Iraq: Auditors uncover massive embezzlement scheme — reports

Some $2.5 billion (€2.44 billion, 3.7 trillion Iraqi dinars) in tax revenues have disappeared from the Iraqi tax commission's accounts in what is being seen as the biggest corruption scandal under the government of ex-Prime Minister Mustafa al-Kahdimi, according to media reports.

The affair, first reported by The Guardian, poses an early challenge to the country's new government, with the current Prime Minister Mohammed Shia al-Sudani vowing to crack down on corruption.

 In 2021, Iraq ranked in 157th place out of 180 countries on Transparency International's index for clean governance.

The embezzled moneys amount to around 2.8% of Iraq's 2021 state budget.

What did the scheme involve?

According to the AP news agency, an internal audit by the Finance Ministry last month alleged that five shell companies had fraudulently received some 3.7 trillion Iraqi dinars (around $2.5 billion) from Iraq's tax commission.

The money came from an account holding billions of dollars deposited by companies that were then to receive funds back after taxes were deducted and updated financial statements had been presented. 

The five companies, three of which were registered just weeks before the money was paid out, are alleged to have received the refunds without having made any deposits after submitting fake documents. As the payments were made in cash via nearly 250 checks between September 2021 and August this year, auditors have been unable to follow the trail further.

The fraudulent payments were facilitated by the fact that authorities had recently removed a key layer of oversight — the Federal Board of Supreme Audit — from the refund process. Officials justified the move by saying companies had complained of long waiting times and complicated procedures.

The auditors' reports suggest that the scheme involved a broad network of officials, civil servants and businessmen.

What happens now?

Iraqi authorities have already arrested Nour Zuhair Jassim, a businessman named as the CEO of two of the five companies. He received more than $1 billion from the tax commission account, according to the audit.

Two tax officials have also been taken into custody, and judicial authorities say they have seized several properties and millions in assets.

However, officials have said that a fraud on this scale is likely to have been possible only with the help of high-level personages, and any prosecution of such figures is difficult in Iraq's political culture, among other things because of the unrest it might engender.