Cryptocurrency and Financial Crime in Bahrain: A Growing Concern

The COVID-19 pandemic has accelerated a massive shift to digital transactions across the Middle East and Africa, creating new opportunities for organized criminals and fraudsters. In Bahrain, this shift has led to an increase in financial crime, including phishing, online shopping fraud, impersonation fraud, and fake charitable appeals.

Financial Institutions Must Respond

According to reports, the UAE saw a 250% increase last year in cyberattacks, including phishing and ransomware incidents. Financial institutions in Bahrain need to respond by re-examining their fraud controls, conducting risk assessments to capture the latest threats, and educating their customers on new risks and typologies.

Regulators Warm Up to Digital Onboarding and eKYC

The Arab Monetary Fund published a report on ‘Digital Identity and e-KYC Guidelines for the Arab Countries’ in April 2020, furthering the debate on adopting digital onboarding tools. Bahrain has been at the forefront of this trend, launching an eKYC project mandated by the Central Bank of Bahrain in 2019.

However, as more firms look to digitise their compliance processes, care must be taken to select technological solutions that allow firms to reduce any potential risk exposure and ensure proper integration is assessed and re-evaluated on an ongoing basis.

FATF Mutual Evaluation Report

The Financial Action Task Force (FATF) published a critical Mutual Evaluation Report on the UAE’s money laundering and terrorist financing controls, stating the country needed to make “fundamental and major improvements” to its AML/CTF systems. The report highlighted several risk areas, including Dubai’s reputation as a hub for illicit proceeds.

Middle East Regulators Start to Warm Up to Cryptocurrencies

The growth of cryptocurrency has continued to show promise across both Africa and the Middle East. Commentators believe the growing level of interest in Africa will force regulators’ hands and encourage the issue of crypto-specific regulations in the near future.

Bahrain, along with the UAE, has granted licenses to crypto exchanges under relevant regulations, and currently has a number of crypto companies in its sandbox programs. However, this growth also requires crypto firms themselves to establish robust compliance programmes, as well as other companies with potential exposure to them, such as conventional banks.

Slow Steps Towards Greater Transparency and Access to Data

A small number of governments have made moves to align themselves with international standards, including the UAE, Egypt, and Kenya. However, the onus is now on industry bodies to lobby to make all this information public, and on financial institutions to work out how best to integrate these new sources of information into their onboarding, customer risk assessment, and ongoing due diligence processes.

FINTRAIL in Bahrain

FINTRAIL has been a key player in covering the Middle East and Africa’s financial crime compliance landscape. In 2020, the company appointed Maya Braine as managing director, allowing for dedicated coverage and enhancing understanding and expertise. FINTRAIL completed several exciting projects with a focus on the region, including an ongoing assignment to provide training to compliance teams across Kenya, Nigeria, and South Africa.

If you would like to contact us about any of the topics raised in this article or your financial crime compliance needs in the MEA region, please contact mayabrine@fintrail.co.uk.