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

In June 2017 the Central Bank of Bahrain (CBB) announced plans to develop a regulatory sandbox, establishing Bahrain as a leader in the Middle East’s financial technology (fintech) landscape. The regulatory sandbox is a virtual space and framework that facilitates the development of fintech through safe testing of innovative products, services, business models and delivery mechanisms, without the automatic application of regulatory and financial consequences. In other words, financial products and services based on new technologies, or modifications of existing technologies, are tested in the sandbox without the burden of time-consuming regulations and licensing. Those that prove successful may subsequently apply for the relevant license from the CBB.

Through its regulatory sandbox framework, the CBB has given both existing licensed financial institutions and newcomers a chance to experiment with innovative financial products and services for a specified period of time, in an environment where actual products and services are provided to customers, but where the risks to said customers and to the local economy are clearly defined and mitigated. The aims of the sandbox are to promote effective competition, encourage innovation, embrace new technology and ultimately improve the customer experience.

The CBB has set out eligibility criteria for the sandbox that include innovation, customer benefit and technical testing. The products and services tested should be significantly different from the current offerings on the market, as evidenced by extensive market research and comparisons against competing technology. Customer benefit may be direct or indirect, but must be quantified and fully identifiable. Lastly, the solution proposed should have already been tested in a laboratory environment for technical soundness. A fee of BD100 ($265) is payable to the CBB on application for a regulatory sandbox license, and the CBB aims to respond to such applications within 15 days.

The ability to test a product or service in the regulatory sandbox is granted by the CBB on a case-by-case basis. It may, for example, choose to control the number of volunteers or the criteria for volunteer eligibility. The duration of the testing period is nine months with a maximum extension of three months. Applicants that are granted a regulatory sandbox license will be required to report to the CBB, following a pre-agreed schedule, on test progress, milestones achieved and the likelihood of achieving target outcomes.  The applicant must also share a proposed exit strategy with the CBB, including plans for scale-up and deployment of the fintech solution in question, as well as a final progress report, which has to be submitted within one month of completion of the test period. The applicant must also be able to demonstrate to the CBB that they have sufficient resources to compensate customers for any losses that could be incurred during the testing period. All intellectual property rights in relation to the products, services or solution developed before or during the regulatory sandbox period belong to the applicant.

Establishing its role as a key player in the cutting-edge worldwide fintech industry, the CBB has now authorized regulatory sandbox applications submitted by Wahed Invest, BitArabia, Belfrics, Tramonex Limited UK, Nowex WLL and Rain Financial. In June 2018 Palmex, a digital asset exchange, became the first and only cryptocurrency exchange in the MENA region to receive a regulatory sandbox license.

It remains to be seen whether the products and services tested within the framework of the sandbox thus far will be deemed successful. However, there is no doubt that the CBB’s regulatory sandbox and other developments – such as the launch of Bahrain FinTech Bay, MENA’s largest dedicated fintech hub, by the Bahrain Economic Development Board – have broken new ground in the region and positioned Bahrain as a forerunner in the ever-changing fintech world.

(This article was published on Oxford Business Group The Report: Bahrain 2019 Edition)

In-line with His Majesty King Hamad Bin Isa Al Khalifa’s commitment to strengthening non-oil sectors,  the Real Estate Regulatory Authority (RERA) was officially formed with the issuance of Decree No. 69 of 2017 with respect to the organization of RERA. It began operations in March 2018, with a focus on licensing real estate service providers, professionals and off-plan sale projects. It’s aim is to create a professional and transparent business environment, and encourage investments in the real estate sector.

The RERA is authorized to exercise all tasks and powers necessary to regulate the real estate market in the Kingdom, as stipulated in Law No. 27 of 2017 Promulgating the Real Estate Sector Regulation Law. The objectives of the RERA are to:

  • Work closely with the government and real estate stakeholders to meet international standards, and ensure that services are being delivered in a professional, transparent and cost-effective manner;
  • Set effective rules and regulations to regulate the real estate market  and facilitate real estate transactions for developers and investors;
  • Create a new generation of knowledgeable, effective, transparent and professional real estate service providers, by providing essential training and assistance; and
  • Educate real estate investors about their rights and secure a transparent regulatory environment.

The RERA also aims to safeguard the interests of consumers, investors, brokers, developers and all stakeholders, by undertaking the following measures:

  • Providing a list of registered and licensed real estate individuals on the RERA website for customers to select reliable and trustworthy agents or brokerages;
  • Applying a fair and steady pricing strategy; and
  • Providing assistance to all developers.

Obligations and Mandates: All those working in the real estate sector are required to:

  • Obtain a RERA license by 31 August 2018, in order to avoid being subject to penalties;
  • Act in best interests of the client;
  • Exercise duty of care, diligence, skill and adopt honesty in all dealings with the client and other persons involved;
  • Disclose in writing all details with regards to their relation to the seller;
  • Treat any information obtained while acting for a client that has not been made public as confidential;
  • Act in accordance with the client’s reasonable instructions and deliver the service within a reasonable time;
  • Refrain from engaging in conduct that is misleading or deceptive, or is likely to mislead or deceive as per the constitutional laws of Bahrain; and
  • Comply with any obligation that may arise as result of any fiduciary relationship between a real estate professional/property developer and a client.

Guarantees & Protections: A developer of an off-plan sales development is required to open a specific bank account reserved exclusively for all financial receipts and valid development cost payments. This is known as an escrow account and is managed by an independent escrow account agent, or manager authorized by the Central Bank of Bahrain and approved by the RERA. All buyer deposits or contractual payments for off-plan sale contracts must be paid directly into the escrow account for that development only. Brokers cannot receive buyer payments for off-plan contracts. Loan or mortgage financing for the project must also be deposited directly into the escrow account. Development payments are paid from the escrow account and must be certified by a consulting engineer or qualified professional registered with the RERA. An escrow account is required to maintain a minimum escrow value, and the credit balance cannot fall below that value. Any remaining funds must be divided among the buyers, should the project be discontinued or disrupted.

(This article was published on Oxford Business Group The Report: Bahrain 2019 Edition)

The most recent amendments to Bahrain’s Legislative Decree No. 21 of 2001 promulgating the Commercial Companies Law were ratified in January 2018 and built upon the shareholder-friendly trends of the Decree’s 2014 and 2015 amendments to the decree.  Namely, they show a continued commitment to facilitating both local and foreign investment within the Kingdom, in line with Bahrain’s long-term development plans outlined in the Economic Vision 2030, and reinforcing Bahrain’s reputation as an open and flexible place to do business in the region.  The main amendments ratified in 2018 concern:

  • Investment in competing companies
  • General assembly rules
  • The obligations of joint stock companies
  • Broadening definitions of certain terms
  • Penalties for non-compliance

Importantly, it should be noted that throughout the amended Commercial Companies Law, Central Bank of Bahrain (CBB) licensees and other companies under the supervision of the Ministry of Industry, Commerce and Tourism (MOICT) are advised to look to the applicable conditions established by these two respective authorities regarding their obligations.

Easing of restrictions on shareholders

Article 18 (Bis 1), added by the 2018 amendments, allows a shareholder of one company to become a shareholder in a competing company, on the condition that they do not partake in the management of more than one of the companies. 

As far as the provisions of the Corporate Governance Code and the companies’ constitutional documents are concerned, there is now no longer an obligation to obtain a no-objection letter to enter into such an arrangement.

Furthermore, the new Article 168 (Bis) facilitates the litigation process for shareholders whose interests have been adversely affected by unfair or prejudicial management, or where the company intends to do any act or refrain from any action that harms or is likely to cause damage to the shareholder’s interests.

Under the amended law, shareholders are given the right to:

  • Call meetings of the General Assembly;
  • Received advance notice of General Assembly meetings;
  • Add new matters to the General Assembly agenda;
  • Be represented by a proxy at such meetings; and
  • Approve certain company transactions.

Joint Stock Companies

Both public and closed joint-stock companies must convene a general assembly at least once a year. The amendments to Article 198 reduce the timeframe in which the assembly must take place from six months to three months after the end of the company’s financial year.

Previously, only shareholders with at least a 25% stake had the power to request an ordinary general assembly and had to prove a serious reason to make the request. 

Pursuant to amended Article 198, auditors and shareholders with a minimum 10% holding may request a convening of the general assembly, with no need to show a serious reason for doing so as they required to before, allowing more flexibility for shareholders and increasing the rights of minority shareholders.

Article 198 lists instances in which the MOICT may request that a joint-stock company convene a General Assembly.  The amendments made in 2018 add two new possible instances:

  • Where a company fails to convene within one month of a request by its board of directors to do so, and
  • Where it has been requested to do so by the competent body supervising its activity.

Shareholders holding at least 10% of shares no longer need to request the MOICT to call a general assembly, given the new powers granted to request it themselves under new Article 198.

An invitation to shareholders for the convening of a general assembly meeting must be published in at least two daily Arabic newspapers. 

Amended Article 199 requires the invitation to be published even further in advance – 21 days before the scheduled meeting as opposed to the 15-day timeframe previously set. 

If the joint-stock company is closed, the amendments require the invitation to be sent to shareholders by registered post, or by any other means capable of proving the shareholder had advance knowledge of the time, venue and meeting agenda of the general assembly. 

These changes intend to give shareholders more time to make arrangements to attend the general assembly, allow pre-meeting administrative procedures to be completed, and prevent shareholders from not attending a general assembly due to lack of knowledge about the meeting.

Article 202 now provides that when the MOICT sends a representative to attend a general assembly, they have no voting rights, but, subject to the MOICT Minister’s decision and Cabinet approval, may charge a fee for their attendance.  For CBB licensed companies, the amendments are silent with regards to such fees.

The new amendments also increase flexibility with regards to general assembly agenda matters.  Previously, new issues could only be raised out of urgency or if discovered during the course of the meeting. 

Article 207 adds a third possibility, whereby the body supervising the company’s activity, shareholders holding at least a 5% shareholding or an auditor may submit a written request at least 5 days before the general assembly in order to have new matters included in the agenda.

With Limited Liability Companies

Amended Article 283 now provides that the general assembly for with limited liability (WLL) companies shall convene at least once during the six months following the end of their financial year.  This timeframe was previously set at four months.

Previously, only shareholders with at least a 25% shareholding had the power to request a general assembly.  Pursuant to amended Article 283, shareholders with a minimum 10% shareholding may request a convening of the general assembly. 

A request to convene the general assembly must be submitted at least three weeks in advance, an increase from the previous one-week timeframe, in order to allow, as with joint-stock companies, more time to prepare for attendance and complete administrative procedures beforehand.

While the law has long allowed for shareholders to attend general assembly meetings through a proxy, the conditions for doing so have been eased pursuant to the amended Article 284, which now allows one proxy to represent more than one shareholder.  However, the proxy may not be the company’s director or from the control board.

The amendment to Article 285 requires that consent is obtained from the majority of shareholders, who hold at least 75% of the company’s share capital, in order to amend the company’s constitution, increase of decrease the company’s capital, or dispose of more than half of the company’s assets. 

This requirement does not apply to mortgages, where the assets are moved to a subsidiary of the company or made in the ordinary course of business. Notably, no new partners may be added to the company and the existing partners’ financial obligations may not be increased without the unanimous approval of shareholders.

With regards to reporting, paragraph C added to Article 286 requires that managers of WLL companies take responsibility for providing the MOICT with the company’s financial reports and auditor’s report or letter within six months of the end of the company’s financial year.  Auditors are no longer implicated in the process of providing documentation to the MOICT.

Obligations of Joint-Stock Companies

The board of directors and the board members of joint-stock companies have stricter obligations under the amended law, which provides increased protection to shareholders, – and in particular minority shareholders – in turn encouraging more confident investment. 

Amended Article 172 obliges companies to include among the members of the board both independent and non-executive directors.   The amended Article 173 prohibits a person acting as both chairman or deputy chairman and as a senior director in a company.

It is possible for directors to hold a board position for a maximum term of three years, which can be renewed for another term, but amended Article 172 allows this term to be extended by up to six months at the request of the board of directors, with the approval of the CBB for companies licenced by it, and the MOICT for other companies. Previously, the general assembly had to be informed of the details of any personal interest of any of its members in any matters presented to it.  The new article 18:

  • Extends this obligation to chairmen;
  • Shifts the right to approve such interest from the general assembly to the board of directors alone;
  • Lists the necessary disclosures to be made by any members with a personal interest in a matter;
  • Denies the disclosing member attendance at resolutions concerning the interest; and
  • Allows any shareholder with at least 10% of the company’s capital to access such disclosures.

If a personal interest is disclosed by a member, the interest must be reported by the Chairman to the general assembly along with a report from an external auditor. Such matters are now required to be disclosed in the company’s financial statements and annual report.

If the conditions of amended Article 189 are violated, the interest may be deemed void if it is unfair or conflicting with the company’s interest, and compensation or refund of any profit distributed may be ordered upon the concerned member.

Article 184(Bis) provides an important added protection for investors, and obliges the board to establish an audit committee with the authority to access and review all financial and accounting documents related to the company, and to ensure compliance with applicable policies and regulations.  A report of the audit committee’s work must appear in the company’s annual financial statement.

Amended Article 176 introduces a new system of voting at general assemblies, whereby each shareholder has a number of votes equivalent to the number of shares they hold.  Votes may now be distributed among candidates, giving more power to minority shareholders who may direct all votes to one candidate.

The new law simplifies the process of litigation within the company.  Amended Article 187 extends liability for any damage caused to the company to both the chairman and board of directors, and, where the company is under administration, allows liquidators to file a lawsuit without the need for a resolution of the general assembly. 

Amended Article 185 provides more protection to investors and voids any resolution or condition which absolves the liability of the chairman, members of the board and directors towards the company, shareholders and third parties.

In the case  that a shareholder brings forward a lawsuit claiming that a resolution is void, they must now do so within 60 days from the date they are informed of this resolution, or within a year from the date the resolution was passed.  If the claim is successful in court, the judgment must be published in a local daily newspaper by the board of directors.

Importantly, new Articles 120 and 236 (Bis) prohibit subsidiary companies from holding shares of public joint-stock companies and of closed joint-stock companies listed on the stock exchange.

Penalties for non-compliance

Certain penalties for non-compliance with the new law have significantly increased, targeting  company board members and senior management.  A violation of Article 361 – including fraud and failing to send required documentation to authorities – has increased from BD5,000 ($13,200) to BD10,000 ($26,500), with a maximum penalty of BD100,000 ($265.000). 

A violation of Article 362 (including wilful ignorance and obstruction) has increased from BD5,000 ($13,200) to a maximum penalty of BD50,000 ($132,500).

Broader definitions of certain terms

Amended Article 27 provides more freedom to choose the company name of a general partnership.  It is no longer required that the name includes the name of all or any of its partners and does need not to include the term ‘& Partners’, provided the MOICT approves their choice of name.

A subsidiary company under the new law, is now defined in Article 120 as a company that is directly or indirectly owned by a parent company, where the parent company owns more than half the share capital or has the right to have control over the subsidiary’s resolutions, form its board and appoint the board’s members.

Although many of the most recent amendments to the Commercial Companies Law tighten the obligations of company management, they in turn provide further legal protection to shareholders and ease the restrictions on them that where in place before prior to 2018.   The introduction of this law is likely boost the confidence of both local and foreign investors and make doing business in Bahrain easier than ever.

(This article was published on Oxford Business Group The Report: Bahrain 2019 Edition)

In recent years Bahrain has seen the introduction of a series of laws designed to further develop the country’s financial sector, facilitate local and foreign investment, and promote Bahrain as a transparent, secure and cost-effective place to do business in the Middle East and North Africa. 

The new legislation introduced since 2014 includes three rounds of amendments to the Commercial Companies Law, the introduction of the Protected Cell Companies Law and the Trusts law and, significantly, Law No. 18 of 2016 in respect to Investment Limited Partnerships, or the ILP Law.

The ILP law, which was developed by the Central Bank of Bahrain (CBB) in coordination with the Bahrain Economic Development Board, is the first of its kind in the GCC region.   Other countries in the region allow for free zones to be established within their territories, that is, which are legally independent financial areas where various investment funds, including ILPs, can be established.  

Bahrain has extended the concept of a free zone by creating an entirely onshore fund domicile, featuring effective methods to structure investments and raise capital that were not available previous regulations.

Main features: An ILP differs from a traditional partnership in that it allows limited partnerships to carry on business in the financial and investment sectors, something that was prohibited before the introduction of the ILP law.  An ILP also has full legal personality and is regulated by the CBB. 

ILPs may only carry out certain activities within the financial and investment sectors, as listed in Section 2 of the law.  These activities include:

  • Private investment undertakings;
  • Collective investment undertakings;
  • Securitisation;
  • Insurance captives; and
  • Any other subsequent CBB approved activities.   

The ILP partnership agreement must include the names and addresses of the partners and must be notarized in Bahrain and filed with the CBB. Each subsequent amendment must be similarly notarized and filed with the CBB.  The name of the partnership must include the abbreviation “ILP” at the end.

Structure: An ILP must be made up of at least one or more general partners, and one or more limited partners.  A general partner is defined as one who contributes to the partnership’s capital and takes a direct part in its management.  

If there is more than one general partner, the partnership may be managed by all, some, or one of the general partners.  General partners have unlimited liability for the partnership’s obligations, and if the partnership faces bankruptcy, it is the personal liability of all general partners. 

A limited partner on the other hand, while contributing to the capital raised by the partnership, is in no way responsible for the partnership’s management and is only liable to the extent of their own capital contribution.

One exception to this is rule is in the event that an ILP becomes insolvent.  In the event that this happens, under Sections 14 and 15 of the ILP Law, a future disbursement or disbursements already paid out to a limited partner may be cancelled or returned to the partnership to discharge any debts or obligations incurred that led to the insolvency. 

Importantly, a limited partner is expressly prohibited from participating in the management of the partnership, pursuant to Section 8 of the ILP Law.  As a result of this stipulation, the name of the partnership is not permitted to include the name of any of the limited partners involved.

If a limited partner does take part in the management of the partnership, however, they risk unlimited liability for debts and obligations of the partnership incurred during the period they played a role in its management. 

For clarity, Section 5 of the ILP provides a non-exhaustive list of activities that are permitted to be undertaken by a limited partner, which for purposes of the law are not defined as ‘management’.

Notably, the ILP Law requires that at least one of the general partners be a closed joint-stock company.  The closed joint-stock company may be domiciled in Bahrain or in any other jurisdiction expressly accepted by the CBB.  If the Bahrain incorporated general partner intends to operate a fund, it must be licensed with the CBB as a category 1 or 2 investment firm or a bank. 

If the general partner is a company incorporated outside Bahrain, it must be duly licensed in its home jurisdiction, and have sufficient experience and track record to establish and operate a fund, as required by the CBB. 

Alternatively, it is possible for the general partner to be a special purpose vehicle (SPV) in Bahrain, as a closed join-stock company. It is required that the SPV is owned by a financial institution – which can be either Bahraini or foreign – had has a capital of BD1000 $2650).  The parent financial institution will take responsibility for the obligations and liabilities of the SPV. The SPV will then enter into an agreement with the financial institution,  acting as the investment manager.

The remaining general partners and limited partners can be corporate bodies or natural persons, with no restriction as to their domiciliation. 

Benefits for investors: Both limited and general partners can reduce their exposure to potential liability and invest more securely thanks to the provisions included in the ILP Law. 

It is now possible for limited partners to participate in partnerships in the financial and investment sectors without the risk of being exposed to unlimited liability in the case where the partnership faces insolvency or bankruptcy. In addition, limited partners do not have to take any active role in the management of the partnership. 

A general partner, while facing a high standard of liability, may come in the form of a subsidiary of an investment firm.  This allows the parent sponsor firm to avoid undue direct liability while still receiving the benefits of the ILP structure.   

For example, CBB licensed banks and category 1 and 2 investment companies are able to act as general partners in an ILP. 

Other benefits include:

  • The ease at which an existing partnership may convert to an ILP;
  • The flexibility given to fund managers to determine the terms of their investment; and
  • The relatively low costs associated with setting up an ILP with reference to other comparative jurisdictions.

Conclusion: The introduction of the ILP Law will facilitate a change in the structuring of investment partnerships and in turn encourage the expansion of Bahrain’s already well-established investment and financial sectors.  The kingdom is the first country in the GCC to establish flexible and cost effective ILPs, setting an example for the rest of the Gulf region, and bringing Bahrain closer to global financial centres such as Singapore and London.

(This article was published on Oxford Business Group The Report: Bahrain 2019 Edition)

Lexis Nexis – February 2016

1. What are the key immigration requirements for those wanting to work long term in the jurisdiction?

Anyone wishing to live and legally work in Bahrain, except for Gulf Cooperation Council nationals, will need to apply for a work visa and residency permit with the Labour Market Regulatory Authority (LMRA).

The key requirements are as follows:

  • Visa Application Form submitted online to the LMRA
  • Employee’s passport copy
  • Employee’s Smartcard copy if available
  • Employee’s GCC residency copy if available
  • Employment contract copy.
  • Employee’s Pre-medical report from an authorised clinic
  • Fees: Vary as per period of validity of work visa (see below).

The form is completed online once the company has been registered with the LMRA and has established an LMRA account. This can be done by an appointed agent or the company/employer themselves.

The employee’s passport must be valid for at least 6 months and preferably valid for 2 years depending on the period of the work visa. If the employee is in Bahrain on a visit visa, a copy of the entry and extension page is required. If they have a cancelled visa, a copy of the visa cancellation and the page which shows the permitted period stay in Bahrain is also required.

The appointed agent or employer must provide the latest electricity bill, which should not be older than three months. The address on the bill should match the CR address.

A clear copy of the employee’s Smartcard copy if they have one.

A clear copy of the employment contract on government official paper or the employer’s letter head signed by both the employer and the employee and stamped with the company stamp. The contract must include the following information:

Name of the employer, the employer’s registered address and  commercial registration number, full name of the employee as per passport, passport number, nationality, date of birth, Smartcard number (if available), job title as per the LMRA designation list, monthly salary in BHD, duration of the contract, start date of employment and notice period. The employment contract should state that the offer is subject to the successful application of the work permit.

If the visa application is made while the employee is outside Bahrain at the time of the application, he/she must submit a clear copy of the employee’s pre-medical report from their home country or country of residence, issued by a center/clinic accredited by Bahrain’s Ministry of Health (available on the LMRA website), showing that he/she is fit to work. If there is no accredited center available to the employee, he/she may complete their pre-medical at a hospital/medical center of their choice in their home country/country of residence, pursuant to the Medical Checkup Requirement Form and required format.

Fees – employers can provide work visas to their expatriate employees for different periods of validity. The fees are:

  • 2 Year work visa BD 200.000 2 years, 12 or 6 months
  • 1 Year work visa BD 100.000 2 years, 12 or 6 months
  • 6 months temporary work visa BD 200.000 One time for 6 months only
  • Work visa renewal for 6 months BD 200.000
  • Work visa renewal for 1 year BD 100.000
  • Work visa renewal for 2 years BD 200.000

If the employee is on a visit visa, an additional fee of BD 60.000 will be charged towards the transfer fee.

The employer or the authorised agent shall submit the work visa application online to the LMRA. Work visas are issued by the LMRA in coordination with other government bodies such as the General Directorate of Nationality, Passports and Residence Affairs, the Ministry of Foreign Affairs, the Ministry of Health, and the Central Informatics Organisation.

2. What are the main permission categories for such workers – and what rights do these bring (including max/min periods of stay)?

The LMRA provides work visas, with the above specified durations and renewable periods, to expatriates giving them the legal right to work and reside in Bahrain. Depending on the specialization of the  expatriate, they may or may not require additional approval prior to being granted a work visa. Each work visa grants the right to the expatriate to work for one employer only per period of work  visa.

3. Is the position different for staff who have previously worked for you internationally – are there any minimum skill, academic qualification or wage requirements?

No, the position is not different for employees who have previously worked for you outside of Bahrain. The work visa application process remains the  same.

There may be specific requirements for skilled professionals and as such, the application process will take longer as additional approvals must be granted prior to the visa being issued. Academic qualifications, experience, and professional body memberships are all required to be submitted and will be verified prior to the approval being granted.

The law is silent on minimum wage requirements, however, the Minister of Labour expects that any graduate, whether local or foreign, receive BD 400.000 per month. In practice, when a worker undertakes employment, his wage shall be set according to the industry standards. Furthermore, the Social Insurance Organisation (SIO) will only accept certain salaries based on their own criteria consisting of the expatriates role, qualifications, experience, and the Company’s activity and number of employees to name a few.

Corporate Immigration 2016

4. What are the key immigration requirements for those wishing to invest in the country?

A foreign national wishing to invest and reside in Bahrain via the operation of their own company here must obtain a Self Sponsorship Residence Permit. The application must be submitted to the Nationality, Passports and Residence Affairs Department of the Ministry of Industry and Commerce with the following documents:

Service request form.

A clear copy of passport.

A clear copy of ID.

Certificate of good conduct & behaviour.

A certified copy of the company’s memorandum of association and his share must not be not less than Bahraini Dinars One Hundred Thousand (BD 100,000).

A valid certificate of health insurance issued from the Kingdom of Bahrain.

A bank certificate confirming a fixed deposit not less than BD 15,000 in one of the Kingdom’s financial institutions, to be committed every 6 months. The certificate needs to be submitted at the time of renewal.

The applicant must have a source of income sufficient enough to support himself and his dependents not less than Bahraini Dinars Five Hundred (BD 500) per month.

A copy of the applicant’s card or his legal representative.

A ‘No Objection Certificate’ issued by the General Directorate of Immigration for BD 20.000

This will apply to all foreign investors except nationals of the Gulf Cooperation Council (Kuwait, Oman, Qatar, Kingdom of Saudi Arabia, United Arab Emirates). It is worthy of noting that the Bilateral Free Trade Agreement accords US citizens GCC recognition for certain investment   purposes.

5. What are the key immigration requirements for those wishing to buy property in the country?

Foreign companies and non-commercial individuals wishing to buy property in Bahrain will be subject to Article 1 of Bahrain Decree No. 43/2003 regarding the ownership of property and land by   non-Bahrainis in Bahrain (as amended by Bahrain Ministerial Order No. 67/Year 2006), which allows foreign ownership of property in free zone areas, high rise residential areas and other areas designated by the law such as:

The Greater Manama Area, such as Ahmad Al-Fateh District, Hoora Area, Bu Ghazal Area, Northern District of Manama including Diplomatic Area (areas of high rise residential and commercial structure with elevation of 10 storeys or  above).

Seef District (with elevation of 10, 5 and 3  storeys).

New tourism developments such as Durrat Al Bahrain, Amwaj Islands and Al-Areen Desert   Resort.

Areas which fall within the sphere of the Bahrain Financial Harbour (BFH), the Bandar Al Seef Area and Reef Island.

It must be noted that Gulf Cooperation Council nationals will not be subject to this, as they are extended the same rights of ownership as Bahraini nationals.

6. Is there any preference/exemption given to individuals from other countries – if so what countries or individuals with family links to the country?

No person is exempt from obtaining a valid visa to allow entry into Bahrain, except for Gulf Cooperation Council nationals. Work visa applications for some nationalities do seem to be processed faster than others (e.g. US nationals are generally processed very fast compared to other Arab   nationalities).

7. Is there an appeal procedure in these cases?

While Article 24 of Bahrain’s Law on Foreigners (Immigration and Residence) of 1965 sets out an appeal procedure and provides that decisions made under the Act may be appealed to the Board of Appeal, in reality, no PRO makes use of this. In practice, various reasons for rejections of visa applications are treated differently on a case by case basis, and as such, the possibility to overturn the decision will depend on this reason. However, if the rejection reason is ‘Change the Person’ issued by the Ministry of Interior, it is known to be a definite rejection for this person’s application, and an appeal will not be entertained.

Corporate Immigration 2016

8. Are there any circumstances (e.g. criminal convictions) which would bar an individual from working in the country?

Medical fitness and freedom of contagious diseases are crucial in assessing a visa application and so failing a medical examination for the same will bar an individual from obtaining a work visa. The  employer is to process the deportation of the foreign employee immediately if the employee has failed the medical examination. In the event that the foreign worker is convicted for a felony or crime that violates honour or honesty, their work visa will be cancelled and the worker will be deported and barred from re- entering Bahrain.

9. Are there any circumstances in which work permits/rights to remain would be removed?

Work permits may be cancelled prior to their expiry in any of the following circumstances:

  • The permit was obtained on the basis of false documents or information.
  • The employee ceases to comply with one or more of the conditions for granting the permit.
  • A final criminal judgment is passed against the employee for a felony or a crime that violates honour or honesty.
  • A final criminal judgment relating to terrorism is passed against the foreign worker or the foreign worker is arrested under an order from the Public Prosecution for terrorism-related acts or crimes.
  • Violation by the workers of the terms under which his work permit was issued
  • The liquidation of the employer’s business, declaration of his bankruptcy, cancellation of his commercial registration or the termination of his license to practice commercial activity.
  • Death of the employer who had obtained the work permit, unless one of his heirs applied for renewal of the permit within six months.
  • A written request from the employer to cancel the permit on expiry of the contract or at the request of employee.
  • Failure of the employer to pay the fees and other payments due to the authority in connection with the permit for a period exceeding three months after such payments’ due date without a plausible excuse.
  • A worker being infected with a contagious disease, which demands his expulsion from the country as specified in a decision issued by the Minister for Health.

10. How are spouses and family members of those with work permits or residence as a result of investment or property ownership treated?

The differences between the visa application for spouses and family members of those with Investor visas or residence as a result of company investment versus those who are under work visas gained via employment with a Bahrain company lie in cost as well as application processes. They are processed by different government bodies. The LMRA processes visa applications filed by dependents accompanying employees, and the GDNPR processes the dependent visas under the visas issued for property investment and foreign investment.

There is also a slight difference in the visa fee of BD 90 for the LMRA and BD 110 for the GDNPR.

The application process for both is as follows:

Spouses and dependent children under 18-years-old are entitled to be granted residency permits based on the residency permit and work visa granted to the expatriate employee or investor. This is referred to as a Dependent Visa or Family Visa.

The requirements for this are as follows:

  • Completed application form;
  • Employee and family’s passports;
  • Marriage certificate copy;
  • Birth certificate copy of children;
  • Smartcard copy of the dependents;
  • Visa fee as stated above.

The application form for the LMRA is online and the application to the GDPNR is submitted by hand.

A clear copy of above mentioned passports, personal details page, valid for at least six months (preferably for 2 years or 1 year depending on the period of validity of the dependent visa). If the dependent is in Bahrain on a visit visa, then a copy of the entry page into Bahrain and the last extension page (if it is extended) are required. If the visa is cancelled, then a copy of the visa cancellation and the extension page (the page which shows the permitted period of stay in Bahrain) are   required.

Marriage certificate: In the application of the wife’s visa, a copy of the marriage certificate must be  provided in English or Arabic. In the case of Arab nationalities, it must be Apostilled or attested by the Ministry of Foreign Affairs and the Bahrain Embassy from the country of origin and by the Ministry of Foreign Affairs in Bahrain. The Bahrain attestation should be on the front side of the document. In   the case of Indian nationals, the same procedure is applicable., if the husband’s name is not endorsed in the passport of his wife. If the certificate is in any other language than English or Arabic, it must be translated and must follow the above mentioned attestation/apostille  procedure.

Birth certificate: In the application of the children’s visa, a clear copy of the Birth certificate in English or Arabic is required. In the case of Arab nationalities, it must be Apostilled or attested by the Ministry of Foreign Affairs and the Bahrain Embassy from the country of origin, and by the Ministry of Foreign Affairs in Bahrain. The Bahrain attestation should be on the front side of the document or else the document can be Apostilled. If the Birth certificate is in any other language than Arabic or English, it must be translated and follow the above mentioned attestation/apostille   procedure.

In the application of the children’s visa, a no objection letter from the dependent’s father is required.

Smartcard/CPR copy if available.

11. Who qualifies as family members in such circumstances?

Family members, pursuant to the Labour Market Regulatory Authority Law, are direct dependents, spouses and children under 18 years’ old of the expatriate. Children over 18 years’ old and other   family members (i.e. parents, siblings), will have to apply for a visa independently and directly through the General Department for Nationality, Passport and Residence Affairs and separate from the foreign worker’s visa.

12. How does the process work for those visiting on business short-term – and are there restrictions on business visitors without residency?

An individual visiting Bahrain for a short-term business trip must obtain a Business Visit Visa from the General Directorate of Nationality, Passports and Residence for such a trip. The relevant application must be completed and lodged with the Directorate, together with the following documentation: a copy of the visitor’s passport; a copy of the CR of the company; a letter prepared by the inviting company explaining the reason for the visit; a copy of the applicant’s Smartcard/CPR (identity card) or legal representative lodging the application on behalf of the visitor; and Fees of BD 25.000

Furthermore, business visitors without residency are restricted to the activities they conduct whilst in Bahrain on such a visa. They are not permitted to conduct other work related activities. They must also ensure they exit Bahrain prior to the expiry of their visa, or any renewal   thereof.

13. Are transit visas required for those passing through the country?

A passenger need not obtain a transit visa if he is to remain in the airport. If the passenger intends to exit the airport and pass through Bahrain to Saudi Arabia across the causeway, then a transit visa can be arranged specifically for this purpose.

14. What are the procedures for gaining right to remain/work permits?

The procedures for obtaining a work visa are those set out in question

15. How long do the procedures for main working categories take?

Processing applications by the LMRA will take approximately ten working days. However, visa processing times can vary depending on the nationality of the expatriate employee, e.g. Arab nationals usually take longer.

16. In practical terms how flexible are the authorities – in what sort of cases might exemptions be granted?

The authorities are not very flexible, and the Labour Market Regulatory Authority Law does not specify any exemptions that might be granted.

17. How does the quota system impact the recruitment or transfer of international staff?

Bahrain Ministerial Order No. 7/1996 states that companies with 10 or more employees and with a percentage of Bahraini employees being less than 50% must increase the numbers of the their Bahraini workforce by 5% every year for a period of five years. Companies with less than 10 employees must employ at least one Bahraini employee. However, despite this Ministerial Order having not been cancelled, it is not applied in practice. The Bahrainisation requirements are determined by the LMRA depending upon the activities to be undertaken by the companies and are dealt with on a case by case basis. Thus, the impact of this is dependent on the Bahrainisation quota imposed by  LMRA.

18. What proof does an employer need to show to prove they have given a fair opportunity to local employees?

There are no specific laws designating the standard of proof to be shown with regards to giving a fair opportunity to local employees, however, employers are expected to give preference to Bahraini nationals or an equal opportunity over equally qualified foreign  nationals.

19. Are there any restrictions on those with work permits?

A foreign employee for whom a work visa is issued shall adhere to the requirements of the work permit issued thereunder and shall not work with an unauthorized employer (an employer who is not the foreign employee’s sponsor as specified in the work permit). The foreign employee may also not conduct any work different to that which is stated in his work visa. On this basis, an employee may not work for any party other than the employer registered as his sponsor and in the designated place of employment as stated in the work permit. Employment by another would be seen to be a contravention of the law.

20. How easily can short term visas be converted?

Short term visas can easily be converted. If the employee is in Bahrain on a visit visa, the employer shall submit the work visa application to the LMRA before the expiry of the visit visa and it is advisable that such application is submitted at least 7 days before the expiry of the visit visa. If the employee has a multiple entry visit visa, it must be cancelled prior to submitting the work visa application (if the visa application is submitted while the employee is outside  Bahrain).

A worker/employer must apply for the work visa during the time in which the visit visa is valid, and must not engage in any work whatsoever prior to being granted the work  visa.

21. What is the procedure when an immigrant worker wishes to switch employers?

An expatriate employee may transfer their employment to another employer, without the need to cancel their existing work visa, without the need to travel out of the Kingdom of Bahrain, and with or without the consent of their current employer. Such transfer is available only while the expatriate employee’s permit/visa is still valid for at least three months (in some cases, six months), and in instances where the current employer does not consent to the transfer, the employee will have to have spend at least one year in their current employment.

Firstly the employee must, before the expiration or cancellation of their work permit, give written notice to their current employer by registered post evidencing the confirmation of such postal delivery and receipt of such notice by the employer. The employee would be required to give proper notice of termination of employment in accordance with the agreed contractual terms or the minimum legal requirement of 30 days’ notice. The notice period would not be expected to exceed three months. Thereafter, the other employer must lodge an application with the LMRA for a new work visa for the employee (known as mobility). After receiving all the documents, the LMRA will usually make   a decision on the work visa within three working days of receiving all relevant approvals, and validation of the decision will be made upon payment of the fees. Upon successful transfer, the expatriate employee’s work visa will be replaced with an updated visa reflecting the new employer’s details, who then   becomes the employee’s sponsor. It is only until such a transfer is complete and registered with the LMRA and the relevant authorities that an expatriate employee may commence work for the new employer.

22. How does exit and re-entry impact work permits?

An expatriate employee holding a Bahraini work visa may exit and re-enter Bahrain as many times and for as long a period as they so wish within the validity of their work  visa.

23. What evidence should those with work permits provide when re-entering the country?

A valid passport with a valid residence permit/work visa stamped in the foreigner’s passport are required when re-entering the country.

24. Under what circumstances (if any) can long term workers qualify for indefinite leave to remain or citizenship?

Article 6(1) of the Bahraini Nationality Law of 1963 provides that a foreigner who legally and  continuously resides in Bahrain for no less than 25 years, or an Arab national who legally and continuously resides in Bahrain for no less than 15 years, may apply for the Bahraini nationality provided that the individual is of good morals; has adequate knowledge of the Arabic language; and owns a fixed property in Bahrain, registered under his name in the Land Registry in Bahrain.

Furthermore, His Royal Highness the King has the discretion to grant the Bahraini nationality to any individual seen fit, and any Arab national may request to be granted the Bahraini nationality in instances where that individual has given the country his meritorious service. These applications are submitted in person and are entirely at the discretion of the  authorities.

25. What are the penalties for employers for failing to observe immigration/work permit rules?

Without prejudice to any severe penalties stipulated under the Penal Code, infringement of work permit/immigration rules by an employer will subject the employer to imprisonment of not less than three months and not exceeding one year and/or a fine of not less than BD 1,000/- and not exceeding BD  2,000/-. Habitual offenders will face imprisonment of not less than six months and not exceeding two  years, with a fine of not less than BD 2000/- and not exceeding BD 4000/-. In the event of conviction, the court may order cessation of business of the convicted employer or closure of premises for a period not exceeding one year. If the offence is repeated, then the court may order cancellation of the employer’s commercial registration.

26What are the penalties for individuals for failing to observer immigration/work permit rules?

The infringement of work permit rules by an individual will subject that individual to a fine not exceeding BD100/- and possible deportation in the event of conviction. A prohibition on re-entry may also be imposed on a permanent basis or temporarily for a period of not less than three years. As is the case with infringing employers, the infringement of immigration rules, i.e. providing false or   misleading information, will subject any individual to imprisonment of up to three months and a fine not exceeding BD 500.000

Contributing Authors

Ms. Rana Al Alawi

Associate

Zu’bi & Partners Attorneys & Legal Consultants

Contact: Qays H. Zu’bi, Senior Partner T: + 973 17 549 605

E: qzubi@zubipartners.com

W: www.zubipartners.com

Zu’bi & Partners Attorneys & Legal Consultants

Zu’bi & Partners (the “Firm’) is the merged firm between two long-established Bahrain law firms:  Hatim Zu’bi & Partners, the oldest established local law firm in Bahrain, and Qays H. Zu’bi Attorneys & Legal Consultants.

The Firm provides legal services across all leading sectors, including banking and finance, corporate, commercial, construction, energy, IT, communications, real estate, insurance, IP, to name just a few. The Firm also acts for both corporate and high net worth individuals in many diverse areas, including litigation, arbitration, property, labour, trade and family law.

The breadth of expertise and success of the Firm has been widely recognized by independent legal commentators and publications and is reflected in its client base of leaders in their fields, including both private and public institutions, government and quasi-government bodies, as well as high net worth individuals.

GBR – Global Business Reports

Selected quotes from the interview with Qays H. Zu’bi, Senior Partner, Zu’bi & Partners

Zu’bi & Partners is the oldest local law firm in Bahrain. Could you give a brief history of the firm and some of the services it provides, particularly in regard to aluminium and related industries?

Zu’bi & Partners is a family law firm established in 1921 and has operated in Bahrain since 1971. Hatim Sharif Zu’bi, who today is chairman, was a banker and minister for King Hussein of Jordan. As a result, when Hatim S. Zu’bi set up the firm in Bahrain, banks were attracted to Zu’bi & Partners, some of which were major international banks that today have been with the firm for 40 years. The firm also had a relationship with ALBA, one of the country’s most important companies by many benchmarks, since 1979. In addition to the firm’s litigation work, Zu’bi & Partners is often invited by international law firms to serve as local counsel on major projects. For instance, when the EPCM firm Bechtel is granted a contract, the firm assists in the setup of the structure and licenses. In nearly all largescale projects in Bahrain, Zu’bi & Partners has had a role, from advising financiers, advising contractors, advising banks, or advising developers to environmental regulation and structuring. Additionally, the firm has the resources that would enable it to defend any case or advise on any matter relevant to the aluminium industry.

The complexity of a legal system can impact the successful operation of an industry, especially a significant exporting industry like aluminium. What is the legal environment like for firms in Bahrain?

The Bahrain legal system is flexible. As an example, if a major aluminium company wants to sign an agreement, they can stipulate arbitration elsewhere and can subject it to English law as the governing law. Likewise, the government allows law suits to be brought against it, meaning that if the government enters into a contract, it considers itself like any other party. There are many cases where the government has been sued on contractual civil cases. In regards to the courts in Bahrain, compared to many countries in the region, the legal system is more robust. The execution of judgements takes more time than it should, but the firm believes the Ministry of Justice and Islamic Affairs are working on improving the speed of execution of judgements.

As a firm that is involved in the transportation and logistics sector, how would you asses the ease of export infrastructure in Bahrain for aluminium?

One of impediments at the moment for the aluminium industry is the King Fahd Causeway that links Bahrain to Saudi Arabia. Trucking delays are a major issue for the aluminium industry because of alternative cost. The delays have improved, but not to the extent that they are no longer an issue. However, Bahrain’s ports are superior to many other ports in the region. For example, in other ports, freight can sometimes take six months to clear. Despite the problems with the causeway, it is still faster to ship and clear goods in Bahrain rather than directly to neighboring ports.

Zu’bi & Partners has survived as a family law firm for several generations. Where would Global Business Reports expect to find Zu’bi & Partners in three to five years?

Zu’bi & Partners is in the process of engaging an international consultancy firm that specializes in developing law firms. The plan is to streamline the firm Zu’bi & Partners, to keep it ahead of other firms and bring in new partners to meet the expectations of a new generation of lawyers. Therefore to progress the matter, the firm plans to utilize technology to perform its work more efficiently and at a reasonable price. Zu’bi & Partners is also expanding its Dubai operations from the beginning of October 2015 onwards. We believe there  will also be a great deal of work in the oil and gas industry as the sector is restructuring.  For example, the firm has been invited by major international law firms to be local counsel on an upcoming LNG project in Bahrain.  Regarding the aluminium sector, the firm will continue to involve itself in ALBA’s line 6 expansion and is available to help the growing downstream sector and related service providers.

Notes to Editor:

Zu’bi & Partners is the oldest established local law firm in Bahrain and a top-tier legal services provider in Bahrain and the GCC.  The firm provides legal services across all leading sectors including banking and finance, corporate, commercial, construction, real estate, to name just a few.  It acts for both corporate clients and high net worth individuals in many diverse areas, including litigation and arbitration, property, labour, trade and family law.

The breadth of expertise and success of the Firm has been widely recognized by independent legal commentators and publications and is reflected in its client base of leaders in their fields, including both private and public institutions, government and quasi-government bodies, as well as high net worth individuals.

Contact: Qays H. Zu’bi, Senior Partner

Tel + 973 17 538 600 / email: qzubi@zubipartners.com / website:  www.zubipartners.com

Gulf Insider: July 2015

The Problem…

During recent years, Bahrain has witnessed a revolution of high quality developments and substantive projects that reflected positively on the national economy, through the creation of multiple job opportunities and attracting foreign investment.

Nevertheless, Bahrain’s real estate market has been constantly facing a number of challenges, mainly those arising from the sale of “off plan properties” to investors without governmental approval. Many of those projects were never fully completed, either due to improper planning and mismanagement of funds, material breaches of contractual provisions, unforeseen events of force majeure, or violations of the laws through undertaking real estate development activities prior to obtaining the required licenses and approvals from concerned authorities, leaving the investors without remedies for the incurred losses resulting from such delays.

… and the Solution

Based on the large number of legal claims arising from those issues, the New Law was passed as a tool to offer further protection to investors and to restore confidence in the Bahrain real estate development market.

Under this New Law, real estate developers are prevented from undertaking, marketing or promoting any project, prior to obtaining the required licenses from the concerned authorities (in particular, from the Ministry of Municipalities and Urban Planning) following the submission of all necessary and supporting documents relating to the projects. Furthermore, completed plans, including the design, artist impressions, the start and completion dates and value estimates are required to be presented and approved by the Engineering Practices Regulatory Committee. Therefore, as a result to these regulations, “off plan” properties will be prohibited, since developers will only be permitted to sell completed units, unless otherwise approved, and a detailed field assessment has been conducted.

The New Law also imposes penalties, including imprisonment and fines, on developers who commit any of the violations stated in the New Law; such as selling unlicensed, incomplete or unregistered projects, violating the provisions of a granted license, or having knowingly submitted false information to the competent authorities for the purposes of registering a project or obtaining a license.

Always on the Safe Side

As a substantive guarantee to investors’ rights, developers shall be compelled to deposit their projects’ funds into a “Guarantee Account”, prior to commencing work on a project, of which 5% will be held by the appointed Account’s Secretary to ensure the settlement of any compensation claims that may arise from the suspension of the project. The New Law also grants both the buyer and the seller the right to terminate a sale and purchase agreement and claim compensation for any loss and damage arising from such termination.

Furthermore, under the New Law, if a project is partially suspended, the developer will be obliged to complete the project or reimburse the investors for the amounts. If a project has been fully suspended, the developer will be required to complete the project at its own expense, under the supervision of a different developer or sell the project and distribute the revenues among the investors.

One of the most prominent outcomes of the New Law is the introduction of the “Real Estate Projects Dispute Committee” whose main role is to resolve the disputes relating to real estate projects within six (6) months. The Committee’s verdict can be challenged before the Court of Appeal within fifteen (15) days of the verdict’s issuance date.

We hope that the New Law will pave the way towards a prosperous future for Bahrain’s real estate market which will ultimately benefit the national economy as a whole.

Text by:

Rasha Belbaisi, Legal Consultant/Certified Arbitrator, Zu’bi & Partners Attorneys & Legal Consultants

Oxford Business Group: THE REPORT Bahrain 2015

Draft legislation addresses computer-based criminal activity

Most organisations have defences in place to protect against physical attacks, such as armed robbery. Protective measures operate on a few simple premises:

  1. Just because it has not happened, this does not mean it will not happen in the future;
  2. Strong, obvious defences are a deterrent against opportunistic threats, but do no guarantee against more sophisticated attackers;
  3. Defensive measures must remain robust, up-to-date and consistent throughout an organisation.

This should be no different for cyber threats. The threat may have changed – it is now virtual as well as physical – but the defences that companies have in place should follow the same logic. In other ways, things will be different. Unlike physical attacks, which are likely to be localised, the impact of a successful attack on, for example, a whole financial system is potentially more serious from a financial stability perspective.

Criminals, terrorist organisations or state-sponsored actors’ motivations for conducting cyber attacks vary. More often than not they are economic, but other reasons include damaging a system, either to destroy data or cause non-availability of systems, or both. The capability of these actors and thus the nature of the threat is rapidly evolving – barriers to entry are low in cyber space and attacks are readily scalable. Low-level attacks are now not isolated events but are continuous.

NEW CYBER CRIMES LAW:

The main Bahrain legislation relevant to cyber crime is currently the Constitution, the Penal Code, the Telecommunications Law, and the Central Bank of Bahrain Law and its regulatory framework. In recognition of the growing cyber threat and the need to amend the existing law, Bahrain will be introducing a new cyber crimes law, once it is approved by the Shura Council, based on the cyber crime convention of 2001, among other international laws. Cyber attacks can originate from anywhere in the world and the potential advantages for Bahrain of modelling its proposed law on the convention are conciseness, more consensus, and assistance from member countries in investigating and prosecuting cyber crimes.

The draft new law lists cyber offences, including unauthorised access, interference with data or a system, unauthorised interception of data, threatening to cause damage, misuse of devices, forgery, fraud and others. Special provisions will grant the courts the power to search, seize, preserve and produce stored data. Proposed penalties include substantial fines and/or imprisonment, and both firms and individuals can be held liable.

MANAGING CYBER RISK:

Bahrain’s proposed new cyber law will align the kingdom with international laws and is a welcome development. But detailed prescription of any law is only a part of managing risk. Governments, regulators, firms and individuals all need to develop and implement best practices to counter cyber threats. For example, the Bank of England, which regulates the financial sector in the UK, recently launched a new framework to test for cyber vulnerabilities. Called CBEST, it brings together the best available threat intelligence from government and elsewhere, tailored to the business model and operations of individual firms, to be delivered in live tests in a controlled testing environment. What makes this different to other security tests is that it is intelligence-led, bespoke and adapts to the reality of changing threats.

Another UK initiative from the Government Department for Business, Innovation and Skills is Cyber Essentials, a cyber security certification scheme. Companies that are awarded certification will be able to show consumers they have measures in place to help defend against common cyber threats. The scheme has the backing of insurers, which are offering reduced premiums and other incentives for firms to become certified. By implementing similar initiatives in Bahrain, as well as adopting self-protection measures like encryption and enhanced data protection, organisations and individuals will be better prepared to face cyber threats.

OBG would like to thank Zu’bi & Partners for their contribution to THE REPORT Bahrain 2015