Iraqi accountants uncover staggering $2.5 billion tax fraud

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BAGHDAD (UKTN) — Accountants in Iraq have uncovered a massive scheme in which a network of companies and officials embezzled some $2.5 billion from the country’s tax authorities, despite various safeguards.

The scandal represents an early test for Iraq’s new government, which was formed late last month after a protracted 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 magnitude 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 on its clean governance index for 2021.

The audit report, obtained by The UK Time News and first reported by The Guardian, suggests the theft was orchestrated by a wide network of civil servants, civil servants and businessmen. In Iraq’s entrenched patronage system, such individuals often have ties to powerful political factions.

“It was a very organized and agreed theft trial,” said Jamal al-Asadi, a legal expert and retired judge familiar with corruption cases.

Three officials confirmed details of the arrangement to the UKTN. All spoke on condition of anonymity, fearing reprisals.

The plan came to light last month when an internal audit by the Treasury Department alleged that the General Commission of Taxation — Iraq’s tax authority — fraudulently paid about 3.7 trillion Iraqi dinars, or about $2.5 billion, to five companies paid.

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The payments were made through 247 checks cashed between September 9, 2021 and August 11 this year, from a branch at the state-run Rafidain Bank within the tax commission.

The account contained billions of dollars in deposits from companies that would be returned to them after taxes were withheld and the companies presented updated financial statements. The five companies allegedly fraudulently made refunds without depositing anything.

An audit was launched by the then acting finance minister, Ihsan Abdul Jabbar, who was also oil minister. He discovered the theft after receiving complaints from an oil company that was unable to recover its tax bills, a senior official close to the investigation said.

When the minister inquired about the remaining balance in the account, the IRS said it had about $2.5 billion, but a closer inspection revealed that the actual balance had dropped to $100 million, the official said.

That was the first indication of the massive theft. A subsequent audit submitted to parliament’s finance committee uncovered the rest. The UKTN received a copy of that report this week.

Well before the audit, the bank’s money laundering department had expressed its concern to the Ministry of Finance about the large number of cash withdrawals. Abdul Jabbar’s predecessor, former finance minister Ali Allawi, had asked his office to approve large cash withdrawals, but key executives at the tax authority ignored the request, the official said.

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Allawi resigned in August in protest of corruption and foreign interference in Iraqi affairs.

Weeks before the first checks were cashed, authorities removed an important layer of oversight, ostensibly because companies had complained about long waiting times. The decision to remove the Federal Board of Supreme Audit from the process was prompted 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 incorporated just weeks before the payments were made, provided false documents to claim the payouts. Accountants could not track the money any 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 wide network of tax officials and businessmen must have conspired.

The claim process requires lengthy paperwork and signatures from at least three departments within the IRS, as well as the director and deputy director of the finance department. Rafidain Bank contacted the tax authorities to verify the checks before cashing them as required.

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But the money disappeared anyway and it is unclear who – if anyone – will ultimately be held responsible.

Nour Zuhair Jassim, a well-connected businessman, was arrested at Baghdad International Airport in late October. He was named as the CEO of two of the companies and earned more than $1 billion from the account, according to the audit. His lawyer did not respond to a request for comment.

Two tax officials have also been arrested and the judiciary says it has seized several properties and millions of dollars in assets.

But officials say it is unlikely that an embezzlement scheme of this magnitude could unfold without the knowledge of senior officials.

Political factions in Iraq have long competed for control of ministries and other government agencies, which they then use to provide jobs and other favors to their supporters. A number of factions are affiliated with various government agencies involved in the tax scheme.

The current government did not meet until late October, more than a year after snap elections. Bickering between powerful factions erupted into deadly street fighting earlier this year, and the largest party in parliament, led by an influential Shiite cleric, was left at the mercy of the opposition.

Any attempt to hold political leaders accountable for the fraud could lead to further unrest.

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