Why does Barzani oppose modern banking for Kurdistan?

Michael Rubin

By Michael Rubin:

With the specter of Saddam removed, Iraqi Kurdistan has boomed. The Kurdistan Regional Government (KRG) has worked hard to attract foreign investment in the oil industry, hotel, and construction sectors. Erbil and Sulaymani are becoming the first cities in Iraq with real skylines. Scratch the surface, though, and the patina of progress is thin. Erbil is no Dubai, and Sulaymani is not Abu Dhabi: As one recent Kurdish visitor observed, Kurdistan is a region with European cars, discos, hotels and restaurants, but the hospitals and schools of Africa.

Corruption is endemic throughout the Middle East, but in Kurdistan it is particularly rife: party leaders’ demands that foreign firms partner with their relatives and hire only party members have led some Western firms to walk away from the region. Bureaucracy is suffocating; even Kurdish officials acknowledge that most ministries could operate as effectively with one-third the staff.

Less visible but just as endemic is the inflation of government ledgers with ghost employees. Simply put, the government claims extra employees whose salaries officials pocket. There are many variations on this scheme. Some employees might be fictional, but that is dangerous and could lead to exposure. In most cases, ministers, commanders, and directors-general inflate their employee rolls with friends and family. The government disburses the full salary, but the director might give only half to the fake employee, keeping a healthy cut for himself. As Kurdish salaries grow, it must be nice to collect several of them. After all, the cost-of-living has increased not only in Sulaymani and Erbil, but also on Sar-e Rash.

Banking in Kurdistan is old-fashioned. Kurdistan is a cash society; credit cards are rarely accepted and cash machines a rarity. To collect salaries, Kurds must queue in their offices, peshmerga must go to force headquarters, and police must visit their directorate. Very few head to the bank, and even then the process is retrograde. It is only because Kurdistan remains a cash society that the ghost employee scheme remains viable. Enabling this scheme has become more important for the Kurdistan Regional Government’s leaders than modernizing the region.

It need not be this way. A representative from one of the United Kingdom’s top companies offered to install a network of ATMs and electronic banking centers—more than 1,500 in all—across Kurdistan. The company would have provided the machines for free, and sought only a miniscule commission on transactions at less than one-percent, far less than the going international rate.

Such a network would have revolutionized banking and transactions in Kurdistan. Salaries could be disbursed directly to private bank account, and be accessible on demand. There would be no need for wasted afternoons and long queues to collect cash. The electronic banking network would also ease real estate transactions. Purchasing a property in Kurdistan can involve gathering several hundred thousand dollars in cash. Property crime might be rare, but this is still a risky proposition. With electronic banking, the cash transfer can occur with the press of a button. Nor is electronic banking revolutionary: Every advanced economy uses it: Not only the United States and Europe, but also China, Japan, and Korea. In the Middle East, not only Emiratis and Saudis, but also Egyptians and Moroccans use cash machines.

Why then did the KRG refuse to grant the company permission to establish an electronic banking and cash machine network? Electronic transactions undercut corruption. Because employers would pay salaries directly to the employee’s account, there would be no opportunity for ministers, supervisors, or party leaders to syphon off cash or deduct kickbacks for themselves. If, on paper, a clerk earned $1,000 per month, he would receive $1,000 per month into his account, not $700 per month, with the extra $300 going to the Kurdistan Democratic Party (KDP) appointee heading his organization.

Electronic banking would also make other corruption schemes more difficult. Even though illegal, party officials often win and flip contracts: They may bid under the guise of their own one-man front company for a $10 million contract and, because of their connections to Masud Barzani or Jalal Talabani, they may win it. Immediately, however, they will then turn around and sell the contract to another company for $11 million, netting an instant $1 million profit. Electronic banking makes such transactions easier to trace. Likewise, it hampers bribery: Banking watchdogs may question how it is a mid-level government employee suddenly deposits $100,000 into his account.

After years of denial, threats, and even the murder of critical journalists, KDP leader Masud Barzani has at long last acknowledged corruption is a problem. He, his nephew and current Prime Minister Nechirvan Barzani, and former Prime Minister Barham Salih have all promised to tackle corruption. Rhetoric alone does not defeat graft. Promises can be empty. More important is action.

Given a clear choice between regional development and ease of life for ordinary Kurds on one hand, and protecting a system which enables corruption and embezzlement on the other, the Kurdish leadership chose the latter.  Kurdish leaders describe their region as a democracy and haven for investment; they say that they seek progress. Perhaps one day their actions may show sincerity; alas, that day is not now.

Copyright © 2012 Kurdistantribune.com

8 Responses to Why does Barzani oppose modern banking for Kurdistan?
  1. Ari Ali
    October 13, 2012 | 00:42

    Thanks Mr Rubin for shedding light on these very important issues . Certainly , vast majority of ordinary kurds know all these ‘endemic’ cancers that plague the region and swindling chances of normal and dignified life for the people .

    The problem is no one dare to do anything with it because they are criminals supported by the west . Under US auspice support and supervision , well at least ‘king Zad’ and the co. , Barzani effectively running a fiefdom ( half of Erbil and Dohuk ) in a totalitarian style . He is the immortal leader , his son is an immortal future leader and the party is their family asset and so forth . Talabani with his son has already established links with big gang in DC doing the same in the other part , half of Erbil and Suli . KRG is an imaginary body which legalise all the corruption and ubiquitous thievery in the region .

    The absolute Boss in Dohuk 1/2 Erbil is Massod then his son Mansour . A fight will inevitably ensue between the son and his nephew Nicher on who will be the boss according to tribal laws this should be passed to the later because his father was older , senior , to massoud etc .

    In Suli the guys are relatively more educated , than their almost illiterate tribal counterpart , and have some communist past hence the Boss is a woman Hero jalal wife then his son Qubad .

    The crimes of Massod and Jalal , the number of people these two guys killed mutilated and displaced in their power struggle is comparable to saddam , is outside the west moral radar nowadays for convenience among other things .

    As kurds say sarcastically , let them enjoy some wealth as they have spent decade penniless working as labourers in irans farms .

  2. Amina
    October 14, 2012 | 18:14

    I don’t see people belonging to KDP and PUK commenting here. This is how your brains have washed. You keep silent? Shame on you! Shame on your leaders! Those who are the richest in the country. Why you don’t ask why your leaders, not mine, are the richest?

    • Mark
      January 9, 2013 | 14:03

      It is your people, family and relatives who keep these criminals in power

  3. Kenan DEMIRTAS
    October 16, 2012 | 12:35

    Dear mr. Rubin Could you send your e mail address to me ? I have some information and proves about corruption and discrimination against Christian community in Kurdistan , Maybe you could help with public.

    Best Regards

    Kenan DEMIRTAS

  4. Halmet
    October 17, 2012 | 07:45

    enjoy reading your articles.
    the current generation in general is happy with the cash transactions due to not knowing what’s out there, the benefits of it, always done it this way and they don’t trust the banking system. the corruption is way too wide and vertically spread to a lower level of public managers. As you mentioned, People at the lower level also benefiting from it. everyone in Kurdistan knows that those parties are stealing money in millions but many of people are also benefiting from it. as of now, Gorran, the only political party, is attempting to build a system in Kurdistan, the rest of parties are corrupt including the Islamists. In fact, the Islamists are the most corrupt one.
    The Kurdish oil is very lucrative business; therefore, the giant oil companies will find a way to get money in and out of Kurdistan and they put up with Kurdistan’s 16th century style of transactions.
    Who’s job to educate ordinary people regarding electronic banking system? Businessmen, economists, and bankers …etc. perhaps, they are all benefiting from the current situation.
    The ultimate looser is ordinary people. Do they know what they are missing? absolutely not!

  5. Ari kader
    October 22, 2012 | 20:29

    MR Rubin or should I call you Michael since i am becoming more and 6more familiar with your coments on Kurd and Kurdistan ,what I want to say is that ,it is a relieve to know ,you are here with us {God,Allah,Ahuramazda} be with you

  6. […] it’s not as easy for senior officials to skim money from those below them. I explained the scam here, in the context of Iraqi […]

  7. […] remains a huge problem across the region, perhaps greater than terrorism even, and it remains a huge impediment in Kurdistan both for its own democratic development and for the bilateral relationship between […]

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