Rapid growth of Kuwait's financial sector could create an attractive environment for money launderers and terrorism financers, the International Monetary Fund said in a report.

"Although there is currently no evidence of significant money-laundering in the country, Kuwait's financial sector is growing rapidly in terms of banking sector assets," the IMF said in a report published on the fund's website imf.org.

"This development has the potential of creating a suitable environment for money launderers and terrorist financers to exploit," it said.

The Opec member has introduced an anti-money laundering law in 2002 regulating financial institutions, but does not criminalize financing of terrorism. A new draft law was sent to the national assembly in 2007 but has not yet been adopted.

Banking assets in Kuwait almost doubled over the past five years to KD42.1 billion ($154.5 billion) at the end of June, the central bank's data showed.

The IMF also said Kuwait's anti-money laundering framework showed weaknesses in the preventive measures for financial institutions and a lack of supervision and monitoring.

"No major terrorist activity has been recorded in the country. Less serious terrorist activity has been noted," it said without giving details.

The Gulf Arab state has long been urged to better regulate its financial markets and boost transparency and governance among investment firms. Kuwait's first ever market regulator, the Capital Markets Authority, was launched in March.

The IMF also said the powers of enforcement and sanction against financial institutions were not appropriate, and that the country needed to take a more proactive approach to investigating and prosecuting money laundering and the financing of terrorism.

The IMF said Kuwait had a comprehensive confiscation, freezing, and seizing framework, but that there were no laws and procedures providing for the freezing of terrorist assets. – Reuters