The Wall Street Journal recently ran an article claiming that Iraq had made major progress on fighting money laundering. The title, “With New Laws and Some Help, Iraq Turned Around Anti-Money-Laundering Problems” was misleading. The piece related how Iraq had passed a law and was just beginning to try to tackle this problem rather than having turned a corner.
Iraq recently started to deal with money laundering, but has major barriers to overcome to be effective. In 2015 it passed a law against money laundering and financing terrorism. A council and office on the issue were created within the Central Bank of Iraq. That resulted in the Financial Action Task Force to take Iraq off the list of countries failing to deal with money laundering in June 2018 for passing the legislation. However John Sullivan former Treasury Department attaché at the U.S. Embassy in Baghdad told the Wall Street Journal that Iraq needed to implement its law. This is a much more of a mixed record than the article title would lead one to believe. While a law was passed Sullivan claimed Baghdad needed to follow through with it. In fact, a 2017 State Department report cited in the article actually confirmed Sullivan’s comments. It said that Iraq lacked the capacity to regulate finances and that political parties could block the law. The government also didn’t have the technology, personnel and cooperation between agencies to enforce the legislation. Most importantly, banks rarely follow government regulations. On the positive side, the Central Bank of Iraq has closed down money exchange and transfer companies and there was an increase in convictions. Again, the State Department pointed out far more issues Iraq has to face rather than making major strides.
Money laundering is connected to Iraq’s cash auctions and money transfer companies which businesses, political parties, the Islamic State, and foreign countries have all manipulated for profits. In 2014 for example, the U.S. Federal Reserve warned that the Islamic State was involved in Iraq’s dollar actions. In 2015 IS was reportedly making up to $25 million a month from the Central Bank of Iraq’s auctions via exchange houses and several Turkish banks. That led the Central Bank to issue new regulations in December 2015 to try to limit IS access and banned 142 money exchanges from taking part in its auctions. The Iraqi parliament’s finance committee found hundreds of examples of banks manipulating the auctions as well. In 2015 the U.S. warned that Iran was buying up dollars in Iraq to get around international sanctions and Syria has been involved as well. These are all reasons why Washington has pressured Iraq to tighten control over these transactions. The problem is Iraq lacks the political will to deal with this issue because the ruling parties profit from these businesses. This is far different from what the Wall Street Journal tried to convey. Without backing from the elite no rules will be effective as there is weak rule of law that is open to manipulation and corruption.
Bauer, Katherine and Levitt, Mathew, “Denying the Islamic State Access to Money-Exchange Houses,” Washington Institute for Near East Policy,” 2/3/16
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 Mada, “State of Law: Central Bank sales exceeding oil revenues and justifications are no longer compelling,” 2/2/16
Rubenfeld, Samuel, “With New Laws and Some Help, Iraq Turned Around Anti-Money-Laundering Problems,” Wall Street Journal, 2/28/19
United States Department of State, Bureau for International Narcotics and Law Enforcement Affairs, “International Narcotics Control Strategy Report, Volume II, Money Laundering and Financial Crimes,” March 2017.