Volume 1 - Iraq Watch

The CBI did not make extra payments directly to anyministries or to the Diwan, including the IIS and theMIC. Payments were made to the MOF accounts atthe Rasheed and Rafidian Banks, and then distributed.At the end of the month, the CBI would send anaccount of what was sent to the Rasheed and RafidianBanks to the MoF. After two or three days the MoFwould instruct the CBI to print Iraqi Treasury Bondsas an accounting procedure to balance the books. Iraqdid not have a more formal economic or rigorousmonetary policy.State-Owned BanksIraqi had two state-owned commercial banks: theRafidian and the Rasheed. Both the Rafidian Bankand the Rasheed Bank accounted for about $1.8 billionin assets, or about 86 percent of the total assetsin Iraq’s banking system.Rafidian BankThe Rafidian Bank was owned by the Ministry ofFinance and was founded in 1941. It was the largest,oldest, and most important commercial bank in Iraq.It handled much of the Regime’s foreign assets. Thecentral branch of Rafidian bank was located in Baghdad.The chairman and General Manager was Diya’al-Khayyun. In addition to the Baghdad Headquarters,there was a main branch in Basrah; and over 164smaller branches located throughout Iraq. There wereeight overseas branches in Bahrain, Egypt, Jordan (2),Lebanon, United Arab Emirates, Yemen, and GreatBritain.Rafidian Bank was primarily a conduit for transferringmoney out of Iraq. Several branches wereinvolved in passing illicit revenue from oil and cigarettesmuggling around the Middle East. In the Februaryto April 2002 timeframe, Mufid ‘Aziz (Directorof Rafidian Bank) and ‘Abd al-Huwaysh all-Mukhtar(Regional Director of the Rafidian Bank) withdrew$50 million from accounts at the Commercial Bank ofSyria.Rasheed BankThe Rasheed Bank was Iraq’s second largest commercialbank with 170 domestic branches. It was government-ownedand established in 1988. It operatedoutside Iraq through correspondents. The RasheedBank was established to provide competition forRafidian, primarily in Iraq.Specialized Credit BanksIraq also used four specialized state-owned banks:the Agricultural Bank, the Industrial Bank, the RealEstate Bank, and the Socialist Bank, all which collectivelyaccount for about seven percent of the totalassets in the banking system. These four banks wereestablished to increase the flow of financial supportto certain sectors of Iraq’s economy such as agriculture,industry, business creation, and real estate.They played virtually no role in Iraq’s illegal financialtransactions during sanctions.Privately Owned BanksIn the face of decreasing foreign currency reservesheld in country and an increasing illiquid domesticbanking system, the CBI and MoF in approximately1992 successfully petitioned the government to allowthe licensing of new private commercial banks. ByFebruary 2003, there were approximately 18 privatecommercial banks. These private banks offered superiorservice, were more computerized, and were fastergrowing than the state-owned banks. By early 2003,the private banks held the majority of private-sectoraccounts and deposits, although the governmentministries and state-owned enterprises still bankedprimarily with state-owned banks.Private banks were set up with capital from individuals.Under Iraqi banking laws, no one individualwas allowed to own more than a five-percent shareholding in a private bank. The quality of managementof the private banks was better than the governmentmanagedbanks. The private banks were able to offerbetter salaries, and attract the best candidates from thebanking sector.According to a senior Iraqi Government official, inorder to evade controls under international sanctions,the government of Saddam used private commercial254