CBI Rolls a List of Decrees to Control Illegal Forex Exchange
2023-08-03
The Central Bank of Iraq (CBI) has issued a list of regulations to control the foreign currency trading in the parallel markets, reiterating its commitment to providing currency through official channels for all legally permissible transactions.

“The source of the US dollar circulating in the local markets is the Central Bank of Iraq, which offers it through banks and exchange companies at the official rate of 1320 dinars per dollar,” the CBI said in a press release, “the so-called ‘parallel market’ has no truth to it, and what is traded is speculative with fixed-price currency and is illegitimate trading.”

According to the statement, the CBI is the primary source of foreign currency in Iraq, and all claims of an independent “parallel market” are entirely unfounded. Such descriptions are only applicable when the market has its particular sources from private sector exports, local tourism, residents’ transfers abroad, etc.

As part of its strategy to achieve the main public objectives, including stabilizing the exchange rate, the CBI has also announced a new system focusing on the execution of all foreign remittances and documentary credits via an electronic platform. This platform allows for meticulous pre-audit checks, verification of the final beneficiary, and safeguards all parties from both domestic and international risks.

In addition to this, personal remittances abroad for education, healthcare, personal needs, and retiree salaries for residents abroad will be facilitated through international money transfer companies like Western Union and MoneyGram.

Travelers will be provided with dollar bills at the official rate through banks and exchange companies, and these transactions will be carried out through an electronic platform for verifying the authenticity and purpose of these amounts.

The mentioned system, in its three dimensions, limits any practices that could expose Iraq and its banking sector and financial institutions to risks. By providing and opening these channels for legitimate purposes, dealing with the dollar outside of them becomes an illegal practice subject to legal accountability towards the parties involved. No party or individual has the right to trade a dollar originating from the Central Bank, which sets the price, channels, limits, and purposes for its use. Trading and dealing with it outside of authorized entities is considered a prohibited activity under the law. As stipulated by the Banking Law No. (94) of 2004 in Article (3), no person is allowed to engage in activities involving the receipt of deposits or other payable funds from the public without obtaining a license or permit issued by the Central Bank of Iraq.

The implementation of the foreign remittance system, documentary credits, and cash sale of foreign currency involves achieving economic, regulatory, and legal objectives, including the following:

1. Enhancing Anti-Money Laundering and Counter-Terrorism Financing Measures: It aims to fend off local and international sanction risks for all related parties.

2. Ensuring the Integrity and Transparency of Iraq’s Imports: By directing imports within channels that ensure the safety and transparency of operations, the system also provides essential data and information for planning, regulation, and control purposes.

3. Generating Additional Revenue for the State: This can be achieved by subjecting all imports to comprehensive registration procedures and subsequent fees.

4. Gaining the Trust of Credible International Banks: This move will expand the network of relationships between the local and foreign banking sectors and increase the number of Iraqi bank correspondents.

5. Closing Illicit Foreign Transfer Channels: It also helps in containing the proceeds of crimes and corruption and preventing them from escaping abroad.

6. Preventing Import Goods from Being Affected by Exchange Rate Differences: This includes avoiding the higher costs incurred when purchasing at an unofficial market rate from the black market, leading to price increases and a negative impact on the citizens’ purchasing power.

“The people who buy the dollar from the market and provide an opportunity for speculators and beneficiaries, and trade at an unofficial exchange rate, are:

1. Importers among traders: who do not follow the proper methods in foreign transfer operations (remittances and documentary credits) through the electronic platform, available to them at the official rate. They attempt to collect cash dollars exclusively allocated for citizens’ travel from the market, or by using electronic payment cards designated for citizens’ purchases and expenses abroad or for personal transfers for legitimate purposes.

2. Importers of prohibited or narcotic substances such as drug dealers, or materials that do not pass through official border crossings to escape legal or customs requirements, such as importers of cigarettes and some importers of precision devices. They resort to the market to buy dollars not allocated to them to settle their obligations.

3. Those who achieve returns from the proceeds of crimes, such as bribes, thefts, kidnappings, extortion, sale of prohibitions, etc., and seek to transfer them abroad to conceal them.

4. Citizens who pay for their purchases of goods and services inside Iraq in dollars, prompting them to buy the dollar from the market. Since there is no allocation from the Central Bank’s dollar sales for this purpose, their purchase comes from a share allocated for other purposes, especially travel.”

“To address the mentioned phenomena, and reduce the phenomenon of the illegitimate market and a higher exchange rate than determined, work is underway with the government and related entities to take the following measures:

– Requiring traders and importers to use the designated channel through the electronic platform, achieving the objectives of this system and preventing the use of cash dollars in the market for purposes other than their intended ones. This requires obliging this category to provide proof of their import amounts originally when their goods enter Iraq at official border crossings.

– Encouraging and supporting the traders’ categories to enter the electronic platform by simplifying procedures, especially tax ones, defining their ceilings in advance according to categories, and depositing them in the account of the General Tax Authority through their accounts in banks.

– Tightening control over official border crossings and closing unofficial ones, coordinating between the federal government and the regional government regarding regulating the entry of goods and the fees imposed on them, and preventing the entry of prohibited and legally banned materials.

– Strict application by the competent authorities of Cabinet Resolution No. (23026) for 2023, which includes limiting the sale and purchase of goods and services in Iraqi dinars within Iraq.”

“We call for providing official, popular, and media national support in implementing the above, to achieve the referred goals, preserving the integrity of the movement of funds and foreign trade, and warding off risks from the country and its banking sector and financial institutions, through compliance with the rules of the law on combating money laundering and terrorist financing, and related international standards and practices,” it concluded.