FATF AML Deficiency List
Non - Compliance with FATF MER Recommendations
EU Commission's AML Def List
Supporter/Safe Haven of internationa terrorism
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average Score)
US Dept of State Money Laundering assessment
Weakness in Government Legislation to combat Money Laundering
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.
EU Commission’s list of AML/CFT deficient countries
On 13 February 2019, the EU Commission adopted a new list of 23 third countries that had been identified as having strategic deficiencies in their anti-money laundering and counter-terrorist financing frameworks as defined under the Fourth and Fifth Anti-Money Laundering Directives. Iraq has been included on this list. This list currently includes all countries currently on the FATF AML deficiency lists together with 11 additional jurisdictions.
It is noted that to date the EU Member States have declined to adopt this list. However, as this country has been identified as having AML deficiencies by the EU Commission, we have rated it accordingly.
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: -
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.
The UN, EU and US have arms embargos in place together with assets freezes targeted at all funds belonging to Saddam Hussein, senior members of his regime and their immediate family members
The Arab League (comprising 22 Arab member states), of which this country is a member, has approved imposing sanctions on Syria. These include: -
Cutting off transactions with the Syrian central bank
Halting funding by Arab governments for projects in Syria
A ban on senior Syrian officials travelling to other Arab countries
A freeze on assets related to President Bashar al-Assad's government
The declaration also calls on Arab central banks to monitor transfers to Syria, with the exception of remittances from Syrians abroad.
It should be noted that Lebanon and Iraq have refused to impose the sanctions.
The Arab League has also boycotted Israel in a systematic effort to isolate Israel economically in support of the Palestinians, however, the implementation of the boycott has varied over time among member states. There are three tiers to the boycott. The primary boycott prohibits the importation of Israeli-origin goods and services into boycotting countries. The secondary boycott prohibits individuals, as well as private and public sector firms and organizations, in member countries from engaging in business with any entity that does business in Israel. The Arab League maintains a blacklist of such firms. The tertiary boycott prohibits any entity in a member country from doing business with a company or individual that has business dealings with U.S. or other firms on the Arab League blacklist.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 21
World Governance Indicator – Control of Corruption 9
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
During 2015, worsening security and financial stability throughout Iraq - driven by an ongoing insurgency, decreasing oil prices, and political upheaval - decreased prospects for improving the country's economic environment and securing much-needed foreign investment. Long-term fiscal health, a strengthened investment climate, and sustained improvements in the overall standard of living still depend on a rebound in global oil prices, the central government passing major policy reforms, and finishing the conflict with ISIL.
Iraq's largely state-run economy is dominated by the oil sector, which provides more than 90% of government revenue and 80% of foreign exchange earnings. Oil exports in 2015 averaged 3.0 million barrels per day, up from 2014, but a failed revenue- and oil-sharing agreement with the Iraqi Kurdistan Region's (IKR) autonomous Kurdistan Regional Government (KRG) resulted in a loss of exports from northern oil fields. Moreover, falling global oil prices resulted in declining export revenues. Iraq's contracts with major oil companies have the potential to further expand oil exports and revenues, but Iraq will need to make significant upgrades to its oil processing, pipeline, and export infrastructure to enable these deals to reach their economic potential. The IKR's autonomous KRG passed its own oil law in 2007, and has directly signed about 50 contracts to develop IKR energy reserves. The federal government has disputed the legal authority of the KRG to conclude most of these contracts, some of which are also in areas with unresolved administrative boundaries in dispute between the federal and regional government. In December 2014, the federal government and the KRG agreed to sell oil exports from Kurdish-controlled oilfields under the federal oil ministry, in exchange for the central government paying $1 billion to the Kurdish Peshmerga forces and resuming budget transfers to the KRG that amount to 17% of Iraq's national budget. However, that deal fell apart in 2015.
Iraq is making slow progress enacting laws and developing the institutions needed to implement economic policy, and political reforms are still needed to assuage investors' concerns regarding the uncertain business climate. The Government of Iraq is eager to attract additional foreign direct investment, but it faces a number of obstacles, including a tenuous political system and concerns about security and societal stability. Rampant corruption, outdated infrastructure, insufficient essential services, skilled labor shortages, and antiquated commercial laws stifle investment and continue to constrain growth of private, nonoil sectors. Under the Iraqi constitution, some competencies relevant to the overall investment climate are either shared by the federal government and the regions or are devolved entirely to local governments. Investment in the IKR operates within the framework of the Kurdistan Region Investment Law (Law 4 of 2006) and the Kurdistan Board of Investment, which is designed to provide incentives to help economic development in areas under the authority of the KRG.
Inflation has remained under control since 2006. However, Iraqi leaders remain hard-pressed to translate macroeconomic gains into an improved standard of living for the Iraqi populace. Unemployment remains a problem throughout the country despite a bloated public sector. Encouraging private enterprise through deregulation would make it easier for Iraqi citizens and foreign investors to start new businesses. Rooting out corruption and implementing reforms - such as restructuring banks and developing the private sector - would be important steps in this direction.
Agriculture - products:
wheat, barley, rice, vegetables, dates, cotton; cattle, sheep, poultry
petroleum, chemicals, textiles, leather, construction materials, food processing, fertilizer, metal fabrication/processing
Exports - commodities:
crude oil 99%, crude materials excluding fuels, food, live animals
Exports - partners:
China 22.6%, India 21.1%, South Korea 11.2%, US 7.8%, Italy 6.7%, Greece 6% (2015)
Imports - commodities:
food, medicine, manufactures
Imports - partners:
Turkey 20.7%, Syria 19.6%, China 19.2%, US 4.8%, Russia 4.4% (2015)
Investment Climate - US State Department
The Government of Iraq (GOI) is currently facing the dual challenges of fighting the Islamic State of Iraq and the Levant (ISIL), or “Da’esh” as the terrorist group is referred to in the region, and the financial impact of declining world oil prices. The fall of oil prices drastically reduced Iraq’s revenues from oil exports, which account for more than 90 percent of the GOI’s revenue. The GOI is also confronting a humanitarian crisis as the conflict with Da’esh has resulted in over 3.3 million internally displaced persons (IDPs) since the beginning of 2014. As a response to its fiscal challenges, in August 2015 Prime Minister Haider al-Abadi publicly committed to a reform plan that includes reforming Iraq’s failing state owned enterprises (SOEs), fighting corruption, reducing bureaucratic bottlenecks, and investing in necessary infrastructure. To date, however, the reforms have been only partially implemented as major political parties have challenged Abadi’s reform agenda.
Da’esh’s capture of Mosul and parts of northern and western Iraq in June 2014 cut key domestic and international trade routes and contributed to slowing economic growth. In recent months, the Iraqi Security Forces and the international Coalition to Counter Da’esh, led by the United States, have achieved several military successes. The Iraqis have pushed Da’esh out of Diyala and most of Salah ad Din provinces and recaptured Tikrit in June 2015 and Bayji in October 2015. In Anbar Province the ISF has cleared Ramadi. The Kurdistan Regional Government’s (KRG) Peshmerga have retaken Sinjar and its environs. Security remains an impediment to investment in many parts of the country. However, the security situation varies throughout the country and is generally more stable in Iraq’s southern provinces and the Iraqi Kurdistan Region (IKR).
Despite the current security and fiscal challenges, Iraq has long-term potential for U.S. investment. Iraq has the fifth largest proven oil reserves in the world and needs tremendous reconstruction and infrastructure development. U.S. companies have opportunities to invest in security, energy, environment, construction, healthcare, agriculture, and infrastructure sectors. Iraq imports large volumes of agricultural commodities, machinery, consumer goods, and defense articles.
Government contracts and tenders – the source of many commercial opportunities in Iraq – are largely financed by oil revenues and therefore will remain limited until oil prices rebound. Increasingly, the GOI has asked investors to provide financing options and allow for deferred payments. Despite a slight increase in oil production and oil exports in 2015, revenues from oil sales have declined by around 30 percent in nominal terms due to lower oil prices. The 2016 budget passed by Parliament in December 2015 projects a $20.5 billion USD budget deficit, approximately 9 percent of GDP, based on Iraqi crude exports selling at $45 USD per barrel. In light of declining oil revenues, the GOI reached an agreement with the International Monetary Fund (IMF) for a Staff Monitored Program (SMP) in November 2015. The World Bank (WB) subsequently approved a $1.2 billion USD, one-year Development Policy Loan (DPL) for Iraq in December 2015.
Investors in Iraq continue to face significant challenges resolving commercial disputes, receiving timely payments, and winning public tenders. Potential investors should prepare to face significant costs to ensure security, cumbersome and confusing procedures, and long payment delays on some GOI contracts. Difficulties with corruption, customs regulations, cumbersome visa procedures, unreliable dispute resolution mechanisms, electricity shortages, and lack of access to financing are also common complaints from companies. Shifting and unevenly enforced regulations create additional burdens for investors. The GOI currently operates 176 SOEs, a legacy from decades of statist economic policy.
Investors in the IKR face many of the same challenges as investors elsewhere in Iraq, but a business-friendly investment law and a traditionally more stable security situation are generally more attractive to foreign businesses. However, in 2015, the Da’esh offensive, low oil prices, and suspended budget transfers from the GOI to the IKR have dampened foreign investment.
The U.S. government and the GOI are seeking to address impediments to trade and investment through bilateral economic dialogue mechanisms provided under the U.S.-Iraq Strategic Framework Agreement and the Trade and Investment Framework Agreement. The American Chamber of Commerce in Iraq (AmCham-Iraq), re-launched in October 2015 with the U.S. Embassy’s support, also provides a platform for commercial advocacy for the U.S. business community operating in Iraq.
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