Middle East & North Africa
Iraq risk report
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 criminalizes 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.
Judicial system Very high risk
Iraq's judicial system presents business with high risks as the institution is plagued by corruption and political interference (HRR 2016). More than a quarter of Iraqis believe the institution is corrupt (GCB 2013). There were reports of investigations of corrupt judges, yet most were reportedly politically motivated (HRR 2016). Corruption also influenced authorities’ willingness to respect court orders: Interior Ministry and Justice Ministry employees often extorted bribes from detainees to release them even if the courts had already accorded them the right to be released. On a more positive note, the government appointed in 2015, 34 new judges across the country and 19 integrity judges to Baghdad courts, while the Baghdad Integrity Court announced that it was investigating several corruption cases involving high-ranking officials, yet no court decisions were made public (HRR 2016).
Unlike international arbitration, domestic arbitration is well-established in Iraq (BTI 2016); however, the law is inconsistently applied in practice, and dispute resolution mechanisms are non-transparent and unreliable (ICS 2016). The judiciary is slow and lacks resources and training (HRR 2015); commercial cases can drag on for months or even years (ICS 2016). Iraq's government has created special commercial courts in Baghdad, Najaf, and Basrah for disputes involving foreign investors. These courts have been able to adjudicate commercial cases in as little as 30 days (ICS 2016). The enforcement of contracts is problematic due to unclear regulations, lack of decision-making authority and corruption (ICS 2016). It takes approximately 34 days and nine procedures to enforce a contract in Iraq; an average that is higher than the regional one (DB 2017). Iraq is a signatory to the League of Arab States Convention on Commercial Arbitration and the Riyadh Convention on Judicial Cooperation but has not signed the New York Convention of 1958 and is not a party to the International Centre for the Settlement of Investment Disputes (ICSID).
Police Very high risk
The police carry high corruption risks for companies. Petty corruption is widespread amongst officers and generally undermined the effectiveness of the institution (U4 Anti-Corruption Resource Center 2015). One-third of Iraqi households believe the police is corrupt, with approximately the same average reporting to have paid a bribe to police services (GCB 2013, U4 Anti-Corruption Resource Center 2015). Corruption and impunity are cited as serious problems within Iraq's security apparatus and investigations or prosecutions of abuses and corruption of security forces were not publicly available (HRR 2016). Corruption within the security apparatus is cited as one of the main reasons contributing to the security challenges the country is facing today (U4 Anti-Corruption Resource Center 2015). Systems of patronage are also found within the police force; officers sometimes obtain positions through bribing politicians (U4 Anti-Corruption Resource Center 2015). Companies investing in Iraq face high security costs (ICS 2016).
Public services Very high risk
The public services sector carries high corruption risks for business. Iraq's public administration is described as corrupt, weak and inefficient (BTI 2016). The institution is plagued by nepotism, politically motivated appointments, and payroll corruption in the form of ‘ghost employees’, hampering efficiency and credibility (BTI 2016). Almost a third of surveyed household report to have paid a bribe in return for obtaining registry and permit services (U4 Anti-Corruption Resource Center 2015).
Iraq's regulatory environment is opaque, particularly discouraging for SMEs (ICS 2016). Companies complain of excessive red tape and cumbersome and confusing bureaucratic procedures, and businesses may be pressured to take on well-connected local partners to avoid these hurdles (ICS 2016). Shifting and inconsistently enforced regulations also place additional burdens on investors (ICS 2016). The average time and costs required to start a business in Iraq are higher than regional averages (DB 2017). The government has created one-stop shops to address the cumbersome bureaucratic procedures, but the commission in charge operates without clear regulations and standard operating procedures, thus limiting the effectiveness of the initiative (ICS 2016).
Land administration Very high risk
Iraq's land administration is plagued by corruption presenting businesses with high risks. Almost four in every ten surveyed households report having paid a bribe when coming in contact with land administration officials (U4 Anti-Corruption Resource Center 2015). The last amendments to Iraqi private property laws were made prior to the fall of Saddam Hussein. The protection of property rights is guaranteed in the law and expropriation is illegal, except for the purpose of higher public benefit and in combination with just compensation (BTI 2016). In practice, however, no processes have been put in place and public benefit is not clearly defined, leaving businesses uncertain over the extent of potential expropriation of land for oil drilling or other large projects (BTI 2016). On a more positive note, amendments to the National Investment Law allowed for foreign investors to own land for the purpose of developing residential real estate projects, while ownership for industrial purposes requires a partnership with an Iraqi partner; otherwise, land may only be leased (ICS 2016). The average time and cost required to register property in Iraq are higher than regional averages (DB 2017).
Tax administration Very high risk
The tax administration in Iraq carries high corruption risks for business. The administration suffers from weak management, a lack of resources, poor coordination, weak collection enforcement and corrupt practices of officials among other (USAID). Furthermore, the administration does not function according to general norms, including clearly defined rights and obligations of the tax authorities and the taxpayer (USAID). The current laws governing the administration permit too much discretion to tax officials and have resulted in inconsistent application and corruption (USAID). The average time required to deal with paying taxes in Iraq is longer than the regional average (DB 2017).
Customs administration Very high risk
The Iraqi customs administration suffers from widespread corruption. Trading across borders is reportedly difficult, and the process is plagued by corruption and bribery (ICS 2016). The average time and costs to deal with exports and imports are very long and very high (DB 2017). However, companies approved for an investment license under the National Investment Law 2006 are eligible for a five-year exemption on customs duties (ICS 2016).
In one corruption case, an arrest warrant was issued against Milas Muhammad Abdul Karim, minister of trade, on charges of corruption. The minister subsequently left his post, yet the results of the investigation were not made public (HRR 2016).
Public procurement Very high risk
Iraqi public procurement remains predominantly non-transparent and riddled with corrupt practices. There are widespread and credible reports of bribery, kickbacks, and awards to companies connected to political leaders (ICS 2016). Investors reportedly also feel pressured to team with well-connected locals to avoid systematic bureaucratic hurdles when doing business (ICS 2016). A 2013 study reveals that contracts are often awarded to companies run by or connected to senior Iraqi politicians, who then receive large cash down-payments before the project begins. Subsequent complaints about the slow process or even absence of work are ignored or pushed aside by politicians who hold stakes in these companies. Inconsistent regulations, corruption, and bureaucratic bottlenecks represent major obstacles for companies bidding on public procurement contracts or investing in large infrastructure projects (ICS 2016). Companies may suffer long payment delays on some government contracts (ICS 2016). The Investment Law of 2006 allows unsuccessful bidders to instigate an official review of procurement decisions, but they cannot challenge the concrete procurement decision in court. Companies are recommended to use a specialized public procurement due diligence tool to reduce corruption risks related to public procurement in Iraq.
In a widely published corruption case, several Iraqi high-ranking officials including senior officials at the oil ministry, such as ex-oil minister Hussein al-Shahristani, have been accused of receiving bribes from large corporations in return for winning business. Following an investigative report published in 2016 by several large media outlets including Fairfax Media, the Huffington Post, and the Age it was revealed that the Monaco-Based company Unaoil had allegedly served as an intermediary between large oil companies such as British Rolls-Royce, US giant Halliburton, Australia’s Leighton Holdings and Korea’s Samsung and Hyundai to win USD billions of government contracts in Iraq. The first report produced by the Iraqi Parliamentary Investigation Commission on the case is ready to be sent to the parliament (Iraq Trade Link News Agency, Mar. 2017).
Natural resources Very high risk
Companies operating in Iraq's natural resources industry contend with very high corruption risks. Widespread corruption and a lack of transparency, particularly in oil revenues are major problems (HRR 2016). The state-led oil sector, which accounts for more than 90% of government revenue (BTI 2016), is also the top commodity on the black market. Criminal networks, encompassing staff from the oil ministry, high-ranking political and religious figures are reportedly involved in a cycle of corruption linked to mafia networks and criminal gangs smuggling oil and generating large profits (BTI 2016). Iraq is a member of Extractive Industry Transparency Initiative (EITI), which aims to improve transparency in extractive industries (ICS 2016). The government submitted its 2013 report related to the initiative, however, the committee mandated with implementing the initiative was not allocated any funds in both 2015 and 2016 and thereby stalling any progress (ICS 2016).
Baha al-Araji, the former deputy prime minister for energy affairs, was reportedly involved in a corruption investigation related to charges including property racketeering and financial corruption (HRR 2016). Early 2016, the Commission of Integrity reported that al-Araji was referred to the integrity court on charges of corruption, however, no further development was reported on the case by the end of the same year (HRR 2016).
Iraq’s main anti-corruption law is the Accountability Act, which criminalizes active and passive bribery, attempted corruption, extortion, money laundering and abuse of office. However, the government does not implement anti-corruption laws effectively, and officials engaged in corruption with impunity (HRR 2016). The poor enforcement of anti-corruption laws can be traced back to the lack of agreement on institutional roles, the absence of political will, unclear governing legislation and regulatory and poor transparency (HRR 2016). Money laundering is criminalized under the Anti-Money Laundering/Counter-Terrorism Financing Law, which covers concealing and altering goods originating from trafficking, corruption, influence peddling and misappropriation of public and private property, but implementation has been poor (ICS 2016). Furthermore, the investigatory capacity of the Central Bank, which works in cooperation with the judiciary and law enforcement authorities to detect and prosecute illicit financial transaction, has been limited (HRR 2016). The Commission of Integrity, mandated with prosecuting money-laundering involving corrupt officials, also suffered from a lack of investigatory authority (HRR 2016). Public officials are legally compelled to disclose their assets and the assets of their partners and minor children within two months of starting employment. Article 136(b) of the Iraqi Criminal Procedure Code allows ministers to shield ministry officials from work-related prosecution for corrupt acts. The Commission of Integrity did not publish any names of government officials involved in corruption in its 2016 semiannual (HRR 2016). However, the commission investigated 13,226 corruption cases, of which 7,088 cases were adjudicated, while 1,891 were referred to the courts (HRR 2016). Six ministers and 99 director general-level officials were involved in six of the corruption cases referred to the courts (HRR 2016). Iraq has signed and ratified the United Nations Convention against Corruption (UNCAC). Find additional information at the US Library of Congress' Guide to Law Online - Iraq.
Freedom of expression is protected by Iraq's Constitution, but vague laws leave ample room for the government to crack down on journalists (FotP 2016). The media environment is hostile and dangerous (BTI 2016). Fear of reprisal from authorities has led to broad self-censorship among journalists (HRR 2016). Iraq has one of the highest murder rates for journalists in the world (FotP 2016).Iraqi law criminalizes libel and defamation, and public officials often file suits when journalists report on corruption (FotP 2016). Internet access is restricted in Iraq, and there were reports of government monitoring of online content without legal authority (HRR 2016). Iraq's press environment is described as 'not free' (FotP 2016).
The Iraqi Constitution provides freedoms of assembly and association, and the government generally respects these rights (HRR 2016). Iraq has a weak tradition of civil society; Iraq's long experience with totalitarian rule has practically obliterated civil society activism (BTI 2016). Domestic and international NGOs are generally able to operate without legal restrictions, but safety concerns severely limit their activities in many areas (FitW 2016), and active members of civil society face threats and intimidation when pursuing corrupt practices (HRR 2016).
- World Bank & IFC: Doing Business 2017.
- Iraq Trade link News Agency: 'Unaoil scandal's first report before Iraqi Parliament MP', 1 March 2017.
- US Department of State: Investment Climate Statement - Iraq 2016.
- US Department of State: Human Rights Practices Report - Iraq 2016.
- Freedom House: Freedom in the World - Iraq 2016.
- Freedom House: Freedom of the Press - Iraq 2016.
- Bertelsmann Foundation: Transformation Index - Iraq 2016.
- Middle East Monitor: 'Iraq MP fears assassination if oil thieves are exposed', 2 December 2016.
- The Guardian: 'SFO expands Rolls-Royce inquiry over Iraq bribery allegations', 25 November 2016.
- The National Interest: 'Corruption in Iraq: Where Did All the Money Go', 19 May 2016.
- U4 Anti-Corruption Resource Centre: Iraq: Overview of corruption and anti-corruption 2015.
- Freedom House: Freedom of the Press - Iraq 2014.
- Global Competitiveness Report: Global Enabling Trade Report 2014.
- The FCPA Blog: 'Report: Leighton Holdings intermail emails discuss huge Iraq bribes', 16 September 2014.
- Transparency International: Global Corruption Barometer 2013.
- 2013 study: 'State and society in Iraq 10 years after regime change: the rise of a new authoritarianism', Toby Dodge.
- U4 Anti-Corruption Resource Center: Iraq: Overview of Corruption and Anti-Corruption 2013.
- USAID: Republic of Iraq: Tax Administration Reform.