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Q&A: Money Laundering 2024 Bahrain

1. What are the main laws governing money laundering in this jurisdiction?

In Bahrain, the primary legislation governing money laundering includes:

Legislative Decree No. 4 of 2001 regarding the Prohibition and Combating of Money Laundering and Terrorism Financing, as amended over time (“AML Law”). Amendments include:

• • Law No. 54 of 2006
  • Law No. 25 of 2013
  • Legislative Decree No. 36 of 2017
  • Legislative Decree No. 57 of 2018
  • Legislative Decree No. 29 of 2020

Ministerial Order No. 173 of 2017 concerning Obligations related to the Procedures for the Prohibition of and Combating Money Laundering and Terrorism Financing in the Business of Persons Registered in the Commercial Register and the Audit Registry in Bahrain, as amended by Ministerial Order No. 108 of 2018.

2. How is money laundering defined?

Money laundering is defined as any act aimed at concealing the illicit origin of funds. This includes disguising or making the proceeds of criminal activity appear legitimate, as well as transferring, converting or using such funds to avoid detection and legal consequences.

3. What are the main differences between money laundering legislation in this jurisdiction and that in other major jurisdictions?

Bahrain is recognized as a leader in anti-money laundering practices within the Gulf Cooperation Council (GCC). It adheres to international standards through its full membership in the Financial Action Task Force (FATF) and is a founding member of the regional MENA-FATF, hosting its secretariat. Compared to other major jurisdictions, Bahrain aligns with FATF recommendations but may have specific regulatory nuances and enforcement practices unique to its legal and economic context.

4. Are there any specific secondary regulations issued by agencies covering this area?

There are specific secondary regulations issued by the Central Bank of Bahrain (CBB). The CBB’s Rulebook provides detailed guidelines and requirements for financial institutions. In addition, Bahrain has the Financial Intelligence National Centre (FINC) which oversees compliance and enforcement of anti-money laundering regulations.

5. Do particular professions and industries have any specific duties to guard against money laundering? Under what laws or regulations are they governed?

Financial Institutions: Governed by AML Law and the CBB Rulebooks.

Real Estate Agents: Governed by Resolution No. 3 of 2019 from the Real Estate Regulatory Authority (RERA) regarding the obligations for anti-money laundering in real estate activities.

Jewelry Dealers: Governed by the AML Law and Ministerial Order No. 173 of 2017 including specific guidelines issued by the Ministry of Industry and Commerce (MOIC).

Legal Professionals: Governed by Ministerial Order No. 14 of 2021 issued by the Ministry of Justice, Islamic Affairs, and Waqf, which outlines AML and combating financing terrorism  obligations for legal offices.

Accountants and Auditors: Governed by AML Law.

6. What are the penalties for money laundering? Are there any specific penalties for particular professions or industries?

Penalties for money laundering in Bahrain include imprisonment, fines and asset forfeiture. The severity of the penalties varies based on the nature and scale of the offence.

In accordance with the AML Law, penalties for crimes related to terrorism financing and money laundering are stringent. For terrorism-related offenses, individuals can face life imprisonment or at least ten years, plus fines between 100,000 and 500,000 Bahraini Dinars. The same penalties apply for receiving or managing property connected to terrorism. Attempting these crimes incurs the same punishment. Money laundering offenders may be imprisoned for up to seven years and fined up to 1,000,000 Bahraini Dinars. If the crime is committed through an organized group, using institutional power, or to disguise illicit funds as lawful, the minimum prison term is five years and fines no less than 100,000 Bahraini Dinars. Confiscation of property is also mandated. Legal entities are fined and face property confiscation, while minor offences related to these crimes result in imprisonment up to two years or fines up to 50,000 Bahraini Dinars. Violations of regulatory provisions incur up to three months’ imprisonment or fines up to 20,000 Bahraini Dinars. Exemptions from penalties apply for those who report crimes before authorities are aware.

7. Are there specific offences for concealing, converting, or transferring criminal property? How is criminal property defined?

Yes, there are specific offences related to concealing, converting or transferring criminal property as outlined in Article 2(2)(b) of the AML Law. These actions are considered money laundering if they are undertaken to make the source of the property appear lawful. The law defines criminal property as any proceeds of crime whose nature, source, location, method of disposal, movement or ownership is concealed. This applies to individuals who know, believe, or have reason to believe that such proceeds were obtained from criminal activities or participation in such crimes.

Criminal property is defined as any asset derived from illegal activities, including funds obtained through crimes such as drug trafficking or fraud.

8. What are the most common defences for money laundering?

Common defences against money laundering charges may include demonstrating a lack of knowledge or intent, showing that the accused did not know the funds were criminally derived, or proving adherence to due diligence procedures to prevent involvement in money laundering activities.

9. What sort of practical checks would a business be expected to carry out to prove they are not an accomplice to a money laundering offence?

Financial Reports: Ensure audited reports are prepared by licensed auditing firms, especially for those with annual income exceeding 10,000 Bahraini Dinars.

Training: Participate in training programmes related to combating money laundering and terrorist financing.

Due Diligence: Implement robust KYC and due diligence procedures in relation to clients.

10. Does the amount involved impact the offence?

Yes, the amount involved can impact the severity of the offence. Larger amounts may lead to more serious charges and penalties, reflecting the higher risk and potential impact of the illicit activity.

11. Are specific checks required with businesses based or operating in specific jurisdictions?

Yes, it is mandatory for all legal persons holding CR to avoid dealings and relationships with individuals or entities listed on international or domestic sanction lists. Entities are also required to educate their staff on this subject. Any suspicion related to these individuals or entities must be reported immediately, including any suspicious transactions.

Passenger Rights: Flight Cancellations or Delays

On 19 July 2024 a major information technology outage was triggered by a global cybersecurity firm, CyberStrike, causing widespread disruptions to Microsoft customers. Banks, media companies, airlines and numerous other industries experienced the ‘Blue Screen of Death’ on their Windows operating system. As a result of a faulty routine software update, worldwide flight delays and cancellations gave rise to legal concern among air passengers. Questions regarding compensation and alternative flights regulations highlighted the differences between aviation laws in the various affected jurisdictions.

This article will outline passengers’ rights in relation to flight cancellations and delays pursuant to the Implementing Regulations of the Civil Aviation Law promulgated by Decision No. 21 of 2013 (the “Aviation Implementing Regulations”).

A chapter in the Aviation Implementing Regulations is dedicated to passenger rights, applicable to passengers arriving and departing from Bahrain, aircraft operators, Bahrain International Airport and other parties involved. Specifically, Articles 49 and 50 of the Aviation Implementing Regulations stipulate the rights of passengers in relation to flight cancellations and delays respectively.

Flight Cancellations

Generally, the aircraft operator must limit the number of cancelled flights without compromising the safety and security of its passengers.

In the circumstance that a flight cancellation is imminent, the aircraft operator must inform its passengers. Cancelled flights which were informed to passengers 14 days prior to the flight date exempt the air operator from requirements of care, support and compensation to its passengers, however flight ticket reimbursement is mandatory. In the circumstance that the aircraft operator informs its passengers of the flight cancellation within the 14 days prior to the flight date, the passenger has the right to (i) an alternative flight, (ii) reimbursement of the full ticket value, or (iii) reimbursement of the value of the remaining flight.

Passengers may opt for alternative flights, hence forgoing their right to compensation. In such case, the cost of the passenger’s stay in Bahrain will be borne by the aircraft operator if necessary and meals must be provided until the new date of travel. If the flight is cancelled for unexpected reasons after the passenger arrived at the airport, and such passenger chose an alternative flight, the passenger has the followings rights:

1. The cost difference must be paid by the aircraft operator if the alternative flight ticket of a higher-class or the cost of the new ticket is higher than the original ticket.
2. Compensation from the aircraft operator if the alternative flight ticket is of a lower-class.

Flight Delays

Similar to flight cancellations, the aircraft operator must ensure that all measures are taken to limit the number of delayed flights and to reduce the duration of the delay without compromising the safety and security of passengers.

The passengers must be notified of the delay prior to the original take-off time, and all notifications must include the new take-off time. If the new take-off time cannot be determined, the passengers must be compensated by 15 units of special drawing rights (equivalent to approximately BHD 7.400) for each hour of delay which may reach up to 100 special drawing rights units (equivalent to approximately BHD 49.800). Special drawing rights (“SDR”) are international reserve assets created by the International Monetary Fund, where the SDR unit is the value of a currency.

Moreover, if the new take-off time cannot be determined, the aircraft operator must provide the following forms of care to its passengers:

1. Refreshments at the start of the first hour of the original time fixed for departure.
2. A hot meal if the delay period is expected to be 3 hours or more from the original time fixed for departure. Alternatively, the passenger has the right to 15 SDR units (equivalent to approximately BHD 7.400) instead of the hot meal.
3. A hotel reservation if the expected delay exceeds 8 hours from the original time fixed for departure. Alternatively, the passenger has the right to 50 SDR units (equivalent to approximately BHD 24.900) instead of the hotel reservation.

The worldwide cyber outage led to more than 7,000 flight cancellations globally, creating a massive impact on the aviation industry. This occurrence may be deemed as an extraordinary circumstance, also known as force majeure, since the flight cancellations and delay were not foreseeable and out of the control of the air operator. In such cases and in some jurisdictions, passenger compensation is not granted. However, the Aviation Implementing Regulations in Bahrain explicitly provide compensatory rights to passengers in the cases of force majeure, which include the abovementioned rights stipulated under Articles 49 and 50 of the Aviation Implementing Regulations.

New Financial Regulations for Commercial Entities

Introduction to Ministerial Order No. 43 of 2024

The Ministry of Industry and Commerce (MOIC) recently issued Ministerial Order No. 43 of 2024 (the “Order”), introducing new regulations to enhance financial transparency and promote electronic payment methods among commercial entities in Bahrain.

Bank Account Requirements for Commercial Entities

The Order  mandates every commercial entity operating in Bahrain to establish and maintain a dedicated bank account with a licensed bank within Bahrain. This account will be used exclusively for all financial transactions related to commercial activities, including cash transactions, bank transfers and electronic payments. Even if a commercial entity operates through multiple branches, it is required to maintain a single bank account. The Order stipulates that all commercial entities must offer electronic payment options to facilitate transactions.

Applicability and Scope of the Order

The Order applies to all commercial entities registered under Bahrain’s Commercial Registry Law No. 27 of 2015, as amended (“CR Law”). This includes individual establishments, commercial companies (excluding limited partnership companies) and branches of foreign companies.

Penalties for Non-Compliance

Failure to comply with the Order may result in penalties outlined in Article 20 of the CR Law, including:

• Suspension of commercial registration for up to six months;
• Daily administrative fines ranging from BHD 1,000 for first-time offenses and up to BHD 2,000 for subsequent offenses within three years, with a total fine of up to BHD 50,000;
• A lump-sum administrative fine of up to BHD 100,000; and/or
• Striking off the commercial register.

Implementation Timeline

The Order will come into effect on 13 December 2024, six months after its publication in the Official Gazette.

In conclusion, the Order represents a significant step by the MOIC in modernizing financial practices. The Order aims to enhance transparency and efficiency in financial transactions by mandating dedicated bank accounts and promoting electronic payment options.

Overview of Cloud Computing: Data Embassies and Jurisdiction

The rapid adoption of cloud computing is fundamentally altering the management of data and resources. Cloud computing is empowering infrastructures of business operations, expanding their potential to grow without the usual costs or risks.

What is Cloud Computing?

Simply put, cloud computing grants a faster and more flexible method for individuals, businesses or the government to store and access data from anywhere at any time, as long as the internet is accessible. Files usually stored on hard drives can be saved on the cloud, ensuring quick and easy access to any file with enhanced security measures.

The delivery of computing services over the internet is not only constricted to data storage; networking, computing power, computer system resources and other technological benefits are additional rewards of cloud computing services. The overall aim is to ease the flow of information, ensuring on-demand access, business continuity and scalability.

How is Cloud Computing Regulated in Bahrain?

Cloud computing is regulated for the public and private sectors in Bahrain. The Cloud-First Policy provides a framework for the adoption of cloud technology for the public sector and various laws regulate cloud computing in the private sector, directly and indirectly, such as the Cloud Computing Services to Foreign Parties Law No. 56 of 2018 (the “Cloud Computing Law”) and the Personal Data Protection Law No. 30 of 2018.

(For more information regarding the Cloud-First Policy, please refer to a previously written article by Zu’bi & Partners linked here).

This article will provide an overview of the Cloud Computing Law as it relates to data embassies, governing laws and the jurisdiction of data.

What is a Data Embassy?

Hosting servers and storing data outside the physical space of an entity may lead to jurisdiction issues, specifically when considering cross-border cloud computing services that are located in a different country to the customer.

The concept of data embassies was initially established by the government of Estonia which underwent a series of cyberattacks rendering various public authorities and banks inoperable. Subsequent to the cyberattacks, a bilateral agreement was signed between Estonia and Luxembourg to establish Estonia’s data center in Luxembourg, deeming the country the first data embassy location internationally. As such, Estonian data is stored physically through cloud computing in Luxembourg, and yet the law and jurisdiction of the data remain governed by Estonia, similar to how foreign embassies work.

The Cloud Computing Law

The Kingdom of Bahrain took a step further and regulated cloud computing and data embassies for the private sector through the Cloud Computing Law, the purpose of which is to encourage foreign parties to use and invest in cloud computing services of data centers located in Bahrain.

Similar to the data embassy in Luxembourg, customers to cloud computing service providers (“Service Providers”) in Bahrain are subject to the governing law and exclusive jurisdiction of the country in which the customer is (i) domiciled, (ii) constituted, or (iii) established (“Foreign Country”). Thus, the competent courts and public authorities of the Foreign Country will have the power to issue binding orders executable on Service Providers in Bahrain. The legislation obliges the Service Providers to inform the Attorney General of Bahrain if an order is issued against the Service Provider from a competent court or public authority in a Foreign Country.

Resolution No. 67 of 2021, as amended, specifies the Foreign Countries that are included in the provisions of the Cloud Computing Law. These countries include, but are not limited to, the United States of America, the United Arab Emirates, the Kingdom of Spain, the Federative Republic of Brazil and others.

Cloud computing technologies are developing at an accelerated pace, providing enhanced cybersecurity, on-demand accessibility and economies of scale. The simultaneous growth of legislation we are witnessing today is crucial to avoid disputes, mitigate risk and protect the rights of all parties involved.

Inheritance Law in Bahrain: An Overview

Inheritance law in Bahrain is a crucial aspect of the nation’s legal framework, intricately tied to its cultural, religious, and social values. The laws governing inheritance are primarily based on Islamic Sharia, which significantly influences the distribution of assets upon an individual’s death. This article provides a detailed exploration of Bahrain’s inheritance law, its key principles, and its practical implications.

Islamic Foundation of Inheritance Law

Bahrain, like many other countries in the Gulf Cooperation Council (GCC), derives its inheritance laws from Islamic Sharia. The fundamental principles of Sharia regarding inheritance are aimed at ensuring a fair distribution of the deceased’s estate among heirs, preventing disputes, and protecting the rights of vulnerable family members.

Key Principles of Inheritance Under Sharia

1. Fixed Shares: Under Islamic law, certain relatives are entitled to fixed shares of the deceased’s estate. These shares are predetermined and cannot be altered by a will. The primary beneficiaries typically include spouses, parents, and children. For instance, a wife is entitled to one-eighth of her deceased husband’s estate if they have children, and one-fourth if they do not. Conversely, a husband receives one-fourth of his deceased wife’s estate if they have children, and one-half if they do not.
2. Male and Female Heirs: Islamic inheritance law prescribes that male heirs generally receive twice the share of female heirs. This principle is based on the traditional role of men as financial providers in Islamic societies. For example, a son would inherit twice as much as a daughter.
3. Residue Distribution: After the fixed shares are allocated, the remaining estate (if any) is distributed among the residuary heirs (Asabat). These are typically the closest male relatives, such as sons, brothers, and uncles. Daughters and other female relatives may inherit from the residue if there are no male residuary heirs.
4. Exclusion and Inclusion Rules: Certain relatives can exclude others from inheriting. For instance, if the deceased has sons, their brothers (the deceased’s uncles) are typically excluded from inheritance.

Bahraini Civil Law and Inheritance

While Sharia forms the backbone of inheritance law in Bahrain, the Bahraini Civil Code also plays a significant role, especially in cases involving non-Muslims and expatriates.

1. Wills and Testaments: Bahraini law permits individuals to draft wills, but these wills must comply with Sharia principles if the deceased is Muslim. For non-Muslims, the Bahraini Civil Code allows more flexibility in drafting wills, enabling them to distribute their assets according to their personal wishes, provided they comply with local laws.
2. Inheritance for Non-Muslims: Non-Muslims residing in Bahrain can apply their home country’s inheritance laws to their estates. This provision ensures that expatriates can maintain their cultural and legal practices concerning inheritance.
3. Court Procedures: The Sharia courts handle inheritance cases for Muslims, ensuring that the distribution aligns with Islamic principles. For non-Muslims, civil courts oversee the process, applying the relevant laws based on the deceased’s nationality and personal law preferences.

Practical Implications and Challenges

1. Dispute Resolution: Inheritance disputes can arise due to misunderstandings of Sharia principles or disagreements among heirs. Bahrain’s legal system provides mechanisms for dispute resolution through both Sharia and civil courts, ensuring fair adjudication based on established legal principles.
2. Estate Planning: Effective estate planning is essential to ensure a smooth transition of assets and to minimize potential disputes. For Muslims, this involves understanding Sharia principles and potentially drafting a will within those constraints.

Recent Developments and Future Outlook

Bahrain continually seeks to modernize its legal framework to balance traditional values with contemporary needs. Recent legal reforms aim to streamline inheritance procedures, enhance transparency, and reduce litigation. These efforts reflect Bahrain’s commitment to maintaining a robust legal system that respects Islamic principles while accommodating the diverse needs of its population.

1. Digitalization of Legal Processes: Bahrain is investing in the digitalization of its legal processes, including inheritance procedures. This modernization aims to improve efficiency, reduce bureaucratic delays, and enhance access to legal resources for citizens and residents.
2. Public Awareness Initiatives: The Bahraini government and legal institutions are increasingly focusing on public awareness initiatives. These initiatives aim to educate citizens and expatriates about their rights and obligations under inheritance laws, promoting better estate planning and reducing potential conflicts.

Conclusion

Inheritance law in Bahrain is a complex but well-structured system rooted in Islamic Sharia and complemented by the Bahraini Civil Code. Understanding these laws is crucial for both Bahraini citizens and expatriates to ensure the fair and legal distribution of assets upon death. As Bahrain continues to evolve its legal framework, the balance between tradition and modernity remains a cornerstone, ensuring that the principles of justice and fairness prevail in the realm of inheritance.

Identifying the Ultimate Beneficial Owner

Ministerial Order No. 83 of 2020 (“Ministerial Order”) requires all commercial entities in Bahrain to disclose their Ultimate Beneficial Owner (UBO) information, except those licensed by the Central Bank of Bahrain. This measure aims to strengthen market transparency and safeguard the interests of Bahrain’s consumers, shareholders, partners, and investors.

By requiring the disclosure of UBO information, the government aims to prevent the misuse of corporate structures for illicit activities and uphold Bahrain’s reputation on the international stage, particularly in combating financial crimes and money laundering.

This article provides a brief overview of the Ministerial Order, which aims to ensure adherence to Financial Action Task Force (FATF) standards.

Definition of UBO

The natural person(s) who ultimately owns or controls a registered person and/or the natural person(s) on whose behalf a transaction is being conducted. It also includes those person(s) who exercise ultimate effective control over a legal person or arrangement.

Most prominent conditions

• Owning or controlling, directly or indirectly, a percentage equal to or exceeding 10% of the capital or voting rights of the registered person.
• Where the registered person is a legal person owned by another legal person or legal arrangement, then the UBO is the natural person who is the ultimate owner of the ownership chain or who exercises effective control over it. Natural person(s) who may exercise control through management positions within the registered person in such a way that affects the strategic decisions or influences the general direction of the registered person.

Responsibilities of the Holder of Controlling Interests

The Ministerial Order mandates that holders of controlling interests submit an electronic statement specifying information about the UBO of their interest in the registered person. This submission is required during the registration request or within three working days of any amendments to their interest. The statement should include details such as the UBO’s full name, passport number, identity card number, copies of valid identification documents, tax residency jurisdiction, Tax Identification Numbers, and contact details.

Responsibilities of the Registered Persons to Provide and Update Details of the UBO

Registered persons must provide any other details related to the UBO as the concerned directorate requires. This responsibility ensures that the information regarding UBOs remains accurate and up to date within the commercial register.

Procedures for Violations of the Ministerial Order regarding UBO Disclosure

In the event of non-compliance, the Ministry of Industry and Commerce possesses the authority to implement various measures. These include suspending CR, with the most severe repercussion being the removal of the entity from the commercial register, effectively terminating its commercial activities in Bahrain. The Ministry of Industry and Commerce may impose administrative fines, with the possibility of additional fines in severe or recurrent instances of non-compliance.

In conclusion, the Ministerial Order signifies a paradigm shift in Bahrain’s commercial landscape. By mandating the disclosure of UBO information, the government underscores its commitment to transparency, integrity and international best practices.

Recruitment Obligations in Bahrain

 Introduction:

Embarking on the recruitment process in Bahrain involves meticulous attention to legal obligations spanning various stages, from drafting employment contracts to ensuring compliance with social security regulations. This guide outlines the detailed steps and obligations incumbent upon employers, providing clarity on essential aspects such as contract formatting, employee registration procedures, social security enrollment, and work permit requirements for expatriates. By understanding and adhering to these obligations, employers can navigate the recruitment landscape with confidence, fostering a compliant and transparent employment environment conducive to sustainable business growth.

 Recruitment Steps and Detailed Obligations:

1. Employment Contract: An agreement between an employer and a worker whereby the worker undertakes to perform the duties of a particular job for the employer under his management or supervision in consideration of a wage. A contract shall be deemed to be for a definite term if it is entered into for a fixed period or for performing a specified job.
   • Format: The contract must be in writing and provided in Arabic. If using another language, an official Arabic translation must accompany it.
   • Content: The contract should clearly outline the following details:
     • Parties: Identify both the employer and employee with their full names and contact information.
     • Job Details: Clearly define the job title, duties, responsibilities, and reporting structure.
     • Work Location: Specify the primary work location and any potential travel requirements.
     • Compensation and Benefits: Outline the base salary, allowances, bonuses, overtime pay (if applicable), paid leave entitlements, and any other benefits offered.
     • Working Hours: Specify the regular working hours, including breaks and any potential overtime arrangements.
     • Termination: Outline the terms for termination, including notice periods, severance pay (if applicable), and consequences of breach of contract.

1. •  
2. Employee Registration:
   • Labour Market Regulatory Authority (LMRA): Register all employees with the LMRA. This is a mandatory step for all workers, both Bahraini and expatriate. The LMRA website offers online registration facilities.
   • Business Registration Certificate: Ensure you have a valid business registration certificate before registering employees.
     
     
3. Social Security:
   • Enrolment: Enrol all employees with the Pension Authority and Social Insurance Organization (SIO). This ensures they receive social security benefits.
   • Contributions: As an employer, you are required to make regular contributions to the SIO on behalf of your employees. The specific contribution rates are outlined in the SIO regulations.
     
     
4. Work Permits (Expatriates):
   • Requirement: If you plan to hire foreign workers, you must obtain a work permit for each one from the LMRA.
   • Process: The work permit application process involves submitting specific documents to the LMRA, including the employment contract, educational qualifications, and proof of health insurance. The LMRA website provides detailed information on the required documents and procedures.

Additional Considerations:

• Job Advertising: While there are no specific legal requirements regarding advertising job vacancies, it is good practice to advertise positions fairly and avoid any discriminatory language.
• Pre-Employment Screening: Background checks and reference checks are generally permissible, but ensure you obtain the candidate’s consent beforehand. Be mindful of privacy regulations when conducting such checks.
• Onboarding: Develop a comprehensive onboarding process to familiarize new hires with the company culture, policies, and procedures.

Civil Service Law and Recruitment Obligations: In the realm of public sector employment, the Civil Service Law, governed by Legislative Decree No. 48 of 2010, delineates recruitment procedures and employee rights within government entities. Article 3 defines the civil service and outlines its scope, encompassing ministries, government agencies, and public institutions. Recruitment in the civil service sector is guided by principles of transparency, impartiality, and efficiency, as enshrined in Article 4.

Article 12 of the Civil Service Law outlines the recruitment process for civil service positions, emphasizing the importance of public advertisement of vacancies and selection based on merit, qualifications, and competency assessments. This merit-based approach seeks to attract talented individuals, enhance organizational performance, and foster public trust in governmental institutions. By upholding transparent recruitment practices, government entities can promote accountability and integrity in their workforce management.

Conclusion:

In conclusion, navigating the intricate terrain of recruitment obligations in Bahrain demands diligence, thoroughness, and a commitment to legal compliance. By adhering to the outlined steps and obligations, employers can not only ensure the legality of their hiring practices but also foster a workplace environment characterized by transparency, fairness, and respect for employee rights. Embracing these principles not only mitigates legal risks but also enhances employer reputation, attracts top talent, and ultimately contributes to the long-term success and sustainability of businesses operating in Bahrain. As employers strive to meet their recruitment obligations, they play a pivotal role in shaping a thriving and inclusive employment landscape in the Kingdom.

Bahrain International Commercial Court: Transnational System of Commercial Justice

On 20 March 2024, a judicial milestone was taken by the Kingdom of Bahrain where a bilateral treaty was signed with the Republic of Singapore (the “Treaty”). Preceding the signing of the Treaty, two memoranda were signed by the judiciaries of Bahrain and Singapore in May 2023, namely the Memorandum of Understanding on Cooperation and Memorandum of Guidance regarding the Enforcement of Money Judgements.

The Treaty is the first of its kind in the Middle East and was signed during a virtual meeting between the Minister of Justice, Islamic Affairs and Endowments, H.E. Nawaf bin Mohamed Al Maawda and the Minister of Home Affairs and Minister of Law of Singapore, Mr. Kasiviswanathan Shanmugam.

This article will briefly outline the essence of the Treaty, highlighting its significance and its foreseeable impact in the development of the Bahrain judiciary.

What Does the Treaty Establish?

Bahrain International Commercial Court

Through the cooperation of Bahrain and Singapore, the Treaty aims to establish a Bahrain International Commercial Court (“BICC”). The BICC will be based on the Singapore International Commercial Court (“SICC”) model which will be adopted to settle disputes regionally and internationally.

The judicial model adopted by the SICC is renowned as a trusted and neutral forum that ensures efficiency and effectiveness in settling international commercial disputes. Since its launch in 2015, the SICC formed a diverse panel of international and local judges in both civil and common law traditions. In brief, the SICC combines international arbitration’s best practices with the principles of international commercial law, creating a so-called “arbitration in litigation”. This model aims to keep up with the fast-paced developments of international commerce and offer practical and compatible procedures with the demands of cross-border commercial markets.

The BICC is forecasted to hear international arbitration related disputes in the near future with relatively minor adjustments as Bahrain is a bilingual jurisdiction where cases are heard before appointed international judges in English at the highest level of court (the Court of Cassation). In addition, English language litigation is implemented by the Bahrain Chamber for Dispute Resolution for specified cases pursuant to Resolution No. 28 of 2023, where disputes are settled without the need for English translations or the appointment of translators.

Designated Body for Appeals

Furthermore, the Treaty stipulates that cases heard before the BICC may be appealed, where such cases will be heard before a designated body in Singapore. The hearing of appeals by the SICC from the BICC aims to aid in providing the disputed parties a transnational dispute resolution route leading to the growth of international trade and overall development of judicial systems.

What is the Significance of the Treaty?

The establishment of the BICC and a designated body for appeals is forecasted to create a positive wave of change in the judicial system, catalyzing opportunities for growth and expansion. Hatim Q. Zu’bi, Managing Director of Zu’bi & Partners Attorneys & Legal Associates, commented on the Treaty and its vital role in Bahrain (for the commentary, kindly refer to the Al-Watan Newspaper publication linked here).

The Treaty embodies a balance between party autonomy and simultaneously ensures the adherence to public policy, and we are of the view that its implementation will lead to transformative opportunities on a regional and international level, such as:

1.  the promotion of international rule of law, fostering the principles of, among other things, supremacy of the law, equality before the law and accountability to the law;
2. The boosting of international trade and development of dispute resolution in international commerce;
3. The protection of the rights and interests of the international business community, thus encouraging the commercial market to thrive;
4. The reduction and resolution of current difficulties faced in international dispute resolution; and the development and supplementation of commercial jurisprudence.

Overall, the cooperation between the BICC and the SICC will pave the way to enhancing the standards of international commercial dispute resolution, building on current mechanisms and encouraging the prosperity of transnational commercial justice.

Navigating Share Transfers: A Legal Perspective on WLLs and BSC(c)

Understanding the intricacies of share transfers is essential for companies considering adjustments to their share structure. Whether introducing a new shareholder or altering the distribution of shares among existing shareholders, the share transfer process involves relocating existing shares rather than issuing new ones. This is a common method used to bring in new strategic business partners. The regulations governing share capital transfer are primarily outlined in Legislative Decree No. 21 of 2001, known as the Commercial Companies Law, as amended from time to time (“CCL”).

This article will discuss the process of share transfers for Limited Liability Companies (“WLL”) and Bahrain Shareholding Companies (Closed) (“BSC(c)”) from a Bahraini legal perspective. For a detailed explanation of the differences between these two types of companies, please refer to this article explaining the various types of businesses.

In principle, shares can be freely transferred over time unless the company’s constitutional documents explicitly state otherwise. Shareholders of WLLs and BSC(c) companies often seek to manage the admission of new shareholders, particularly if this could significantly influence company management or control. It is customary for such companies to impose certain restrictions on shareholders’ rights to transfer their shares. These transfer restrictions, which can include the right of refusal by directors and pre-emption rights, are stated in the company’s constitutional documents and/or shareholders’ agreement. If there are any restrictions in the constitutional documents, this might impede the intended transfer. Assuming there are restrictions, these restrictions can be waived or disapplied through unanimous agreement or a validly passed resolution.