By Dr Abdullah Ahmed Alkayat 

Kuwait remains one of the few countries that launched a full ban on bitcoin usage. In 2017, the Central Bank of Kuwait issued a resolution banning all types of bitcoin trading locally mainly for money laundering fears, claiming that almost all transactions cannot be traced using cryptos, which may lead to a national security concern. Not surprisingly, this ban is still ongoing in Kuwait, as many people trade bitcoins using foreign platforms based outside the country. I confirm this ban for the same given reasons. Nevertheless, let’s argue the opposite. If we were to address the issue from the other point of view, what arguments do we have? You do not have to be convinced or agree with what is written below. Try to think out of the box for a moment. What if you dissent from what you really believe?

The Contract of Sale in the Civil Code of Kuwait

The parties’ choice of law trumps the contract of sale articles organized in the civil code of Kuwait as long as this choice of law does not specifically violate other Kuwait laws or broadly violate the public order. When the buyer and the seller agree to a rule of custom or new method of payment, like bitcoin, the agreement should not be prohibited as long as it is compatible with other laws in Kuwait and the public order. The announcement from the Central Bank of Kuwait, however, attempted to override the civil code of Kuwait, violating the supremacy clause, which ranks legal authorities. In Kuwait, administrative announcements possess less authority than statutes, and therefore cannot effectively invalidate the higher authority.

The law of choice in contract

“Pacta sunt servanda” is a prominent principle of civil law, as well as international law. It means that promises must be kept. As a civil law country, Kuwait, has written statutes organizing the choice of law provisions in the field of private international law. Specifically, Law no. 5 organized the relationship between Kuwaitis and foreigners in private international law. Article 14 of law no. 5 states that this law applies to contracts signed in Kuwait and enforced abroad. Because contracts could be from an international relationship, the court in Kuwait would have to consider which laws apply. Would it be the rules agreed to in the contract between the two parties, Kuwaiti law, or the local laws of the State of New York and the City of New York?

The result would be the same, regardless; choosing to buy the apartment in New York using cryptocurrency, in the form of bitcoin, for payment is not prohibited under any of these laws. If it is up to the parties’ will, then the court in Kuwait would respect this will adhering to the choice of law and pacta sunt servanda. If the Kuwaiti law applied, then it would be the civil code of Kuwait, because this is a contract of sale. Based on the analysis above, the contract is still valid with bitcoin currency payment as long as there was no violation of the public order or other Kuwaiti laws. If the law of the State of New York is applicable, then the contract is still standing because the United States recognizes bitcoin payment. The US Commodity Futures Trading Commission (CFTC), has classified bitcoin as a commodity since September 2015.

Recommendations?

Multiple avenues exist to ensure that bitcoin is appropriately used in Kuwait. First, a local committee examining its current status, under the aegis of the Central Bank of Kuwait, should include lawyers and legal advisors to ensure the legality of any recommendations from the committee. While economists and financial advisors can offer important insight, a legal perspective is necessary. Furthermore, due to the increase in international transactions between Kuwait and the United States for example, the local committee should consider collaboration with an international legal firm to incorporate the American perspective on bitcoin and ensure that Kuwaiti processes for bitcoin will not unnecessarily harm foreign transactions.

In addition, again building on the importance of transactional relationships with the United States, the committee should incorporate research on recognition and authorization of bitcoin transactions in the United States. Combining forces with the United States on this front will also ensure that Kuwait is not implementing processes from scratch and is, instead, incorporating advice from the United States on the acceptance of bitcoin while restricting money laundering efforts. Any regulation of bitcoin must be compatible with the civil code of Kuwait, while respecting the choice of law provisions inherent in contracts as well as international law. In accordance with the 2035 vision, any future regulation of bitcoin should also be noted as “temporary”, as further exploration is necessary to fully understand the ramifications of cryptocurrency.

If the committee is able to incorporate these recommendations into its evaluation of bitcoin, it should be able to develop guidance to prevent money laundering while promoting the global advancement of cryptocurrency, remaining a prominent financial center, and protecting the freedom of contract.

NOTE: Dr Abdullah Ahmed Alkayat is a Commercial and Capital Markets Law Professor at Kuwait University School of Law