Author’s note: This is a revised version of the article I had published in August 2019. It is regretted that that article was published without me having given the KIA an opportunity to comment on its contents and be quoted in their own right. Thirteen days before the publication of this revised version of that article, the KIA were contacted via several different routes and were directly invited to comment and to be quoted. However no comment for inclusion in this revised version of the article has since been received. Please also note that, following me acquiring legal advice from a renowned UK defamation lawyer, the names of several individuals referred to in the original article have been removed.

Kuwait is a country obsessed. However the obsession isn’t with what has preoccupied Kuwait since independence in 1961: its vulnerability to both Iraq and Iran. This doesn’t go away of course, and an 1980s-style tanker war, or worse, still threatens. Kuwaitis however are obsessed with corruption: the ‘C’ word is essentially all that meaningful domestic Kuwaiti politics is about these days. Public anger over corruption helped to bring down the government in mid-November 2019 after a demonstration opposite the National Assembly. Popular clamour for a proper judicial enquiry into alleged wrongdoing still continues.

The widespread perception, and often reality, of Kuwait’s public institutions, and some of its leading personalities, being guilty of taking substantial cuts in what Kuwaitis think of as their money, has become the lifeblood of any serious debate about political reform. The rest is just the usual Kuwaiti parliamentary theatrics.

One of the bodies that has been subject to the corruption allegation is the Kuwait Investment Authority (KIA). This is about as sensitive as it gets. The KIA, after all, is the sovereign wealth fund (SWF) of a state-capitalist country that, for all the decades of talk about economic diversification, is the greatest embodiment of the ‘rentier’ model in the Gulf. KIA assets are estimated to be roughly $600bn. Accusations of corruption at KIA could not be more important for Kuwait.

Examining the stories and perceptions of KIA, both in the public domain and the views of those speaking off the record, it isn’t clear that KIA is corrupt in the gross sense alleged for example in the case of Fahad Al-Raja’an. Al-Raja’an, accused of having pocketed millions of Kuwaiti Dinars (KD), is the former head of the Public Institute for Social Security. A fugitive from Kuwaiti justice, he resides in the UK where a long and very drawn out extradition process will, most Kuwaitis hope and expect, eventually see a man widely reviled in Kuwait sent back home to face the music.

The KIA case however is less straightforward. What is clear is that the KIA lacks proper transparency and meaningful accountability, and that it has only limited authority over investment decisions conducted on its behalf. This environment, and the wider Kuwaiti political and business climate, are a breeding ground for suspicion and allegations of corruption. As Kuwaiti journalist Dahim Al-Qahtani wrote about the Al-Raja’an affair: “The most serious suspect is the administrative and financial system that left one person with the opportunity to systematically plunder the money of the Kuwaitis (1).”

The Kuwaiti state body, the National Audit Bureau (NAB), has, at the behest of the Kuwaiti National Assembly (KNA), investigated the KIA. Much of Kuwait’s Arabic language media has extensively reported on both the NAB’s findings and on the often critical assessments of the KIA by KNA committees, and has sometimes carried the negative views of Kuwaitis familiar with KIA. This has included criticism of the decisions of the KIA’s executive management. It has, for example, been alleged by An-Nahar (2) that a senior KIA employee was in 2007 shocked to find that the KIA’s then executive management had “squeezed out” those who wanted to tackle corruption.  

In 2018 it was reported by Al-Shahed (3) that the KNA’s Committee for the Protection of Public Funds had investigated KIA for alleged “violations”. According to the same Al-Shahed report, the Committee’s findings, together with those of NAB after investigating the KIA’s alleged “infringements of public funds”, led the KNA’s finance and economic affairs committee to decide to “refer all the facts” to Kuwait’s Public Prosecutor .

In 2017 the Kuwaiti website Al-Mugtama (4) reported that, at the request of the Committee for the Protection of Public Funds, NAB conducted an enquiry into KIA. According to Al-Mugtama, NAB examined the KIA’s selling of its shares in some Kuwaiti companies and found “procedures marred by many abuses and irregularities that threatened the future of Kuwaiti citizens and their families working in the sold companies.”

It must be stressed that the current KIA managing-director, Farouk Bastaki is widely respected. However Bastaki’s technical prowess and expertise regarding investments is, paradoxically, seen by many Kuwaitis in the know as confirmation that he isn’t really running the show. The bottom line for a seasoned Kuwaiti observer (5) is that Bastaki is from ‘one of the smaller offshore families.’ This is code for Bastaki being hawala (literally, a ‘returnee’; those whose forefathers settled in Persia or who originated from there). He is therefore not as politically protected as some other Kuwaitis.

There is a wider systemic problem in Kuwait. Kamel Harami, an independent Kuwaiti oil analyst (6), says that Kuwait and its business and political culture is "totally corrupt." Without proper accountability for the decision-making of its leadership and for the organisations that they directly or indirectly oversee, then corruption at KIA or at any major public body is likely, he argues. A source close to the KIA (7) told me that “kickbacks” or “commissions” from some of the beneficiaries of KIA’s investments have occurred, in part due to the SWF’s shift to indirect investments via foreign ‘platforms’ that made lines of accountability blurred. In fact accountability is illusory in the case of KIA because the heads of KIA aren’t making the investment decisions.

The Kuwaiti source explained that there about three to five hedge fund managers used by KIA, and named three global US banks individually, while noting that the majority of KIA’s money is tied up in the USA and about 30-40% of the overall total is held in US bonds. It is normal for Gulf states’ SWFs to only be indirect investors in international businesses. However the practise of doing so via renowned western hedge funds means that, whether it’s KIA or ADIA (Abu Dhabi’s SWF), no one at the local SWF is really determining what’s going on.

Speaking about KIA specifically, my source said that they “receive representatives (of foreign countries) and shuffle papers,” but they “do not make a decision.” Despite this, KIA executives can be seen shuttling round the world, he said, because they have been invited to invest as little as “$20- 30m.” Absurdly, they’re flattered by being asked, whereas the size of KIA’s assets should mean, he says, that these people come to Kuwait. Not that any of the money is invested in Kuwait, or at least very little, argues this source. There was a ‘Department of Alternative Investments’ at KIA, he says, that undertook direct investments, but its remit and fresh investment ideas were “curtailed” due to what he called a “political compromise” that prioritised “political objectives” over sound business decisions. In other words investing in the economy of Kuwait’s preeminent ally, the US, and alleviating the responsibility for any of KIA’s decision-making. It seems that the KIA, or the Kuwaiti state leadership, is in fact capable of some decision-making of its own.

No one at KIA, the source said, has a “venture capital mentality.” The source bemoans what he considers to be precious little connection between KIA and the long-expressed government desire to diversify the Kuwait economy and develop its indigenous business capacity. Across the Gulf the diversification strategy of individual countries often seems to add up to little more than broadening the sources of ‘rent’, not transforming the local economy.

The KIA states that its objective is to “safeguard the financial wealth of Kuwait’s current and future generations by diversifying revenue streams and ensuring a fiscally sustainable and secure future (8).” The KIA has successfully accumulated revenue from its sole responsibility for what it describes as “managing the State’s Reserve (FFG) and other funds entrusted to the KIA by the Ministry of Finance (9).” According to Forbes Middle East, “The financial buffers built up by the KIA are thought to be more than four times the size of the country’s GDP and could cover spending for many years into the future (10).”

A non-Kuwaiti Gulf resident and economic analyst (11) commented that the higher profile of Gulf SWFs is increasing local demands for their better governance and accountability. This is happening in Oman, he said; although Saudi Arabia’s SWF – PIF (Public Investment Fund) – is, he acknowledged, a rather different case. PIF has in effect been bolstered by government raids on its own foreign reserves and on Aramco (by obliging it to buy PIF’s majority stake in the Saudi petrochemical giant, SABIC). PIF is also different because it’s also supposed to be responsible for domestic Saudi economic development. It’s partly the huge Kuwaiti wealth per capita that puts KIA, just like the other small Gulf states’ SWFs, in a different situation to the pressures that apply to the Saudi SWF. In Kuwait’s case this wealth is part of the problem.

For one thing it skews KIA's accountability to the largely elected KNA. Two KNA committees and the NAB have at various times criticised KIA, and the Kuwaiti media has summarised their findings. However the KNA isn’t able to extensively hold the KIA directly to account. The finance ministry is, formally-speaking, answerable for KIA and the two state funds that finance it. The finance minister serves as the KIA chairman and the KIA board also includes the oil minister, the undersecretary at the ministry of finance, and the governor of the Central Bank of Kuwait (CBK). KNA members can question the finance minister after his annual public assessment of the country’s finances that includes his report on the KIA’s performance, or demand his unscheduled appearance on a specific matter that can lead to a confidence vote. (Separate from the KNA’s processes, the KIA is required by law to submit “semi-annual” accounts to the NAB, while its accounts are examined by two international auditing firms). Past finance ministers have acknowledged to MPs those KIA errors that have been made public, such as the KIA selling its shares in the majority state-owned French energy company Areva for a fraction of their original purchase price. However, if the KIA’s own bosses aren’t, in the assessment of the above KIA source, able to meaningfully answer for what is being done with its investments, then it seems unlikely that a finance minister can (even if he wanted to).

Full and proper KIA disclosure is inherently constrained both by how the KIA functions, and, a Kuwaiti expert told me (12), by the minister’s (and the government’s) argument that a full, open and public session to discuss the KIA wouldn’t be in Kuwait’s interest as the KIA is responsible for the ‘precious wealth’ of the country. As the same Kuwaiti expert observed, this factor doesn’t prevent Norway’s SWF from having to be totally transparent with elected politicians and the public.

The Kuwait source’s (13) comment about ‘political’ investment priorities presumably covers the French case too. The same source told me of another such highly political KIA investment decision regarding a renowned western politician that was so absurd in its conception as to be almost unbelievable.

Plainly there are periodic KIA decisions that aren’t just the remit of a foreign hedge fund. However there is probably an unspoken and highly political understanding under which the KIA operates in cases that obviously have little to do with sound investment decisions. The Kuwaiti expert (14) argued that the KIA’s questionable, non-transparent, decisions will quite possibly lead to risky strategic partnerships with similarly non-transparent partners. What he called the ‘total lack of transparency’ seen in Russia and China makes for possible, but in his view highly undesirable, KIA partnerships with these countries. ‘Political’ investments trump sound judgements, it seems. The KIA is committed to putting a lot of money into joint investments with the Russian Direct Investment Fund Russian (RDIF). However, while the KIA reportedly has a stake, along with some other Gulf SWFs, in a company that operates a Russian airport, the economic analyst (15) doubted that the KIA had deposited that much into any joint fund with Russia. China however is a more proven and, prospectively, extensive partner for the KIA and for Kuwait in general. Kuwait has signed up to Beijing’s ‘Belt and Road Initiative’, and is, officially at least, considering giving China the leading role in a strategic island and shoreline development in the northern Gulf (16). The KNA’s elected members sometimes voice concerns about what the KIA does or doesn’t get up to. However the oil analyst Kamel Harami commented that the MPs’ renowned ‘service’ role (as individual extractors of state ‘goodies’ for their small pools of voters) inevitably prevents politicians elected in tiny constituencies from being too tough in their questioning. In Kuwait’s version of ‘jobs for the boys’ (and sometimes girls), the MPs’ criticism is limited by their desire to ensure good jobs at the SWF for relatives or other constituents that, by definition, will often be known personally by KNA members.

The CBK chief (and a former minister of finance) Sheikh Salim Abdulaziz Al-Sabah told the KNA in mid-2019 that there is a serious threat to one of two KNA funding sources. He wasn’t talking about the Kuwait Fund for Future Generations (FFG) though. This isn’t going to run out of money as it automatically creates an annual Kuwaiti fiscal deficit, constraining the country’s borrowing options in the process, by taking a minimum of 10% of the state’s annual revenue. This in turn is transferred to KIA coffers. Sheikh Salim Abdulaziz was threatening that the other state fund on which the KIA draws, the General Reserve Fund (GRF), could run dry in two or three years. The sheikh was engaging in what Kamel Harami says are routine ‘scare tactics’ by Kuwaiti leaders about the high level of ‘service’ spending demanded by MPs, by arguing that state funds will be bled dry. The MPs may listen but are unlikely to risk electoral defeat by changing ingrained behaviour.

Wise voices in Kuwait are more concerned about the fixed transfer of public money that they believe should be for the country’s long-term development and not for what they argue is the often unwise and largely unaccountable investment (non) decisions of the KIA. Like all Kuwaiti public bodies, the KIA suffers from a lack of properly enforceable rules-bound transparency and substantive accountability.

_Footnotes:

_{1 This is from a translation of Dahim Al-Qahtani’s original article in Arabic, entitled ‘Al-Raja’an laysa al-mutahim al-akthar fii Al-Tameenat’ (translatable as ‘Al-Raja’an is not the most dangerous suspect in the Public Institute for Social Security’), Al-Qabas, 27 July 2019.}

_{2. This is from a translation of the original article in Arabic by Zayed Al-Zaid, An-Nahar, ‘ “Al-A’azbah” al-khaas al-Istithmar!’, translatable as ‘Private homestead investment!’. Originally published July 15 2011. http://www.annaharkw.com/Article.aspx?id=282603&date=15072011}

_{3. This is from a translation of the original article in Arabic by Hamad Al-Hamdan and Faris Abdulrahman, Al-Shahed, ‘Al-Ihla taqreer “Hameeya Al-Amuwal” aan mukhalafat hiya Al-Istithmar ila’ al-neeyaba’,  translatable as ‘Referring the report concerning the Investment Authority on “Protection of Funds”’. Originally published June 26 2018 http://alshahed.net/index.php?option=com_content&view=article&id=187697:--l-r------&catid=495:2017-01-05-14-42-17&Itemid=572}

_{4. This is from a translation of the original article in Arabic published in Al Mugtama, January 21 2017, ‘Al-Amuwal al-Aama tasjil mukhalafat hiya al-Istithmar’, translatable as ‘Public Funds (committee) registers irregularities in the Investment Authority’ (No author’s name given; the report, it says, is based on ‘agency’ material) http://mugtama.com/domestic-social/item/48778-2017-01-21-12-37-01.html}

_{5. Telephone interview, June 20, 2019 (A)}

_{6. Telephone interview, June 22, 2019}

_{7. Telephone interview, June 23, 2019}

_{8 See the Kuwait Investment Authority website http://kia.gov.kw/about-kia/}

_{9. Ibid.  Please note that the ‘FFG’ stands for the Kuwait Fund for Future Generations.}

_{10. Dudley, Dominic, ‘How Kuwait Investment Authority Built A Solid Savings Nest’, Forbes Middle East, October 12, 2017, https://www.forbesmiddleeast.com/how-kuwait-investment-authority-built-a-solid-savings-nest}

_{11. Telephone interview, June 20, 2019 (B)}

_{12. Telephone interview, June 18, 2019}

_{13. Op.cit. June 23, 2019}

_{14. Op.cit. June 18, 2019}

_{15. Op.cit. June 20, 2019 (B)}

_{16. Approval of this is scheduled to be debated in the KNA in 2020, according to the Kuwaiti expert Op.cit June 18, 2019. For more discussion of China’s prospective strategic role in Kuwait, see https://www.neilpartrick.com/blog/kuwaitthe-permanent-struggle-for-security}