Graft main worry for investors in Iraq
By Tim Cocks, analysis
September 26, 2009
stock deal between Iraqi Kurdish officials and a
foreign oil company has shone an embarrassing
spotlight on widespread graft that may threaten
investment and growth in the prosperous northern
Kurdish officials are not
accused of breaking any laws, but their secret stock
purchase from Norway's oil firm DNO International (DNO.OL)
last year raises new doubts about the northern
enclave's new initiative to curtail corruption,
boost transparency and loosen close political ties
Talk about widespread graft and the commercial clout
of two parties dominating the Kurdistan Regional
Government (KRG) could ultimately deter business in
a region seen as a stable corner of a nation
otherwise plagued by legal and security risk.
While the KRG rejects
systematic corruption, it unveiled the drive before
regional polls in July, when wide discontent gave
opposition groups unprecedented gains in the Kurds'
No top officials have been charged of corruption,
but ordinary Kurds say they need no proof of the
failure to track money spent on public works,www.ekurd.net
of contracts awarded to close associates rather than
on the basis of competitive bidding or palms that
need to be greased before deals can be closed.
"There's outright corruption: officials making money
from contracts ... and the other one, which is more
subtle: the way two political parties run the show.
You have to belong to one to get jobs, to get
influence," said Henri J. Barkey, analyst at
Washington's Carnegie Endowment for International
The new initiative was thrust into the spotlight
this week when the KRG suspended DNO's oil
operations in Kurdistan due to a disclosure from
Norway the KRG had bought DNO shares that were then
passed on to DNO's Turkish partner Genel Enerji.
The transaction last October was not disclosed to
the Oslo Stock Exchange, and Norway's financial
watchdog has now urged a police investigation. The
KRG says no officials benefited from the sale but
said the flap caused it "unjustifiable ... harm".
The KRG hired accounting firm PriceWaterhouseCoopers
to implement its new transparency strategy, a bid
which reflects in part discontent from voters
increasingly worried about at-home issues rather
than age-old feuds with Baghdad over land and oil.
KRG officials admit it could be years before they
root out a pervasive culture of graft, which some
say is partly the result of an intersection of a
traditional, tribal society based on patronage with
modern institutions that handle big sums of cash.
"Some things that are seen as corrupt are very, very
normal ... part of the natural culture here,"
Jhilwan Qazzaz, an advisor in the KRG prime
minister's office, told Reuters.
"We're not looking at changing anything overnight.
We're looking at the next 4-5 to 10 years, even ...
Frankly, this is a brave step. There's going to be
lots of opposition to it."
The KRG website says the aim of the initiative is
"tackling corruption, fraud, waste and abuse" and
"We're going to draw a line in the sand and say
'From now on, this is the new way of working'", said
Qazzaz. "Those that are not on board, we're going to
be hitting you with the stick."
Yet analysts are sceptical of whether the ruling
alliance of Kurdish President Massoud Barzani's
Kurdistan Democratic Party (KDP) and Iraqi President
Jalal Talabani's Patriotic Union of Kurdistan (PUK)
really have the political will to go after anyone
bigger than low-level,www.ekurd.net
The two presidents hail from Kurdistan's two most
powerful families, which are influential in business
Foreign investors complain of having to partner with
local firms which invariably have strong ties to one
"Corruption ... is part of the ruling elite's way of
doing business," said Toby Dodge, an Iraq expert at
the University of London. "To actually stop the
corruption surrounding the two dominant families
would be to put their survival in doubt."
Dodge said Washington, from which Kurds still feel
they need protection after Saddam's persecution,
could pressure reform.
There are also new internal pressures. Change, an
opposition group led by Noshirwan Mustafa, was
virtually unknown until it won a quarter of seats in
parliament on an anti-graft message.
KRG officials deny cronyism and blame a few bad
"The issue is exaggerated," said Mohammed Ihsan, KRG
minister for extra-regional affairs. "Any country
where you have such rapid change, expect some
corruption. As political parties, KDP and PUK are
not going to give someone a high position like a
minister if he's not in the party. That's normal
Ultimately, Kurdistan's best hope could be the
incoming Prime Minister, Barham Salih, a widely
respected former Iraqi deputy PM who has been vocal
about the need to curb graft.
"He's clean as a whistle," said Barkey. "That the
opposition did well in a way strengthens his hand.
He'll be able say: look, we got almost hung by these
guys because of corruption and I need to do
something about it."
author or news agency, Reuters
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