptions will be deemed null and void.

The following arrangements are specifically excluded:  

  • Arrangements that lead to a notable improvement in the production or distribution of products.
  • Arrangements that lead to promoting technical or economic development in the field of producing or distribution of products.
  • Arrangements that grant a fair share of any resulting benefit to the product’s consumers.
  • Arrangements that do not enable the elimination of competition in a large segment of the product’s market.
  • Other arrangements that do not impose restrictions on competition.

In line with Article 8 of the Competition Law, a market player may be considered as having prevailing status in an area if it enjoys an economic leverage that enables it to deter any effective market competition, which grants it the ability to independently perform from its competitors and clients, and consequently from its product consumers. Unless otherwise proven, a particular market player may be considered as having prevailing status if its share in a specific product market exceeds 40%. A group of market players, two or more, is considered as having prevailing status if the collective share of the group in a specific product market exceeds 60%.

However, a player may be considered as having prevailing status in a specific product market even if its share does not correspond to these percentages. Any player that enjoys prevailing status in the market is prohibited – whether solely or in conjunction with one or more others –  from undertaking any action or refraining from any act that entails misuse of their status, in particular:

  • Direct or indirect imposing of sale or purchase prices or any other trading terms.
  • Restricting the production, marketing or technical advancements, leading to damage to consumers.
  • Discrimination in contracting or agreeing in any form with vendors or with clients when the contracting terms are the same; whether in prices, quality, products or any other transaction.
  • Abstaining, without a justified reason, from the sale or purchase of a specific product with any facility; or sale of its products for less than the actual cost; or permanently suspending transacting with a facility leading to the exclusion of competitive facilities from the market, or inflicting losses to make it difficult for them to continue business.

Criminal penalties for violating the Competition Law range from fines of BD 100 ($265) to BD 50,000 ($133,000) and imprisonment for one month up to one year. Provisions of the Bahrain Civil Code apply to civil liability ensuing from violation of the Competition Law.

(This article was published on Oxford Business Group The Report: Bahrain 2020 Edition)

Law No. 30 of 2018 promulgating the Personal Data Protection Law (PDPL) was published on July 19, 2018 and came into force on August 1, 2019. Prior to the implementation of the PDPL, there was no single codified data protection law in force in Bahrain. Scattered provisions were instead isolated in different laws covering certain aspects of confidentiality and privacy, making the PDPL a much-needed development to bring the country’s legislation more in line with the General Data Protection Regulation. The PDPL is applicable both within Bahrain and extraterritorially.

The law establishes the Personal Data Protection Authority (PDPA), which has the power to carry out inspections and investigations into possible violations of the PDPL, issue orders to stop violations, fine violators and award compensation to data owners who have incurred damage as a result of violations of the PDPL. However, a formal PDPA has not yet been formed as of October 2019, and no implementing regulations of the PDPL had yet been published to date.

The terms personal data and data have been defined widely in the PDPL, and include any information or image in any form of an individual that can be directly or indirectly identifiable by any means. Sensitive data includes any data that reveals, directly or indirectly, an individual’s race, ethnicity, political or philosophical views, religious beliefs, union affiliation, criminal record or any data related to their health or sexual life and should be processed with more care as specified by Article 5 of the law. Processing is also broadly construed, and incudes any treatment of data by both automatic and non-automatic means, including the collection, organization, storage, modification, use or disclosure, publishing, making available to third parties, and destruction of such data.

Article 3 of PDPL requires that any personal data collected must be processed fairly, for a legitimate and clear purpose, and must not be subsequently processed for other purposes. It should be ensured that any data processed is at all times accurate and updated when necessary. Importantly, once the purpose for which the data was collected is fulfilled, it should not be stored in any identifiable form. Beyond this point, it must be converted into an anonymized, unencryptable format.

Consent of the data owner must be obtained before processing their data, and must be given clearly by individuals of full legal capacity and on their own free will after being fully informed about the purposes for processing their data. Some exceptions to this are:

  • processing the data to conclude a contract on behalf of a data owner;
  • fulfilling an obligation required by law or court order; or
  • protecting the vital interests of the data owner.

If a party seeks to transfer any personal data outside of Bahrain, they may only transfer such data to countries which are deemed by the PDPA to have sufficient data protection laws. A list of these countries has not yet been published. Some of the exceptions to this are when:

  • The data owner has given their consent;
  • The data is from a public register; or
  • Prior authorisation has been obtained from the PDPA.

The PDPL allows for criminal penalties and administrative fines in some circumstances, notably in cases including but not limited to:

  • Processing sensitive personal data in violation of the law;
  • Transferring personal data outside Bahrain to a country or region in violation of the law;
  • Processing personal data without notifying the PDPA;
  • Hindering or suspending the work of the PDPA’s inspectors or any investigation which the authority is going to make; or
  • Inspectors disclosing any data which they are allowed to have access to due to their job, or which they used for their own benefit or for the benefit of others unreasonably and in violation of the law.

Such acts may result in imprisonment of up to one year and/or a fine between BD1000 ($2650) and BD20,000 ($53,000), so it is imperative that parties ensure their data processing procedures and policies comply strictly with the PDPL.

(This article was published on Oxford Business Group The Report: Bahrain 2020 Edition)

August 2019, first published on Thomson Reuters Regulatory Intelligence

Bahrain is an independent Kingdom situated in the Arabian Gulf and is a member of the Gulf Cooperative Council (which comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates). It is governed by a constitution promulgated in 2002. For many years prior to 1971 Bahrain was a British protectorate, but retained its internal laws and legal systems.

Statutes are promulgated by decree of His Majesty Sheikh Hamad Bin Isa Al Khalifa, the King, and are published in the Bahrain Official Gazette. Many decrees contain enabling powers under which various ministers make resolutions and rules which have the force of law.

Much of the legislation is based on Egyptian models, in particular the Egyptian Civil Code, and the legal system is therefore predominantly a civil (as distinct from a common law) system.

The Ministry of Justice administers the courts and the civil courts (established by decree in 1971) have sole jurisdiction in commercial matters and are distinct and separate from the Sharia’h courts. Sharia’h law is one of the sources of law but does not override statute law or customs and is not of great significance in commercial matters.

Banking

All matters that relate to banking, insurance, the stock market and other financial activities are regulated by the Central Bank of Bahrain (CBB), pursuant to the Central Bank of Bahrain and Financial Institutions Law (Decree Law No. 64/2006). It is prohibited to carry on any finance-related business in Bahrain without a licence from the CBB, and penalties can be severe.

Banking licences fall into two main categories:

Conventional banks

Such banks carry on all recognised banking business except Islamic banking.

Islamic banks

These banks conduct all regular banking business but in accordance with Islamic principles and all activities and products must be approved by the bank’s Sharia’h Advisory Board. Within these two main categories, there are:

Retail banks

These are banks which conduct business onshore and offshore and have savings accounts as well as other types of account.

Wholesale banks

These banks have only a limited right to transact business with Bahrain residents, most of their activities being conducted with offshore clients. Banks in any of the categories described above may be locally incorporated, or may be branches of overseas companies. If locally incorporated they must take the form of a Bahrain shareholding company which in turn may be open (i.e., listed) or closed (with a restricted system of transferring shares). Their head offices must normally guarantee branches’ obligations.

Representative offices

In addition, there is the category of “representative office”. This is basically an information-gathering office, allowed to conduct a limited amount of promotional and research activity but not to conduct any kind of business. All business requirements must be referred to the head office.

Investment business

The CBB offers the following investment business licence categories:

  • Category one investment firm licences.
  • Category two investment firm licences.
  • Category three investment firm licences.

In summary, category one investment firm licensees are able to undertake all types of regulated investment services, including dealing in financial instruments as principal. In undertaking these activities, they are able to hold client assets. Category two investment firm licensees are authorized to undertake all regulated investment activities, with the exception of dealing in financial instruments as principal.

They are allowed to hold client assets, but are not allowed to act as principal in client transactions or act as market maker. Finally, category three investment firm licensees are limited to undertaking the activities of “arranging deals in financial instruments” and/or “advising on financial instruments”.

They are not allowed to hold client assets. Investment firm licensees may operate on a fully Sharia’h compliant basis, should they wish to, in which case certain specific requirements would apply, such as the need to appoint a Sharia’h supervisory committee. Different capital requirements apply to each category of investment business licence. 

Ancillary financial services

The CBB also grants licences to companies (local and foreign) which offer ancillary services (e.g., credit cards, rating agencies, etc.).

Insurance

The CBB also regulates the insurance industry. Insurance companies may be conventional insurers or may operate on the takaful principles (in effect, Islamic methods). They include reinsurance (and retakaful), and captive insurance companies. Insurance business is divided into long-term insurance (meaning life, personal accident with a term of over one year, and savings and fund accumulation insurance) and general insurance (including fire, marine, accident, motor, business interruption, etc.).

There are specific requirements as to capital adequacy. In the insurance sector there are insurance brokers, insurance consultants, insurance managers (which provide management services to insurers), actuaries and loss adjusters.

Trust

Trusts are regulated by the CBB, by the new Trust Law promulgated under Royal Decree No. (23) of 2016. The new law offers innovative forms of structures and financing that complement the range of existing structures available in Bahrain.

Funds

The CBB regulates the formation of fund issuers, as well as the funds themselves. Companies that issue funds must have a financial institution as a 99 percent shareholder. There are detailed regulations regarding collective investment undertakings contained in CBB Rulebook, Volume 7.

Collective investment undertakings are defined as follows:

“Collective investment undertakings are undertakings:

  • The sole object of which is the collective investment of capital raised from the public in financial instruments or other assets and which operates on the basis of risk-spreading; and
  • The holdings of which are re-purchased or redeemed, directly or indirectly, out of those undertakings’ assets.”

Collective investment undertakings may be issued either locally or overseas. They may not be sold into Bahrain on a cross-border basis. For CIUs, various classes of investors may be approached, depending on the type of CIUs:

Retail CIUs

Retail CIUs may be offered to all types of investors but are subject to restrictions on investments and other detailed requirements.

Expert CIUs

Expert CIUs have fewer restriction requirements and may be offered to expert investors, with a minimum investment of $100,000. Expert investors are:

  • Individuals who have a minimum net worth (or joint net worth with their spouse) of $100,000, excluding that person’s principal place of residence.
  • Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than $100,000.
  • Governments, supranational organisations, central banks or other national monetary authorities, local authorities and state organisations (minimum investment $100,000).

Exempt CIUs

Exempt CIUs are virtually unregulated but may be offered only to accredited investors, for a minimum investment of $100,000. Accredited investors are:

  • Individuals who have a minimum net worth (or joint net worth with their spouse) of $1 million, excluding that person’s principal place of residence.
  • Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than $1 million.
  • Governments, supranational organisations, central banks or other national monetary authorities, and state organisations whose main activity is to invest in financial instruments (such as state pension funds).

Private investment undertakings (PIU)

There is another form of fund known as the PIU which can only be marketed to high-net-worth investors (HNWI), for a minimum investment of $3 million.

HNWIs are defined as:

  • individuals holding financial assets (either singly or jointly with their spouse) of $25 million or more;
  • companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than $25 million; or
  • governments, supranational organizations, central banks or other national monetary authorities, and state organizations whose main activity is to invest in financial instruments (such as state pension funds).

Bahrain Bourse

The Bahrain Bourse is also under the general supervision of the CBB. Both domestic and foreign companies may be listed on the Bahrain Bourse. Shares in any listed company must be traded through the Bahrain Bourse unless a special exemption is given.

Capital markets

Any offering of securities must be first approved by the Capital Markets Supervision Directorate at the CBB which sets conditions of issues, and detailed requirements for documentation to be used, including a capital issue, which includes issues of shares and bonds.

Contributors:
Naveen Thakur, Partner
Noor Al Taraif, Associate
Zu’bi & Partners Attorneys & Legal Consultants   

                   

First Edition, May 2018, published by Herbert Smith Freehills

THE LAW

1.   What is the source of:

ABC legislation and regulations?

  • Articles 186-193 of the Bahrain Penal Code, promulgated by Decree Law No.15/1976, as amended by Law No.1/2013 (the “Penal Code” or the “Law”), cover the offence of bribery in relation to civil servants. Articles 417-427 of the Amendment to the Penal Code (Law No.1/2013) cover the offence of bribery in the private sector.
  • Bahrain has also signed and ratified the United Nations Convention against Corruption in Law (“UNCAC”), which has been implemented under Law No.7/2010. As UNCAC is mainly directive in nature, the anti-bribery provisions of the Penal Code are the main points of reference in investigations and prosecutions relating to bribery and corruption.

Local regulatory guidance in relation to the following types of activities: gifts, meals, entertainment, travel, sponsored training/conferences and other similar hospitality events?

  • Local law/regulations do not provide guidance in respect of specific categories of bribes, rather the law provides provisions broadly prohibiting any bribes made in the form of substantial gifts or privileges of any kind whatsoever or a promise to be given the same.

2.   What constitutes an ABC offence in Bahrain?

  • The Penal Code criminalises bribery of civil servants entrusted with a public service as well as workers in private corporations. It is an offence to receive or offer gifts or privileges to a civil servant, company employee, board member or corporate trustee of a private corporate entity, as consideration for doing an act or omitting to do an act involved in his duties. It is also an offence to promise to give a gift or privilege of any kind in consideration of performing certain work or abstaining from performing the same, in breach of ones duties or in a manner detrimental to the interests of the employer or private corporate entity.
  • It is immaterial whether the official, employee, board member or corporate trustee actually intends to perform or abstain from performing the act in question, and whether the act or omission does not constitute part of his duties. This is the case even if he/she has alleged or wrongly believed it to be part of their duties, and whether the bribe has been demanded or offered after having completed doing the act, or omitting to do such act, in violation of the duties of their office, or in relation to corporations, in a manner detrimental to the interests of the employer or private corporate entity.
  • In early 2014, eight Bahraini officials were suspended in connection with 25 major corruption cases under investigation following National Audit Office report revelations. These include 13 violations at the Municipalities and Urban Planning Affairs Ministry, seven at Alba and one each at the Bahrain Flour Mills Company, the Bahrain Chamber for Dispute Resolution (BCDR-AAA), Bapco, the Works Ministry and the Housing Ministry.
  • As of 21 January 2015, the Public Prosecution Office had received 36 corruption-related cases: 10 of these cases were referred to the Criminal Court for criminal prosecution, 12 were reserved for no further action and 14 cases are still pending investigation.

3.   Are there any statutory defences provided under the relevant legislation, eg de minimis

exceptions – payments that are legal in the country in which they are offered, etc? What considerations will be taken into account, for example the purpose and frequency of the gift/ event, the cost to the organiser, the value of the benefit offered to the individual?

  • The Penal Code provides for one mitigating factor, which is where a partner reports the offence to the judicial authorities or admits it before reference of the case to the court, the judge may exempt him from punishment, if such course of action is justified.
  • Although the law does not entail monetary thresholds in respect of bribes, but criminalises bribery per se, the considerations which will be taken into account are the connection between the bribe, in whatever form offered or requested, and the action or omission expected or offered in return. In respect of events, the relation between the subject matter of the event and the person’s specialisation, whether in public office or a private company, and whether such are related or not, will be considered.

4.   What kinds of gifts/entertainment/ advantages will be considered acceptable?

  • The law does not specifically provide a limit on gifts offered or accepted. A gift of “modest value” may be permitted. For example, seasonal inexpensive gifts such as calendars and diaries can be given without concern. Further, gifts of modest value such as pen sets, company plaques, etc, particularly if they bear the donor’s name or logo, are customary and acceptable. However, other gifts which are offered individually may give rise to the appearance of impropriety and thus contravene the anti-bribery provisions.
  • Travel and reasonable related expenses which are related to the invitees’ specialisation may be permitted, so long as no favour is being received or expected to be received in return. Also, it is customary that meals and hospitality may be provided when, for example, an official is visiting the donor’s facility.

5.   What kinds of gifts/entertainment/ advantages will be considered unacceptable?

  • The Penal Code does not provide a definition of “gift”, and the term is regarded rather generally. Moreover, the offence of bribery is covered by offering or accepting gifts and privileges, which allows for a wide interpretation of the term. Thus, gifts and lavish lunches and entertainment should be avoided as such may give rise to suspicion of intention to influence a favourable decision, in which case it may be considered to fall within the context of the bribery provisions of the Penal Code.

6.   Are there any exemptions, for example “facilitation payments” – defined as payments  made to procure “routine governmental action” – that “do not involve an exercise of discretion”, payments that “are legal in the country in which they are offered”, and “reasonable and bona fide expenses directly relating to the promotion of products or services”?

  • There are no specific provisions in the law prohibiting “facilitation payments” as such; however, they may fall within the general definition of bribery.
  • Article 32 of Decree Law No.36/2002, in respect of Tenders and Government Procurement, requires that a tender be refused in the event of the tendering party offering a bribe or inducement of any kind to an employee of the procuring entity or any other governmental authority, even if the tender application has satisfied all the necessary prerequisites and requirements. In this context, there may be Penal Code implications in respect of both the party offering the bribe and the party asking for or accepting it, in both the public and private sectors.

7.   Does the law cover gifts/entertainment/ advantages which are given to spouses/relatives of public officers/civil servants, and/or companies in which the public officers/civil servants are directors/shareholders?

  • Yes. The offence of bribery covers offering gifts or privileges or promises of the same in consideration of an act or omission involved in the duties of the officer or employee whether such bribe is accepted by himself or another person acting on his behalf.

8.   What is the position in respect of charitable contributions to the Government and/or politically exposed persons (PEP)-connected local charities?

  • There are no specific provisions under Bahrain law that prohibit making charitable donations. So long as such donations are not “facilitation payments” and that nothing is being received in return for the donation, then this may be permissible. In the event of such donation being asked for, accepted or offered in exchange of some favour, it may be considered a bribe under the Penal Code, and thus constitute an offence thereunder.

9.   Do the ABC laws/regulations apply to the private sector or do they relate to the bribery of public individuals and/or bodies only?

  • Yes. The offence of bribery has recently been extended by the Penal Code to cover the private sector, meaning the persons subject to anti-bribery laws shall include: (a) workers who are defined as every natural person employed for a wage of any kind and under the employer’s management and supervision; (b) every person who does or works or provides a service in any capacity without being under the management and supervision of the person for whom he performs the work or service; (c) private corporate persons; and (d) board of directors, board of trustees, chairmen, deputy chairmen and all members of the board irrespective of designation or formation.

10. What is the definition of a public body? Would it include persons working in stateowned/ controlled companies? Who is a public/ civil servant?

  • The Penal Code provides a definition for civil servants only, who are entrusted with a public service, as: (a) persons in a position of authority, staff or government ministries, departments and local administrative units; (b) the armed forces personnel and servicemen; (c) members of councils and public representative units (whether elected or nominated); (d) every person authorised by a public authority to perform a particular task to the extent of the duties entrusted; (e) chairman or members of board of directors, managers and all staff of public institutions and organisations; and (f) chairmen and members of boards of directors, managers and staff of units belonging to public institutions and organisations. Term and nature of the relevant employment as well as remuneration do not have any bearing on the offence of bribery.

11. Would members of the Bahraini royal family be considered public officials by virtue of the fact that they are members of the royal family?

  • No.

12. Does the Government issue internal regulations or codes of conduct applicable to public officers/civil servants?

  • Such regulations are issued internally in the context of execution of the provisions of the law.

13. Are there any laws or regulations imposing obligations on persons to “whistleblow” or

disclose suspected corruption within an organisation?

  • No; however, it may be viewed that it is considered as part of the civil servant or employee’s job to report such incidents to his supervisor or the relevant authorities.

14. Do the domestic ABC regulations have extraterritorial effect? (Is bribery of foreign

public officials prohibited?)

  • Domestic ABC regulations will not apply outside the jurisdiction of Bahrain. There are no discrete provisions relating to the bribery of a foreign public official.

REGULATION OF ACTIVITIES

15. What are the main bodies responsible for investigating and combating bribery and corruption, in Bahrain?

  • The Public Prosecution Office
  • The National Audit Office (the NAO)
  • The Anti-Corruption Directorate of the General Directorate of Anti-corruption and Economic and Electronic Security

16. What does each of these authorities investigate?

  • The Public Prosecution Office prosecutes all criminal cases. The National Audit Office (the NAO) is a non-governmental organisation which independently investigates suspicious activities and reports its findings to the Public Prosecution Office for prosecution. A report is submitted annually to the King of Bahrain and the latest report was submitted on 30 December 2014. The National Audit Office is very active and investigates all ministries, government agencies and companies owned by the Bahraini Government. It prepares an annual report, which is presented to the King of Bahrain. The last report was submitted on 3 December 2017 for the year 2016-17.
  • The Anti-Corruption Directorate of the General Directorate of Anti-corruption and Economic and Electronic Security (“Anti-Corruption Directorate”) is responsible for investigation and prosecution of offences related to corruption.

17. Do the authorities described above have the same powers of investigation?

  • No. Refer to our response to question 16.

18. What actions may these bodies take in exercising their functions?

  • Criminal Investigations and the Anti-Corruption Directorate will mainly be done through the Public Prosecution Office, which has the power to prosecute, investigate and collect and confiscate relevant evidence in crimes which have been detected, as well as question relevant individuals (suspects, witnesses, etc), request experts to report on certain issues, and detain suspects.
  • The NAO has authority over all ministries and governmental authorities and organisations as well as the Cabinet and Parliament and Bahraini companies (among others), and it has authority under Decree Law No.16/2002 to audit, investigate, inspect and review any suspicious activities in this respect, and report the same to the Public Prosecution Office. The NAO has the authority to oblige the relevant authorities/companies to cooperate.
  • In addition to this, please see our response to question 16.

19. What are the powers of arrest and detention of the relevant authorities?

  • Powers of arrest and detention are exercised through the Public

Prosecution Office.

20. What is the jurisdictional reach of these powers?

  • Jurisdiction is limited to the Kingdom of Bahrain.
  • If, however, a Bahraini citizen commits an offence under the Penal Code whilst abroad, he/she may be prosecuted on return to Bahrain even if he/she is punishable under the law of the country in which they have committed the offence and even if he/she lost or acquired Bahraini nationality after committing the offence.

21. Do the police and other local authorities assist the relevant regulatory authorities in their investigations?

  • Yes. The general legal principle is that the Executive Authority shall obey the Judiciary, and as the Public Prosecution Office is a part of the Judiciary, the Executive’s cooperation shall be

extended to it. Further, it is usual that governmental authorities are extended a certain degree of cooperation.

22. How do the relevant regulatory authorities interact with overseas regulators?

  • Bahrain is strict in applying ABC laws and is cooperative with overseas regulators.

23. Are there any provisions requiring investigations or information disclosed during the course of investigations to be kept confidential?

  • The Penal Code requires confidentiality of investigations, especially in the context of not obstructing the course of justice; however, making the subject of a complaint or case public will not suffice to trigger confidentiality implications. Furthermore, the Bahrain courts are open to the public and as such any individual may attend any court hearing and thus be privy to such information if so presented in the court.

24. Can information obtained by these regulatory bodies in the course of their investigations be used for any other purpose, for example in proceedings in a court of law?

  • Yes. Information discovered in a criminal investigation may be used in a court of law to prosecute the offender, and may also be used in related civil proceedings (excluding negligence).

25. Are there protections available when responding to investigations by the relevant authorities, such as the right to legal representation at interviews, privilege against self-incrimination and legal professional privilege?

  • Yes. Under Article 20 of the Constitution of the Kingdom of Bahrain, an accused person is innocent until proven guilty in a legal trial and has the right to defence at all stages of the investigation and trial. This includes, amongst other things, the accused’s right to a lawyer to defend him with his consent and his right against self-incrimination. Article 29 of the Legal Practice Act covers legal professional privilege and prohibits a lawyer, who acquires in the course of his practice, knowledge of any incident or information, from disclosing it even after the expiry of his appointment as attorney, unless divulging such information is intended to prevent a crime or misdemeanour or report the occurrence thereof. Article 29 further stipulates that a lawyer may not be asked to testify in respect of any dispute for which he has been appointed as attorney or asked to give advice with regard thereto without the client’s prior written consent.

SANCTIONS FOR WRONGDOING

26. What disciplinary sanctions/sentences may these authorities impose?

  • A civil servant, employee, board member or corporate trustee who asks for or accepts for himself or others a bribe for acting or omitting to act in relation to his duties shall be liable for a term of imprisonment not exceeding 10 years. In respect of civil servants, this is reduced to a maximum of five years’ imprisonment in the event the civil servant demanding or accepting the bribe has promised to do an act, or omit to do an act, not constituting part of his duties, but had wrongly alleged or believed it to be so. Moreover, offering a bribe to an employee, board member or corporate trustee is also punishable by imprisonment not exceeding a term of 10 years. However, offering the same to an official in the public sector is punishable by imprisonment limited to a maximum term of three years.
  • Further, apart from confiscation of the bribe, fines shall also apply to offenders, equivalent to the amount of the bribe requested, accepted, promised or offered, subject to a minimum fine of BD 100 in the public sector and a minimum of BD500 capped at BD10,000 in the private sector.

27. Do the relevant authorities have powers to freeze properties which may be proceeds of an ABC offence pending conclusion of their investigation?

  • Yes, apart from the penalties described in question 26 above, the Penal Code provides for the confiscation of assets obtained by bribery.

28. Is it possible to enter into a settlement to resolve any enforcement action/prosecution by the relevant authorities?

  • No, this is very unlikely, as Bahrain strictly applies ABC laws.

29. Where proper disclosure is made to the employer/public body concerning the details of the gift or event being offered, would that be sufficient to avoid any potential liability under the relevant legislation?

  • The law does not provide guidance in this respect; however, any gift or privilege offered or accepted in exchange for a favour, regardless of it being reported to the supervisor or not, may trigger the provisions of the Penal Code in respect of bribes.

30. In practice, is it possible to obtain written/ signed acknowledgement from the relevant supervisory level of the public body/state, which shows that the supervisor is aware of the advantage offered to an employee? Is there an official approval process available or channel to go through?

  • The law does not provide guidance in this respect. Please refer to our response to question 29.

31. Are there provisions for defendants to appeal against any enforcement action/prosecution taken against them?

  • Appeals in this regard may be done through the ordinary course of the criminal courts, ie by making applications to the Public Prosecution Office or Court requesting release for bail or appealing decisions rendered by the Court. Please refer to our response to question 3.

REFORMS

32. Are there likely to be any significant reforms in Bahrain in the near future?

  • We are unaware of any reforms underway in respect of ABC laws.

Contributor:
Noor Al Taraif, Associate
Zu’bi & Partners Attorneys & Legal Consultants