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Ghosts of Business Past:
Illegal Companies in Basra Defraud Locals and Provincial Authorities

Ali al-Uqaili
It is easy to register a foreign company in Iraq if you know the right people. In Basra, “phantom companies” are taking on jobs they cannot do, and defrauding locals. But nobody seems to be able to stop them.
10.09.2015  |  Basra
إحصاء أحد المبالغ بالدولار
إحصاء أحد المبالغ بالدولار

One day the company was there, in the middle of Basra's banking and financial district. The next day it was gone.

"I visited their headquarters and all the doors were closed,” says Karim Nasser, a local man who works in the Zubair city market. “All the equipment and furniture were gone and it was then that I also discovered that the offices were only rented for a specific period of time.”

This was bad news for Nasser. He had been convinced the company was a good investment and he had even convinced friends and relatives to put money into the business. Dozens of people were eventually involved. And things started well.

As Nasser explains, during the first three months, they received dividends. But then the company disappeared after more money was invested. Nasser lost all his savings – around IQD100 million (about US$75,000) - and his friends and relatives also held him responsible for the loss of their funds. Other individuals ended up going to their tribes for justice and after long negotiations, Nasser is being forced to pay back the money that others invested on his recommendation, although, happily, without interest.

And this is just one personal story of loss and fraud. Many locals believe that the provincial government has also fallen victim to Basra's plague of “phantom companies”.

These operate using international names and through their relationships with influential locals, the companies tender for, and then win, government contracts for big budget projects in the province. They do this by submitting forged business licenses that make them look as though they are major international firms with significant financial assets. Using the same forged licenses they arrange good credit ratings or guarantees from local banks but they end up fleeing the country after sweeping up huge amounts of local cash.

Once the companies' deceptions are revealed, the provincial authorities' usual reaction is simply to blacklist the firms. But this does nothing to stop the firm from returning and starting another “phantom company” under a different name.

The Iraqi Businessmen Association in Basra had already warned locals and officials about these kinds of companies – they believe they are seeing more and more of them.

“The companies are not being established in a legitimate way,” confirms Sabih al-Hashimi, head of the Basra chapter of the Association. “They're being established using crooked methods. We have warned the provincial government several times about these kinds of companies, who are entering the market by claiming they are international subsidiaries, using forged letters and documents.”

“And in fact, the provincial council has passed resolutions on suspending the work of these phantom companies, they're trying to sue them and take them to court but they keep reappearing,” al-Hashimi concluded.

“This phenomenon is not a new one,” says Adnan al-Sarayfi, a local lawyer who specializes in company registration. “Most of the companies have foreign names and they are licensed by the Foreign Companies registrar [at the Ministry of Trade]. Law 149 of 2004 says foreign companies must register their names and assets. Often they are managed by people who have dual citizenship and who bring contracts and meeting minutes from foreign companies. Some of them don't even have a legal registration but they bring these documents to an official anyway, who then authenticates them himself. They rely only on the documents they bring with them and through those documents they start tendering for work or setting up new contracts,” he explains.

Al-Sarayfi says that some of the businesses are working illegally in Baghdad and elsewhere and that the only reason they can continue to do this is due to corruption and the complicity of certain employees in government branches and within the companies themselves.

The lawyer believes that those who facilitate the “phantom companies” are given around 5 percent of the value of any contracts the fake companies then garner.

These kinds of businesses are having an impact on the province – delaying reconstruction or development projects and causing problems if the actual job is ever carried out.

“Most of the companies don't have any capacity to carry out the projects they are awarded anyway,” says Mohammed Hussein al-Shammari, a local economist. “Instead they enter into subcontracts with construction companies and the like, who carry out the work in return for a percentage of the profits.”

“And even some of these companies are now claiming they are international, in order to make them seem less suspicious and to give the appearance that they are solid firms with good potential,” al-Shammari explains.

The local government should be dealing with this, says Mohammed Falak, a representative of Iraq's highest Shiite Muslim religious authority in Basra. “They should be watching the companies that are cheating people and gobbling up the provincial budget more closely.”

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