Auditors in Iraq uncover staggering $2.5 billion tax fraud

BAGHDAD — Auditors in Iraq have uncovered a massive scheme in which a network of businesses and officials embezzled some $2.5 billion from the country’s tax authority, despite layers of safeguards.

The scandal poses an early test for Iraq’s new government, which was formed late last month after a prolonged political crisis. Prime Minister Mohammed Shia al-Sudani has vowed to crack down on corruption, but few expect any senior officials or political leaders to be held accountable.

The scale of the embezzlement is remarkable, even for an oil-rich country where corruption has been rampant for decades. Transparency International, a global watchdog, rated Iraq 157th out of 180 countries on its 2021 index for clean governance.

The auditors’ report, obtained by The Associated Press and first reported by the Guardian, suggests the theft was orchestrated by a broad network of officials, civil servants and businessmen. In Iraq’s deeply-rooted patronage system, such individuals often have links to powerful political factions.

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

Three officials confirmed details of the scheme to the AP. All spoke on condition of anonymity, fearing reprisal.

The scheme came to light last month when an internal audit by the Finance Ministry alleged that the General Commission for Taxes — Iraq’s Internal Revenue Service — had fraudulently paid some 3.7 trillion Iraqi dinars, or around $2.5 billion, to five companies.

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

The account held billions of dollars in deposits made by companies that were supposed to be returned to them once taxes had been deducted and the companies had presented updated financial statements. The five companies are alleged to have fraudulently drawn refunds without depositing anything.

An audit was launched by the acting finance minister at the time, Ihsan Abdul Jabbar, who also served as oil minister. He discovered the theft after receiving complaints from an oil company unable to retrieve its tax deposits, according to a senior official close to the investigation.

When the minister inquired as to the remaining balance in the account, the tax authority said it held around $2.5 billion, but further inspection revealed the actual balance…