Dealing in cryptocurrencies and virtual assets has spread widely in recent years, driven by promises of rapid returns and intensive promotion across social media. At the same time, complaints have multiplied from people harmed by platforms that stopped paying out, wallets that were compromised, and projects that proved fictitious. The question many participants ask too late is what the legal position of these assets is in Kuwait and what protection is available when loss occurs. This article addresses both questions in practical terms.
The Regulatory Position in Kuwait
Kuwait's regulators have adopted a cautious stance towards these assets, the main features of which are as follows:
- Not recognised as legal currency: the only official currency with discharging power is the Kuwaiti dinar. Virtual assets are not legal tender, and no one is obliged to accept them in satisfaction of a debt.
- Prohibition on unlicensed activity: regulators have issued circulars prohibiting the carrying on of virtual asset activities, brokerage in them, and their promotion without a licence from the competent authority.
- Repeated warnings: regulators have highlighted the elevated risks, volatility, and absence of the protections afforded to licensed financial products.
- No deposit guarantee: what a person places on a virtual platform is not a bank deposit and enjoys none of the guarantees applicable to deposits with licensed banks.
A practical consequence follows. Anyone dealing through an unlicensed platform does so entirely at their own risk and may find no regulator to complain to when loss occurs.
The Anti-Money Laundering Dimension
These assets present an attractive environment for money laundering given the speed of transfer and the difficulty of tracing, and they are therefore closely connected to the compliance framework:
- Dealing in them falls within Anti-Money Laundering and Combating Terrorist Financing Law No. 106 of 2013 where connected to the proceeds of unlawful activity.
- Financial institutions must report suspicious transactions, and transfers to or from virtual platforms may lead to temporary account freezing pending verification of the source of funds.
- The burden of establishing the lawful origin of funds falls on the person dealing, making it advisable to retain a complete record of transactions, transfers, and any tax filings.
- A person who transfers funds on behalf of others for a commission may answer for participation in money laundering, even claiming ignorance of the source, where they disregarded clear indicators.
Common Fraud Patterns
Drawing on recurring complaints, fraud in this field follows patterns that can be recognised early:
- Fake platforms: sites imitating well-known exchanges, permitting easy deposits and impossible withdrawals, and displaying fictitious profits on screen to encourage further deposits.
- Fixed-return schemes: promises of a guaranteed monthly return, a decisive warning sign because a guaranteed return contradicts the nature of a highly volatile asset.
- Pyramid schemes: profit tied to recruiting new participants rather than to genuine investment activity.
- Romance fraud: building a personal relationship through messaging applications and then directing the victim to invest through a platform the fraudster controls.
- Wallet theft: through phishing links requesting the recovery phrase. Anyone who provides it loses their assets permanently with no prospect of recovery.
- Impersonating official bodies: claiming to be licensed by a regulator, readily disproved by checking the regulator's own register of licensees.
Liability of Promoters and Influencers
Liability is not confined to the original fraudster and may extend to those who assisted in promotion:
- Promoting an unlicensed platform or asset may breach regulators' instructions and expose the promoter to liability.
- A person making categorical claims about returns, or concealing the paid promotional nature of a post, may be civilly liable for loss suffered by those who relied on them.
- Liability is aggravated where the promoter is shown to have known the true nature of the scheme or to have received a share of participants' funds.
- Anyone offered a promotional arrangement for a financial product should first verify the promoter's licence. Ignorance of the regulatory framework does not negate liability.
Disputes and Prospects of Recovery
When loss occurs a difficult but not hopeless process begins, and prospects depend on speed of action:
- Criminal report: where the elements of fraud or online deception are present, a report should be filed with the cybercrime authority attaching all correspondence and transfer receipts.
- Tracing bank transfers: if the funds passed through a local bank account, this is the strongest tracing point. Immediate reporting may allow the receiving account to be frozen.
- Civil claim: to seek compensation and restitution where the responsible party and their domicile can be identified.
- International dimension: the platform is often registered abroad, raising questions of jurisdiction, applicable law, and the difficulty of enforcing a judgment overseas.
- Limits of recovery: transfers on decentralised networks cannot be reversed technically, so recovery prospects concentrate on the banking stage preceding the transfer.
Preventive Guidance
- Verify the licence of any entity offering a financial service through the competent regulator's official register before making any deposit.
- Never share a wallet recovery phrase or private keys with anyone whatever their claimed capacity.
- Treat any offer involving a guaranteed return or time pressure to transfer quickly as a serious warning sign of fraud.
- Retain a complete record of conversations, transfer receipts, and wallet addresses, as these underpin any later action.
- Do not transfer funds on behalf of another person for a commission, or you may find yourself party to a money laundering investigation.
- Where in doubt, stop depositing immediately and do not comply with requests to pay additional fees to release profits, a standard device for draining victims.
The absence of licensing does not mean the absence of law. Fraud is an offence whatever instrument is used to commit it. Yamnak Law Firm advises individuals and businesses in this field and handles the preparation of reports, tracing of transfers, and compensation claims in fraud cases involving virtual assets.
