Iraq – Know Your Customer (KYC) Rules

 

 

Iraq‘s economy is primarily cash-based, and there is little data available on the extent of money laundering in the country. Smuggling is endemic, often involving consumer goods, cigarettes, and petroleum products. Bulk cash smuggling, counterfeit currency, trafficking in persons, and intellectual property rights violations are major problems. Ransoms from kidnappings and extortion are often used to finance terrorist networks. Credible reports of counterfeiting abound. Trade-based money laundering, customs fraud, and various means of value transfer are found in the underground economy. Hawala networks, both licensed and unlicensed, are widely used for legitimate and illicit purposes. Corruption is a major challenge and is exacerbated by weak financial controls in the banking sector and weak links to the international law enforcement community. U.S. dollars are widely accepted and are used for many payments made by the U.S. government, as well as foreign assistance agencies and their contractors.

Iraq has four free trade zones (FTZs): the Basra/Khor al-Zubair seaport; Ninewa/Falafel area; Sulaymaniyah; and al-Qaim, located in western Al Anbar province. Under the Free Trade Zone Authority Law, goods imported or exported from the FTZs are generally exempt from all taxes and duties, unless the goods are to be imported for use in Iraq. Additionally, capital, profits, and investment income from projects in the FTZs are exempt from taxes and fees throughout the life of the project, including the foundation and construction phases. Value transfer via trade goods is a significant problem in Iraq and the surrounding region. Iraq is investigating the application of a new customs tariff regime.

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KNOW-YOUR-CUSTOMER (KYC) RULES:

 

Enhanced due diligence procedures for PEPs:

 

PEP is an abbreviation for Politically Exposed Person, a term that describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person. The terms PEP, Politically Exposed Person and Senior Foreign Political Figure are often used interchangeably

    • Foreign PEP: NO
    • Domestic PEP: NO

Iraq – KYC covered entities

 

The following is a list of Know Your Customer entities covered by Iraqi Law:

    • Banks
    • Investment fund managers
    • Life insurance companies and those which offer or distribute shares in investment funds
    • Securities dealers
    • Money transmitters, hawaladars, and issuers or managers of credit cards and travelers checks
    • Foreign currency exchange houses
    • Asset managers, transfer agents, investment advisers, securities dealers
    • Dealers in precious metals and stones

Iraq – Suspicious Transaction Reporting (STR) Requirements:

 

Number of STRs received and time frame: 43 in 2011

Number of CTRs received and time frame: 1,320 in 2011

The following is a list of STR covered entities covered by Iraqi Law:

    • Banks
    • Investment fund managers
    • Life insurance companies and those which offer or distribute shares in investment funds
    • Securities dealers
    • Money transmitters, hawaladars, and issuers or managers of credit cards and travelers checks
    • Foreign currency exchange houses
    • Asset managers, transfer agents, investment advisers, securities dealers
    • Dealers in precious metals and stones

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

 

Prosecutions: None
Convictions: None

 

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Although the only anti-money laundering statute in Iraq, CPA Law 93, AML Act of 2004, is broad enough to reach even beyond serious crime, the criminalization under CPA Law 93 is only that of a misdemeanor. Iraq does not prosecute cases under this law because the law does not effectively criminalize money laundering.

Iraq‘s legal framework needs to be strengthened, either by amendment or by drafting of new AML/CFT legislation. Iraqi ministries need to support a viable AML/CFT regime with cooperation across ministries. Investigators, prosecutors, and judges all need support from their leadership to move more aggressively in pursuing AML/CFT cases. Prosecutors and investigators are frustrated when judges do not pursue their cases; similarly, judges claim the cases they receive are of poor quality and not prosecutable. Senior-level support and increased capacity for all parties are necessary to ensure AML/CFT cases can be successfully prosecuted in Iraq. In addition, the lack of implementing legislation, weak compliance enforcement by the Central Bank of Iraq (CBI), and the lack of support to the Money Laundering Reporting Office (MLRO), Iraq‘s financial intelligence unit, undermine Iraq‘s ability to counter terrorist financing and money laundering.

The CBI generally does not support the MLRO. The MLRO has adequate staffing but lacks training, computer equipment, and software to receive, store, retrieve, and analyze data from the reporting institutions. Without a database, the MLRO staff must process the data received manually. The MLRO is empowered to exchange information with other Iraqi and foreign government agencies. Historically the MLRO received little support from Iraqi law enforcement, but that changed in 2011 because the MLRO has added value to many of their investigations. The Government of Iraq should ensure the MLRO has the capacity, resources, and authorities to serve as the central point for collection, analysis, and dissemination of financial intelligence to law enforcement and to serve as a platform for international cooperation.

Regulation and supervision of the formal and informal financial sectors are still quite limited and enforcement is subject to political constraints, resulting in weak private sector controls. In practice, despite customer due diligence requirements, most banks open accounts based on the referral of existing customers and/or verification of a person‘s employment. Actual application of the rules varies widely across Iraq‘s 45 state-owned and private banks. Also, rather than file STRs in accordance with the law, most banks either conduct internal investigations or contact the MLRO, which executes an account review to resolve any questionable transactions. In practice, very few STRs are filed.

Iraq should become a party to the UN Convention for the Suppression of the Financing of Terrorism.