Middle East and North Africa Financial Action Task Force Mutual Evaluation Report Anti‐Money Laundering and Combating the Financing of Terrorism 28 November 2012 Iraq Iraq is a member of the Middle East and North Africa Financial Action Task Force for combating Money laundering and Terrorism financing (MENAFATF). This evaluation was conducted by the World Bank and discussed and adopted by the Plenary of the MENAFATF as a 1st mutual evaluation on 28 November 2012. ©2012 MENAFATF. All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Requests for permission to further disseminate, reproduce or translate all or part of this publication should be obtained from the MENAFATF , P.O. Box 10881, Manama, Kingdom of Bahrain (fax: +973 17 530627; e‐mail: [email protected]). TABLE OF CONTENTS PREFACE ....................................................................................................................................................... 1 EXECUTIVE SUMMARY ............................................................................................................................. 2 1.1 General information on the Republic of Iraq .................................................................................... 8 1.2 General situation of money laundering and financing of terrorism ................................................ 14 1.3 Overview of the Financial Sector and DNFBP ............................................................................... 16 1.4 Overview of commercial laws and mechanisms governing legal persons and arrangements ......... 22 1.5 Overview of strategy to prevent money laundering and terrorist financing .................................... 23 2. LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES ................................................ 26 2.1 Criminalisation of ML (R.1 & 2) .................................................................................................... 26 2.1.1 Description and Analysis ........................................................................................................... 26 2.1.2 Recommendations and Comments ............................................................................................ 35 2.1.3 Compliance with Recommendations 1 & 2 ............................................................................... 35 2.2 Criminalisation of TF (SR.II) .......................................................................................................... 36 2.2.1 Description and Analysis ........................................................................................................... 36 2.2.2 Recommendations and Comments ............................................................................................ 41 2.2.3 Compliance with Special Recommendation II .......................................................................... 42 2.3 Confiscation, freezing and seizing of proceeds of crime (R.3) ....................................................... 42 2.3.1 Description and Analysis ........................................................................................................... 42 2.3.2 Recommendations and Comments ............................................................................................ 46 2.3.3 Compliance with Recommendations 3 ...................................................................................... 47 2.4 Freezing of funds used for TF (SR.III) ........................................................................................... 47 2.4.1 Description and Analysis ........................................................................................................... 47 2.4.2 Recommendations and Comments ............................................................................................ 52 2.4.3 Compliance with Special Recommendation III ......................................................................... 53 2.5 The Financial Intelligence Unit and its functions (R.26) ................................................................ 53 2.5.1 Description and Analysis ........................................................................................................... 53 2.5.2 Recommendations and Comments ............................................................................................ 59 2.5.3 Compliance with Recommendation 26 ...................................................................................... 60 2.6 Law enforcement, prosecution and other competent authorities – the framework for the investigation and prosecution of offences, and for confiscation and freezing (R. 27 & 28) ...................... 60 2.6.1 Description and Analysis ........................................................................................................... 60 2.6.2 Recommendations and Comments ............................................................................................ 64 2.6.3 Compliance with Recommendations 27 & 28 ........................................................................... 64 2.7 Cross Border Declaration or Disclosure (SR.IX) ............................................................................ 65 2.7.1 Description and Analysis ........................................................................................................... 65 2.7.2 Recommendations and Comments ............................................................................................ 67 2.7.3 Compliance with Special Recommendation IX ......................................................................... 68 3. PREVENTIVE MEASURES —FINANCIAL INSTITUTIONS ....................................................... 69 3.1 Risk of ML or TF ............................................................................................................................ 69 3.2 Customer due diligence, including enhanced or reduced measures (R.5 to 8) ............................... 72 3.3 Third Parties and Introduced Business (R.9) .................................................................................. 84 3.4 Financial Institution Secrecy or Confidentiality (R.4) .................................................................... 85 3.5 Record keeping and wire transfer rules (R.10 & SR.VII) ............................................................... 87 3.6 Monitoring of transactions and relationships (R.11 & 21) .............................................................. 92 3.6.1 Description and Analysis ........................................................................................................... 92 3.6.2 Recommendations and Comments ............................................................................................ 93 3.6.3 Compliance with Recommendations 11 & 21 ........................................................................... 94 3.7 Suspicious transaction reports and other reporting (R.13-14, 19, 25 & SR.IV) ............................. 94 3.8 Internal controls, compliance, audit and foreign branches (R.15 & 22) ......................................... 98 3.9 Shell banks (R.18) ......................................................................................................................... 102 3.10 The supervisory and oversight system – competent authorities and SROs Role, functions, duties and powers (including sanctions) (R. 23, 29, 17 & 25) .................................................................................. 104 3.11 Money or value transfer services (SR.VI) ............................................................................... 123 4. PREVENTIVE MEASURES – DESIGNATED NON-FINANCIAL BUSINESSES AND PROFESSIONS ........................................................................................................................................... 126 4.2.3 Compliance with Recommendation 16 .................................................................................... 130 4.3.3 Compliance with Recommendations 24 & 25 (criteria 25.1, DNFBP) ................................... 132 4.4 Other non-financial businesses and professions ........................................................................... 132 4.4.2 Recommendations and Comments .......................................................................................... 133 4.4.3 Compliance with Recommendation 20 .................................................................................... 133 5. LEGAL PERSONS AND ARRANGEMENTS and NON-PROFIT ORGANISATIONS .................. 133 5.1 Legal Persons – Access to beneficial ownership and control information (R.33) ........................ 134 5.1.1 Description and Analysis ......................................................................................................... 134 5.1.2 Recommendations and Comments .......................................................................................... 137 5.1.3 Compliance with Recommendations 33 .................................................................................. 137 5.2 Legal Arrangements – Access to beneficial ownership and control information (R.34) .............. 137 5.2.1 Description and Analysis ......................................................................................................... 137 5.2.2 Recommendations and Comments .......................................................................................... 137 5.2.3 Compliance with Recommendations 34 .................................................................................