Iraq is taking significant steps to strengthen its fight against money laundering and terrorism financing through a new set of regulations aimed at its real estate sector. The Central Bank of Iraq (CBI) recently lowered the threshold for property transactions that must be processed through licensed banks, expanding the scope of its oversight and aligning more closely with international anti-money laundering (AML) standards.
Key Changes to Iraq’s Real Estate Transaction Guidelines
Under the new policy, property transactions exceeding 100 million Iraqi dinars (approximately $68,000 USD), based on tax evaluations rather than market value, will now be required to go through an official bank. This is a sharp reduction from the previous threshold of 500 million dinars, which had been set just a year ago in 2024.
The move mandates that both buyers and sellers open bank accounts and complete payments via these accounts. This allows the CBI and other relevant authorities to monitor the financial flow, helping them spot potentially suspicious transactions linked to illicit financial activities, including money laundering and terrorism financing.
The Rationale Behind Lowering the Threshold
The decision to reduce the threshold was driven by a need for more comprehensive regulation of Iraq’s real estate market. The high value of real estate transactions and the challenge of tracking them make the sector an attractive avenue for laundering illicit funds. By lowering the threshold, the CBI aims to:
- Increase Transparency: Improve the visibility of high-value property transactions to reduce the likelihood of money laundering.
- Combat Terrorism Financing: Ensure that real estate cannot be easily used to fund illegal activities.
- Improve Monitoring Efficiency: Facilitate quicker investigations into potential fraudulent or illegal activities within the real estate market.
Which Properties Are Affected?
While this regulation primarily targets high-value properties, the impact will be more significant in upscale neighborhoods and commercial zones, where property values are often above the new threshold. Areas like Al-Mansour, Al-Yarmouk, and Al-Jadriya are expected to see the most noticeable changes due to their higher tax evaluations. These areas, known for their high-value properties, often see per square meter evaluations exceeding 3 million dinars, which would fall under the new regulations.
On the other hand, properties in more affordable or middle-class areas with lower tax evaluations are likely to remain unaffected, as the tax evaluation on such properties may not meet the 100 million dinar threshold.
Tackling Iraq’s Broader Money Laundering Issues
The real estate sector is not the only arena where Iraq struggles with financial crimes. The country has long faced challenges in preventing money laundering through foreign trade, where billions of dollars are moved out of Iraq under the guise of imports. While this new real estate policy directly targets domestic transactions, experts argue that Iraq must strengthen its foreign trade systems to address these significant loopholes in money laundering.
Mustafa Hantoush, a financial expert, called for stronger coordination between Iraq’s banking, customs, and tax systems to close the gaps that allow these large-scale financial crimes to flourish.
How This Ties Into the CBI’s Broader AML Efforts
This regulation is part of a broader initiative by the CBI to tighten financial crime controls. In May 2024, the CBI had already set a cap of 500 million dinars for real estate transactions requiring bank involvement. This new rule further refines those efforts, continuing the work of the CBI and the Real Estate Registration Directorate to enforce AML compliance.
By streamlining property ownership records and transactions, Iraq is taking a more active role in monitoring and controlling the flow of money through the real estate market.
Challenges and Future Considerations
While these changes mark a significant step forward, several hurdles remain:
- Public Awareness: A significant portion of the Iraqi population is still unfamiliar with the banking system. As the new regulations roll out, it will be essential to educate both buyers and sellers about the changes.
- Foreign Trade Loopholes: Money laundering through foreign trade remains a huge concern. Experts believe that addressing this will require an overhaul of the entire financial system, integrating banking, customs, and tax operations.
- Enforcement: To succeed, the implementation of these rules will need strong coordination between banks, real estate agencies, and regulatory bodies to ensure compliance.
A Bold Step Toward Financial Transparency
Iraq’s decision to tighten regulations on real estate transactions is a promising development for the country’s financial transparency and AML efforts. By requiring that large transactions be processed through licensed banks, the CBI is creating a more accountable and secure property market, signaling its commitment to aligning with global AML standards.
However, for this reform to have a lasting impact, Iraq will need to extend these efforts to other sectors, particularly foreign trade, where money laundering continues to thrive. The real estate initiative is a critical first step in reshaping the country’s financial landscape and curbing the illicit flow of funds.
This new regulatory framework sends a clear message that Iraq is serious about fighting financial crimes and improving its international standing in the fight against money laundering.
