Anti-Money Laundering Laws in Oman - Know your Client

To adequately safeguard your business against any potential risks of money laundering and terrorism financing, it is important to know what these offences are and what steps should be taken when establishing new client relationships and managing existing ones.

Existing anti-money laundering legislation in Oman

Oman’s anti-money laundering and terrorism financing regime is largely governed by (i) the Law on Combating Money Laundering and Terrorism Financing promulgated by Sultani Decree No. 30/2016 (the “AML Law”) which repealed Sultani Decree No. 79/2010; and (ii) the executive regulations issued under Oman’s anti-money laundering law implemented in 2004 by Oman Sultani Decree No. 72/2004 (the “Executive Regulations”).  The Executive Regulations shall continue to apply to the extent that it does not conflict with the AML Law, and until such time as new executive regulations under the AML Law have been issued.

Money laundering offence

The AML Law describes a money laundering offence as having occurred if any person who knew or should have known or suspected that funds are the proceeds of a crime intentionally committed any of the following acts:

• Converts or transfers such funds with the purpose of disguising or concealing the illegal nature or source of such proceeds or of assisting any person who committed the predicate offense to evade punishment for their acts;
• Disguise or conceal the true nature, source, location, method of disposal, movement, or ownership of the funds and their related rights; or
• Acquiring, possessing, or using such funds upon receipt.

Terrorism financing offence

Pursuant to the AML Law, a terrorism financing offence occurs if any person willingly collects or provides funds, directly or indirectly and by any means, with the knowledge that such funds will be used in full or in part to carry out a terrorist act, or by a terrorist individual or a terrorist organisation.

Scope of the AML Law and Executive Regulations

The AML Law applies to financial institutions, non-financial businesses, professions and non-profit associations and bodies (collectively hereinafter referred to as “Relevant Entities”).  This has been broadly defined in the AML Law and includes, among other things:

• persons licensed to practice banking, financial or commercial activities (e.g., banks; exchange companies; investment companies; investment and credit funds; insurance companies);
• companies and professionals who provide financial services;
• traders in precious metals and stones;
• notaries public;
• law firms and accounting firms;
• businesses involved in the management of bank accounts;
• entities involved in establishment, operation and/or management of companies;
• any other arrangements or professions as determined by the National Committee for Combating Money Laundering and Terrorism Financing; and
• any charities or religious not-for-profit organisations.

In addition to the above, the Central Bank of Oman and the Capital Market Authority have issued a number of Circulars (secondary legislation) that apply to licensed banks and companies listed on the Muscat Securities Market.

Internal steps to be taken by a Relevant Entity

A Relevant Entity should assess the money laundering and terrorism financing risks it faces and, if applicable, establish electronic data monitoring systems for monitoring all electronic banking transactions.  By carrying out a risk assessment, this should assist a Relevant Entity in classifying clients and services according to the degree of risk of money laundering and terrorism financing and to determine whether enhanced due diligence should be applied to a particular client.

What client due diligence checks should a Relevant Entity be carrying out? 

The AML Law and Executive Regulations specifically set out a number of obligations regarding checks a Relevant Entity is required to undertake, namely:

• correctly identifying the relevant counterparties, clients and beneficiaries to a transaction;
• determining whether a client or beneficial owner is a politically exposed person (“PEP”) and carrying out further due diligence for PEPs; and
• undertaking further due diligence in respect of any party for whom it opens a bank account.

A Relevant Entity is not permitted to open anonymous accounts or accounts under assumed or fictitious names or numbers or codes, and shall not provide any services to such accounts.

All documents and records collated by a Relevant Entity that relates to the identity of clients and beneficiaries and their activities must be stored for a period of 10 years.

Who is a PEP?

For the purposes of the AML Law, a PEP is any natural person currently or formerly appointed to (i) a prominent position in the Sultanate of Oman or a foreign country or (ii) an international organisation. Family members and close associates of any of those persons in (i) or (ii) are also considered to be PEPs.
A Relevant Entity should have appropriate risk management systems in place to determine if a potential client is a PEP.  Enhanced due diligence measures must be applied when dealing with a PEP.  In addition, senior management approval must be obtained to continue the relationship and steps must be taken to determine the source of the PEP’s funds.

When should a Relevant Entity carry out AML checks? 

A Relevant Entity must apply due diligence measures to identify their clients, using reliable and independent sources, documents, data and information in the following cases:

• before establishing a business relationship;
• before carrying out a transaction for a customer with whom the Relevant Entity does not have an established business relationship, the value of which is equal to or greater than a threshold applied by the applicable supervisory authority;
• before executing a wire transfer for a customer with whom the Relevant Entity does not have an established business relationship with, the value of which is equal to or greater than a threshold applied by the applicable supervisory authority;
• when there is suspicion of a crime of money laundering or terrorism financing; and
• when there are doubts concerning the accuracy or adequacy of information and/or documentation received from the potential and/or existing customer. 

It is also important to monitor all existing relationships and client transactions on an ongoing basis to ensure that information regarding such relationships is consistent with the client due diligence information held on file for that client.

Conclusion 

Client due diligence is necessary to assess the extent to which a client may expose your business to money laundering and terrorist financing risks.  At the onset of a business relationship you must take appropriate steps to identify and verify the identity of your client or any person acting on behalf of a client, as well as a client’s beneficial owners.  Understanding who your client is and the purpose of the business relationship is key to guarding against potential fraud and staying compliant with the AML Law and Executive Regulations.

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The Liability of Managers in Limited Liability Companies in Oman

1. The general overview 

The starting point for ascertaining the general powers and obligations of a manager in a limited liability company (“LLC”) is to look at the provisions of the constitutive documents of the company.
There are, however, express provisions under Omani law that impose penalties and liabilities on managers and authorised signatories of LLCs in certain circumstances.

2. Liabilities of managers under the Commercial Companies Law No. 4 of 1974 and its amendments (“CCL”)

In case of managers of an LLC, the CCL imposes penalties and liabilities where managers have failed to discharge their statutory obligations, where obligations have been discharged negligently, or powers have been misused contrary to law.

Article 155 of the CCL provides that the managers of an LLC may be liable towards the company, the shareholders, and other parties should they act outside the scope of the authority conferred upon them.  Specifically, the managers of an LLC may be held liable to the company and third parties (a) for damages resulting from their acts in contravention of the law; (b) for their acts which exceed the limits of their authority; (c) for any fraud or negligence committed by them in the performance of their duties; and (d) for failing to act prudently in the given circumstances.

If liability attaches to more than one manager, pursuant to Article 155 of the CCL, the Primary Court of Oman shall be entitled to make any of the managers liable for all or part of the damage as the Court may deem fit and proper in view of the circumstances of the case.  Such manager may be held personally liable for damages arising from any of the offences referred to above.
If any of the managers commits any of the offences referred to in Article 155, then either the shareholders or the affected third party may have a claim against the manager.  Such third party or the shareholders may have the right to sue the manager, as opposed to the shareholder who may have nominated such manager, as the manager’s liability under Article 155 is personal and may not be attributed to the shareholders who have recommended or appointed such manager.

As is clear from the relevant law set out above, any manager registered as such with the Ministry of Commerce and Industry is obliged to act, at all times, within the scope of his authority.  Therefore, the authorised signatories/managers of the Company will only be personally liable (and such liability will be civil and/or criminal) for actions or debts incurred where they have acted in contravention of the law, outside of their authority, committed fraud or negligence, or failed to act prudently in the given circumstances.

3. Liabilities of managers under Sultani Decree No. 55 of 1999 promulgating the Commercial Law (the “Commercial Law”)

Article 695 of the Commercial Law provides that where it is evident, after the company is declared bankrupt, that it has insufficient assets to pay at least 20% of its debts, the Omani Courts may, at the request of the trustee in bankruptcy, order all managers of the company, or some of them jointly or severally, to pay all or some of the debts of the company save where it is established that they have exercised the necessary care in organising the affairs of the company.
Managers of the company may be held liable criminally for any misrepresentation made by them in the preparation of the company’s accounts or towards third parties who are expected to place reliance upon their representations.

4. Liabilities of employees under Sultani Decree No. 7 of 1974 promulgating the Penal Code (the “Penal Code”) 

Article 155 of the Penal Code provides that any employee (including a manager) who receives a bribe, for himself or for others, be it money, gift, promise or any other benefit, in order to perform, stop or delay a task originating from his job responsibilities shall be sentenced to imprisonment from three months to three years, a fine, at least equal to what has been given or promised to be given to him, and dismissal from work.  Similarly, if the manager or a senior employee accepts or demands a bribe for performing a task contrary to the duties of the job, he shall be sentenced to imprisonment for up to ten years and a fine equal, at least, to the amount of the bribe and dismissal from work.
Article 160 of the Penal Code also provides that, if an employee misuses his job by merely benefiting or harming others, or refuses to carry out his job duties in pursuing a person who has committed a crime, the investigation of which or arresting the actor of which lies within the limits of his responsibilities, the employee shall be sentenced to imprisonment of three months to three years and to a fine of OMR 20 to OMR 100.
Article 162 of the Penal Code further provides that any employee who intentionally neglects to perform the duties of his job shall be fined from OMR 5 to OMR 100.  If the negligence results in harming the interests of the State, the actor shall be jailed from one month to one year.

5. Liabilities of managers under Sultani Decree No. 28 of 2009 promulgating the Income Tax Law and its amendments (the “Income Tax Law”)

Under the Income Tax Law, managers of LLCs may face certain penalties, fines and/or imprisonment if they fail to discharge compliance or reporting obligations.  Managers may face such punishments in various cases, including failure to submit information requested by the relevant authority such as returns, financial statements, statements of income and any other documents requested.  Other instances where penalties may be imposed include failure to answer questions and attend meetings in relation to the tax returns of the company, interference with the authorities’ work and failure to obtain the relevant tax files needed for the company.
The relevant provisions for the penalties mentioned above are stated in Articles 179 to 185 of the Income Tax Law, and include heavy fines of up to OMR 50,000 and jail sentences that could reach up to three years.  Generally, the tax authority endeavours to provide adequate notice to companies to comply with such regulations.  However, the Law allows them to levy heavy penalties in case of non-compliance.

6. Other liability provisions

In the event that a judgment has been enforced against a company, the enforcing party may pursue all measures available to it under the law.  This includes travel ban and arrest warrants against certain individuals, primarily the authorised signatories and managers of the company.
Criminal actions in this jurisdiction can be brought only against individuals and not against companies.  Therefore, any detention penalties arising (e.g., from the Consumer Protection Law or certain provisions under the Omani Labour Law) can only be imposed on the authorised signatories and managers of the company.  This, however, may vary on a case-by-case basis.

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Extending the Statutes of Limitations or Time Bars in Common Law Jurisdictions and Under Omani Law

Statutes of limitations are laws passed to set the maximum time after an event within which legal proceedings may be initiated.  Often times this is when parties know or should have known damage was suffered.  Statutes of limitations are in place to protect persons against claims made after disputes have become old, evidence has been lost, memories have faded, or witnesses have disappeared.  Once the time limit to bring a claim has passed, the claim is “time barred.”

Various claims and civil actions have different statutes of limitations.  By way of example, under New York law various statutes of limitations periods are outlined in the New York Civil Practice Law and Rules.  In England, the statute of limitations for civil claims is governed the Limitations Act 1980.

There are generally a very limited number of circumstances in which a statute of limitations may be extended.  For example, under New York law, a statute of limitations can be tolled if a person is outside of the state or living under a false name; if the person is a minor or insane (capacity); due to war; or, in some circumstances, the agreement of the parties.  English law follows a similar approach. It should be noted that under both New York and English law, limitation periods (typically in construction contracts) may be shortened.

If a statute of limitations is tolled, the practical effect is that a party may commence a claim when they otherwise would be time barred.  If a statute of limitations period is shortened, which generally takes place in construction contracts where a defects liability period is applicable, a party may have a considerably shorter time to file a claim.

In Oman, time bars take the form of statutory rules that restrict the period of time within which a legal action can be brought successfully, and therefore restrict the rights of the disputing parties to bring legal proceedings to recover losses or obtain compensation.  There are various time bar rules set out in Omani legislation, and they vary depending on the subject matter of the dispute.
While there is no provision under Omani law for the extension of time bars, a legal claim that is brought by a plaintiff past the limitation period does not automatically fail.  The existence of a time bar to the claim (generally, where the claim is brought outside the set limitation period) must be raised by the defendant as a legal, or procedural, defence.  If the defence is successful, the plaintiff’s claim will not be heard in the courts.

When representing a client in a commercial dispute, it is fundamental to consider first whether there is any applicable time bar.  Before a plaintiff makes a decision on whether or not to bring a legal action in the courts, he should be informed by his lawyer whether the claim is time barred.  Conversely, the defendant’s attorney should consider whether or not the claim is time barred and raise this as a legal defence in the court before addressing the subject matter of the case.  Thus, ascertaining the existence of a time bar to a legal claim can potentially shorten the legal proceedings and help the parties to the dispute save time and legal costs.

Determining the existence of a time bar at the beginning of the legal dispute is also of strategic importance.  As a matter of procedure, the time bar must be raised as a legal defence at the beginning of the proceedings at the Court of First Instance.  If a defendant fails to invoke this defence in the Court of First Instance, he will not be able to do so in proceedings at the Court of Appeal or the Supreme Court.

Overall, there are a number of different time bars in Omani legislation and the relevant time bar provisions should be considered by each party to a commercial dispute at the beginning of the dispute and, if relevant, raised as a defence at the beginning of the legal proceedings.  If this is done then it will provide a good defence against the action.  However, if the defendant’s lawyer does not do so at the appropriate time, the court will nevertheless hear the case, even though it is outside the time limits.

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