The Islamic State's infamous rule over vast areas of Iraq during 2014 and 2016 not only led to a humanitarian crisis, but also left the country's economy depleted. Its expansion in Iraq, marked by its control over vast areas of the country, most notably capturing the city of Mosul in June 2014, also allowed the organisation to seize over 121 bank branches according to the Central Bank, in what was described as one of the largest bank robberies the world has ever seen. Across its operations, the Islamic State (Daesh) stole a total of approximately $830 million.
Despite this, some banks, including Deutsche Bank and specifically its US branches, continued to allow money transfers to be sent to Iraq despite the group's control over large parts of the country.
Leaked banking documents obtained by BuzzFeed News and shared with ICIJ, ARIJ and other media partners as part of the FinCEN Files investigation, reveal suspicious money transfers of at least $4 billion flagged by Deutsche Bank's US branches and Bank of America, to a number of Iraqi banks between 15 June 2014 and 30 June 2015.
From 2 to 13 February 2015, The Bank of America flagged 524 bank transfers moving from US bank accounts to various Iraqi bank branches for over $16.8 million, and from 18 to 20 May of the same year, The Bank of America flagged 244 bank transfers that ranged from $46.54 to as much as $28 million at a time, for a total of approximately $41.4 million.
The bank filed the two suspicious activity reports (SARs) "as part of a special project by The Bank of America to identify wire transfers that are originating from, and being sent to, these financial institutions located in Iraq."
The SAR filed in June indicates that 109 of the bank transfers were sent from seven Iraq-based banks to The Bank of America clients and totalled over $900,000, while 54 outbound wire transfers were sent for more than $7 million.
"81 wires totalling $33,409,836.12 were conducted via correspondent bank relationships that involved numerous financial institutions on a global level," The Bank of America reported.
Similarly, Deutsche Bank Trust Company Americas filed their SARs to FinCEN "in conjunction with ongoing law enforcement collaboration," the exact nature of which is unclear.
Their first report of the 15 SARs filed in January 2015, monitored 3,844 transactions made between 15 June 2014 to 15 December 2014 worth over $2.3 billion involving 13 Iraqi banks.
No client information or details on the beneficiaries were included in any of the bank's reports.
Deutsche Bank: Funding armed groups in Iraq?
Although the SARs did not specify which bank branches were involved, the transactions were sent and received during the height of the Islamic State's rule and its control over several Iraqi bank branches. Many of the banks in northern Iraq were in areas of IS influence, and such transfers could be the proceeds of the illicit oil and gas trade that the organisation largely relied on in its areas of control.
According to a report by the Central Bank prepared by its financial consultant, Dr Waleed Eidy Abdul Nabi, in October 2017, the bank took various precautionary measures, including the following, to protect the banking and financial sector during the Islamic State's rule:
- Stopping the activity of bank branches and non-banking financial institutions located in the governorates (Mosul, Salahuddin, Diyala, Anbar) and prohibiting their transfer or supply of foreign currency based on Banking Control decree No. 9/2/185 of 3/7/2014.
- Halting the subscription of banks and non-banking financial institutions in the electronic clearing system and the payment system in general, located in the governorates (Nineveh, Kirkuk, Salahuddin, Diyala, and Anbar).
- Preparing a unified monthly report on the activity of the branches under the Islamic State's control, to be submitted to the governor in order to prevent money acquired by IS from entering the Iraqi banking and financial system.
Despite the Central Bank's precautionary measures taken to stop the activity of bank branches in Mosul on 7 July 2014, the chief executive of Iraq's United Bank for Investment, Alaa Karam Allah, stated in an interview with The Financial Times on 17 July 2014, that the bank in Mosul was functioning normally: "[The bank] did not close and work has not stopped for a day. None of our workers have been assaulted, and the building is untouched."
The Financial Action Task Force, a Paris-based intergovernmental organization to combat money laundering and terrorist financing, published a report on IS funding sources from February 2015 that identifies sources in relation to their importance as follows:
- Illegal returns through land occupation, such as bank robbery, extortion, control of oil fields and refineries, theft of economic assets, and illegal taxes on goods and cash that cross lands under the organisation's control.
- Kidnapping in exchange for a ransom
- Material support, such as that associated with Foreign Terrorist Fighters
- Fundraising through "modern communication networks", that is, social networking sites
The Islamic State's assets were estimated to be $2.2 billion by the end of 2015, which included oil and gas reserves, cash, minerals, and land, according to the Center for Analysis of Terrorism. Additionally, the data stated that the organisation's illegal oil trade was a primary source of funding for the organisation.
In the face of the Islamic State's enhanced financial conditions, Iraq's financial state deteriorated due to the decline in oil prices. Its budget deficit increased from 6% of GDP in 2014 to 15% of GDP in 2015. Additionally, the Central Bank of Iraq's foreign currency reserves decreased from $67 billion in 2014 to $51 billion in 2015, according to an IMF report.
Given that Deutsche Bank and the privately-owned Iraqi Elaf Islamic Bank have been previously found to be involved in banking transactions with Iran in contravention of US sanctions, another plausible scenario on the recipients of the transfers mentioned in the SARs is that these remittances may have reached Iranian-affiliated groups in Iraq. In fact, this corresponds with the sanctions imposed on Deutsche Bank by the New York State Department of Financial Services for transacting with sanctioned Iranian entities.
The major question remains: why were these huge money transfers permitted despite the suspicions and measures to counter violent extremism and the related sanctions in the US and Iraq?
Distribution of the suspicious transfers
In May 2019, Deutsche Bank revealed a software defect that prevented it from reporting some suspicious transactions to the concerned authorities for nearly a decade. As a result, thousands of suspicious banking transactions took place without proper accountability or oversight, including the aforementioned transfers from 2014-2015.
On suspicious transfers, Washington DC-based attorney and Certified Anti-Money Laundering Specialist (CAMS), Ross Delston told ARIJ that "these transfers go on all the time, and no one knows what percentage of transfers are in fact caught."
"The bank is required to monitor transactions, and it's up to them to stop it, to block it and or to report it. They could block it without reporting it, they could turn it away without reporting it. It's not automatic. It's up to each bank to decide what to do, and not every bank is diligent," he added.
According to the leaked SARs, the Trade Bank of Iraq was involved in the largest share of the transfers; $3.6 billion flagged from June 2014 to June 2015. Deutsche Bank did not report on any client information, nor exactly who sent or received the money.
It should be noted that the Iraqi Trade Bank, a publicly-owned bank, is the main institution used by Baghdad for trade and finance. Yet a judicial warrant was issued to arrest the bank's latest two directors, Hamdiya Al-Jaf and Faisal Wissam Al-Haimus (current president and CEO), on various charges including corruption and mismanagement.
The second largest bank involved in these transfers was the Ashur International Bank for Investment, a private subsidiary of the Elaf Islamic Bank, and the Mosul Development and Investment Bank. In May 2015, the bank received one round dollar transaction in the amount of exactly $15,250,000.00. Yet, again, Deutsche Bank does not offer any information on the senders or recipients of the money transfers.
From July 31, 2012 to May 17, 2013, the US Treasury Department imposed sanctions on the Elaf Bank, on the basis of its knowledge and facilitation of transactions, and the provision of large financial services, to the Iranian Bank for Export Development (EDBI). Elaf Bank, and 10 of its subsidiaries, were monitored by Deutsche Bank as per their reports.
As for the Iraqi Islamic Bank for Investment and Development, the private bank was involved in approximately $43.3 million worth of remittances, while the Bank of Baghdad, also a private bank, was involved in over $5.5 million during the same period. These are in addition to a number of other Iraqi banks mentioned in the reports.
Most of the mentioned banks have branches in Iraq's main cities including Baghdad, Mosul, Kirkuk and Erbil. But as mentioned, the SARs do not specify which branches were involved in these transfers.
"It is thus possible that the suspicious transactions did not involve transacting for the IS. Domestic Iraqi banks could, however, easily lift the cloud hanging over these transactions by disclosing to authorities who the parties to the transactions were. In this way it can be determined whether these parties had links to extremism" says Henrich Böhmke, a forensic investigator specialising in state capture.
Rafidain Bank, the Iraqi Islamic Bank, Ashur International Bank for Investment, the Trade Bank of Iraq and Elaf Bank did not respond to requests for comment.
However, It was widely reported that after IS' takeover of Mosul in June 2014, the group looted more than $400 million (500 billion Iraqi Dinars) in cash from the city's financial institutions.
"For IS to survive, a portion of that money had to enter the legitimate banking system again to pay external parties for weapons, goods and services. The same channels would likely be used to receive money from sympathisers, clients and debtors," Böhmke adds.
A Central Bank of Iraq report for 2014, published in July 2017, showed the 121 bank branches controlled by IS, including 84 public bank branches and 37 that were private.
According to the report, the organisation stole around $830 million from bank branches that fell under its control in the form of $101 million, and 856.5 billion Iraqi Dinars ($727.6 million), over half of which (over $415 million), were taken from the Trade Bank of Iraq, according to the American magazine Newsweek.
Deutsche Bank's Interests in Iraq
Deutsche Bank's relationships in Iraq are diverse, as the bank has strong ties with and interests in both the Iraqi government and within Kurdistan.
- The bank's relationship with the Iraqi government:
- In mid-2015, the Iraqi government, headed by Haider al-Abadi, appointed three banks, Deutsche Bank, Citibank, and JPMorgan Chase, to issue government bonds worth $6 billion, with the aim of trying to finance the budget deficit of $25 billion for 2015. The negotiations with the banks and the entire process were stalled but the Iraqi government issued bonds worth $2 billion in 2017 and appointed Deutsche Bank, Citibank and JPMorgan Chase again as the main co-directors of the new five-year bonds. Recently, in September 2019, the Iraqi Council of Ministers headed by Adel Abdul Mahdi approved a loan agreement between the Federal Ministry of Finance, Deutsche Bank and Standard Chartered to finance the construction of 13 substations and supply 35 high-voltage transformers to the Ministry of Electricity from the German company Siemens.
- The bank's dealings in Kurdistan:
- In February 2015, Gulf Keystone Petroleum (GKP) in Kurdistan chose the bank and a second party as financial advisors for potential deals related to assets or company sale. Subsequently, in June 2015, the Kurdistan Regional Government selected two banks, one of them being Deutsche Bank, to oversee potential bond sales by the government. Later, in March 2016, the Qaiwan Group in the Kurdistan region turned to the bank again, in addition to Dubai's branch of the Lebanese Bank Med, to arrange a credit purchase of $75 million for an eight-year period.
It is clear that Deutsche Bank is one of the first and preferred options for Iraq in its financial and oil transactions or consultations. But why does the Iraqi government insist on turning to a bank whose reputation has become tarnished and its credibility at stake, especially after it was suspected of financing armed groups in Iraq and of facilitating banking for sanctioned Iranian entities?
In fact, the bank's relationship with Iraq is not new. Deutsche Bank's involvement in Iraq dates back to 1888, when the bank was given priority rights for mining operations including oil and petroleum in the Ottoman empire.
Deutsche Bank Under Scrutiny for Corruption
This is by no means the first time that Deutsche bank has been placed under suspicion. To date, it has incurred billions of dollars in fines due to money-laundering and suspicious transactions, in addition to financing countries that are subject to US sanctions for sponsoring violent extremism.
In November 2017, the families of a number of US soldiers who were killed or injured in Iraq filed a complaint against Deutsche Bank and several other banks on charges of providing banking services to Iran that enabled militants to launch 55 attacks against US armed forces in Iraq.
However, the US judge dismissed the lawsuit in March 2019 on the grounds that the evidence did not sufficiently prove that the bank was aware that through its banking operations, it was enabling the militants to launch attacks in Iraq through contributing to transfer funds to Hezbollah, Al Qaeda, and other groups that the US government considers terrorist organisations, according to Reuters.
Another prominent name in the cases against Deutsche Bank is Rhonda Kemper's, whose son was killed by a bomb in Basra, that, according to her claim, was Iranian-made and transferred from the Iranian Revolutionary Guard to Hezbollah and the Iraqi militias, who then planted it in Basra. Kemper used the Anti-Terrorism Act ("ATA") in her case, according to the court report. Yet, her case was dismissed in December 2018 for "failure to state a claim."
Additionally, the New York Department of Financial Services has penalized the bank several times using its authoritative role over Deutsche Bank since Deutsche Bank's US headquarters is in New York.
Delston notes that unlike Canada for instance, the US does not have "a reporting requirement for wire transfers over 10,000 dollars." Thus, only a limited percentage of these transfers are caught.
"That's why when its caught, the penalties that are exacted on the bank can be very high, simply as a warning to other banks that they should follow these rules more closely," he added.
Among the penalties listed against Deutsche Bank are the following:
– In November 2015, the bank was fined $258 million by the Financial Services Department, and was obligated to appoint an independent monitor and terminate employees for transactions and financial transfers on behalf of Iran, Syria, Sudan and other sanctioned entities, after having documented that from 1999 to 2006 at least, Deutsche Bank used crooked and non-transparent methods of more than 27,200 money transfers in dollars' worth more than $10.86 billion on behalf of Iranian, Libyan, Syrian, Burmese and Sudanese financial institutions, among others subject to US economic sanctions.
– With regard to the financial fines resulting from money laundering, covering corruption and dealing with suspicious persons, the German bank was fined $2.5 billion on 23 April 2015, with some contracts to be terminated and some employees to be banned due to manipulation of interest rates. Following this, in early 2017, the bank was fined $425 million for allowing its traders to engage in a money-laundering scheme using "mirror" trades in Russia. On 20 June 2018, the bank was then fined $205 million due to illegal and "unsafe conduct" in foreign exchange trading.
– In November 2018, German authorities raided Deutsche Bank's headquarters in Frankfurt in search of information related to a money-laundering scandal.
It is clear that the bank's record is replete with credible allegations of legal transgression. Despite this, rigorous action has not been sufficient to ensure the bank refrains from conducting illicit transactions or suspicious financial transfers, and which requires it to adopt transparency in its dealings.
If Deutsche Bank's suspicious transaction reporting system was properly operating, as required by law, at the time of the flows of money to and from Iraqi Banks in 2015, it is possible that some illicit flows would have been interdicted, including possible flows to and from the Islamic State.
Deutsche Bank did not respond to our specific questions regarding our findings, but rather confined its response to a general statement from its spokesperson: "The bank is exposed to diverse financial crime risks, including money laundering, terrorism financing, and sanctions… In line with its legal and regulatory obligations, Deutsche Bank believes it is vital to combat financial crime in order to ensure the stability of banks and the integrity of the international financial system. Failure to manage financial crime risks exposes Deutsche Bank and its employees to potential criminal and/or regulatory liability, civil lawsuits, and a loss of reputation. Although it is not possible to eliminate these financial crime risks entirely, commensurate controls must be in place to minimize these risks." Accordingly, "Deutsche Bank is currently subject to increased levels of regulatory scrutiny and activities over its financial crime risk management. These regulatory activities have led to the appointment of a number of external monitors."
The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.