Anti-Money Laundering in Iraq: Regulations, Best Practices

The Office of Combating Money Laundering and Terrorism Financing was first set up in 2007 under the Central Bank of Iraq. In 2015, it was reorganized to work independently, following the Anti-Money Laundering and Terrorism Financing Law No. 39. Anti-Money Laundering in Iraq laws require the office to function as a public department within the Central Bank, but with its own legal identity and full control over its finances and administration.

In Iraq, someone is guilty of money laundering if they:

1. Change, move, or replace money, knowing (or should have known) that the money comes from illegal activities, to hide where it really came from, or help someone avoid legal trouble.

2. Hide or cover up the true nature, source, location, status, movement, or ownership of money, knowing (or should have known) it’s from illegal activities.

3. Get, own, or use money, knowing (or should have known) it comes from illegal activities.

AML Regulatory Framework in Iraq

Effective anti-money laundering in Iraq and AML practices and measures make sure that financial systems aren’t used for illegal activities, which is key for keeping Iraq’s economy stable and trustworthy.

Read more: Anti-Money Laundering Compliance in Kuwait

AML Legislation

The Central Bank of Iraq enforces AML laws, including the Anti Money Laundering and Countering Terrorist Financing Law No. 39 of 2015. This law, Anti-Money Laundering in Iraq, sets up a full framework to stop, detect, and punish money laundering and terrorism financing. It follows international standards and forms the base rules for AML/CFT in Iraq.

According to Article 39:

• First: A financial institution can be fined between 25 million Iraqi dinars and 250 million Iraqi dinars for:
  • Not keeping records of financial transactions, both within Iraq and internationally, or not keeping them as required by law.
  • Opening accounts, accepting deposits, or handling money from unknown sources or fake names.

• Second: A person can face up to three years in prison and a fine between 15 million Iraqi dinars (ID 15,000,000) and 50 million Iraqi dinars (ID 50,000,000), or both, for:

• Not submitting Suspicious Transaction Reports (STRs) to the Office or intentionally giving false information.

• Telling clients or others about reporting, investigating, or checking suspicious financial transactions linked to money laundering or terrorism financing, except to those who are allowed to know.

Regulatory Bodies and Supervisors of AML/CFT in Iraq

To effectively implement Anti-Money Laundering in Iraq, it is crucial to understand the role of the regulatory bodies and supervisors overseeing these efforts.

• Central Bank of Iraq: Manages the policies of the financial institutions on AML and guarantees that the institutions implement the AML/CFT guidelines.

• Financial Intelligence Unit (FIU): This unit conducts assessments and reviews of suspicious transactions and handles reports from financial organizations.

• Office of Anti Money Laundering and Counter-Terrorism Financing: Established in 2007 and reconstructed in 2015, this office runs under the Central Bank of Iraq. It processes suspicious money laundering and terrorism financing, assesses transactions and temporarily suspends them as needed.

AML Compliance Requirements in Iraq

This section looks into the AML compliance requirements in Iraq, outlining the rules, main duties for financial institutions, and the steps in place to fight money laundering and financial crime in the country.

1. Reporting Obligations

Institutions must file:

• Suspicious Activity Reports (SARs)

• Currency Transaction Reports (CTRs)

These reports help in spotting and stopping money laundering and hence comply with the laws of anti-money laundering in Iraq. Entities must alert the FIU in Iraq about any suspicious transactions and freeze the related funds until further instructions are given.

2. Customer Due Diligence (CDD)

Financial institutions and designated non-financial businesses and professions (DNFBPs) are required to:

• Verify customer identities

• Perform enhanced due diligence (EDD) for high-risk customers

Know Your Customer (KYC) rules mandate that transactions over 5 million Iraqi dinars (approximately $4,250) require identity verification. Beneficial owners must be identified for transactions exceeding 10 million Iraqi dinars (around $8,500).

3. Record Keeping

Maintaining accurate records is crucial. Financial institutions and DNFBPs must preserve records of transactions and client interactions for at least five years. This documentation supports audits and investigations, ensuring compliance with regulations of anti-money laundering in Iraq.

4. Internal Controls and Policies

Institutions must adopt internal controls and policies for identifying, reporting, and managing money laundering and terrorism financing threats. This includes developing and implementing comprehensive AML programs.

5. Training

AML training for personnel is required to ensure staff are aware of money laundering risks and know how to detect and report suspicious activities.

Anti-Money Laundering in Iraq: Enforcement and Penalties

The Central Bank of Iraq monitors compliance with AML laws, including conducting regular audits. The Office of Anti-Money Laundering and Counter-Terrorism Financing also plays a crucial role in overseeing compliance. This office is responsible for receiving, analyzing, and investigating reports of suspected money laundering or terrorism financing and can suspend transactions for up to 7 working days if needed.

Violations of AML regulations can result in:

• Fines

• Sanctions

These penalties are intended to deter non-compliance with anti-money laundering in Iraq and ensure institutions adhere to AML/CFT regulations.

Financial institutions must integrate modern technologies, including AML software and systems, to monitor and manage transactions effectively. This integration is essential for improving practices of anti-money laundering in Iraq.

Learn more about The Best 5 Sanctions Screening Software

Anti-Money Laundering in Iraq: Best Practices

These Anti-Money Laundering in Iraq practices are essential for detecting and preventing money laundering effectively.

1. For Financial Institutions

• If you are a decision-maker at a financial institution, it is your role to set up strong AML programs that fit the specific risks your institution faces. You need to also keep this program up to date with any new threats and changes in the rules.

• Once you and your team set up a solid AML program, you will also need to make sure your staff is well-trained in spotting and reporting any suspicious activity and that they always verify who their customers are through CDD checks and understand the nature of their transactions. And if they encounter any high-risk customer, they must perform enhanced due diligence checks.

• It is crucial that the records of all transactions and customer interactions are kept for at least five years.

• And of course, reporting any suspicious activity to the Financial Intelligence Unit.

2. For Regulators

If you are a regulator who performs audits and inspections of financial institutions, you might need to focus on the institutions and activities that pose the biggest risks where you impose fines and sanctions on institutions that fail to follow AML regulations.

Conclusion

Anti-money laundering in Iraq is essential for maintaining financial integrity. Continued reforms and international cooperation are vital. Effective AML measures are key to safeguarding Iraq’s economic stability.

Iraq's AML framework has strengthened through updated laws, active regulatory bodies, and strong enforcement efforts to combat money laundering and terrorism financing. As Iraq works to meet international standards, its AML compliance requirements and programs provide important guidance for businesses. By following best practices and engaging in compliance initiatives, organizations can reduce risks and support Iraq’s efforts to fight financial crimes. With continued support and commitment, Iraq is building a more secure and transparent financial system.