Iran-linked militias grow fat on Iraq customs-evasion cartel profits

BAGHDAD -- Along Iraq's borders, a corrupt customs-evasion cartel is diverting billions of dollars away from state coffers to line the pockets of Iran-backed militias, armed factions, political parties and crooked officials.

The prime beneficiaries are Iran-backed militias that intimidate federal officials who dare obstruct them, sometimes through chillingly specific death threats, a six-month AFP investigation has found.

The network is so well oiled and entrenched that revenues are parcelled out among rival groups with remarkably little friction, part of a parallel system that Iraq's finance minister has described as "state plunder".

"It's indescribable," said one Iraqi customs worker. "Worse than a jungle. In a jungle, at least animals eat and get full. These guys are never satisfied."

Like most of the government officials, port workers and importers interviewed for this story, this worker cited threats to his life and asked to speak anonymously.

Customs provide one of the few sources of state revenues, and to keep disparate groups and tribes happy -- many of them close to Iran -- entry points are divvied up among them and federal duties largely supplanted by bribes.

"There's a kind of collusion among officials, political parties, gangs and corrupt businessmen," said Finance Minister Ali Allawi.

State revenues diverted

Iraq imports a vast majority of its goods -- from food and electronics to natural gas -- mostly from neighbours Iran and Turkey and from China.

Officially, the country of 40 million brought in $21 billion worth of non-oil goods in 2019, the latest year for which full government data are available.

Iraq has five official crossings along its border with Iran and one on its frontier with Turkey, while the single biggest and most lucrative gateway is the Basra province port of Umm Qasr.

Duties on imports at these points of entry are meant to supplement state revenues from Iraq's huge oil sector -- but they do not.

Iraq's import system is outdated and cumbersome, with a 2020 World Bank report citing frustrating delays, high compliance fees and frequent exploitation.

An informal parallel system rose in its stead, in which parties and militias have divided Iraq's land and sea crossings among themselves, according to officials, port workers, importers and analysts.

Iran-backed militias control crossings

Many of Iraq's entry points are informally controlled by armed factions and militias operating under the auspices of the Popular Mobilisation Forces (PMF), Iraqi officials said.

These groups, their allies or their relatives work as border agents, inspectors or police and take bribes from importers who want to skip the official process entirely or get discounts.

"If you want a shortcut, you go to the militias or parties," said an Iraqi intelligence agent who has investigated customs evasion.

Importers effectively tell themselves: "I'd rather lose $100,000 (on a bribe) than lose my goods altogether," he said.

The PMF publicly denies the claims. But sources close to its hardline member groups, Iran-backed Asaib Ahl al-Haq and Kataib Hizbullah, acknowledged that customs posts are indeed parcelled out in the manner alleged.

They cited specific harbour berths, land crossings and products that matched what customs officials and the intelligence agent detailed.

$10,000 a day in bribes

The Mandali border crossing with Iran, for example, is run by the Badr Organisation, port workers, officials and analysts confirmed.

A border operative can rake in $10,000 per day in bribes, the bulk of which goes to the overseeing armed group and complicit officials, boasted an official at the crossing.

In other cases, an armed group controls a particular kind of trade.

"If I'm a cigarette trader," he said, "I go to Kataib Hizbullah's economic office in the Jadriyah neighbourhood (of Baghdad), knock on the door and say: 'I want to co-ordinate with you'."

One key figure is always the "mukhalles" -- the state customs agent assigned to an incoming shipment who often doubles as a middleman for an armed group.

"There's no such thing as a neutral mukhalles. They're all backed by parties," the intelligence agent said.

Once paid -- in cash for smaller operations and by bank wire for larger deals -- the mukhalles tampers with paperwork. Misrepresentation of the type or amount of goods imported or of their value leads to a sharp reduction of the customs fee.

Under-declaring quantities could score a trader discounts of up to 60%, said one importer.

Rampant corruption

For high-tariff goods, meanwhile, the favoured trick is to declare them as something else altogether.

Cigarette imports are taxed with a regular import tariff of 30%, plus a further 100% to encourage consumers to buy local brands. To cut those fees, corrupt individuals often record the cigarettes as tissues or plastic goods.

Facilitators also tamper with a shipment's estimated total value, which is first marked on the import license but undergoes re-evaluation at the point of entry.

In one case described to AFP by an Umm Qasr official, a customs agent valued metal reinforcements so cheaply that the importer paid $200,000 in duties, when he should have paid more than $1 million.

With the right connections, some cargo slips through with no inspection at all.

"I'm not corrupt, but even I have had to wave through cargo I didn't actually inspect because the shipment was linked to a powerful party," said the customs worker quoted earlier.

One importer told AFP he paid $30,000 to a customs agent at Umm Qasr to allow through prohibited refurbished electrical equipment.

He said he also regularly bribed port police to warn him of surprise inspections. For an additional fee, the officer offered an extra service -- to send patrols to hold up rival imports.

'A real mafia'

With points of entry seen as cash cows, public servants pay their superiors for postings, especially at Umm Qasr.

"Minor clerks' jobs in some outposts change hands for $50,000 to $100,000, and sometimes it goes up to multiples of that," Allawi lamented, noting that the subterfuge around the import system "contributes to state plunder".

To protect their pillaging, parties and armed groups use their political influence and threats of violence.

A worker at Mandali said he once delayed a shipment from Iran because of missing paperwork but then allowed it through, duty-free, after the mukhalles handling the cargo brandished his credentials as a PMF member.

An informant at Zerbatiya crossing, which borders Iran and which Asaib Ahl al-Haq manages, was repeatedly put on leave for blocking efforts to import Iranian produce customs-free and eventually relented, said the intelligence officer.

"We came back later to talk to him again and found he had joined Asaib," the intelligence officer said.

A senior member of Iraq's border commission said he receives regular calls from private numbers threatening his relatives by name, in an effort to intimidate him into halting cargo inspections.

The customs worker was among others who said they contended with death threats.

"We can't say anything because we'll be killed," he said. "People are afraid. This is a real mafia."

'If one goes down, they all will'

This parallel system has become the lifeblood of Iraqi parties and militias, including Iran-backed PMF factions, said Renad Mansour of the Chatham House think tank.

They professionalised this financing stream after Iraq's defeat of the "Islamic State of Iraq and Syria" (ISIS) in 2017.

That victory ended the allocation of large defence budgets to the anti-ISIS military campaign, which included the PMF, sparking the need to find alternative funding sources.

The parties and militias latched on tighter after Iran came under heavy US sanctions.

Last year, the United States blacklisted Al Khamael Maritime Services (AKMS), a shipping company in Umm Qasr, for using militias to help Iran's Islamic Revolutionary Guard Corps (IRGC) "evade Iraqi government inspection protocol".

It also sanctioned two Iraqis and two Iranians linked to AKMS for financing Kataib Hizbullah and Lebanese Hizbullah.

"One border point can make up to $120,000 a day," Mansour said. "This doesn't go to only one group but is shared by many, which at times may even seem to be enemies when you zoom out."

Turf wars are rare but do happen. In February, two PMF sources described to AFP the separate killings of two members of Asaib Ahl al-Haq as "economically motivated".

But usually, the cartel operates smoothy.

"There's no competition," said the Iraqi intelligence agent. "They know if one of them goes down, they all will."

Robbing the Iraqi public

The parallel system starves the state of a funding resource for schools, hospitals and other public services at a time when the poverty rate in Iraq has reached 40%.

"We should get $7 billion (a year) from customs," Allawi said. "In fact, just 10 to 12% of the customs revenues reach the Finance Ministry."

The cost of bribes ultimately trickles down to the consumer, an Iraqi official said.

"As a consumer, you're the one who ends up paying for that corruption in the store."

Within weeks of taking office last May, Prime Minister Mustafa Kadhemi prioritised border reform to shore up government revenues hit hard by depressed oil prices.

In highly publicised trips to Umm Qasr and Mandali, he vowed to send new troops to each entry point and to regularly swap senior customs staff to break up corrupt circuits.

There have been some modest victories. The border commission now reports daily seizures of cargo in cases where importers tried to evade customs fees.

And Iraq collected $818 million in duties in 2020, the commission said, slightly higher than the previous year's $768 million, despite imports being hit by the coronavirus downturn.

'Corruption still happens'

Yet while some importers now pay government tariffs, they also paid facilitators to stop the arbitrary delay of goods, importers, facilitators and officials said.

"In the end, we're paying double," said an Arab businessman who has imported into Iraq for more than a decade.

But the main issue, importers and officials agreed, was that staff rotations did not extend to a crucial cog in the corruption machine: the mukhalles.

"The main facilitator of corruption is still there," said the customs official. "One rotten apple will spoil the rest."

Kataib Hizbullah was ordered to close its office inside Baghdad Airport to stop it from smuggling in high-value goods, a US defence official told AFP.

"Now they've got a position just outside the airport, but they can still drive up to the plane and do what they need to do," the official said. "Corruption still happens."

Instead of brazenly phoning each other, facilitators have moved to WhatsApp and other encrypted messaging apps.

Trying to dismantle the lucrative network completely may bring violence for which Kadhemi may be unprepared, officials warned.

"A single berth at Umm Qasr is equivalent to a state budget," the intelligence agent said, using deliberate exaggeration to emphasise the point.

"They won't compromise easily."