Why does Barzani oppose modern banking for Kurdistan?

By Michael Rubin: Kurdistan Tribune – 12.10.2012– 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.