Multi-Million Dollar Bank Fraud In Iraq

In May 2010 it was reported that several state run banks had given off the book loans to other financial institutions, and that several officials were under investigation as a result. The Inspector General for Iraq Reconstruction reveals that four high ranking bank officials have been found guilty of bank fraud and sentenced to prison over the matter, and over $300 million has disappeared as a result of the case.

The government dominates Iraq’s banking sector. There are only 43 banks in the country, and the seven largest are publicly-owned. Managers in three of the latter, the Central Bank of Iraq, the Agricultural Bank, and Rafidain bank used the savings of government workers to make $7.7 billion in off the book loans to three private banks, the Bank of Basra and Warka Bank in Iraq, and the Ahli Bank in Jordan. Those turned out to be bad investments and millions were lost in the process. When the news broke of the managers’ activities, two of Iraq’s anti-corruption agencies, the Integrity Commission and the Board of Supreme Audit, along with the inspector general for the Finance Ministry began investigating. Several top officials were brought in for questioning, Warka Bank’s assets were frozen, and eventually four branch managers were indicted and sent to prison. $375 million is still unaccounted for. Whether those were losses, stolen funds, or a mixture of both is unknown. The head of the Integrity Commission said that the loans to the private banks violated several rules. First, they were not reported. Second, the interest rates charged were illegal as well as the size of the loans.

The fraud case points out several problems with Iraq’s banking industry. For example, a December 2008 audit of one of Iraq’s two main banks, Rafidain or Rasheed, found that it had no business plan, no rules or regulations on workers, no reporting rules, no technology, little risk management, and hardly offered any services. Iraq’s banks have been going through reforms since 2005 to fix these problems, but progress has been slow. By Mid-2009, less than one quarter of them followed international banking standards. That’s how managers in four of Iraq’s largest banks could make $7.7 billion in bad loans, with little to no one noticing until months later. Of course, that puts Iraq’s banks in the same lot as many other financial institutions from around the world that lost billions of dollars in poor investments, which caused the current world recession. Then again, some Iraqis went to jail for their actions, which is unlike other countries.

SOURCES

Iraq News Agency, “President of the Bank of Basra prison and the President of Warka fugitive because of suspicious loans,” 5/28/10

Special Inspector General for Iraq Reconstruction, “Quarterly Report and Semiannual Report to the United States Congress,” 7/30/09
Special Inspector General for Iraq Reconstruction, “Quarterly Report and Semiannual," 1/30/10
- “Quarterly Report and Semiannual Report to the United States Congress,” 7/30/10

Kurdish Ruling Parties Involved In Oil Smuggling To Iran?

France’s Le Figaro was the latest paper to travel to Kurdistan to interview truck drivers taking oil and refined products into Iran. One said that an official from one of the ruling parties owned the company he worked for. A member of the Change opposition group accused the Patriotic Union of Kurdistan (PUK) and the Kurdistan Democratic Party (KDP) of the same thing in a report by National Public Radio recently as well. If true, it would be no surprise as the KDP and PUK are known for having their fingers in most major enterprises in Kurdistan. It would also go to show that the shipment of petroleum and related products to Iran is intimately involved with the Kurdish authorities, not private businesses making their own independent deals with Tehran, as the Kurdistan Regional Government claims.

SOURCES

AK News, “Le Figaro: Kurdistan continues oil “smuggling,”” 8/15/10

Cocks, Tim, “ANALYSIS-Graft main worry for investors in Iraq Kurdistan,” Reuters, 9/25/09

McEvers, Kelly, “Flow Of Oil From Iraq To Iran Raises Concerns,” NPR, 8/13/10

Raghavan, Sudarsan, “Iraq’s Kurds Find Prosperity Breeds Distrust,” Washington Post, 3/21/09

A History Of Oil Smuggling In Iraq

Iraq is an oil dependent country. The industry has been plagued by problems for decades due to wars and international sanctions. One long-lasting issue is oil theft. That began on a large-scale in the 1990s when the government used smuggling to break the United Nations sanctions. The individuals and groups involved in these activities only expanded after the U.S. invasion, as there was a general breakdown in order. Today oil theft remains a major problem for Iraq’s most important resource.

In the 1990s Saddam Hussein organized criminal gangs to smuggle oil to break United Nations’ sanctions. Traditional trade routes throughout the Persian Gulf and Middle East were adapted for these operations. Trucks sent to Turkey, Jordan, Syria, Kuwait and Saudi Arabia, and boats going through the Persian Gulf were all used to ship crude to bring in illicit revenue for the Baathist government. Sheikh Abu Risha, who would later form the Anbar Awakening in 2006, and his tribe, ran an oil smuggling ring to Jordan during this period.

After the U.S. invasion in 2003 these activities not only continued, but also expanded. First the collapse of the state, economy, and general anarchy after the fall of Saddam created powerful incentives in Iraqi society to turn towards crime to make a living. Corruption also spread throughout the country. As a result, criminals, government officials, tribes, militias, insurgents, former Baathists, and new players all became involved in the theft of oil and refined petroleum products.

One factor that facilitated smuggling was the state monopoly over oil. In 1972 the government nationalized the petroleum business. In 1987 Saddam re-organized the industry. Before it was all under the control of the Oil Ministry. Afterward the North Oil Company, South Oil Company, State Company for Oil Projects, and the State Oil Marketing Company were all created for different regions and sectors of the petroleum business. Each has wide ranging autonomy, and there is little coordination between the different parts. The Inspector General for the Oil Ministry for example, issued a report saying that there was a lack of management, control, and oversight. Political parties also have influence over parts of the system. All of these opened up opportunities for theft, sabotage, infiltration, and corruption. 

Iraqi tanker trucks waiting to be filled. The shipment of oil and refined products is only loosely supervised which opens up opportunities for fraud and smuggling

Stealing oil today takes many different forms. One is mixing stolen oil in with legitimate oil. A regular crude shipment is topped off with extra petroleum that gets a separate payment. Another involves filling boats or trucks with stolen oil that is then delivered to tankers in the Persian Gulf. A sting operation in 2006 by the Ministry of Oil found 166 craft lined up in rivers in Basra waiting to sail off to meet larger boats in the Gulf. A third is filling up tanker trucks and driving the illegal oil to neighboring countries like Iran, Syria or Turkey.

Tapping into pipelines is another common form of theft. A hole is made in a line, and then crude is siphoned off into trucks or ships. In late 2007 there were an estimated 25 holes in the northern pipeline to Turkey. Some of the security forces meant to protect these lines also colluded in these activities or were the culprits themselves. In 2004 the Defense Ministry hired the Jabouri tribe to defend the Turkish pipeline in Salahaddin and Tamim provinces. The tribe was actually involved in smuggling since the Saddam period, and expanded their activities under their new official cover. A 2009 investigation by the Oil Ministry’s inspector general found that Army units were stealing oil from the same line. Most of this crude remained within Iraq where gangs have mobile refining stations, while some was sold to fuel factories and power stations. 

Baiji refinery in Salahaddin was infamous for theft and being infiltrated by insurgents

Stealing refined petroleum products has also become a big business after the U.S. invasion. The demand for fuel, diesel, etc. increased after 2003 because of more cars and power generators. The supply however is limited because Iraq’s refineries lack capacity. The government also subsidizes gas and fuel, keeping prices artificially low. Gangs, militias, and insurgents would buy or steal gas in Iraq, and sell it in neighboring countries where prices were much higher. Other times, the stolen fuel was sold to Iraqis on the black market. The Baiji refinery in Salahaddin was infamous for being controlled by insurgents. Allegedly, they stole around one to two-thirds of its production. A huge illegal market developed around the plant involving security forces demanding payoffs for trucks to leave and enter the refinery and go through surrounding checkpoints, corrupt oil officials and political parties set up gas stations in the area so that they could get fuel from the government, which was then sold on the black market.

Checking the fuel level in a tanker truck to see if it matches the records

Iraq also has to buy refined products from Iran, Turkey, and Kuwait because it can’t meet domestic demand. That process is also corrupted. A delivery would be registered when none existed so that the payment could be collected. Truck drivers would sell products in other countries before even getting to Iraq. Tankers would deliver partial shipments of fuel and keep the rest so they could sell it. Drivers would steal fuel, and then fill up the rest of the truck with cheap local fuels. Some trucks were fitted with two tanks, one at the top that would hold a small amount of fuel, while the second larger tank would hold water. The Oil Ministry’s inspector general reported that from September 2004 to February 2005 1,551 trucks carrying 56 million liters of oil products imported at a coast of $28 million never arrived. Trucking companies were fined $4 million as a result, but it was believed that they made $24 million in the process, so they continued on with their illegal activities.

As the examples show, all of these operations involve corrupt officials, trucking and tanker companies, political parties, and the Iraqi security forces. A truck driver involved in smuggling said that political parties made sure that their followers were operating the pumps when they wanted to steal oil and fill up his truck. Oil Ministry officials would also give fake documents to cover up the theft. In Basra, the Fadhila Party and Sadrists provided protection for the Ashur clan after the U.S. invasion in exchange for 30% of their profits from stealing oil. The clan was said to make $5 million a month from their activities. The Fadhila Party also had its own criminal operations. In January 2005 it won control of the governorship in Basra, and later received the Oil Ministry under Prime Minister Ibrahim al-Jaafari. It also ran the Oil Facilities Protection Force, the Tactical Support Unit in the Basra police, and the Abu al-Khassib port in that province. As a result, the Basra governor’s brother Ismail Waili became one of the largest oil smugglers in Iraq, protected by the local security force and the Fadhila Party. Prime Minister Nouri al-Maliki’s 2008 Knights Charge offensive in Basra broke up most of Fadhila’s operation, but illegal activities continued.

Criminals, shipping companies, and political parties also colluded with Iran. For instance, gangs and tankers in southern Iraq that couldn’t get official papers to cover their smuggling would pay bribes to the Iranian Revolutionary Guards’ Navy to allow them to fly an Iranian flag, or sail under their protection in Iranian waters. The Kurds have been sending oil and refined products to Iran since the 1990s, and continue to this day. 

Petroleum is Iraq’s biggest and most important business. It provides almost all of the government’s revenue, and that in turn is used to pay for services, jobs, and the country’s development. Iraq earns several billion dollars a month from the industry, but at least a billion is stolen as well. Refined petroleum products, which are in short supply, are also taken. This all started as an extension of the state when Saddam tried to use smugglers to break U.N. sanctions. After the U.S. invasion, it became a free for all when all constraints were eliminated as the nation descended into chaos. Even with improved security, gangs and political parties involved in crime still operate with impunity. The country is in such dire need that it can’t afford to have so much money go missing. So many actors are involved in the illegal operations however, that it’s unlikely to end any time soon.

SOURCES

Dagher, Sam, “Basra strike against Shiite militias also about oil,” Christian Science Monitor, 4/9/08
- “Smugglers in Iraq Blunt Sanctions Against Tehran,” New York Times, 7/8/10

Eisenstadt, Lieutenant Colonel Michael, “Iraq Tribal engagement Lessons Learned,” Military Review, September-October 2007

Kamal, Fatima, “Iraq army personnel involved in oil smuggling,” Azzaman, 1/13/10

Katulis, Brian, Juul, Peter, and Moss, Ian, “Awakening to New Dangers in Iraq,” Center for American Progress, February 2008

Oppel, Richard, “Iraq’s Insurgency Runs on Stolen Oil Profits,” New York Times, 3/16/08

Salaheddin, Sinan, “Iraq oil refinery expands by 10K barrels,” Associated Press, 3/15/08

Williams, Phil, “Criminals, Militias, And Insurgents: Organized Crime In Iraq,” Strategic Studies Institute, June 2009

The Humanitarian Situation Within Iraq

The United Nations, as part of its Millennium Development Goals program, has released a new set of statistics on the humanitarian situation within Iraq. The numbers show that the country is still struggling to meet the needs of its public.

Education

Iraq, like many countries in the region, has a very young population. Almost half of Iraqis are below the age of 19 years old. The government faces difficulties educating them. While 87% of boys and 82% of girls are enrolled in school, many drop out before completing their studies. The percentage of youth going to school has also declined. In 2007 85% of kids were enrolled in primary school compared to 91% in 1990. The number of children that have completed 1st to 5th grade however has gone up from 76% in 1990 to 95% in 2006. After primary school there is a sharp decline in attendance, with only 44% finishing that level. Women are also under represented at every educational level. In addition, a little over 300,000 Iraqis aged 10-18 have never gone to school. Compared to the rest of the region, Iran and Turkey do better at 94% and 92% respectively, while Iraq is at the same level as Saudi Arabia at 85%.

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The lack of schooling is hurting literacy in the country. The literacy rate for 15-24 year olds increased from 79% in 1990 to 84% in 2007, and 26% of women are illiterate. That gives Iraq the highest illiteracy rate in the Middle East. 

Iraqi youth are also not learning important skills for a high technology world and economy. In a survey, 65% said they did not know how to use a computer, and only 13% said they used the internet. Both were lower rates than in neighboring countries.

There has been a marked decline in the quality of Iraq’s schools over the last few decades. In the 1960s and 1970s Iraq had one of the best education systems in the Middle East. Wars and sanctions robbed schools of funding. Displacement, poverty, discrimination against women, deteriorating infrastructure, overcrowded classrooms, security, lack of parent support, kids having little interest in their schooling, and outdated curriculum are all issues. The U.S. embassy in Baghdad has warned that if the education system isn’t improved, the younger generation could be an impediment to peace, stability, and economic growth.

Unemployment

Iraq has high unemployment and underemployment. In 2009 17.3% were unemployed and 29.4% underemployed, meaning almost half of the country struggles to find a steady job. Young people in Iraq face almost double the unemployment rate at 30%. In 1990 the youth jobless rate stood at only 7%. That doesn’t compare well other countries such as Turkey and Iran that have unemployment rates of 20% and 22% respectively for their young.

47% of youth with jobs were also dissatisfied with either their pay or type of work, and women face an even harder time with little over 18% participating in the work force. The percentage of women working outside of agriculture has also fallen from 11% in 1990 to 7% in 2008.

Overall, the Iraqi economy simply can’t provide enough jobs for the 450,000 people that enter the workforce each year. That’s largely because the country is dependent upon oil that is not a labor-intensive industry. In 2008 petroleum accounted for 56% of the GDP, but only 1% of jobs. 

Poverty

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The lack of work and on-going violence in the country creates high poverty rates. Currently around 7 million Iraqis, 23% of the population lives below the poverty level of $2.20 per day. Rural areas have the highest percentage of poor people at 39%, but the largest concentration of poverty is in the urban centers. Iraq has also faced a sharp increase in food prices since the 1990s due to international sanctions and wars. The government implemented a food ration system as a result, but it only provides inconsistent basics, and has a negative affect upon the country’s agriculture sector.

Infant Mortality

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Iraq has made progress in fighting infant mortality, but it is still at the bottom of the region. Infant deaths went from 62 of every 1,000 births to 41 of every 1,000. Salahaddin has the worst rate at 70 deaths for every 1,000 live births. The number of children dying in the first five years of life has also dropped from 50 of every 1,000 children to 35 of every 1,000. That still makes Iraq the second to last in infant mortality rate in the region with only Yemen being below it.

Maternal deaths are another major problem. 84 mothers per 100,000 births die. That places Iraq with 67 other countries that account for 97% of all maternal deaths in the world. Iraq suffers from poor birth practices, inadequate to unavailable obstetric care, and high levels of anemia. That leads to 1 in 4 pregnancies having serious complications, which threaten the lives of the babies and their mothers.

Conclusion

Iraq’s history and economy has severely set back its development. Saddam Hussein’s misguided wars, United Nations sanctions, the 2003 invasion, and subsequent sectarian civil war have devastated the country’s education and health care systems. Professionals fled the nation, infrastructure was destroyed and deteriorated, and government support for services was severely cut. Baghdad today is faced with the gargantuan task of trying to make up for these decades of setbacks. While there have been some improvements in the humanitarian situation, when compared to the rest of the region Iraq still stands near the very bottom.

SOURCES

Carey, Nick and Kami, Aseel, “Special Report: Between Iraq and a rich place,” Reuters, 5/27/10

Inter-Agency Information and Analysis Unit, “Factsheet on Iraq Youth,” United Nations, August 2010

Special Inspector General for Iraq Reconstruction, “Quarterly and Semiannual Report to the United States Congress,” 7/30/10

United Nations Country Team – Iraq, “The Millennium Development Goals In Iraq,” August 2010

AL-SHARQ Al-AWSAT CARTOON: US Pushing Iraq to Security Anarchy

Source: Al-Sharq Al-Awsat, London

Number Of Iraqi Deaths Increased In July 2010

All four of the major organizations that track deaths in Iraq reported an increase in July 2010. Iraq’s ministries had the largest count with 535 killed. That consisted of 396 civilians, 89 police, and 50 soldiers. That was the highest number by Baghdad since May 2008 when it recorded 563 deaths. The Associated Press had the lowest count with 356 casualties for July, which was the highest they had noted since 383 killed in December 2009. That left Iraq Body Count, which consistently has the highest death count, in the middle with 469. Icasualties was on track to have the lowest amount as usual, but then added 264 deaths at the very end of the month based upon news about the Iraqi Ministries’ high figure for a total of 534. All together that averaged out to 15.2 deaths per day, a dramatic increase from the first six months of the year that averaged 9.2 killed a day.

Monthly Death Counts

Month	Iraq Body Count	Icasualties	Iraqi Ministries	Associated Press	Avg. Deaths Per Day
Jan. 10	258	135	196	177	6.1
Feb.	296	236	352	255	10.1
Mar.	311	183	367	230	8.7
Apr.	376	259	328	321	10.7
May	370	279	337	278	10.3
June	353	176	284	294	9.4
July	469	534	535	356	15.2

The amount of security incidents in July was actually lower than previous months, but there were a number of high profile, mass casualty attacks. On July 8, 48 Iraqis were killed and 380 wounded in a series of bombs aimed at Shiite pilgrims traveling through Baghdad. Ten days later two suicide bombers attacked Sons of Iraq waiting to receive their paychecks in the Radwaniya and Yusifiya neighborhoods of the capital, killing 65 and wounding 60 others. That was followed by two car bombings on a checkpoint outside of Karbala on July 26 that left 19 dead and 47 wounded. Finally, on July 29 five improvised explosive devices (IEDs) went off in Adhamiyah, Baghdad killing 16 and wounding 14. All together these attacks resulted in 158 dead, and 501 wounded. Adding that number to the average deaths in the first six months of 2010 accounts for the large increase in deaths in July.

Iraqi Security Incidents - Dec. 09 to August 10
(Click on image for larger view)

Even with the growth of casualties in July and the inability of Iraq’s politicians to put together a government five months after parliamentary elections, the security situation is still much better in 2010 than in previous years. Attacks and deaths have seen a steady decline since the end of 2008. From 2003 to 2007 12,000-27,000 Iraqis died each year according to Iraq Body Count. That dropped to 9,221 in 2008, and then went down again to 4,645 in 2009. If casualties remained at the same level this year, Iraq would end up with approximately 3,900 deaths in 2010. That still makes Iraq one of the most violent countries in the world. For comparison, the United Nations recorded 1,271 civilian deaths in Afghanistan in the first six months of 2010, the highest amount in several years. That averages out to 211.8 per month. Iraq’s ministries reported 1,376 civilians killed during that same period, for an average of 229.3 per month. Iraq’s lowest death count was still above Afghanistan’s most deadly period. Unfortunately, the country is likely to see several hundred deaths per month for the foreseeable future as Iraq’s militants have proven their resilience and adaptability.

SOURCES

Arnoldy, Ben, “Afghanistan war: UN report blames insurgents for rise in civilian deaths,” Christian Science Monitor, 8/10/10

Associated Press, “High Iraq deaths cast doubt on U.S. stability talk,” 8/2/10
- “Iraq: Key figures since the war began,” 8/2/10
- “July deadliest month for Iraqis in 2 years with more than 500 dead,” 7/31/10

Aswat al-Iraq, “16 killed, 14 wounded in Baghdad blasts,” 7/29/10
- “43 killed, 40 wounded in Radhwaniya suicide bombing,” 7/18/10
- “48 people killed, 380 wounded in Baghdad blasts – BOC,” 7/8/10
- “52 casualties of Youssifiya blast – BOC,” 7/18/10
- “Karbala blast casualties up to 19 killed, 47 wounded,” 7/26/10

BBC, “Afghan civilian toll rises due to insurgent attacks: UN,” 8/10/10

Faraj, Salam, “Iraqi death toll rises markedly in February,” Agence France Presse, 3/1/10

icasualties.org

Iraq Body Count

Olive Group, “Weekly Security Report for 12 August 2010,” Iraq Business News, 8/12/10

Radio Free Europe/Radio Liberty, “July Deaths In Dispute As U.S., Iraqi Figures Differ,” 8/1/10

Reuters, “Iraq civilian death toll rises sharply in April,” 5/1/10

UNAMA, “Afghanistan Mid Year Report 2010 Protection of Civilians In Armed Conflict,” August 2010

Yang Yang, “Iraq’s Monthly Death Toll Rises Slightly in May,” Xinhua, 6/1/10

Iraq’s Kurdistan Shipping Oil And Refined Products To Iran

Tanker trucks carrying oil and refined products from Kurdistan to Iran

Since the New York Times exposed the Kurdistan Regional Government’s (KRG) longtime shipment of oil products to Iran in July 2010, Kurdish authorities have repeatedly said that only refined products are going to Iran, that it is all legal, and that any crude oil from the region would only go through pipelines controlled by the central government. In August however, a reporter from National Public Radio (NPR) went to the Kurdistan border and interviewed truck drivers waiting to cross over to Iran who said that they were carrying not only oil derivatives like fuel and gas, but also oil.

Kelly McEvers from NPR went to a border crossing point between the KRG and Iran and interviewed some of the trucks drivers lined up there. One said that he was carrying refined products, while another stated that his tanker was full of crude. Most said that they were heading to Iranian ports along the Persian Gulf, and had no idea where their cargos were going afterward. All said they were working for private companies. A member of the Change List accused the ruling Kurdistan Democratic Party (KDP) and Patriotic Union of Kurdistan (PUK) of being behind the trade. A spokesman for the KRG responded that the regional government sold surplus oil to private companies, and they could do what they wanted with it afterward. He acknowledged that some smuggling was going on with Iran, but that was a small operation and was not official KRG policy. The report contradicted earlier statements by Kurdistan officials. Before they denied that any oil was going to Iran. Other stories also noted that the truck drivers filled up at government run facilities and got their travel directions there as well, and KRG Natural Resource Minister admitted that the profits were going into government run accounts.

The slew of news articles about the Kurds’ activities this year have exposed their long standing smuggling to Iran. In the 1990s Kurdistan first began sending oil to Iran since they had friendly relations with Tehran, having fought on their side during the Iran-Iraq War in the 1980s, and to earn money independently from Baghdad that was controlled by their archenemy Saddam Hussein. After the 2003 invasion, the KRG began signing its own oil deals, started operating two oil fields, and claimed that it had the right to explore and export its own crude. The Oil Ministry objected to all of these moves and called them illegal. As a result of being shut out of the government run pipelines, the KRG decided to continue on with their smuggling operations to Iran, once again motivated by the fact that it provided revenue not controlled by Baghdad. They were able to do this rather quietly until the New York Times article this summer.

All the press since then has brought up questions about the KRG’s activities, but it will not stop them. First, some have questioned whether the trade with Iran violates United Nations and U.S. sanctions on Iran that were just passed this year. Second, it re-ignites the dispute between the central and regional governments over who has authority over oil sales. Third, it brings up the lack of transparency within Kurdistan and Iraq in general, which has no real accounting for its oil industry, and the profits it generates. Last, it has increased internal tensions within the KRG between the ruling parties and the opposition who have accused the latter of corruption and running the region as their own personal fiefdom. Despite all this controversy, none of it is going to stop the shipments to Iran because no one can deter the Kurds from doing so right now. Baghdad has no control over the border in Kurdistan, and the U.S. wants to support Iraq so it will turn a blind eye to the KRG’s activities.

SOURCES

Dagher, Sam, “Smugglers in Iraq Blunt Sanctions Against Tehran,” New York Times, 7/8/10

International Crisis Group, “Oil For Soil: Toward A Grand Bargain On Iraq And The Kurds,” 10/28/08

Majid, Kamal, “An Assessment of the conditions in the Kurdish part of Iraq,” Brussels Tribunal.org, 7/23/08

McEvers, Kelly, “Flow Of Oil From Iraq To Iran Raises Concerns,” NPR, 8/13/10

Muhammad, Sardar, “KRG presidential candidates,” Niqash, 7/9/09

El-Tablawy, Tarek and Barzanji, Yahya, “Oil smuggling to Iran embarrassment for Iraq,” Associated Press, 7/13/10