Iraq’s corruption crackdown is a start, not a solution

New Prime Minister Ali al-Zaidi’s arrest of 47 officials is welcome, but the rot runs through the system that put him in power.

As charge d’affaires of the United States embassy in Iraq some years ago, I shocked US and Iraqi officials when I said the US Federal Reserve should end the shipment of US banknotes resulting from Iraq’s oil sales and replace them within three years with digital transfers. As shocking as that was then, it is now the case that 95 percent of dollar transfers to Iraq are digital. This initiative certainly helped bring the Iraqi banking sector closer to international standards, but it had a more important goal: to make corruption harder than simply passing someone a handful of “shayeb”, Iraqi slang for $100 bills.

But in Iraq, corruption is so pervasive that no single initiative or action will eliminate it, so new Prime Minister Ali al-Zaidi’s high-profile arrests of 47 officials, lawmakers and politicians on Sunday needs to be the first step in a years-long campaign if it is to make a significant difference to the lives of ordinary Iraqis. These particular arrests appear to be the result of an investigation into the Ministry of Oil’s undersecretary for refining affairs, Adnan al-Jumaili, and include about a dozen members of parliament whose immunity was lifted. After many years working in and on Iraq, it would not surprise me if the investigation exposed links between these politicians, their political backers and the Ministry of Oil. Because of Iraq’s ethnosectarian power-sharing model in place since 2003, ministries are seen as money factories for whichever party or group “owns” them.

The US government, of course, has long been aware of this institutional corruption and tried to address it by supporting the creation of anticorruption agencies, but many Iraqis viewed those agencies as centres of corruption themselves. “When the auditors demand bribes,” Iraqis would tell me, “you know that corruption is pervasive.”

More recently, however, the US government has taken a far more serious approach to cutting off the flow of dollars to Iran-backed militias, whose tentacles reach deeply into the Iraqi government and economy. As Iraqi security forces, backed by an international coalition headed by the US, liberated their territory from ISIL (ISIS) in 2017, the Popular Mobilisation Forces that had supposedly taken up arms to fight the armed group began to turn their weapons on the United States. Rocket attacks against the embassy resumed after a hiatus of many years, and attacks against US forces supporting the regular Iraqi security forces spiked.

The US called upon the Iraqi government to protect our personnel as invited guests in their country, but the militias proved too powerful and too dangerous for the government to take serious action. Officials would sometimes denounce attacks and call for an investigation, or even arrest two or three low-level militia members from time to time, but would always avoid taking serious action. As we often hear in Lebanon, which struggles with its own Iran-backed militia, Iraqi officials would tell us they did not want to risk a civil war. I realised just how much power the militias wielded in Iraq when people attacked the US embassy at the turn of 2020. Iraq’s Counter Terrorism Service stood alongside the attackers and watched them attack the embassy for two straight days.

So with the freedom to influence the Iraqi government through the threat of arms and knowing that Washington’s financial pressure could eventually reduce or cut off their official sources of funding, militia commanders moved into the economy. At first, they operated like a typical Mafia organisation, extorting cash from citizens by setting up highway checkpoints at the internal borders of northern Iraq’s Kurdish region, for example, and demanding “protection” payments from small businesses. But as parties backed by the militias gained more influence in the parliament and the government itself, they took over lucrative ministries and created, with state funds among other things, a giant conglomerate called the Muhandis General Company, which operates in nearly every major sector of the economy. The company is named after Abu Mahdi al-Muhandis, the militia leader killed alongside Qassem Soleimani in the US strike of January 3, 2020.

The US government should, therefore, be rightly concerned that some of the dollars it is transferring to Iraq as a result of its oil sales are moving through these militia-controlled ministries and companies into the hands of Iran. If al-Zaidi is trying to demonstrate his seriousness about tackling corruption before his July visit to Washington, DC, these arrests may be a good first step, but they are only symbolic for the moment. Tackling the corruption inherent in the ethnosectarian power-sharing system – and in the existence of political parties with state-funded armies more loyal to Tehran than to Baghdad – will be far harder.

About half of Iraqis do not use banks. The reasons are not hard to find: In 2022, corrupt politicians and businessmen made off with $2.5bn from the General Tax Authority’s accounts at the state-owned al-Rafidain Bank.

All of this is a tall order for anyone, but especially for a prime minister who needed the support of some of the same corrupt politicians and militia leaders to take office and must now tame them to root out corruption. I have no doubt that the US government and banking system will maintain pressure on him to do so for several reasons. The fewer dollars that land in the hands of Iranians and militias threatening US and Iraqi interests, the better. The more that American businesses can trust they can invest in Iraq without being robbed, the better. And the more Iraqis who can trust their own banking system, the better that will be for them and their economy.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.