Amina al-Dahabi writes: A prominent economic official in the Iraqi government said that out of the 33 private Iraqi banks operating in the country, 29 were under investigation on charges of corruption and money laundering.
The economic adviser to the prime minister, Mazhar Mohammad Saleh,considers this phenomenon to be a major loss in the private financial sector, on which the recovery of Iraq’s economy was based. Saleh said the high number of banks under investigation was due to the government’s absence in private financial administration, and to the weakness of cash credit, pushing banks to look for profit-making operations that are often nonfinancial. He said the audit policy of the Central Bank changed after 2003 from compliance auditing to preventive auditing.
Saleh said the lack of credit ratings in banks led to the decrease of trust in the credit-worthiness of private banks. A third party, a specialized international company, usually conducts such operations, which would later be adopted by the Central Bank.
Former staff members of banks who were trained in both Rafidain and Rasheed banks and who were still working in the private banking sector until recently were laid off from private banks. The new CEOs that took over started meeting the demands of major shareholders leading illegal operations. Inexperiened CEOS contributed to the charges.
The Banking Act issued by the Central Bank in March 2004 prevents private banks from entering or participating in investment operations and even owning more property than they need.
Banks used capital from unknown sources and thus laundered money that was not subject to taxes. Funds from abroad and others from local unknown sources began entering private banks. The owners of that money even dominated certain departments in banks and controlled the auction sales of US dollars practiced by the Central Bank, while they exploited that money for personal benefits.
Banks also falsified the documents of the money’s destination, in cooperation with influential figures inside and outside Iraq.
Finding out about financial corruption and illegal trading comes too late, as the banks’ audits are received by the Central Bank a month after the initial operations are conducted, and starts auditing these previous operations for another month. This means that two months will have passed since the start of the audit operations and by then, the funds will have probably reached their final destination, which could be anywhere in the world.
To solve this major issue, Souri urges the Central Bank to adopt a comprehensive, technological banking system, which guarantees real-time control of funds and simultaneous access to information, in both the public and private banking sector.
