Regulation of Border Crossings in Iraq: The Economic Necessity and Political Motivations

EPC | 13 Aug 2020

Under the title of combating corruption and maximizing the state's non-oil revenues to counter the repercussions of the coronavirus crisis, in July 2020, Mustafa al-Kadhimi's government began a campaign to restore control of the country's border crossings after having been left for many years to be looted by the networks of political and administrative corruption that cost Iraq huge financial losses. This step puts Kadhimi on a collision course with the dominant political and religious powers, particularly the pro-Iranian Shiite militias which have strongly got involved in exploiting the border crossings at both the economic and security levels.

Looted fortunes

Iraq has 27 official crossings: 16 land crossings (a number of which are inactive for various reasons), 5 ports, and 6 airports (the Nasiriyah airport is inactive). Those crossings are subject to the authority of the federal government represented by the Border Ports Authority, whose establishing law was approved by Parliament in 2016 as a body that reports to the Cabinet. In addition, there are six other crossings within the administrative borders of the Kurdistan Region. These operate in complete independence from Baghdad, similar to the five additional crossings that have been opened separately.

Since 2003, those commercial gates have been witnessing an unprecedented transportation traffic in the history of Iraq, as the country became flooded with enormous amounts of basic and luxury goods estimated at tens of billions of dollars annually. This has not only transformed the customs duties and taxes collected from those crossings into the second largest source of national income after oil, but also made them one of the worst stories of Iraqi financial corruption. Estimates of former and current economists and Members of Parliament (MPs) indicate that the actual customs revenues that should have entered the public treasury during the past years range between 6 and 12 billion dollars annually, based on the import permits submitted to the Central Bank of Iraq by traders and importers through government and private banks to justify the size of the huge funds that are being transferred abroad, while the actual revenues did not exceed one billion dollars over the past years, despite the doubling of the size of Iraq’s public budget several times, the record rise in the purchasing power of public sector employees whose number increased during the same period by 500 percent, and the increase in demand for all kinds of basic and luxury products and goods that had to be imported due to the cessation of most forms of local production due to the troubled security situation and the state’s inability to provide continuous and stable energy supplies, as well as the currency difference that made the prices of imported goods much lower than the cost of their local counterparts.

This huge accounting gap has widened over the years due to many factors whose individual effects varied according to the political and security situation surrounding each crossing, mainly:

1. Administrative corruption: similar to the rest of the government institutions, in which corruption has nestled due to weak oversight, lack of accountability, and the spread of favouritism and clientelism, each of the border crossings associated with the federal government has been transformed into closed corruption circles governed by a strict system, which is not affected by the change of officials and staff who often pay bribes in order to get appointed or avoid being transferred from the border crossings, with the aim of rapid enrichment from customs evasion and smuggling of bad, corrupt and contraband goods, despite the existence of offices of fourteen security and regulatory government institutions.

2. Partisan quotas: as one of the most government institutions generating national income, border crossings were subject to the rates of power-sharing among the influential political powers which, before 2014, reflected the form of local government for each of the border governorates. The Najaf airport is a typical example of this. Seats on its board of directors are distributed among the powers represented in the provincial council. The airport’s board of directors took over the airport’s income and, until two years ago, had been running it in a manner that is completely independent of the Iraqi government. However, after defeating the Islamic State (IS, Daesh), the criterion for influence and power over crossings has become the size of the armed wing of each political faction. For example, reports indicate that the port of Umm Qasr, through which the largest proportion of goods and commodities enters the country, is controlled by the Sadrist Movement, Asaib Ahl al-Haq (League of the Righteous), the Badr Organization, and the Hezbollah Battalions. Companies associated with the three parties monopolize the bulk of the loading, unloading and customs clearance operations, which leads to regular rounds of conflict, the last of which has been the storming of the port by an armed group affiliated with the Peace Companies (Saraya al-Salam) and its demand of the resignation of one of the port’s directors (the port is divided into three departments). The Shalamjah crossing in Basra, Al-Shayeb crossing in Maysan, and the Zurbatiyah crossing in Wasit are subject to a different benefit-sharing formula that takes into account the interests of smaller armed factions, such as Ansar Allah al-Awfiya (the Loyal Partisans of God), the Khorasani Battalions, Ansar al-Aqeedah (Supporters of the Creed), the Jihad Companies, the Harakat al-Nujaba (Nobles) Movement, the Sayyid al-Shuhada (Master of Martyrs) Battalions, and the Imam Ali Battalions. The Badr Organization controls alone the Al-Munthiriya and Mandali crossings in Diyala governorate, while the militia of the Hezbollah Battalions has grabbed the contracts for luggage transport at the Baghdad and Basra airports.

3. Disagreement with the Region: according to the Constitution, control of border crossings is one of the exclusive rights of the federal government, taking into account coordination with the authorities of the Region and the governorates. This has been practically reflected by a government decision to share customs revenues equally between the federal government, the local government of the Kurdistan Region, and the governorates that are not organized within a Region. However, on various pretexts, the Erbil government refused to enable Baghdad to exercise its constitutional rights, despite the fact that the crossings are actually run independently of Sulaymaniyah and Erbil, and that the customs duties and taxes collected therefrom, estimated at nearly four billion dollars annually, go to the coffers of the two major Kurdish parties, namely the Patriotic Union of Kurdistan (PUK) and the Kurdistan Democratic Party (KDP). They are not even subject to the supervision of the Ministry of Finance in the Region, given that the largest proportion of the goods passing through the Region's crossings is forwarded to the rest of the country. In addition, a large number of traders in central and southern Iraq prefer to introduce their imports from Iran, Turkey and Europe through the Region’s crossings due to the ease of their procedures, the quality of their service, and their freedom from the common practices of extortion prevailing in the rest of the Iraqi crossings.

Clash with the militias

Prime Minister Mustafa al-Kadhimi has been keen to launch his campaign to control the border crossings from the Mandali crossing in Diyala governorate on 11 July 2020. He was accompanied by commanders of the most prominent striking military and security units. Kadhimi’s move was interpreted as another shift in the escalating conflict with the [pro-Iran] loyalist factions in terms of putting pressure on their local funding sources, starting with Baghdad’s closest crossing which is reported to have been independently exploited by those factions despite its closure on 11 March 2020 within the framework of the quarantine to counter the spread of the coronavirus. This was implied by Kadhimi in his talk about "ghosts" that transport goods across the border without paying customs duties. He also threatened to grant security forces the authority to shoot anyone who violates the customs complex.

Kadhimi assigned the Joint Forces Command to secure protection of the land border crossings with Iran, and the maritime crossings on the Gulf. This request was conveyed to the Prime Minister by the head of the Border Ports Authority Omar al-Waeli as part of his plan to combat corruption at border crossings after the increase in incidents of storming the crossings and assaulting their staff by operatives of both religious and tribal militias which went as far as running a complex smuggling system, as well as limiting the right to work inside the crossings to the people loyal to them.

At the cabinet meeting that was held in Basra and headed by Kadhimi on 15 July 2020, Kadhimi reiterated his earlier remarks and then took a decision to dismiss eight senior Umm Qasr port officials who were affiliated with major militias.

However, some quarters questioned Kadhimi's capability to project the state’s power to the border crossings, arguing that those "ostentatious" steps would be futile for several reasons, mainly:

1. Assigning the Iraqi armed forces to control the border crossings provided the border crossings with protection against one type of security threats, namely the one posed by the armed tribes and organized gangs. As for the Shiite militias, no regular security or military unit can intercept their way for any reason whatsoever, given that most officers and operatives of the rapid response forces that were assigned the task of controlling the Mandali and Al-Munthiriya crossings belong to the Badr Organization, led by Hadi al-Amiri, Iran's close ally. In addition, the forces of the army, police and Popular Mobilization Committee (PMC) are already involved in widespread extortion practices against trucks passing through the checkpoints established by those forces on internal roads, including trucks transporting locally-produced fruit, vegetables and goods.

2. Replacing the directors and staff of border crossings periodically as decided by Kadhimi to prevent the formation of corruption rings will have a limited effect in light of the control by influential powers over the structure of the relevant ministries, and the capability of those powers to pass the names of their followers to occupy the same positions, thus continuing the customs evasion and smuggling operations in all its forms.

3. The difficulty of implementing the project of "automating" border crossings, which the Ministry of Finance promised to complete within the next six months, for many reasons, not least the deterioration of the facilities of land crossings and ports despite the hundreds of millions of dollars spent by successive governments on development and rehabilitation contracts. The influential powers, mainly the loyalist factions, may also be capable of penetrating the system, as was the case with the "Qi card" and "Mastercard" credit cards, which were intended to end the phenomenon of fraud in the lists of beneficiaries of social protection networks, and the fake names in the ranks of the PMC forces, but turned into a mechanism to seamlessly seize hundreds of millions of dollars annually in public funds without leaving any evidence.

4. Ignoring the issue of illegal border crossings, especially the oil smuggling platforms on the Gulf coast, which were inherited from the era of the previous regime, and which are run by a number of influential and powerful Basra families since 1991. These now have their own militias that are no less dangerous than the religious Shiite militias, which constitute the best partner to facilitate the smuggling of their own oil which they extract from the oil fields in the Sunni provinces. This raises question marks about the feasibility of tasking the naval forces with securing regular ports, even as they are unable to deal with the oil and drug smuggling networks that operate in Iraqi territorial waters, in case the accusations of their senior officers of complicity in facilitating those criminal activities are ignored.

The real benefits

Kadhimi's assumption is based on the idea that combating customs smuggling and organized smuggling will automatically lead to the collection of at least five billion dollars annually. This amount used to go into the pockets of the corrupt officials, crime gangs, and militias. Those concerned, including the head of the Border Ports Authority Omar al-Waeli, argue that calculating the value of the customs duties compared to the import permits submitted by private banks to the Central Bank of Iraq is by no means correct  because most of those permits are forged. They are used to take billions of dollars out of Iraq without anything coming from abroad in return. This has been known for a long time, and has been referred to by many politicians and MPs in the course of their criticism of the performance of the Central Bank, which does not take any action in order to stop the process of draining the country's wealth, and does not take effective measures to verify the credibility of private banks and the legality of their financial positions.

This element, which Kadhimi does not seem to take into account, considering that he did not rush to replace the governor of the Central Bank Ali Mohsen al-Alaq with an independent professional figure, shows the size of the bets of the influential powers, especially those loyal to Iran, on the continued state of chaos in the border crossings, considering that knowing the true volume of trade exchange will lead to preventing the addition of new figures to the hundreds of billions that have been smuggled after having been seized from the allocations of nine thousand fake government projects (the greater part of the allocations of those projects were paid in advance, in violation of the law, against small completion rates), doubling the value of government supplies in various fields and the salaries of fake civilian and military personnel. In addition, Iraqi and Lebanese banks associated with the Iranian Revolutionary Guards Corps and its agents smuggle dollars through the border crossings. Those banks were given preference in participating in the daily hard currency auction organized by the Central Bank of Iraq to meet the need of the various activities for the US dollar. This enables them to collect additional gains from the difference between the official exchange rate and the market rate. The bulk of that money went to financing the Iranian war effort in Syria and mitigating the impact of the US economic sanctions imposed on Iran.

On the other hand, while the Joint Forces Command announced, in a festive tone, the imposition of control over 14 land and sea ports with Iran, Kuwait and Jordan, in addition to the ports of Basra, no government source mentioned the Al-Waleed crossing with Syria which occupied the top of local news early July 2020 when members of the Hezbollah Battalions in Iraq kidnapped a customs officer after he tried to search a number of trucks that they were intending to introduce into Syria, against complete official silence on the conditions at the crossing which was reopened in October 2020 after severe pressure from the loyalist factions, as well as on the situation in the entire district of Al-Qaim which is adjacent to the Syrian border and which has become more like a closed military zone from which the Battalions - through two unofficial crossings, one facing the Al-Baghouz area, and the other south of the Husaybah crossing opposite the Albu Kamal area - run large smuggling operations that include agricultural products, oil, weapons and drugs.

By linking this with the control by the Hezbollah Battalions in Iraq over the northern port of Umm Qasr and the airports of Baghdad and Basra under the guise of the luggage transport companies, which gives them full access to all the facilities of the two airports, with the likelihood that the same is taking place at Najaf airport, the picture of the strategy that Iran's allies are working on becomes clear regarding all border crossings, following the example of what the Lebanese Hezbollah did at Beirut airport and the Lebanese crossings.

Expectations

Kadhimi's campaign to control the border crossings is expected to achieve limited positive results. However, it will not completely end the state of corruption and abuse in this important sector. The facts that reinforce this expectation are as follows:

1. The transformation of the border crossings into one of the most important sources of money for the Shiite powers, especially the loyalist factions and the Sadrist Movement, in light of the stifling financial crisis that is hitting the country and that has forced the federal government to stop spending on infrastructure projects and squeeze other expenditures. This has reduced the opportunities for benefitting from public funds through the referral of government contracts and projects in favour of companies affiliated with partisan economic organizations.

2. The strategic security nature that has come to characterize the issue of control over border crossings for the loyalist factions, especially the Hezbollah Battalions that tightened their grip on the Baghdad and Basra airports, the northern port of Umm Qasr, and the Al-Qaim border area with Syria, as well as the smooth access through other official and unofficial crossings.

3. The state of synergy between administrative corruption and political corruption. This has converted the practices of extorting merchants and exploiting influence into an established culture among border crossing officials and a target for the greater proportion of those seeking a position there. These usually approach parties and militias to obtain a recommendation to win such a job in exchange for a guarantee of their illegal interests.

4. There is no prospect for switching from a paper-based system to an electronic system in conducting customs clearance processes, which facilitates the task of disposing of evidence of evasion and smuggling operations by deliberately starting fires in document-keeping departments.

5. Threatening of the members of the forces assigned to secure the perimeter of the border crossings and the new teams of staff by the Shiite militias, especially that Iran has greatly reduced the size of its financial support for those militias to ensure their cooperation in facilitating smuggling operations.

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