Iraq bank moves to allay laundering fears

Monday, Apr 02, 2012

Iraq’s central bank has tightened its clampdown on its sales of dollars amid fears that buyers are using them to launder money and skirt international sanctions on neighbouring Iran and Syria.

Spooked by surges in demand for greenbacks over the past few months, the bank on Monday unveiled new rules to force customers to prove their identities by supplying tax records and import licences.

The second crackdown… in two months on Iraq’s freewheeling foreign exchange market highlights how the erosion of economic controls by almost 10 years of conflict and foreign occupation has taken on wider significance amid conflicts in the region.

“Iraq is liberal and the two countries next door are under sanctions,” Mudher Salih Kasim, central bank deputy governor, said in an interview. “You can see the consequences are very bad: this is spillover.”


Mr Kasim said the government was worried that increases in demand for dollars to as high as between $400m and $450m a day – more than double what one private sector banker estimates as the legitimate need – were due to criminality and Iraqi middle men settling debts on behalf of clients in Iran and Syria.

The new rules will compel all commercial buyers of dollars at the central bank’s near-daily auctions to produce tax clearance certificates and – from June 30 – papers to prove they are allowed to import the goods they say they are using the money to buy.


The tax document requirement – which previously applied only to orders of $50,000 and above – is part of a wider government effort “to see the real people who access the dollars”, Mr Kasim said. He added that a rule change in February requiring dollar buyers to pay by cheque rather than cash had largely failed because publicity-shy purchasers were simply hiring third parties such as “porters from the street” to open bank accounts on their behalf.

Dollar demand spiked again on Monday at about $380m – of which the bank paid out just under $220m – in what may have been a rush to beat the new rules before they are implemented fully later this week.

One western diplomat said there were worries internationally about the potential for loosely monitored dollar trading in Iraq to “prop up certain regional economies”. “There are broader concerns about criminality,” he said. “But we care more about Iran and Syria.”

Some analysts say the link with Iran and Syria is speculative and point to other possible reasons for the dollar demand, including hoarding and capital flight in the days before and after December’s withdrawal of US forces.

The central bank also has an economic vested interest in holding daily dollar sales at $200m or below, in order not to deplete the country’s foreign currency reserves.

Whether the bank’s latest efforts to damp dollar demand will be any more effective than their predecessors is debatable, in a country where the enforcement power and legitimacy of state institutions have been worn down by Saddam Hussein’s dictatorship, the US occupation and sectarian war.

In the capital’s Karada district, the foreign exchange dealers whose bureaux are sprinkled among juice bars and fashion shops differed over whether dollars were going to Iran and Syria, but agreed US currency buyers would always find a way to avoid scrutiny.

Speaking before the latest rule shift, Abu Hussain, a dealer, flourished a document that showed six applications by his customers for amounts just under the $50,000 tax certificate identification ceiling. Three said they needed the money for medical treatment and three for tourism – expensive holidays indeed for citizens of a country where gross domestic product per person was projected by the International Monetary Fund to be less than $3,000 last year.

Asked if he thought the applications were genuine, Mr Hussain said: “Of course it’s not for tourism and medication. They have business to do.”

In a shop down the road, a dealer sitting next to a huge wall-mounted picture of a $100 bill predicted the essential anonymity of his business would remain undisturbed.

“The person who comes to me asking for dollars – I can’t ask where he’s taking the money to,” he said, adding with a smile: “Terrorists are being smuggled into Iraq: Don’t you think it will be a lot easier to smuggle money out?”

By Michael Peel in Baghdad