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