Endemic corruption in the Iraqi public sector. Can anti‐money laundering measures provide the cure?
| Date | 05 October 2012 |
| Published date | 05 October 2012 |
| Pages | 458-482 |
| DOI | https://doi.org/10.1108/13685201211266033 |
| Author | Deniz Tas |
| Subject Matter | Accounting & finance |
Endemic corruption in the Iraqi
public sector
Can anti-money laundering measures provide
the cure?
Deniz Tas
Associate, Clifford Chance, Sydney, Australia
Abstract
Purpose – The purpose of this paper is to determine whether anti-money laundering measures are
capable of providing a solution to the growing problem of public sector corruption in Iraq and, if so,
the extent to which changes are required to the current Iraqi AML regime to enhance its effectiveness
against such corruption.
Design/methodology/approach – This paper will initially explore the growing problem of public
sector corruption in Iraq and the measures taken to address such corruption. Subsequently, the
corruption-money laundering relationship and the ability of AML measures based on prevailing
international standards to serve as an anti-corruption tool will be analysed. Finally, the current Iraqi
AML regime will be examined to observe whether and to what extent changes are required to enhance
its effectiveness against public sector corruption.
Findings – Considering the widely acknowledged nexus between corruption and money laundering,
a robust AML regime can be effectively utilised by Iraq to combat endemic public sector corruption.
This regime must involve a system where financial institutions at their own expense monitor
transactions and file suspicious transaction reports with the Iraqi Money Laundering Reporting Office.
This, in turn, must identify cases from those suspicious transaction reports that require further
investigation by Iraqi anti-corruption bodies and other law enforcement authorities, who should be
empowered to investigate, freeze, seize and confiscate the suspected corrupt proceeds. Such a regime
would provide a clear avenue for the obtaining of financial intelligence capable of exposing corruption,
thereby addressing the fundamental issue presently encountered by Iraqi anti-corruption bodies.
Amendments are, however, needed to Iraqi anti-money laundering laws to enhance their effectiveness
in combating public sector corruption. Most importantly, financial institutions must be required to
apply enhanced customer due diligence measures to domestic politically exposed persons.
Research limitations/implications – This paper is a result of a remote analysis of material
published in relation to the subject matter of the paper. Local and regional analysis (e.g. including
interviews with the relevant agencies) would be required to confirm the practicality of the propositions
made in the paper. Further, the draft version of the revised Iraqi anti-money laundering law was not
examined in an in depth manner due to the uncertainty in its status, including, in particular, whether it
has been submitted to the Council of Representatives for approval.
Originality/value – Although the topics of corruption in Iraq, the Iraqi AML regime and the
corruption-money laundering relationship have been the subject of academic analysis, the related
topics have not collectively been examined to determine whether, and to what extent, the Iraqi AML
regime can address the rapidly growing problem of public sector corruption in Iraq. Accordingly, the
findings in this paper will be of interest to Iraqi lawmakers, Iraqi law enforcement agencies, Iraqi
financial institutions and investors in Iraq, particularly in the oil and gas industry.
Keywords Iraq,Corruption, Anti-money launderingmeasures, Investment,Politically exposedpersons,
Financial institutions, Money laundering,Laws
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
This paper was submitted as part of the Master of Laws program at the University of Sydney.
JMLC
15,4
458
Journal of Money Laundering Control
Vol. 15 No. 4, 2012
pp. 458-482
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685201211266033
I. Introduction
Public sector corruption is endemic in Iraq, particularly among senior public officials,
and has the potential to threaten the economic development and good governance of the
country (Sharman and Chaikin, 2009). This concern is heightened by the fact that,
despite corruption being criminalised under the laws of Iraq, Iraq having acceded to the
United Nations Convention against Corruption (“UNCAC”)[1], and numerous bodies
having been established to investigate and present for prosecution cases of public secto r
corruption, the occurrence of such corruption has worsened since the overthrow of the
Saddam Hussein regime.
The inability to curb increased corruption is largely attributable to the lack of access
anti-corruption bodies have to Iraqi ministries for the purposes of investigating
allegations of corruption, making investigations reliant on information voluntarily
provided by the ministry against which the corruption is alleged. Clearly, such a system
of information gathering is flawed. It is therefore imperative that an alternative method
is identified by which information exposing public sector corruption can be obtained.
The closeaffinity between corruptionand money laundering suggeststhat anti-money
laundering (“AML”) measures may be capable of being productively utilised as an
anti-corruptiontool. First, AML measurespotentially addressthe concern encountered by
Iraq’s anti-corruption bodies as they facilitate the gathering of information exposing
corruption without requiring access to the ministry within which the corrupt official is
located, but rather by relying on financial institutions to monitor their customers and
report where they suspect a customer’s transaction involves corrupt proceeds. AML
measures also provide competent authorities with additional powers such as freezing,
seizing and confiscating corrupt proceeds, which may create a stronger disincentive for
public officials to engage in corruption than its criminalisation.
This paper will initially elucidate the growing problem of public sector corruption in
Iraq and the measures taken to date to address such corruption. Subsequently, the
corruption-money laundering relationship and the ability of AML measures based on
prevailing international standards to serve as an anti-corruption tool will be analysed.
Finally, the current Iraqi AML regime will be examined to observe whether and to what
extent changes are required to enhance its effectiveness against public sector corruption.
II. Public sector corruption: a growing problem
Corruptionis considered to encompass a varietyof activities “from pettybribery to grand
corruption, private sector insider trading to public sector embezzlement” (Chaikin and
Sharman, 2009, p. 8). Transparency International currently defines theterm expansively
as “the abuse of entrusted power for private gain” (Transparency International, 2011),
whichextends to private sector corruptionas well as public sector corruption(Chaikin and
Sharman, 2009, p. 8). UNCAC, to which Iraq acceded on 17 March 2008 (United Nations
Office on Drugsand Crime, 2011), is more preciseas it enumerates the activitiesthat may
constitute corruption, including:
.the active and passive bribery of domestic and foreign public officials and
officials of public international organisations[2], with active bribery referring to
the payment of a bribe and passive bribery referring to the receipt of the bribe
(Chaikin and Sharman, 2009, p. 8);
.the embezzlement, misappropriation or other diversion of property by a public
official[3];
Corruption in the
Iraqi public
sector
459
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