Wednesday, October 17, 2012

Surprise Charges Against Central Bank Of Iraq Officials Raise All Kinds of Questions

The latest controversy in Iraq involves the country’s central bank. In October 2012, arrest warrants were issued for the governor of the Central Bank of Iraq along with sixteen of his staff. They were charged with various cases of corruption. Immediately, people interpreted this as a power grab by Prime Minister Nouri al-Maliki who has disagreed with some of the bank’s decisions in the past, and has tried to exert his control over government agencies. 

The circumstances surrounding the charges against the Central Bank officials were controversial to say the least. On October 15, 2012, the Integrity Commission issued arrest warrants for the head of the Central Bank of Iraq, Sinan Shabibi, his deputy Mudher Arif, and 15 others. The next day, the cabinet named the head of the Board of Supreme Audit Abdul Bassit Turki as the interim governor of the bank until the investigation was over. The Board looks into the government’s finances. A member of Prime Minister Nouri al-Maliki’s State of Law list who was on parliament’s integrity committee told the press that Shabibi and the others were being looked at for their instructions to private banks on the amount of reserves they needed, and the financing of imports. The lawmaker for example, claimed that from January to August 2012, the Central Bank issued $27 billion for imports, but only $4.5 billion in goods were delivered. Media reports also mentioned money laundering. The Integrity Commission is the main anti-corruption agency in Iraq. In September 2011 however, the head of the Commission quit, and Maliki named an interim head, despite complaints from parliament that only it had that power. That has given the premier sway over the Commission, and led to accusations that the arrest warrants were simply his way of manipulating the law to achieve his political goals vis a vis the Central Bank.

One of the Prime Minister’s main complaints against the Central Bank has been its attempt to revalue the dinar. Bank Governor Shabibi has talked about eliminating three zeros from the dinar for years now, and officially announced his plans in June 2011. The premier and his staff disagree with this move. One of Maliki’s advisers for instance, said that the revaluation should not happen until the next decade. That led to the cabinet issuing an executive order in April 2012 freezing any changes to the currency. Later it was revealed that the order was issued directly by Maliki without the cabinet. This led to lots of criticism with various politicians claiming that the prime minister was attempting to interfere with the independence of the Bank. Shabibi has talked about the need for a stronger dinar to reverse decades of keeping the currency weak to facilitate state control of the economy. Iraq has also begun to earn huge amounts of cash as its oil exports have increased, which would support increasing the value of the dinar. Maliki seems to want to maintain the status quo. With Shabibi out of the way, the prime minister could win this argument.

The premier also attempted to assert direct control of the Bank before. In January 2011, the Federal Supreme Court ruled that that the Central Bank was no longer under the jurisdiction of parliament, but rather under the cabinet. The Bank issued a statement condemning this decision. The institution is one of the independent bodies set out in the constitution. The Federal Court is widely believed to be under the sway of Maliki, and the decision was one of the most glaring examples of it doing his bidding. The Bank did not go along with the Court, but it did reveal the prime minister’s attempt to control the nation’s offices.

Some of the accusations against the Bank officials seem superfluous as well. For one, the Central Bank has demanded that the private banks in the country increase their reserves to $213 million by 2013. The Bank began setting out these rules back in 2009 in a step to increase banking services. Currently, banks mostly serve the state rather than the public. Shabibi wants to reverse that process, so that people can get easier loans for example to start businesses or help with transactions. Private banks need to have larger amounts of reserves on hand if they are going to increase their lending. A State of Law politician claimed that these rules have been muddled, but international institutions such as the World Bank have supported the Bank’s moves. Second, Shabibi and his associates are being charged with money laundering during the recent run on dollars in currency exchanges across the country, which occurred at the beginning of the year. A source in parliament however, told Ur News that bank officials associated with Maliki’s State of Law were involved in laundering, and ordered Shabibi to take no action against them. Corruption is rampant in Iraq, and having unscrupulous staff in the Central Bank is not out of the question. At the same time, the Bank is one of the most respected institutions in the country, and has worked hand in hand with international organizations and banks to push economic growth and reform. It would be a huge surprise then if the Bank governor was personally involved in any illegal activities.

Given recent history, it would be no surprise if this move against Governor Shabibi was an attempt by Premier Maliki to wrest control of the Central Bank. He tried to do it legally before with the Supreme Court decision. The Bank refused to go along with that order, and has gotten into a number of disputes with the prime minister since then. Iraq has weak state agencies after many of them had to be put back together or created anew after the fall of Saddam Hussein. Maliki has tried to strengthen the central government and his own hand, by gaining influence over many of these institutions. That’s why many pointed to him when the news broke that the Central Bank Governor had an arrest warrant out for him. It’s impossible to tell how this will play out, but it’s likely to go down as another example Maliki trying to impose his will over the government.


Abedzair, Kareem, “Commission orders arrest of Iraqi Central Bank Governor on corruption charges,” Azzaman, 10/15/12

Agence France Presse, “Iraq cabinet names interim central bank governor: spokesperson,” 10/16/12

AK News, “Share of banking services per capita in Iraq is low, says Central Bank,” 6/11/12

Alsumaria, “Iraq Central Bank urges explanatory ruling,” 1/25/11

Brosk, Raman, “Iraqi Central Bank accuses banks of “fraud” over hard currency sales,” AK News, 5/17/12

Dagher, Sam and Nabhan, Ali, “Iraq Dismisses Central Bank Chief Amid Investigation,” Wall Street Journal, 10/16/12

Habib, Mustafa, “dinar woes: iraqi currency traders break Syria, iran sanctions,” Niqash, 5/17/12

Harissi, Mohamad Ali, “Iraqi dinar casualty of Iran, Syria sanctions,” Agence France Presse, 4/12/12

International Crisis Group, “Iraq’s Secular Opposition: The Rise and Decline of al-Iraqiya,” 7/30/12

Al-Jaff, Wissam, “Central Bank’s independence compromised by Federal Court ruling says official,” AK News, 1/23/11

Kami, Aseel, “Iraq tries again to buoy dinar, stem dollar flight,” Reuters, 6/6/12

Muhammad, Barzan, “Erbil Currency Traders Lose Out as US Dollar Value Fluctuates,” Rudaw, 5/27/12

Peel, Michael, “Iraq bank moves to allay laundering fears,” Financial Times, 4/2/12

Reuters, “Iraq centbank slams ruling placing it under cabinet,” 1/24/11

Saleh, Khayoun, “Deputy Premier warns against attempts to meddle in Iraqi Central Bank’s affairs,” Azzaman, 4/16/12
- “Iraq hard cash reserves exceed $60 billion,” Azzaman, 4/10/12

Sami, Zeena, “Central Bank fails to stem Iraqi dinar’s weakening vis-à-vis the dollar,” Azzaman, 4/17/12

Sowell, Kirk, “Inside Iraqi Politics No. 39,” 5/29/12

Special Inspector General for Iraq Reconstruction, “Quarterly Report and Semiannual Report to the United States Congress,” 1/30/11
- “Quarterly Report and Semiannual Report to the United States Congress,” 1/30/12

Ur News, “Sources at the Central Bank: Al-Shabibi retains documents signed by Maliki to protect the corrupt,” 10/15/12

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