‘Heist of the century’: how $2.5bn was plundered from Iraqi state funds
Mystery surrounds embezzlement of tax revenues, which appears to have been facilitated by some of the highest offices in the country
Simona Foltyn in Baghdad
Sun 20 Nov 2022 06.00 GMT
Iraqis have called it “the heist of the century” – a brazen multibillion-dollar plundering of state coffers that has gripped the country.
The theft of $2.5bn was apparently facilitated by some of the highest offices in the land, according to sources and a series of government letters issued in the summer of 2021. The documents, signed by various government institutions including the then prime minister’s office, cancelled the audit of withdrawals from the Iraqi tax commission’s accounts.
But behind the scenes, the stage was set for the embezzlement of tax revenues in what has emerged as the biggest corruption scandal under the then prime minister Mustafa al-Kadhimi’s western-backed government – remarkable even for a country that ranks towards the bottom of Transparency International’s corruption index.
The $2.5bn in tax moneys was withdrawn by shell companies with almost no paper trail with the help of corrupt officials, according to an internal investigation’s 41-page report seen by the Guardian, and laundered through real estate purchases in Baghdad’s most affluent neighbourhood, according to multiple sources.
The scheme was allegedly masterminded by a well-connected businessman and executed by employees in the tax commission, who enjoyed the support of an Iran-aligned political faction called Badr, the Guardian has found.
But a heist of such proportions could only have occurred with the knowledge of a wider range of institutions, including the prime minister’s office, the bank that cleared the withdrawals, the integrity commission and the central bank, according to leaked documents and interviews with more than a dozen officials, businesspeople and bankers with detailed knowledge of the case.
Kadhimi with the powerful Shia cleric Moqtada al-Sadr in Baghdad. Photograph: Anadolu Agency/Getty Images
“It’s a big network and behind it are big politicians from powerful entities leading the country. Heads of departments cannot steal such amounts alone,” said a former member of the parliament’s finance committee who, like most people interviewed for this story, did not want to be named in fear of retribution. “There is an agreement and everyone gets a cut,” he said.
Reached for comment, the former director of Kadhimi’s private office, Ahmed Najati, said: “Alleging that the prime minister’s office approved the removal of the audit and ultimately facilitated the theft is misleading.” He added: “The removal of the audit is not a justification for robbery.”
The scandal was made public by Kadhimi’s outgoing government last month, at the tail end of a year-long tussle over government formation between two rival Shia factions: the party of influential Shia cleric Moqtada al-Sadr, which supported Kadhimi, and a loose alliance of Shia parties opposing them. The latter has since taken power, with the veteran politician Mohammed al-Sudani replacing Kadhimi as prime minister on 27 October.
Mutual accusations by the two sides overshadowed the transfer of power in a country where corruption investigations are often used to discredit opponents rather than instil transparency. Graft is practised by consensus in Iraq’s consociational democracy, with government positions divided between parties to ensure everyone gets a share of the pie to fuel their patronage networks.
Though built into the system, state capture is said to have deepened under Kadhimi, a former spy chief and journalist who was favoured by the west because he vowed to rein in the military factions of Iran-aligned groups like Badr. But Kadhimi lacked a political base and became susceptible to pressure by parties and their armed wings who sought to tighten their grip on lucrative government posts.
“The dividing of positions went further under Kadhimi. It was the only way he could stay in power,” said one employee at the tax commission, which he said enjoyed more independence before Kadhimi’s reign. Kadhimi’s office denied these allegations.
At least one of Kadhimi’s lieutenants had close ties with the businessman who allegedly orchestrated the scheme, according to several sources, including Kadhimi’s former chief of staff Raed Jouhi. Dhia al-Musawi, an intelligence officer whom Kadhimi appointed to lead the National Operations Center, is on the run after the judiciary issued a warrant on unrelated corruption charges, and could not be reached for comment.
The theft was preceded by a proposal from the former head of the parliament’s finance committee, Haitham al-Jabouri, recommending the termination of the audit chamber’s role in inspecting withdrawals from the tax commission’s accounts, citing “many complaints” about lengthy procedures.
Months later, Jabouri was appointed as an adviser to Kadhimi. Jabouri did not respond to repeated requests for comment.
Tahrir Square in Baghdad, a previous focal point for anti-government protests. The $2.5bn in tax moneys was withdrawn by shell companies with almost no paper trail. Photograph: Anadolu Agency/Getty Images
Those accounts were stacked with billions of dollars in tax deposits paid by foreign companies working in Iraq, recoverable upon submission of actual financial statements. But the process was so onerous that most companies wrote them off, leaving the unclaimed amounts to accumulate into an attractive pot of cash.
The proposal to cancel the audit should have been a red flag for an administration that had promised to fight corruption, said the former member of the finance committee. Instead, the audit chamber and the prime minister’s office each issued a letter expressing no objection. “It was all part of the plan,” he said.
The implementation of the heist hinged on accomplices inside the tax commission who had signing authority for cheques. That network was put in place by its former director Shaker Mahmoud, according to four sources inside the finance ministry. Based on the letter from the prime minister’s office and a phone call with the audit chamber, Mahmoud ordered the removal of the audit, according to a document seen by the Guardian.
Shortly afterwards, Mahmoud was transferred to the customs commission, where many suspect a similar scheme is under way. Mahmoud could not be reached for comment.
Mahmoud and the executors of the plot were backed by Badr, an Iran-aligned party that controls senior appointments to the tax and customs commissions, according to seven sources. In addition, directors had to be approved by the prime minister, as per a 2020 decree.
While the then finance minister, Ali Allawi, signed the paperwork for appointments, sources in the finance ministry said he had little authority over staffing. Two of his nominees turned down director positions after they received threats from Badr.
“Allawi couldn’t remove anyone because Badr wouldn’t accept. And he didn’t get support from the prime minister’s office,” said one official.
The prime minister’s office has denied any responsibility for the theft. “This entire operation happened inside the finance ministry. The operation started in the tax commission and ended in the [government-owned] Rafideen bank, and both fall under the ministry of finance,” said Kadhimi’s former chief of staff.
In July 2021, the tax commission began issuing cheques each worth millions of dollars. At least 247 cheques were issued to five companies over 14 months. They were cleared through one branch of the Rafideen bank, located at the tax commission, where the amounts were deposited into the companies’ accounts and then immediately withdrawn, inevitably affecting the bank’s liquidity.
Ali Allawi, the former finance minister. In his resignation letter, he warned of a ‘vast octopus of corruption and deceit’ that risked consuming the country. Photograph: Khalid Mohammed/AP
The theft did not go unnoticed. Allawi issued a decree in November 2021 barring withdrawals without his approval, but they continued behind his back. Rafideen’s anti-money-laundering unit sent repeated letters to management flagging the transactions but it appears that no action was taken by Rafideen or Iraq’s central bank, which is supposed to oversee the banking sector.
“The fact that this much money is demanded by one branch should have raised very serious questions,” said one banking official. The absence of a core banking system and a single treasury account helped obscure the rapid draining of funds. “It’s intentional dysfunctionality,” he said. “They have consistently opposed such a system because it would stop them from playing games.”
Employees at the tax commission who spoke out were penalised, according to sources. “Those who complained were transferred,” said a second employee at the commission, a dreary multistorey building in downtown Baghdad. Next to the elevator, a poster with a hotline encouraged staff to report abuse to the integrity commission, a body charged with investigating corruption. But when a whistleblower did just that, another source said, the commission quickly issued a memo stating that the withdrawals posed “no harm”. The integrity commission, the audit chamber, Rafideen bank and the central bank declined to comment.
Frustrated, Allawi resigned in August. In a scathing resignation letter, he warned of a “vast octopus of corruption and deceit” that risked consuming the country. His successor ordered an inquiry, leading to a backlash in parliament that resulted in his removal in what some see as an effort to suppress the investigation.
The case presents a test for Sudani’s new government to pursue powerful individuals alleged to be implicated in the scheme, including members of the alliance that brought him to power.
“What happened was not only done by a group of people from the private sector or small employees. There was political or official cover from influential officials in the state” Sudani told reporters, vowing that his government would “bring everyone to account who proves to be involved, be it politicians or state officials”.
So far, the judiciary has seized 55 properties and $250m in other assets, with the businessman and two officials from the tax authority currently under arrest. Two additional arrest warrants and nine travel bans have been issued against company directors and civil servants. The investigation is ongoing but a judge at a Baghdad investigative court told the Guardian that “until now there is no evidence” that high-level officials played a role.
Few Iraqis believe there will be genuine accountability. “They will place the blame on a couple of small directors and the others will get away,” said a former member of the finance committee.
Middle East and north Africa
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