Iraq reels from $2.5 billion in taxes ‘robbery of the century’

For almost a year, armored vehicles carrying hundreds of thousands of Iraqi dinar bills have been driving through Baghdad’s busy streets every week.

The trucks, loaded with taxpayers’ money siphoned off by state bank Rafidain, reportedly drove through in broad daylight in what has since been dubbed Iraq’s “heist of the century.”

In all, according to the Treasury Department, between September 2021 and August 2022 an alleged $2.5 billion was whisked away from the country’s tax agency, in a massive corruption scandal that has roiled Iraq’s corridors of power since it erupted last month.

The scandal erupted days before new Prime Minister Mohammed Shia’ al-Sudani’s government was sworn in, and he said his government would prioritize tackling corruption that “has spread so brazenly through the joints of the state and its institutions.” “. He has begun publicly purging followers of former Prime Minister Mustafa al-Kadhimi.

But Sudani, reportedly an independent backed by some of the factions allegedly involved in the scandal, may struggle to hold senior members of Iraq’s political establishment to account.

“The debt and the liabilities go all the way up,” said Sajad Jiyad, a Baghdad-based Century Foundation grantee. “It affects many high-level actors, including ministers and ex-ministers, civil servants and well-connected business people. So this is a political issue – we will see how far Sudani can go.”

Corruption in Iraq is endemic and has destroyed state institutions sanctioned by a political class that has ruled the country since the ouster of former President Saddam Hussein in 2003. The ethno-sectarian arrangement, designed to encourage power-sharing, has instead established a system of horse-trading between factions competing for top positions in government and sources of patronage within ministries.

This latest fraudulent scheme is designed to reach deep into the arteries of Iraq’s powerful but conflicting Shia political factions, most of which banded together this summer to appoint Sudan’s prime minister.

The new government is dominated by blocs linked to Iran, known as the Framework of Coordination, and its affiliated militias, which fought loyalists to rival Shia cleric Muqtada al-Sadr this summer as both sides jostled for control of forming a government . Five people with knowledge of the investigation said the latest scandal raised suspicions on both sides.

The scale of the fraud involving the IRS, Central Bank and Treasury became clear when the Treasury announced the results of an internal investigation. It turned out that from September 2021 to August 2022, about 250 checks were made out to five companies. They then withdrew funds held in escrow intended to cover annual liabilities in state-owned bank Rafidain accounts, which were controlled by the tax authority.

In a public letter after the embezzlement was exposed, ex-Finance Minister Ali Allawi said he informed Kadhimi’s office of the scheme in November 2021 and ordered payments from the accounts to stop without his consent, but payments continued. A former senior adviser to Kadhimi said the prime minister’s office had seen no “official correspondence” from Allawi about the scam.

The companies said they were acting on behalf of larger firms, including several international oil companies, the ministry said. Three of the companies were formed in the month before the program began, four people with knowledge of the investigation said.

In all, the ministry said 3.7 trillion Iraqi dinars ($2.5 billion) were withdrawn from accounts at Rafidain — or about 2.81 percent of the country’s 2021 budget. Some of the cash was then used to to buy US currency through the daily “dollar auction” – a process by which the central bank provides dollars to a commercial bank in exchange for Iraqi dinars.

Three people with knowledge of Iraq’s banking sector said the central bank and Rafidain must both have known about the scheme given the higher-than-usual rise in dollars bought at auction and the large amounts withdrawn. They also said the sheer volume of cash moved daily in Baghdad would have required armored trucks, embroiling government security agencies.

“This is outrageous even by Iraqi standards,” said a banking industry source. “There is simply no way anyone could have noticed that such large amounts were being withdrawn.”

So far, the judiciary has imposed travel bans on nine named suspects, including five high-ranking officials from the Internal Revenue Service and the Treasury Department, as well as company directors.

One of them, Nour Zuhair Jassim, was detained on the tarmac while attempting to leave Baghdad on a private jet. Six people with knowledge of the investigation say Jassim is the prime suspect and the judiciary is looking into his links to Kadhimi aides, Sadrists and Coordination Framework leaders, including former Prime Minister Nouri al-Maliki and paramilitary strongman Hadi Al-Amiri. At least one of Kadhimi’s advisers has been summoned for questioning by the judiciary.

Investigators are also questioning the role of senior central bank and Treasury officials. Allawi declined to comment on this story. Directors of the Treasury Department and the central bank’s media offices did not respond to a request for comment.

The former senior Kadhimi adviser denied any involvement of the ex-prime minister, his close associates and his former oil and finance ministers in the corruption scheme. The political wing of the Sadrist movement did not respond to a request for comment. The Secretary-General of the Coordination Framework declined to comment.

The investigation is already being used to settle bills, analysts said. “Those who are corrupt and powerful thrive by using their power to target those who are weaker: often anti-corruption mechanisms are the political tool used in combating them,” said Renad Mansour, director of the Iraq Initiative at Chatham House.

In a system steeped in corruption and self-interest, investigations are likely to stall, analysts said. Jiyad added: “It is not unrealistic to expect that some heads will roll at the banks and then the problem will quietly go away. That seems to me the obvious game plan for the political elite, which will return to its old ways.”

Ultimately, the alleged involvement of so many competing political factions in Iraq shows their willingness to continue to band together for financial gain. “Corruption in Iraq is the political system,” Mansour said.

https://www.ft.com/content/2f3067f1-fb59-4e29-a462-b8b9c12d86d5 Iraq reels from $2.5 billion in taxes ‘robbery of the century’

Adam Bradshaw

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