BAGHDAD (AP) — Auditors in Iraq have uncovered a massive scheme in which a network of businesses and officials embezzled about $2.5 billion from the country’s tax authority, despite layers of safeguards.
The scandal poses a first test for Iraq’s new government, which was formed late last month after a prolonged political crisis. Prime Minister Mohammed Shia al-Sudani has vowed to crack down on corruption, but few expect senior officials or political leaders to be held accountable.
The scale of the embezzlement is remarkable, even for an oil-rich country where corruption has been rampant for decades. Transparency International, a global watchdog, ranked Iraq 157th out of 180 countries in its 2021 Clean Governance Index.
The auditors’ report, obtained by the Associated Press and first reported by the Guardian, suggests the theft was orchestrated by a large network of officials, civil servants and businessmen. In Iraq’s deeply entrenched patronage system, such individuals often have ties to powerful political factions.
“It was a very organized and concerted theft trial,” said Jamal al-Asadi, a legal expert and retired judge familiar with corruption cases.
Three officials confirmed details of the scheme to the PA. All spoke on condition of anonymity, fearing reprisals.
The scheme came to light last month when an internal audit of the Finance Ministry alleged that the General Commission on Taxes – Iraq’s Internal Revenue Service – had fraudulently paid about 3.7 trillion Iraqi dinars, or about $2.5 billion, to five companies.
The payments were made via 247 cashed checks between 9 September 2021 and 11 August this year, from a branch of the state-owned Rafidain bank located within the tax commission.
The account contained billions of dollars in deposits made by companies that were supposed to be returned to them after taxes were deducted and the companies filed updated financial statements. The five companies were reportedly fraudulently withdrawn from refunds without depositing anything.
An audit was initiated by then interim finance minister, Ihsan Abdul Jabbar, who also served as oil minister. He discovered the theft after receiving complaints from an oil company unable to recover its tax deposits, according to a senior official close to the investigation.
When the minister inquired about the remaining balance on the account, the tax authority said it held about $2.5 billion, but a further inspection revealed the actual balance had been reduced to $100 million, the official said. .
This was the first indication of the massive theft. A subsequent audit presented to the parliament’s finance committee revealed the rest. The AP obtained a copy of that report this week.
Well before the audit, the bank’s anti-money laundering department had expressed concern to the finance ministry about the high volume of cash withdrawals. Abdul Jabbar’s predecessor, former finance minister Ali Allawi, had asked his office to approve any large levies, but key executives at the tax authority ignored the request, the official said.
Allawi resigned in August in protest against corruption and foreign interference in Iraqi affairs.
Weeks before the first checks were cashed, authorities removed a key layer of oversight, ostensibly because businesses complained of long wait times. The decision to remove the Federal Board of Supreme Audit from the process was triggered by a request from lawmaker Haitham al-Jibouri, who then headed the parliamentary finance committee.
The audit found that the companies, three of which were set up just weeks before payments were due, submitted false documents in order to claim payments. The auditors were unable to follow up on the money further because it was withdrawn in cash.
“There is no doubt that these sums have been stolen,” the report concludes.
The findings suggest that a large network of tax officials and businessmen must have conspired.
The application process requires lengthy paperwork and the approval of at least three departments within the tax authority, as well as the director and deputy director of the finance department. Rafidain Bank contacted the tax authority to verify the checks before cashing them, as it was required to do.
But the money has disappeared nonetheless, and it’s unclear who, if anyone, will ultimately be held accountable.
Nour Zuhair Jassim, a well-connected businessman, was arrested in late October at Baghdad International Airport. He has been named CEO of two of the companies and has gotten more than $1 billion from the account, according to the audit. His attorney did not respond to a request for comment.
Two tax authority officials were also arrested, and the judiciary says they seized several properties and assets worth millions of dollars.
But officials say it is unlikely that an embezzlement scheme of this magnitude could unfold without the knowledge of superiors.
Political factions in Iraq have long fought for control of ministries and other government bodies, which they then use to provide jobs and other favors for their supporters. Different factions are connected to different government bodies involved in the tax regime.
The current government only met at the end of October, more than a year after the early elections. Quarrels between powerful factions escalated into deadly street fighting earlier this year, and the largest party in parliament, led by an influential Shiite cleric, was handed over to the opposition.
Any attempt to hold political leaders accountable for the fraud could spark further turmoil.