Tuesday, July 14, 2020

EU Puts Iraq On List of Money Laundering-Terrorist Financing Countries


(Currency Return)
The European Union Commission placed Iraq on a list of high risk countries for money laundering and terrorist funding. That means financial transactions between Iraq and the EU will have to go through extra regulations, taking more time, raising costs, and there will be restrictions on investment. Other countries on the EU’s list are Afghanistan, Pakistan, Syria, Yemen, Iran and North Korea. Iraq’s Foreign Ministry immediately protested. Iraq’s Anti-Money Laundering and Combating the Financing of Terrorism Office said the country had made progress on those issues and this would be resolved soon. This all centers around the Central Bank of Iraq’s dollar auctions that have been manipulated by the country’s ruling parties, foreign governments, criminals and the Islamic State for years.

Baghdad has known about the problems with the Central Bank’s auctions for a long time but has done nothing substantial about it. A 2012 investigation by the Board of Supreme Audit found that out of one billion dollars sold each week $800 million was laundered out of the country using fake documents. Much of that was going to Iran and Syria who were buying dollars in Iraq to get around sanctions imposed upon them. The Central Bank responded by making money exchangers get licenses to participate in the auctions and changed the value of the dinar to try to decrease the amount of dollars sold. Those restrictions were loosened in just a few months.

In 2013 the acting head of the Central Bank told the American Special Inspector General for Iraq Reconstruction that anti-money laundering regulations had not been enforced for a decade, but that he was working on limiting the auctions. A few months later the former deputy governor of the Bank told Al Mada that the anti-money laundering unit was not doing its job, that more auctions were being held then before, and that the ruling parties were putting in loyalists into the bank to control it.

Al Rafidayn reported in 2014 that the judiciary and Interior Ministry didn’t understand anti-money laundering laws and therefore weren’t enforcing them.

The situation got so bad that in 2015 the U.S. Federal Reserve cut off the flow of dollars to the Central Bank because the Islamic State was involved in the auctions. A banker was quoted as saying that IS was making $25 million a month off of the Central Bank. That’s because the bank sells the dollars at below market rate, allowing buyers to re-sell them for a profit. In response, the Central Bank put in new rules to try to cut off IS’s access and banned 142 money exchanges from taking part. Early 2016 a Wall Street Journal article pointed out that the Central Bank’s reforms failed because banned companies simply registered under new names and IS was still getting dollars as a result.

Finally, in 2019 there were still news stories about manipulations of the auctions going on, that Iran was still buying up dollars in Iraq, and that the Central Bank’s attempts to curb these activities were ineffective. There are two main reasons why these practices persist. First, Iraq has weak rule of law. Investigations don’t move forward if there is political opposition. That leads to the second issue, the country’s ruling parties are also profiting from the auctions. Some are aligned with Iran as well and turn a blind eye to its activities. If there is no political will to crack down on the dollar auctions then nothing serious can be expected. Iraq’s announcements that it is moving forward with anti-money laundering regulations therefore are mostly talk aimed at foreign groups like the European Union Commission or the United States and are not sincere.

SOURCES

Bauer, Katherine and Levitt, Mathew, “Denying the Islamic State Access to Money-Exchange Houses,” Washington Institute for Near East Policy,” 2/3/16

Glazer, Emily, Malas, Nour and Hilsenrath, Jon, “U.S. Cut Cash to Iraq on Iran, ISIS Fears,” Wall Street Journal, 11/3/15

Al Hurra, “Iraq is on the blacklist … the causes and consequences of the European decision,” 7/8/20

Kami, Aseel, “Iraq becomes dollar source for sanctions-hit Iran, Syria,” Reuters, 2/1/12
- “Iraq tries again to buoy dinar, stem dollar flight,” Reuters, 6/6/12

Kami, Aseel and Chaudhry, Serena, “Iraq dinar hit by fallout from sanctions next door,” Reuters, 4/15/12

Kazimi, Nibras, “The Islamic State’s Sovereign Wealth Fund,” Talisman Gate, Again,” 12/11/15

Al Maalomah, “Iraq rejects and protests against decision to include it in the list of money laundering countries,” 7/8/20

Al Mada, “Integrity Commission reports and Bureau of Financial Supervision indicate money laundering: the current auction outside the control of the central bank,” 7/7/19
- “Integrity reveals details of the complicity of government and private banks in the currency auction,” 12/11/19

Al Maslah, “The Anti-Money Laundering Office issues a statement on the European Union decision: Iraq will be removed from the list of high risk countries soon,” 7/10/20

New Sabah, “Judges reveal the weakness of banking supervision that facilitates money smuggling,” 10/5/16

Sabah, Mohammad, “Former official of the Central Bank trial with 30 employees on charges of not being investigated,” Al-Mada, 6/18/13

Al-Salhy, Suadad, “Iraqis linked to Iran use money-laundering scam to beat US sanctions,” Arab News, 8/1/19

Special Inspector General for Iraq Reconstruction, “Quarterly Report to the United States Congress,” 10/30/12
- “Quarterly Report to the United States Congress,” April 2013

Talal, Yasser, “Corruption in banks financing terrorism financing invisible,” Al Rafidayn, 3/30/14

Wall Street Journal, “Why ISIS’s secret banking network prospers despite air strikes,” 2/25/16

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