FATF Status

Iraq is no longer on the FATF List of Countries that have been identified as having strategic AML deficiencies

Latest FATF Statement  -  29 June 2018

The FATF welcomes Iraq’s significant progress in improving its AML/CFT regime and notes that Iraq has established the legal and regulatory framework to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in October 2013. Iraq is therefore no longer subject to the FATF’s monitoring process under its ongoing global AML/CFT compliance process. Iraq will work with MENAFATF to improve further its AML/CFT regime.

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Iraq was undertaken by the Financial Action Task Force (FATF) in 2013. According to that Evaluation, Iraq was deemed Compliant for 2 and Largely Compliant for 1 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for all 6 of the Core Recommendations.

US Department of State Money Laundering assessment (INCSR)

Iraq was deemed a Jurisdiction of Primary Concern by the US Department of State 2017 International Narcotics Control Strategy Report (INCSR) but has not been included since. Key Findings from the last report are as follows: -

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OVERVIEW

Iraq’s economy is primarily cash-based and its financial sector is severely underdeveloped. Iraq has about 2,000 financial institutions, most of which are money exchange houses.  Although Iraqi law prohibits these entities from transferring funds outside of Iraq, some probably conduct cross-border transfers. U.S. dollars are widely accepted. Iraqi law enforcement and bank supervisors have made progress in their capabilities to detect and halt illicit financial transactions mostly due to a 2015 AML law. However, the illicit use of some currency exchange networks and the weak compliance capabilities of the banking sector leave the Iraqi financial sector susceptible to abuse.

Smuggling is endemic, often involving consumer goods. Bulk cash smuggling is likely common, in part because Iraqi law only allows for the seizure of funds at points of entry, such as border crossings and airports. Narcotics trafficking occurs on a small scale.  Corruption is pervasive at all government levels and is widely regarded as a cost of doing business in Iraq.

Iraqi authorities have been making strides in combatting money laundering, but almost all of the progress is connected to terrorist financing. Investigations into financial gains from political corruption or other actors remain virtually nonexistent.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           23

World Governance Indicator – Control of Corruption              11

Corruption in the public and private sectors carries very high risks for businesses investing in Iraq. Companies can expect to contend with several forms of corruption, including a deeply entrenched patronage network. Investors may also face pressure to take on well-connected local partners to avoid bureaucratic hurdles. The government of Iraq is facing several obstacles including corruption and security challenges, and political and humanitarian crisis, rendering the state very fragile. The Accountability Act criminalises corrupt acts such as passive and active bribery, abuse of office and extortion, but the Iraqi government failed to implement anti-corruption laws effectively and public officials engage in corruption with impunity. Bribery and giving gifts to ‘get things done’ are widespread practices in Iraq, despite being illegal. For further information - GAN Integrity Business Anti-Corruption Portal

The formation of a government in October 2022, a year after elections were held, initiated a new stage in the evolution of Iraq’s investment climate. The Government of Iraq (GOI) continues to dominate Iraq’s economy, with oil exports serving as the basis of Iraq’s GDP. Prime Minister Mohammed Shiaa al-Sudani has stressed his government’s openness to doing business with U.S. and other Western firms and has taken some positive steps in that regard. Nevertheless, the Iraqi bureaucracy, legal and regulatory obstacles, and corruption—investment climate features that persist despite changes in government leadership—pose many obstacles to doing business in Iraq. Additionally, officials who favor commercial relations with Iranian, Chinese, or other non-Western companies or governments are found in positions of authority throughout the GOI.

The security environment, including the threat of resurgent extremist groups, remains an investment impediment in many parts of the country. Many militia groups that participated in the fight against ISIS remain deployed and are only under nominal government control. Militia groups have been implicated in a range of criminal and illicit activities, including extortion, in commercial sectors.

Investors in Iraq face challenges resolving contract disputes and receiving timely payments from Iraqi partners, including GOI entities. Difficulties with corruption, business registration, customs regulations, irregular and high tax liabilities, unclear visa and residency permit procedures, arbitrary application of regulations, lack of alternative dispute resolution mechanisms, electricity shortages, and lack of access to financing remain common complaints for local and foreign companies operating in Iraq. Shifting and unevenly enforced regulations that often change with each new government create additional burdens for investors.

Despite these challenges, the Iraqi market offers potential for U.S. exporters.  Iraq regularly imports rice, wheat, and other agricultural commodities, as well as machinery, consumer goods, and defense articles. Iraq imported $949.9 million in goods from the United States in 2022.  Government contracts and tenders are the source of most commercial opportunities in Iraq in all sectors, including the significant oil and gas contracts, and have been financed almost entirely by oil revenues.  Increasingly, the GOI has asked investors and suppliers to provide financing solutions and allow for deferred payments.

Water scarcity and management challenges are significant concerns, and the salinization of water and soils, desertification, and the disappearance of arable land are existential environmental concerns connected to poor resource management and climate change. These challenges also represent economic opportunities in Iraq, which needs investments in green and renewable energy, modern irrigation systems, and the infrastructure to capture flared gas.

In part because of the Russia-Ukraine war, Iraq has sold oil at a stable price of over $70 per barrel for the past year. The supply shock provoked by the blockade of Ukrainian exports, coupled with record price levels for basic commodities, caused several nations to adopt export restrictions, fueling market shocks and speculative operations and leading to unpredictability in global food supply. Those shocks have affected Iraq’s economy, including by increasing inflation of basic consumer goods.

Iraq’s oil industry needs investment to maintain production. The GOI has not made significant investments in the oil and gas sector in much of Iraq for over 30 years. There are immediate opportunities to improve Iraq’s electricity sector and to supply sufficient natural gas to power plants to meet the ever-growing demand for power. Iraq has the potential to become energy independent if it follows this path. In the Iraqi Kurdistan Region (IKR), tensions with the central government in Baghdad put development of the hydrocarbons sector at risk. Resolution of those issues would open significant opportunities for additional investment, especially with respect to extensive gas deposits.

Higher oil prices have supported Iraq’s economic recovery, but the recovery of Iraq’s oil-dependent economy remains vulnerable to shocks from market volatility. Inflation hovered around five percent throughout most of 2022.

While investors in the semi-autonomous IKR face many of the same challenges as investors elsewhere in Iraq, the IKR’s more stable security situation, investment-friendly legal framework, and relative openness have historically resulted in a more permissive investment environment for U.S. firms and franchises. However, ongoing disputes with the central government over revenue sharing and the hydrocarbons sector, tensions between the IKR’s main political factions, domination of the economy by politically powerful families, and significant payment arrears to foreign companies on public contracts are all causes for concern. IKR oil, which in recent years the Kurdistan Regional Government (KRG) has exported via the Iraq-Turkey Pipeline (ITP) independent of GOI oversight, typically sells at below prevailing market prices, due to uncertainty relating to the legality of these sales. On March 24, the International Chamber of Commerce International Court of Arbitration (ICC ICA) issued a decision declaring Turkey’s facilitation of independent KRG oil exports to have violated an Iraq-Turkey treaty, resulting in suspension of exports via the ITP. On April 3, the GOI and KRG signed a temporary deal to restart oil exports through the ITP. The IKR-based American Chamber of Commerce – Kurdistan is growing and developing its capacity to advocate for improvements to KRG business processes and transparency.

Country Links

Iraq Securities Commission

Iraq Central Bank