Verdict in Iraq's $2.5bn 'heist of the century' - but where have the rest of the missing billions gone?

The state is estimated to have lost up to $320bn to corruption - and the hunt for plunderers has become a blame game exposing the deep divisions in the country's political establishment

Fury had been growing within the coalition of Prime Minister Mohammed Shia Al Sudani over members of the previous government escaping justice. EPA

This week’s convictions for the plundering of an account in Iraq's finance ministry may be more symbolic than significant. Far bigger sums allegedly remain unaccounted for, according to former Iraqi government officials who spoke to The National off record, due to the sensitivity of the case, one of the biggest documented thefts of public funds in history.

The alleged mastermind of Iraq's so-called heist of the century, Noor Zuhair Jassim, was sentenced in absentia to 10 years in jail by a Baghdad court on Monday. Haitham Al Jubouri, a former MP widely described as a political chameleon, was also sentenced.

But former government officials told The National that placing Mr Jassim at the centre of the accusations, which revolve around the theft of $2.5 billion from a General Commission for Taxes account, is partly symbolic and a political move.

A picture shows a courtroom at Baghdad's Karkh main appeals court building in the western sector of the Iraqi capital on May 29, 2019. AFP

Ten suspects were sentenced in total, but the case is widely believed to involve dozens if not scores of politically connected people. It is seen as emblematic of the corruption that has gripped Iraq following the 2003 US-led invasion. Some experts say Iraq has lost as much as $320 billion to corruption, if not more, since 2003.

Judge Raid Juhi, a former director of the office of former prime minister Mustafa Al Kadhimi, who famously presided over the trial of Saddam Hussein, was also sentenced, along with a director general at the tax commission and his deputy. The sentences follow calls for a nationally televised trial. Several former senior officials at the defrauded state organisations – the tax authority and Rafidain bank – have not been charged.

One former high level official at the finance ministry told The National that the IMF and World Bank had warned Iraq that the state-run Rafidain bank was “like a ticking time bomb" with weak controls to stop the plunder.

Fury had been growing in parliament and within the coalition of Prime Minister Mohammed Shia Al Sudani over central members of Mr Al Kadhimi's government escaping justice - or so they alleged. Iran-backed allies of Mr Al Sudani have accused the former prime minister’s staff of the theft, which was uncovered in August 2022 during the last months of his time in office.

They also blame former minister of finance Ali Allawi, who alongside Mr Al Kadhimi, has had arrest warrants issued against him. The long list of suspects reveals the complicity of multiple political factions, experts say. Mr Allawi previously told The National that the details of the charges against him were never mentioned.

The National spoke to several people who served in Mr Al Kadhimi’s government, including staff critical of the former leader, whom experts say lacked the backing of powerful political blocs, Iran-backed or otherwise. But despite their critiques, they point out that a top appointment at the tax office who enabled the heist was made by a powerful Iran-backed rival of the prime minister. That appointment was five months before he took office.

One former adviser to Mr Al Kadhimi said he had caved in to demands from Iran-backed groups to place staff in vital positions to enable the fraud, even as he attempted his own crackdown on corruption, which led to allegations that his anti-corruption unit tortured suspects.

Mr Allawi, who was also finance minister in the Iraqi transitional government between 2005 and 2006, has complained on record that it was "next to impossible" to make important appointments in the finance ministry due to political interference. His official report on the heist says two staff members he wanted to head the tax department – one named as Ahmed Dakhil – turned down the offer after being advised not to take the role. Mr Dakhil said he had concerns for his family, which weren't specified.

Two former officials spoken to by The National revealed that the powerful Iran-backed Badr Organisation had a heavy influence on appointments at the tax office, a political organisation linked to violent militias and deadly crackdowns on government critics. There was a culture of intimidation - one finance ministry official spoke of a state-owned bank employee "in tears" after raising the issue of suspicious transactions. She is now living abroad.

Mr Allawi accused these rival officials in the tax authority of a massive purge - typical of the operations of the organisation after 2003 - reassigning more than 2,800 staff.

Iraq's finance minister Ali Allawi cautioned that the country's economy could reach 'irreversible lows' if urgent reforms are not executed. AFP

The fallout has moved on from attacks on Mr Al Kadhimi, extending to arrests of several of his staff and calls for Interpol Red Notices against others. In the past year it has become a bitter row within the current elite. Every source interviewed by The National for this article spoke off record.

“People are paranoid. Everyone thinks their phone is tapped,” said one former member of the integrity commission. The unease, the former official said, is because of an eavesdropping scandal in which Mr Al Sudani stands accused of wiretapping apparently untrustworthy political allies, with the effort led by Abu Ali Al Basri, Iraq’s spymaster-in-chief and National Security Service head. The scandal represents another sharp divide in government.

“These political groups are like big mafias with growing interests,” said another former staff member in Mr Al Kadhimi’s office. “Some of these interests are conflicted with each other. That can cause a lot of problems between them, and no matter how Iran is controlling them, the clash must come.”

How the heist unfolded

At the most basic level, the theft involved the signing of 247 cheques by the General Commission for Taxes in the Ministry of Finance for payment to five fake companies that purportedly represented international oil companies seeking tax refunds. In Iraq, corporations deposit a percentage of expected taxes in a government account and can reclaim it within five years.

The National spoke to a Western risk consultant working closely with the oil companies who said one major oil firm was not aware they had lost any funds in the fraud, suggesting the falsely reclaimed money was from other sources and that this was a matter for the Iraqi government.

The cheques to the so-called Special Purpose Vehicle firms, three of which were established by Mr Jassim and all five of which were set up within months of the first cheques being cashed in mid-2021, were paid into the state-owned Rafidain bank starting in September 2021. The money was then allegedly smuggled out of Iraq on private jets, or spent on property within the country.

According to a second source in former prime minister Mr Kadhimi’s office who spoke to The National, the massive outflow of funds created a property bubble in upscale parts of Baghdad and some parts of southern Iraq.

“I personally think a lot has remained in Iraq,” he said. “Think about it, you can’t move billions of dollars through airports undetected. Where could they take it, North Korea? And what would they do with it there? No legitimate airport is going to let that slip past.”

Private cars and taxis are parked in front of a terminal at the Baghdad International Airport on August 17, 2024. After years of restrictions due to security reasons, Iraq started on August 17 to allow private vehicles to enter the airport up to the terminal buildings to pick-up and drop off travellers. (Photo by Murtadha RIDHA / AFP)

Mr Jassim, who was arrested in October 2023 shortly after Mr Al Sudani took office, was released on bail by Supreme Court chief Faiq Zaidan and Baghdad integrity court judge Dhia Jafaar, to travel the region and liquidate assets to repatriate funds to Iraq. Mr Jassim insists he has done nothing wrong and that he was a legitimate agent authorised to reclaim tax funds on behalf of the oil companies.

But his failure to attend trial sparked a furious row within the elite. Integrity court judge Mr Jafar – an ally of former prime minister Nouri Al Maliki – was accused by integrity commission head Haidar Hanoun of protecting Mr Jassim. Mr Jafar has accused Mr Hanoun, who was a member of the Badr Organisation, of corruption in the property sector. Both officials have previously pointed the finger of blame at Mr Kadhimi’s government for the heist.

Mr Zaidan at the Supreme Court has stood by Mr Jafar as an upstanding public servant, and now Mr Hanoun faces his own charges for corruption, resigning in October. Like Mr Hanoun at the integrity commission, Mr Zaidan has been accused by critics of being an agent for Iran-backed parties, making a series of Supreme Court rulings in their favour that effectively nullified the election gains of the largest political bloc following a 2021 national vote.

This ushered in the term of Mr Al Sudani, making his rift with the Badr-aligned Mr Hanoun all the more intriguing.

Iraqi Shi'ite cleric Muqtada al-Sadr meets with Qais al-Khazali, leader of Asaib Ahl al-Haq and Hadi al-Amiri leader of the Badr Organisation, and Ammar al-Hakim, Leader of the Hikma movement, and former Iraqi Prime Minister Nouri al-Maliki, in Baghdad, Iraq December 2, 2021. REUTERS/Stringer NO RESALES. NO ARCHIVES

“Sudani has made finding justice for the heist a top priority, he’s aware this can erode his popularity. He says, ‘I need to put more light on this heist, I need to bring people to justice,'” said a political consultant who recently advised Mr Al Sudani.

Enabling the heist involved what was described to The National as a “vast” network of people, at Rafidain bank, the Finance Ministry’s tax office, the Central Bank of Iraq, the Ministry of Transport and the Integrity Commission, including senior officials in those organisations, all of whom had to authorise the transfer of funds, move them and turn a blind eye to the pilfering, or falsify official reports.

At the tax office, a former finance ministry source said the account balance did not change to reflect the massive withdrawals, even when it had been emptied of funds, implying an intentional communication blackout on the movement of the money. The official said in a functioning bank, such rapid withdrawals would sound alarms "like a nuclear attack."

In his defence, former finance minister Mr Allawi, in a report prepared after the announcement of the theft, said that “normally” he would not have been required to authorise such transactions – meaning they were not brought to his attention.

Anything suspicious should have been reported to him by the Rafidain director general, he said. He accused Rafidain of a critical failure in anti-money laundering practices in not carrying out basic checks on the fake companies.

“Whether the directors general of Rafidain bank were indeed aware, or overlooked the matter, or were ignorant of it or unconcerned, the fact remains that they failed to inform the Minister of Finance of these alarming developments,” he wrote in late 2022.

The detail of Mr Allawi’s report, which runs to 200 pages, “is never heard of before in the history of Iraq corruption allegations”, said a former staff member of Mr Al Kadhimi. “There was a lot of debate on whether we should even make the report public. Powerful figures involved could make this disappear and that might have been easier for us.”

An Iraqi-American political researcher who has closely followed the case told The National he was convinced that one of Mr Al Kadhimi's advisers was guilty and had influenced key appointments at Rafidain. Mr Allawi has said on record that his advisers had no such authority, and among the accused advisor's tasks was fixing the aftermath of a previous scandal at Rafidain.

That corruption case, reported by The Economist, involved a banker recently linked to multiple US-sanctioned banks.

False investigations?

Mr Allawi says he had various meetings with the directors general of the tax authority and Rafidain after learning of the scheme to move funds to false companies, where he was assured by the directors general that cheques had been cancelled when the first attempt at the heist was discovered in August 2021. Later, when it emerged the same scheme was attempted again, he claims he was informed that the false companies were in fact legitimate.

Two later probes by the integrity commission under its former head Ala Jawad Al Saadi found no wrongdoing, a remarkable outcome given the number of sentences and arrests in the case so far. At the time, the commission's head of the investigations directorate was allegedly a close loyalist of Mr Al Maliki, the former integrity commission staff member told The National.

The former director general of the tax authority, Osama Jawdat, was arrested in January 2023, after an operation by Mr Al Sudani’s Supreme Committee for Combatting Corruption, an organisation led by Mr Al Basri, the Iran-linked spymaster.

Iraqi security forces stand guard as police vehicles are parked at a street after an attack by a drone strike on an Iran-backed militia headquarters in Baghdad, Iraq January 4, 2024. REUTERS / Ahmed Saad

Mr Allawi said on November 4, 2021 that he blocked all payments from the tax authority without his written permission, but later found that the withdrawals continued.

Most accounts of the heist begin around the summer of 2021, when Haitham Al Jubouri, head of the parliamentary finance committee, sent a letter to finance minister Mr Allawi requesting the termination of the Board of Supreme Audit’s role in the tax authority. The board is Iraq's oldest public auditing organisation.

Mr Jubouri, then an ally of former prime minister Mr Al Maliki who previously led an effort to remove ministers from positions in former leader Haider Al Abadi’s government for alleged corruption.

He has insisted the audit termination was done simply to cut bureaucracy that was slowing down return of tax funds. But the termination of the Board of Supreme Audit’s role - backed by the tax office's former director general and his deputy - is widely credited with allowing the theft to unfold at speed. Mr Jubouri was among those sentenced on Monday.

Friends in high places

A critical moment came four months before Mr Al Kadimi took office, in January 2020, when the caretaker government of prime minister Adil Abdul Mahdi allowed the Badr Organisation to appoint the director general of the tax authority. The move was compared by one expert to allowing a wolf to guard a henhouse, a man linked to a previous effort to defraud the tax authority in 2017.

The individual in question was “the heart of it, of the whole thing, and is strongly connected to the Badr Organisation”, says a US-based analyst who has investigated the case for a forthcoming public report. An Iraqi official in the finance ministry described this director general as the “mastermind” behind the heist.

The official in question went on to act as director general of Iraq's Re-insurance Company but resigned over the summer with no reason given.

Another official in Mr Kadhimi’s office – who was critical of the former prime minister and the finance minister for failing to spot the heist – told The National that the Badr Organisation was a key player. “You can guess the rest,” he said.

Despite the alleged connection to the Badr Organisation, the former finance ministry official said that he believed some of the accused linked to Mr Al Kadhimi may have been involved.

This leaves the question of why Mr Allawi signed off on ending the board's audit of the tax authority, by his own account, on August 26, 2021. “He simply couldn’t understand that something so obscene as the heist was possible,” the US researcher said.

“He’s very old school, Harvard-educated and I would argue still detached from how rotten things have become in Iraq. It just didn’t occur to him that something so brazen, so outrageous would happen.”

The sentencing of Mr Al Jubouri, a former adviser to Mr Al Kadhimi, could lead some to point fingers at the former prime minister. But two people in Mr Al Kadhimi’s office described Mr Al Jubouri as a political opportunist who had been forced on the prime minister, one of thousands of appointments that happened amid the horse trading of Baghdad’s political intrigue.

They highlighted the fact that he allegedly worked closely with the former Badr Organisation-linked director general of the tax authority when Mr Jubouri headed the finance committee in parliament. Mr Al Jubouri was also closely aligned to Mr Al Maliki, who was bitterly opposed to Mr Al Kadhimi.

In Iraq, where ministries are divided up among rival political parties in the “muhasasa” system, which extends to sub-ministerial appointments, the prime minister’s office is not spared.

“They have two circles of advisers, a close circle and an outside cycle. So those who gain positions through parties mostly are in the outside circle. So they are given the title, and that's it. The privilege and the title. Well, usually prime ministers don't listen to advisers, and if they listen, they listen only to those who are very close to them,” one of Mr Al Kadhimi’s former advisers said.

Another former staff member of Mr Al Kadhimi – who was less critical of the former prime minister – said “look, one of Sudani’s aides told me he has people on his staff that he’s never met. Jubouri attended two general meetings, nothing important. And the main corruption charges against him aren’t even related to the heist.

“In the big picture, the heist is the tip of the iceberg. Before that you had attempts to steal $6 billion from the pension fund. Nobody was caught during the actual stealing. They caught them while they were fighting over the money.”