The Law of Commissions

The Law No. 25 for the Year 1996

Due to public and political pressure, the National Assembly of Kuwait issued a law (Law No. 25 of 1996) obligating the participants of any contract with any governmental authority or entity to reveal particulars concerning commissions or such other benefits in the manner prescribed therein. Procurement by the Kuwait government and its agencies is governed generally by the Tenders Laws No. 37 of 1964 under which contracts are awarded to foreign companies by way of public tenders. However, in exceptional cases, procurement is also permitted by private placement. The Tenders Law is intended to ensure competitive pricing for all procurements made by the State of Kuwait. In the course of awarding contracts, it often appears that the contract price quoted in the tender is higher than the actual value of the contract. This is mainly, to take into account any commissions, discounts, concessions or other payments (by whatever name called) made or to be made for the successful awarding of the tender to that company. Thus, the ultimate burden arising out of such payments is borne by the State of Kuwait.

Though this new Law No. 25 of 1996 does not prohibit payment of commissions, nevertheless it is significant because, it seeks to obtain disclosure of the amount of commissions paid or payable in contracts concluded with the authorities as specified therein. The government agencies falling within the purview of this law are stipulated in Article 1, namely,

1. Governmental authorities, including, the Ministries and the General Directorates from which the administrative body of the State is formed.

2. Kuwait Municipality.

3. Public Authorities and Public Institutes.

4. Companies which are fully owned by the State or in whose capital the State or a Public Corporate Entity owns not less than 50% (fifty percent) of the shares.

By virtue of this enactment, any commission paid or payable under a contract concluded with any of the aforesaid authorities and whose value is not less than K.D. 100,000 (Kuwaiti Dinars one hundred thousand) is required to be stipulated in the contract itself (Article 2). This provision applies to all contracts, in general, and includes contracts for supply, procurement, commitment, public works, arms deals, and military procurements. It is immaterial whether such commission is in cash or in kind or is in the form of some other interest. In such cases, the contract must also include the full name of the mediator, and such other particulars, and must specify the amount, percentage or kind of commission, the person or persons receiving such commission and the place of payment of such commission. Furthermore, the law also requires the party contracting with the government authority concerned to have an authorized agent domiciled in the State of Kuwait.

Article 3 further obligates both, the party making payment of any commission, gift, donation, present or the like and its receiver thereof to submit a written declaration to the governmental authority concerned (with whom the contract is concluded), disclosing the amount of commission, the currency, place and means of payment. Such declaration is required to be made within the stipulated period of thirty (30) days from date of receipt of the commission. The Article also requires that, the Audit Bureau be notified and a copy of such declaration be endorsed with the notification.

Thus the provisions of Article 3 extend to both the payer of the commission and its receiver and obligates them to make the disclosure in the form of a declaration to the governmental authority. The provisions of Article 3 also apply with retrospective effect to contracts concluded prior to the date of enactment of this law, provided the contracts are still valid and in force. In such cases, the declaration must be made within the stipulated period of time.

The law imposes strict penalty for non-compliance of its provisions, including fine and imprisonment. Article 6 provides that the office of the Attorney General of Kuwait is authorized to investigate and prosecute offences committed under this law. Thus, non-compliance with the provisions of this law would amount to a criminal offence in Kuwait liable for prosecution by the Kuwaiti Criminal Courts.

This law being relatively new requires clarifications on certain aspects. It is not possible to accurately determine which companies/contractors have complied with its provisions, since its enactment on August 18, 1996. Therefore, the practical consequences arising out of its implementation cannot be predicted precisely at this stage, but should come to light with the passage of time. It is worth keeping the provisions of this law in mind while contracting with the Kuwait government and its agencies.