US embassy cable - 05BAGHDAD4091

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 004091 
 
SIPDIS 
 
E.O. 12958: DECL: 10/01/2015 
TAGS: PTER, KTFN, KCOR, EFIN, ETTC, PREL, IZ, Reconstruction 
SUBJECT: IRAQ'S CHALLENGES IN COMBATING TERRORIST FINANCING 
 
REF: STATE 140389 
 
Classified By: Classified by ECON Minister Counselor, Thomas Delare, Re 
asons 1.4 b/d 
 
1.  (C)  Summary:  Iraq faces many challenges in building its 
capacity to come to grips with terrorism financing and money 
laundering.  The unique security situation also makes it 
extremely difficult to conduct an in-depth assessment of 
Iraq's needs and deliver technical assistance in this area. 
Given these constraints, Post has prepared the following 
background regarding the current situation.  There are some 
positive steps in implementing a Money Laundering Reporting 
Office and making minor infrastructure improvements in the 
banking sector, but many difficulties remain.  In particular, 
Iraqi buy-in is lacking.  Post will continue to work with the 
current government and its successor to secure implementation 
of terrorist financing initiatives.  End summary. 
 
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IMPLEMENTATION OF BANKING AND ANTI-MONEY LAUNDERING LAWS 
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2.  (SBU) Current Iraqi laws involving the banking sector 
include:  CPA Orders 56 (Central Bank Law), CPA Order 40 
(Banking Law) and CPA Order 93 (Anti-Money Laundering Law). 
USAID's Economic Governance II Project provides technical 
assistance to the Central Bank of Iraq in implementing the 
Central Bank and Banking Law.  Implementation of these laws 
has been slow.  However, USAID's Economic Governance II 
Project reports that the Iraqis are enacting regulations for 
the implementation of CPA Order 56.  The Iraqis have not 
implemented any additional banking laws at this time, despite 
the strong need.  In addition, there has been no 
implementation of the CPA Order 93 on Anti-Money Laundering 
by the GOI.  Legislation and regulations to require use of 
international accounting standards are also needed. 
 
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CURRENT INSTITUTIONAL CAPACITY 
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3.  (SBU) The Iraqis have been slow to implement CPA Order 
93, which calls for setting up a Money Laundering Reporting 
Office (MLRO) in the Central Bank of Iraq (CBI).  Although 
the law was enacted over a year ago, the Iraqis are just now 
evaluating the creation of such an office.  As a result, Iraq 
does not have the current institutional capacity to combat 
and investigate terrorism/illicit financing.  There is no 
structure like the Department of Treasury's Office of Foreign 
Asset Control (OFAC) within either the Ministry of Finance or 
Interior, or elsewhere.  In addition, there is no asset 
forfeiture structure or related law to create this type of 
structure.  This means there is no entity or legal authority 
within the GOI to seize money linked to terrorism finance or 
other illicit uses. 
 
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PLANS FOR A MONEY LAUNDERING REPORTING OFFICE 
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4.  (C)  Despite lagging action, some progress has been made. 
 Treasury and IRS-CI are working with the Central Bank of 
Iraq and the US advisors to Iraq's National Intelligence 
Council (NIC) in establishing the MLRO.  Based on a proposal 
provided to the Iraqi NIC, this office would be the primary 
intelligence institution with responsibilities to collect, 
analyze, store and disseminate intelligence data on matters 
concerning terrorist financing.  It would be the exclusive 
intelligence institution with responsibilities to administer 
CPA Order 93.  The office would be responsible for 
establishing an asset forfeiture fund to be used by Iraqi 
intelligence, law enforcement or military organizations.  It 
will be responsible for collection, analysis and storage of 
counterfeit currency (domestic and foreign), counterfeit 
negotiable instruments, and evidence pertaining to violations 
of international agreements, accords, treaties, or other 
legal obligations concerning intellectual property.  The 
long-term plan would be to have the Financial Action Task 
Force (FATF) recognize the MLRO as Iraq's financial 
intelligence unit (FIU). While Post is working on the 
development of the MLRO and FIU, it is too early in the 
process to provide a timeline for Washington regarding 
technical assistance needs.  Post welcomes Washington's 
future involvement in this process when appropriate.  The 
security and political situation in the country in the next 
six months will be key factors in gaining Iraqi buy-in and 
cooperation on these issues. 
 
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INTERNATIONAL ACCOUNTING STANDARDS TRAINING 
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5.  (SBU)  In the interim, USAID's Economic Governance II 
Project is providing general technical assistance on 
international accounting standards and supervisory roles to 
make sure banks will be capable of reporting large or 
suspicious transactions.  Other training is also being 
provided on producing balance/cash flow documentation. 
Teaching international accounting standards is a much needed 
area in universities, businesses, and the banking sector as 
there are few trained Iraqis with significant expertise 
conducting financial analysis. 
 
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LACK OF INFRASTRUCTURE/AUTOMATION IN THE BANKING SECTOR 
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6.  (SBU)  The lack of automation/infrastructure in the 
banking sector hinders the ability of the GOI to control 
illicit financing.  There are no ATMs, although the Credit 
Bank, a private commercial bank, is interested in having an 
automated ATM in its bank.  However, the Central Bank has not 
received any application from them.  While we hear the Trade 
Bank of Iraq might have some plans for ATMs, there are no 
ATMS being used right now by the general Iraqi public at 
large.  This means that money is either potentially sent by 
hawalas, which are neither regulated or monitored, or 
otherwise transported.  This lack of monetary controls and 
automation contributes to illicit financing and criminal 
activity. 
 
7.  (SBU)  Despite these challenges, there is some progress 
being made in the area of automation through a program of 
direct deposits for Iraqi government employees.  Through the 
Warka Bank, a pilot project has provided approximately 10,000 
employees from the Ministry of Municipalities with 
automatic/direct deposit.  The Ministries of Agriculture, 
Health, and Interior are the next institutions to be 
addressed in the pilot project.  In addition, the Minister of 
Labor & Social Affairs (MOLSA) is being considered for direct 
deposit, which will have broader effects given their role in 
disbursing pensions and other programs.  This is a positive 
movement (i.e. employees have to be verified to have accounts 
set up for them).  Since the issue of "ghost employees" has 
been an issue in the ministries, this automation should 
increase accountability of government funds.  There are plans 
to implement this type of payment system at the border to pay 
the salaries of border guards so that the ministry may avoid 
transporting large amounts of cash over dangerous roads. 
 
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CHALLENGES IN PROVIDING TECHNICAL ASSISTANCE TO IRAQ 
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8.  (SBU) Iraq needs additional technical assistance to 
combat terrorism finance/money laundering.  However, 
implementing training for banks and other institutions is 
limited, given the current security situation.  Post supports 
encouraging the GOI to join international bodies, such as the 
Middle East North African Financial Action Task Force (MENA 
FATF).  While the current Iraqi Government is not showing 
initiative in the area of combating terrorism finance, Post 
will continue to press the GOI so that we will have some 
momentum on this issue going into the next Iraqi Government 
after the December elections. 
 
9.  (SBU)  Post also recommends that training and technical 
assistance being evaluated by Washington occur in-country. 
It is important to train the Iraqis in their existing 
environment.  However, the security situation will need to 
change and more buy-in from the GOI is needed before this 
type of technical assistance and training is feasible. 
Satterfield