Anti-Commercial Fraud Law
Our Associate Nawra Abdulla highlights Bahrain’s Anti-commercial Fraud Law, designed to protect consumers and ensure fair trade while imposing strict penalties to combat fraud and enhance business security.
Nawra Abdulla ([email protected]) – Associate
Bahrain has enacted a range of measures to foster a secure and transparent business environment, which is vital for building investor confidence and encouraging economic development. Central to these initiatives is Legislative Decree No. 62/2014 with respect to Anti-commercial Fraud (Anti-commercial Fraud Law). This legislation is set to protect consumers, business partners and promote fair trade practices by addressing fraudulent commercial practices. By providing clear definitions, penalties, and enforcement procedures, the Anti-commercial Fraud Law seeks to effectively combat commercial fraud, safeguarding consumer rights and ensuring integrity within the marketplace.
Legal Framework
The primary legislation addressing commercial fraud in Bahrain is the Anti-commercial Fraud Law. This law outlines the rights of consumers and sets forth provisions aimed at curbing fraudulent practices in commercial transactions. Additionally, Bahrain’s Civil and Penal Code contain provisions that penalize fraud-related offences, reinforcing the legal mechanisms against commercial malpractices.
What is Commercial Fraud?
Commercial fraud refers to deceptive practices in business transactions aimed at misleading consumers or business partners. It involves any act that misrepresents the nature, quality, origin, or other essential characteristics of a product or service. Common forms of commercial fraud include but are not limited to misrepresentation, counterfeit goods, concealment of defects and price manipulation. Businesses are obliged to disclose essential information about their products, including prices, ingredients, and any potential risks. Failure to provide accurate information can lead to legal consequences. This principle was recently affirmed by the Bahraini Court of Cassation in Challenge No. 208 J.Y. 2022, wherein the claimant purchased a car that had a massive hidden defect that could not be identified through a superficial inspection. The seller had assured the claimant that the car is free of any defects. Consequently, the court ruled the termination of the contract and compensation to the claimant. This ruling underscores the importance of the seller’s obligation to disclose product characteristics prior to the sale, including any defects that could significantly impact the buyer’s decision. In this case, the concealed accident determined a violation, allowing the buyer to seek either termination of the sale contract and/or compensation. The court clarified that actual knowledge of defects is necessary, and superficial inspections do not exempt the seller from this obligation.
Implementation and Enforcement
The enforcement of the Anti-Commercial Fraud Law involves cooperation between various governmental bodies (mostly Consumer Protection Directorate and MOIC) and other government bodies. These bodies work together to oversee any issues concerning commercial fraud to identify fraudulent practices, investigate complaints, and take legal action against violations by monitoring market practices, conducting inspections, and taking necessary actions against violators.
Penalties
The law imposes severe penalties for commercial fraud, which include but are not limited to fines, imprisonment, or both, depending on the severity of the offence. The law also allows for the confiscation of fraudulent goods.
- Fraud in Contracting (Article 2): Anyone who defrauds or attempts to defraud a contracting party by any means can face up to 2 years’ imprisonment and/or a fine of BHD 3,000. This penalty can be doubled if the fraud involves the use of counterfeit measuring tools or methods that compromise the accuracy of the product’s measurement or test.
- Fraud in Sale of Goods (Article 3): Up to 5 years imprisonment or fines up to BHD 5,000 for defrauding or attempting to defraud in the sale of food, drugs, medicine, agricultural products or any natural or industrial goods. The penalty can be doubled if the products are harmful to humans or animals.
- Possession of Fraudulent Goods (Article 4): 1 year imprisonment and/or a fine up to BHD 1,000 for possessing fraudulent or spoiled goods intended for sale. The penalty may double for unlawful possession. Harmful goods lead up to 5 years imprisonment and fines between BHD 5,000 to BHD 10,000.
- Importing Fraudulent Goods (Article 5): 5 years imprisonment and/or fine of BHD 5,000 for intentionally importing fraudulent or spoiled goods.
- Severe Consequences (Article 6): If fraud results in permanent disability, penalties can reach up to 10 years imprisonment and a fine up to BHD 10,000. If fraud causes death, penalties increase significantly, including potential life imprisonment and a fine of BHD 20,000.
- Negligence (Article 8): Individuals who commit offences outlined above through negligence or lack of precautionary measures shall face a year of imprisonment and a fine equivalent to the maximum penalty for the offence due to failure to perform their duties.
- Additional measures (Article 10): if a conviction is issued for an offence under this law, the court may impose additional measures alongside the penalty. These may include confiscating or destroying the products involved in the offence at the convicted person’s expense and require a publication of the judgement summary in two local newspapers also at their expense.
Criminal Liability
Article 9 stipulates that juristic entities can be held criminally liable for offences committed in their name, by their representatives or employees. A fine shall be imposed equivalent to the prescribed penalty for the committed offence. The court may also suspend the entity’s activities related to the offence for a period of 1 year. If the offence recurs, the suspension can extend to 5 years or lead to permanent cancellation of the license to operate and practice their commercial activities.
Miniter’s Authority
The Minister is empowered to issue administrative orders concerning the use of specific utensils and packaging of food, drugs, and other products, as well as conditions for their use and consumption, including identification requirements. The orders will establish record-keeping protocols, guidelines for maintaining registers, and standards for product composition. Additionally, they will outline procedures for the export, import, and disposal of non-compliant goods. Violating these orders can result in up to one year in prison and/or a fine of up to BHD 2,000.
Employees appointed by the Minister shall act as police officers for offences within their jurisdiction. They have the authority to enter premises, access records and gather necessary information to ensure compliance with law provisions. They may temporarily seize suspected goods, inviting concerned parties to witness the process and collect samples for analysis. Detailed records of the seizure must be submitted to the competent court within 7 days. Otherwise, the goods will be released. Individuals who obstruct these employees in their duties may face up to 6 months of imprisonment and/or a fine up to BHD 500.
Challenges and Developments
While Bahrain has made significant strides in combating commercial fraud, the rise of e-commerce and digital transactions has introduced new avenues for fraud, requiring ongoing adaptations to the legal framework. Authorities are increasingly focused on enhancing regulations related to online businesses, ensuring that consumer protections extend to the digital marketplace. Furthermore, international cooperation is essential in addressing cross-border fraud. Bahrain is actively engaged in regional and global efforts to combat commercial fraud, sharing best practices and collaborating with other nations to strengthen enforcement mechanisms.
Concluding Remarks
Bahrain’s Anti-Commercial Fraud Law represents a crucial component of the nation’s efforts to create a fair and transparent business environment. By protecting consumers and promoting ethical business practices, the law contributes to economic stability and growth. As Bahrain continues to evolve as a regional financial hub, ongoing vigilance and adaptation of legal frameworks will be essential in addressing emerging challenges in commercial fraud. For businesses operating in Bahrain, understanding and complying with these regulations is vital to maintaining trust and integrity in the marketplace. Consumers also play a crucial role by remaining informed and vigilant against fraudulent practices. Together, these efforts foster a robust and secure economic landscape in Bahrain.
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