Central Bank of Iraq (CBI)


Convictions in $600m Dinar Fraud

The co-owners and chief operating officer of one of the largest Iraqi dinar exchangers in the United States were convicted last month by a federal jury following a five-week trial.

Tyson Rhame, James Shaw, and Frank Bell were each convicted of mail and wire fraud conspiracy, as well as multiple counts of mail and wire fraud. Rhame and Bell were also convicted of making false statements to federal law enforcement agents.

“These executives engaged in a lengthy campaign to defraud investors by spreading lies about the investment potential of the Iraqi dinar,” said Acting U.S. Attorney Kurt R. Erskine. “These convictions resulted from years of investigation, which included dozens of electronic and physical search warrants, hundreds of witness interviews, and extensive financial analysis.”

“The conviction of these three defendants is the result of an extensive effort by the government to protect investors from those who make unsubstantiated claims about the potential revaluation of a foreign currency,” said Chris Hacker, Special Agent in Charge of FBI Atlanta. “Their greed led them to steal the hopes of unsuspecting investors and ultimately led them to their demise. The FBI and its partners make it a priority to root out and punish anyone who preys on investors for their own selfish desires.”

“This was a trial about fraudulent inducements, conspiracy, investment fraud and outright greed,” said Thomas J. Holloman, Special Agent in Charge, IRS-Criminal Investigation. “Rhame, Shaw, and Bell saw an opportunity to build their personal net worth and business position in the currency market by seizing on investors’ desire for high returns on their investments. At the end of the trial, the jury agreed with the government and found the Sterling Currency Group co-owners and chief operating officer guilty of the conspiracy and the underlying frauds. Despite the challenges these complex cases present, IRS-CI is committed to working with our partners at the FBI, and the U.S. Attorney’s Office to show white-collar fraud is still an investigative priority.”

According to Acting U.S Attorney Erskine, the charges, and other information presented in court: Rhame and Shaw owned and operated the Sterling Currency Group, which was once one of the country’s largest sellers of the Iraqi dinar. Bell was Sterling’s chief operating officer. Between 2010 and June 2015, Sterling grossed over $600 million in revenue from the sale of the Iraqi dinar and other currencies, while Rhame and Shaw received over $180 million in distributions.

The evidence at trial established that the defendants took steps to make investors believe they would get rich by investing in the Iraqi dinar. At one point, Rhame posted information on Sterling’s website falsely suggesting that the dinar was about to revalue. At other times, Rhame and Bell falsely claimed that Sterling would cash out investors at airports around the country following a dinar “revaluation.” The defendants also paid substantial sums of money to third parties who in turn spread false information about the dinar on conference calls and Internet chat rooms.

Tyson Rhame, 53, and James Shaw, 55, both of Atlanta, Georgia, and Frank Bell, 55, of Decatur, Georgia, were convicted of conspiracy to commit mail and wire fraud and multiple mail and wire fraud counts. Rhame and Bell were also convicted of making false statements to federal agents regarding Sterling’s operations. The jury acquitted the defendants of money laundering charges. A fourth defendant, Terrence Keller, was acquitted of all charges at trial.

(Source: US Dept of Justice)

Iraq’s Foreign Reserves top $60bn

By John Lee.

The Central Bank of Iraq (CBI) has announced that the county has foreign reserves exceding 60 billion dollars.

In a statement on Wednesday, the bank said the reserves are “a result of the fiscal and monetary policies adopted by the Central Bank over the past years to stabilize the general financial situation, especially in 2014 and the years that followed, with financial conditions at their lowest levels“.

(Source: CBI)

Iraq issues new Banknote Designs

By John Lee.

The Central Bank of Iraq (CBI) has released a series of new banknote designs, which will enter circulation next week.

According to a report from Rudaw, the notes are intended to modernise the currency and better reflect the nation’s heritage and diversity.

It adds that the CBI does not plan to recall old banknotes.

(Sources: CBI, Rudaw, Xinhua)

“Steady Increase” in the Iraqi Dinar

By John Lee.

There has been a steady increase in the market price of the Iraqi Dinar (IQD) versus the USD, according to an Iraq Business News Expert Blogger.

In his market report for the month of June, Ahmed Tabaqchali said the premium over the official exchange rate has fallen to 1.2 percent, the lowest point in a number of years, from just under 6 percent at the end of 2017 and 10 percent at the end of 2016.

FX spreads are one of many sources of revenues for the higher quality banks but constitute the bulk of earnings for the lower quality banks“, he adds.

Read Ahmed Tabaqchali’s full report here.

Newtechnic wins Contract for new Central Bank of Iraq

By John Lee.

Newtechnic, which describes itself as a world leader in building engineering technology, has reportedly won the contract to design the facade and oversee the co-ordination and construction of the new Central Bank of Iraq (CBI) building in Baghdad.

According to New Civil Engineer, the building, designed by Zaha Hadid Architects (ZHA), will be 172m high and will stand on a 200m by 100m podium.

Chief Executive Andrew Watts said he will deploy UK- and US-based design-engineering teams to work on the project, which is expected to be completed by 2021.

More here.

(Source: New Civil Engineer)

Market Review: Market Consolidates & Banks Correct

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The market’s consolidation continued for the second month running with both turnover and the market continuing to decline. Average daily turnover declined by about -57% from that of the prior month, itself down about -15% from the preceding month. The market, as measured by the RSISUSD Index, paced these declines, down -5.8% for the month (see chart below) but up +10.1% YTD.

While a monthly market decline of -5.8% following a -2.6% decline the prior month might be thought of as a correction and a not a consolidation. Yet the term consolidation is more appropriate given the internal market dynamics which are not captured fully by the RSISUSD Index given its heavy representation by banks with a 51% weighting and almost 40% of that accounted for by lower-quality banks.

(Source: Iraq Stock Exchange (ISX), Rabee Securities, Asia Frontier Capital (AFC))

Buying by both locals and foreigners continued in the high-quality names such as mobile operator Asiacell (TASC) and Pepsi bottler Baghdad Soft Drinks (IBSD), up +68% and +49% respectively YTD. Foreign buying in these names has been consistent and persistent since early December, 2017 driven by improving fundamentals as discussed in January’s article. The high-quality banks which joined the rally in February, discussed in February’s article, have been dragged lower over the last two months by concerns over the earnings outlook for the lower-quality banks.

This concern has been driven by the declining margins on foreign exchange dealings as a consequence of the narrowing of premium of the market price over the official exchange rate of the Iraqi dinar (IQD) vs the USD, as will be explained below.

As discussed in the last few months, increasing signs of an improvement in liquidity in the broader economy have resulted in steady improvement in the market price of the IQD vs the USD, lowering its premium over the official exchange rate to 1.2%- the lowest point in a number of years from just under 6% at the end of 2017, and  10% at the end of 2016 (see chart below). Although, the premium would likely return to the 2-4% range once this liquidity feeds into increased consumer spending and the resultant increase in demand for imports.

(Source: Central Bank of Iraq, Iraqi currency exchange houses, Asia Frontier Capital)

(Note: The Spikes in 2012, 2013 & 2015 were due to CBI policies that restricted the sale of USD, but abandoned after causing a rise in market rates)

The Central Bank of Iraq (CBI) conducts daily currency auctions in which participating banks buy the USD at the official exchange rate on behalf of clients: international transfers mostly to finance private sector imports, and fixed/limited cash payments to meet citizen’s needs for travel. The attractiveness of buying the USD at the official rate and selling it at the market rate has made the system susceptible to abuse and has led to lower-quality banks focusing on it almost exclusively as a source of revenues.

Higher quality banks, in particular those majority owned by regional banks, have either avoided the auctions or tended to use them sparingly especially in the last two years. The upshot is that while FX spreads constitute the bulk of earnings for the lower quality banks, they are one of many sources of revenues for the higher quality banks.

Worries on the banks’ earnings power from shrinking FX spreads have been one of many reasons that high-quality banks have outperformed the lower-quality ones in the last few months, yet the speed of the narrowing of FX spreads has led to fears that this would affect the higher quality banks in a similar fashion. Coupled with foreign selling in some of the higher-quality names exasperated these declines and resulted in them trading at valuations that are at extreme odds to the underlying improving fundaments in their outlooks.

These are the bottoming of the negative developments that prevailed over the last three years, i.e. declining/negative deposit growth, declining/negative loan growth and increasing non-performing loans (NPL’s). Their outlook is brightening as the expansionary effects from the reversal of the escalating costs of conflict and collapsing oil prices that crushed the economy in 2014 provides them room to recover further and grow.

The valuations of the higher quality banks are as attractive as they were in mid-2017, discussed in the July 2017 article, but the current outlook and the state of the economy are significantly better today.  The table below is a snapshot of current valuations of three of the “bluest-chip” banks, but to appreciate the significance, a quick review of the banking sector:

  • Less than 20% of the population have bank accounts and out of those that do, about 60% have their deposits and loans with state banks, which in turn control over 90% of total assets and deposits;
  • Lending is a small part of most bank’s income stream which is mostly from trade related fee income esp. trade financing, other fee income, interest income from T-Bills, and deposits with the Central Bank of Iraq (CBI);
  • Banks are extremely liquid; most assets are in cash and cash equivalents, consisting of cash deposits with other banks and with the CBI, CBI & Ministry of Finance T-Bills;
  • Book values are understated vs banks elsewhere given the low interest income generation and the high dividend-pay-out ratio;
  • Note: Bank of Baghdad’s dividends are assumed to be in-line with last year’s which might be optimistic, Mansour Bank’s are based on dividends declared in March and Commercial Bank’s are based on its stated dividend intention to be confirmed in its upcoming AGM next week.

(Source: Company reports, ISX, AFC, Data based on latest trailing 12 months)
(Note: Prices as of 03 May 2018. Fundamental data from the latest quarter (unaudited) and not average of last two years as in the last few quarters some banks have cut their loan books significantly through increased provisions and write-offs and enforcing loan repayments)

As reported in the March article, the improved government finances have yet to be reflected in a return of liquidity to the economy as measured by growth in broad money supply.  While this is likely to happen over the next few months, the timing would probably be delayed and complicated by the uncertainties and government paralysis ahead of the parliamentary elections on 12th May, and the subsequent negotiations over the formation of the new government.

The low turnover during the month, a likely function of the uncertainties during the election season, underscores that the increased liquidity in the form of both local and foreign inflows reported over the last few months needs to be maintained for the market’s consolidation to lead to further recovery and for this recovery to be sustainable.

The backdrop continues to be positive as the sustained improvements in government finances should ultimately lead to better market action. The time lag involved coupled with the election uncertainties, implies the recovery will likely unfold over the next few months and it will likely be in fits and starts with plenty of zig-zags along the way. Which continues to underscore the opportunity to acquire attractive assets that have yet to discount a sustainable economic recovery.

For those who have not been to Baghdad recently, this article is worth a read as it shows that the decline of violence is felt with a return of night life in Baghdad.

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS). He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

Iraq Targets Terrorism Financing with Blacklist

By Wassim Bassem for Al Monitor. Any opinions expressed here are those of the author and do not necessarily reflect the views of Iraq Business News

The UN’s committee overseeing sanctions on the Islamic State and al-Qaeda has approved an Iraqi request to include Al-Kawthar Money Exchange and its owner Umar al-Kubaysi, as well as Salem Mustafa Mohammed al-Mansour, aka Salem al-Afri, on the UN sanctions list.

On April 17, 2017, the Central Bank of Iraq announced the inclusion of Al-Kawthar Money Exchange and its owner in its blacklist as a result of their support for terrorist groups.

Parliament member Majida al-Tamimi, who serves in the finance committee, told Al-Monitor that Iraq is pursuing the inclusion of “other individuals and companies in the list of UN sanctions upon proof of their funding of IS.”

She said, “I have a lot of documents that confirm the involvement of figures, organizations and banking companies in the support of terrorism.” She declined to name them but confirmed that the government is looking closely at money transfer services, saying, “Funds are sent by parties in Turkey and the Gulf countries and end up in the hands of IS leaders.”

She went on, “Money transfers are done through legal channels because those involved carry official identity cards with clear names and documented information, and they use official methods for transferring the money. Also, contacts are made through new and cheap technologies that enable them to carry out money transfers quickly and easily.”

She revealed that around 45 lawsuits have been filed against money transfer services “in the wake of accusations that were reinforced by Iraqi intelligence.”

While Tamimi predicted that “Iraq will succeed in drying up the sources of terrorism,” Wathiq Jabri, adviser for the Iraqi Center for Media Development, told Al-Monitor that the information in his possession indicates that the Iraqi state is working on names to include in the domestic and UN sanctions list.

He added, “The inclusion of these companies has a decisive impact on the Iraqi and global arenas in terms of cutting off the funds going to IS, especially as the money transfer companies and the financing means are transboundary and multinational.”

“The inclusion of companies on the list of UN sanctions is perceived as progress by Iraqi diplomacy in persuading the international community to fight terrorism,” he noted.

The role of small exchange offices associated with IS seems to have been critical in securing funding, especially in 2014 and 2015, allowing IS to take part in currency auctions organized by the Central Bank of Iraq. IS earned hundreds of millions of dollars in profits this way. According to the French authorities, more than 200 exchange offices in Lebanon and Turkey finance IS’ activities.

Furat al-Tamimi, parliamentarian for the province of Diyala, said in a 2017 press statement, “After its defeat in Iraq, IS is resorting to kidnappings to fund the activities of its dormant cells, and that the ransoms it obtains from the kidnappings amounted to about $45 million in 2017 alone.”

Meanwhile, Iskandar Watout, a member of the parliamentary security committee, told Al-Monitor, “IS has increased its kidnappings in the past couple of months through external roads, the outskirts of cities in the north of Baghdad and areas adjacent to the Kurdistan region, and these currently serve as the main source of funding for the organization.”

He went on, “The security services have monitored antiquities smuggling and trafficking operations carried out by traders who finance IS and smuggle antiquities in the desert far from security control in Mosul and Anbar.”

He pointed to another source of terrorist financing: drug trafficking. He stressed, “Iraqi intelligence agencies have accurate intelligence on the parties and figures that fund IS,” but refused to name any, citing ongoing legal proceedings in Iraq and abroad.

Al-Qadaa newspaper reported April 9, “The terrorist organizations have close links with organized criminal gangs that specialize in money transfers and laundering and the smuggling of people across countries.”

IS seems to be financially hanging on. The Economist reported Feb. 23 that IS still had a lot of money after managing to smuggle $400 million into Turkey and other countries after its defeat in Iraq and Syria. Minister of Labor and Social Affairs Mohammed Shayyah al-Sudani revealed March 24, “A ministry official in Mosul served as a minister within IS,” and noted, “There are employees at the ministry who worked for IS during its control of the city.”

(Picture: Iraqi dinars, from Wollertz/Shutterstock)

Iraq plans New Bond Issue in 2018

By John Lee.

Following Iraq’s successful return to the bond markets earlier this year, it is now reportedly planning a $2 billion sovereign bond issue in 2018.

The Governor of the Central Bank of Iraq (CBI), Dr. Ali Mohsen Ismail Al-Allaq [Alak] (pictured), told Reuters that the plan is currently awaiting parliamentary approval.

He added that Iraq’s foreign currency reserves have risen from $46.5 billion at the end of 2016 to $49 billion , helped by the increase in oil prices.

The country’s budget deficit is running at around $15.4 billion to $16.3 billion.

(Source: Reuters)

Statement from IMF Mission on Iraq

The Iraqi authorities and the staff of the International Monetary Fund (IMF) continued discussions in Amman from November 17 to 21, 2017 on the third review of Iraq’s 36-month Stand-By Arrangement (SBA).

The IMF Executive Board approved the SBA on July 7, 2016 (See Press Release No. 16/321), and completed the second review on August 1, 2017 (See Press Release No. 17/311).

At the end of the mission, Mr. Christian Josz, Mission Chief for Iraq, issued the following statement:

The Iraqi authorities and IMF staff continued discussions on the third review of the SBA and made good progress towards reaching agreement on a draft 2018 budget in line with the SBA.

“During the discussions, the team met with Acting Governor of the Central Bank of Iraq (CBI), Dr. Ali Mohsen Ismail Al-Allaq, Acting Deputy Minister of Finance, Dr. Maher Johan, Deputy Minister of Planning, Dr. Qasim Enaya, Financial Adviser to the Prime Minister, Dr. Mudher Saleh, Chairman of the Board of Supreme Audit, and officials from the ministry of finance, CBI and the ministry of oil. The team would like to thank the Iraqi authorities for their cooperation and the open and productive discussions.

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.

(Source: IMF)

Central Bank orders Banks to Halt Operations in Kurdistan

By John Lee.

Rudaw reports that the Central Bank of Iraq (CBI) has called on all Iraqi banks to halt their operations in the Kurdistan Region indefinitely.

It says that any bank that disobeys will no longer receive foreign currency transfers from the central bank.

Banks have reportedly been given one week to inform Iraq’s financial regulator of what steps they have taken to halt their operations in the Kurdistan Region if they want to continue to trade foreign currencies with the Central Bank.

More from Rudaw here.

(Source: Rudaw)