Order No. 56 of 2004 Issued by the Coalition Provisional Authority: Central Bank of Iraq Law

Order No. 56 of 2004 Issued by the Coalition Provisional Authority Central Bank of Iraq

Based on the powers delegated to me in my capacity as the Administrator of the Coalition Provisional Authority, and pursuant to the laws and customs applicable in the absence of legislation, and in particular the resolutions of the United Nations Security Council, including Resolution 1483 (2003), and in order to implement the mandate of the Security Council to ensure that economic changes are beneficial to the Iraqi people, and taking into account the Security Council resolutions that recognize the significant changes in the Iraqi economy, and affirming the importance of achieving stability in domestic prices and the exchange rate, and finding a favorable economic climate to consolidate a stable economy based on market forces and competition, and recognizing the problems arising from the policies previously followed by the Central Bank of Iraq in managing its affairs, and recognizing that the Coalition Provisional Authority is working to manage Iraqi affairs in a professional manner and to ensure the dignity of the Iraqi people and enable them to exercise their normal social relations and daily activities,

Recalling that the United Nations Security Council resolution, Resolution 1483 (2003), called upon the Coalition Provisional Authority to lift the embargo on the sale of goods and to create conditions conducive to sustainable development, and noting our commitment to the full implementation of the contents of the report issued by the Secretary-General to the United Nations Security Council on July 17, 2003, regarding the reconstruction of Iraq and the reform of its institutions and laws to achieve this development,

And to transform the Iraqi economy from a centrally planned economy lacking flexibility into an economy based on market forces and sustainable economic development factors, which can be achieved through establishing a flexible and coherent framework, and after coordinating with international financial institutions, as referred to in paragraph (l) of Section (8) of Resolution 1483 issued by the United Nations Security Council,

I hereby announce the issuance of the following:

Section (1) Purpose

This Order establishes a strong, independent, and unified Central Bank to achieve the following objectives: stability of prices in the country and their stability and continuity, working to create and maintain a financial system based on market forces and competition that is stable, promoting sustainable development and employment stability and prosperity in Iraq.

Section (2) Central Bank Law

The Iraqi Central Bank Law attached to this Order as Annex (A) shall have the full force and effect of law.

Section (3) General Conditions

The term "Appointing Authority" refers to the authority exercised by the Administrator of the Coalition Provisional Authority through the Governing Council during the period preceding the full transfer of state powers to the Iraqi Interim Administration and the recognition by the Coalition Provisional Authority of the sovereignty of that Administration.

The measures to be implemented shall be based on a recommendation from the Appointing Authority and the approval of the Legislative Authority for this recommendation pursuant to the Iraqi Central Bank Law mentioned in Annex (A), and this shall be based on a recommendation from the Governing Council and the approval of the Administrator of the Coalition Provisional Authority for this recommendation, during the period preceding the full transfer of state powers to the Iraqi Interim Administration and the recognition by the Coalition Provisional Authority of the sovereignty of that Administration. And it shall be implemented during the period referred to in a similar manner to the measures that require approval from the Appointing Authority and the approval of the Legislative Authority for this approval, and this shall be through approval from the Governing Council and the approval of the Administrator of the Coalition Provisional Authority for this approval.

The Governing Council shall, during the period preceding the full transfer of state powers to the Iraqi Interim Administration and the recognition by the Coalition Provisional Authority of the sovereignty of that Administration, have the authority to take measures and procedures that are within the authority of the Legislative Authority and its delegates, with the concurrence of the Administrator of the Coalition Provisional Authority, having the authority to exercise them.

Section (4) Nomination of Candidates

The Governing Council shall submit to the Administrator of the Coalition Provisional Authority the names of candidates for the positions of Governor, Deputy Governor, and members of the Board of Directors of the Central Bank to obtain concurrence, and shall submit the names of candidates to the Administrator of the Coalition Provisional Authority within one month from the date of issuance of this Order. In the event that the Governing Council fails to submit a list of candidates to the Administrator of the Coalition Provisional Authority within this period, the Administrator shall approve and appoint the Governor, Deputy Governors, and members of the Board of Directors of the Central Bank.

Section (5) Conflict of Laws

This Order shall repeal any Iraqi law that is completely inconsistent with the provisions of this Order or Annex (A) attached to it, to the extent of such inconsistency.

Section (6) Entry into Force

This Order shall enter into force on the date of its signature.

(J. Paul Bremer - Administrator of the Coalition Provisional Authority) March 16, 2004

Annex (A)

Central Bank of Iraq Law No. 1 of 2004

Part One: Definition of Terms, Independence, Objectives, and Duties Article No. 1: Definition of Terms Article No. 2: Legal Personality and Independence Article No. 3: Objectives Article No. 4: Duties

Part Two: Capital, Reserve, and Net Profits Article No. 5: Capital and Reserve Article No. 6: Profit and Loss Account and Distribution of Operating Losses Article No. 7: Disposition of Unrealized Gains Article No. 8: Distribution of Net Profits Article No. 9: Covering Deficit in Capital

Part Three: Administration Article No. 10: Board of Directors and Committees Article No. 11: Composition of the Board Article No. 12: Qualifications for Appointment and Service Article No. 13: Appointment of Board Members and Term of Office Article No. 14: Resignation and Dismissal of Board Members Article No. 15: Conflict of Interests Article No. 16: Powers and Duties of the Board Article No. 17: Meetings Article No. 18: Quorum Article No. 19: Decisions of the Board of Directors Article No. 20: The Governor in the Capacity of Chief Executive Officer Article No. 21: Conflict of Interests Article No. 22: Confidentiality and Exchange of Information Article No. 23: Legal Immunity

Part Four: Relations with the Government Article No. 24: Relationship with the Government Article No. 25: Performing Acts on Behalf of the Government Article No. 26: Prohibition of Lending to the Government

Part Five: Foreign Exchange Reserve Article No. 27: Management of Official Foreign Exchange Reserve

Part Six: Monetary Competencies Article No. 28: Open Market Operations and Standing Facilities Article No. 29: Reserve Requirements Article No. 30: Lender of Last Resort

Part Seven: Currency Article No. 31: Monetary Issuance Article No. 32: Issuance of Currency Article No. 33: Treatment of Issued Paper and Coin Currency - Accounting Treatment of Issued Currency Article No. 34: Withdrawal of Defective Paper and Coin Currency Article No. 35: Disposal of Obsolete Currency Article No. 36: Exchange of Currency Article No. 37: Currency Exchange Article No. 38: Execution of Foreign Exchange Transactions

Part Eight: Other Competencies Article No. 39: Credit Facilities Article No. 40: Supervision of Banks Article No. 41: Consolidation and Reporting of Financial Statements Article No. 42: Supervision of Licensees

Part Nine: Other Provisions Article No. 43: State Ownership Article No. 44: Exemption from Certain Taxes

Part Ten: Financial Statements, Audit, and Financial Audit Article No. 45: Preparation of Accounts and Records: Financial Statements and Reports Article No. 46: Internal Financial Audit Article No. 47: Head of Internal Financial Auditors Article No. 48: External Financial Audit

Part Eleven: Criminal Acts Article No. 49: Interpretation Article No. 50: Preparation Article No. 51: Counterfeiting Article No. 52: Circulation of Counterfeit Money Article No. 53: Counterfeit Paper and Coin Currency Article No. 54: Defacement of Currency Article No. 55: Preparation of Instruments for Currency Article No. 56: Instruments or Materials Article No. 57: Transporting Coin Currency Minting Equipment Outside the Mint Article No. 58: Advertising and Trading in Counterfeits Article No. 59: Special Provisions on Counterfeiting Article No. 60: Issuance of Paper and Coin Currency and Notes and Paper Currency Without License Article No. 61: Confiscation Article No. 62: Administrative Penalties

Part Twelve: Financial Services Court Article No. 63: Establishment and Determination of Jurisdiction Article No. 64: Composition of the Court Article No. 65: Administration of the Court Article No. 66: Authority of the President of the Court Article No. 67: Evidence Article No. 68: Decisions Issued by the Court Article No. 69: Procedures for Review of Court Decisions Article No. 70: Appeal

Part Fourteen: Final Provisions Article No. 71: Precedence of Law and Repeal of Conflicting Laws Article No. 72: Immunity from Prosecution Before Issuance of Law Article No. 73: Repeal of Law Article No. 74: Entry of Law into Force

Part One - Definition of Terms, Independence, Objectives, and Duties

Article No. (1) Definition of Terms

The following terms shall have the meanings assigned to them below:

The term "Appointing Authority" refers to the President of the Government.

The term "Bank" refers to any entity licensed or authorized under the Banks Law to conduct banking business or any other type of banking business.

The term "Banking Business" refers to activities that involve accepting deposits and other repayable funds from the public with the aim of granting credits or making payments.

"Board" refers to the Board of Directors of the Central Bank of Iraq.

"CBI" is the abbreviation for the Central Bank of Iraq.

The term "Credit" means any amount of money or the acceptance of any financial amount in exchange for the repayment of the principal amount and overdue amounts and interest and any other amounts due on the principal amounts, whether guaranteed or unguaranteed, in addition to the period of repayment of the debt and the issuance of any guarantees and the provision of any guarantee for the repayment of any financial amount, whether by a specific amount or through a reduced interest rate.

The term "Currency" refers to the monetary issuance of any country.

The term "Deposit" means a specific amount of money deposited with a bank, whether recorded or unrecorded in any register of accounts of the amount, and subject to conditions under which the deposit or transfer to another account is repaid after adding profits or due amounts to it, or without addition, whether based on request or at a specific date or under agreed conditions by the depositor or their representative.

The term "Deputy Governor" refers to the Deputy Governor of the Central Bank of Iraq.

The term "Dinar" refers to the Iraqi Dinar.

The term "Suitable Person" refers to a person considered suitable by the Appointing Authority or the President of the Court, taking into account Article No. (64), and their integrity, professional qualifications, experience, financial standing, or commercial interests. A person is not considered suitable if any of the following apply:

1. A criminal judgment has been issued against them with a sentence of imprisonment for one year or more without the option of a fine, unless the Appointing Authority or the President of the Court, pursuant to Article No. 64(A), determines that the sentence was due to the convicted person's views or religious, political, or ideological beliefs.
2. A law has been issued expelling them within the past seven years.
3. A competent authority has declared them unfit to practice a profession or prohibited them from practicing due to misconduct related to their political or religious views.
4. A court or competent authority has issued a decision revoking their license to manage a company.

The term "Foreign Exchange" refers to any paper or coin currency, checks, drafts, bonds, securities, bills of exchange, promissory notes, letters of credit, account balances, or any means of payment and settlement in any currency other than the Iraqi Dinar.

The term "Government" refers to the entity exercising state power in Iraq temporarily from the date of entry into force of this Law. The term "Government" refers to the Iraqi Interim Administration from the transfer of state power to it, and after the Coalition Provisional Authority recognizes its sovereignty. The term "Government" after that refers to the Iraqi Government that has assumed the responsibilities of this power, recognized internationally upon assuming these responsibilities.

The term "Governor" refers to the Governor of the Central Bank of Iraq.

The term "Official Currency" refers to the paper and coin currency that creditors must accept as payment for debts denominated in Iraqi Dinars.

The term "Legislative Authority" refers to the main legislative body of Iraq or any other body subordinate to or affiliated with it that is delegated the authority to supervise the Central Bank of Iraq under this Law.

The term "Official Gazette" refers to the Official Gazette or any other general publication issued on a wide scale as determined by the Appointing Authority.

The term "State" refers to the Republic of Iraq.

The term "Court" refers to the Financial Services Court mentioned in the following articles of this Law: from Article No. (63) to Article No. (70).

Article No. (2) Legal Personality and Independence

1. The Central Bank of Iraq, established under the Central Bank of Iraq Law No. 64 of 1976, as amended from time to time, is a legal entity with full legal capacity to contract, sue, be sued, and perform the duties assigned to it by this Law and other laws. The Central Bank of Iraq has the right: (a) To acquire, hold, and manage property. (b) To appoint auditors and define their duties and determine their remuneration. (c) To prepare and approve its budget. This Law does not include any provision that would be interpreted as depriving the Central Bank of Iraq of its legal personality under previous laws, nor does it include any provision that would be interpreted as interfering with the powers, authority, or duties, or transactions governed by previous laws, except as provided in this Law.

2. The Central Bank of Iraq shall be independent in its activities to achieve its objectives and perform its duties, and it shall be accountable and responsible. The Bank shall not receive instructions from any person or entity, including government entities, regarding its activities, except as provided in this Law that stipulates otherwise. The independence of the Central Bank of Iraq shall be respected, and no person or entity shall seek to influence in an improper manner any member of any body responsible for decision-making within the Central Bank of Iraq regarding their duties and obligations to the Bank. No person or entity shall interfere in the activities of the Central Bank of Iraq.

3. The main office of the Central Bank of Iraq shall be in the city of Baghdad. The Bank may, to perform its duties, open branches, agencies, and offices within Iraq and abroad, and may appoint correspondent banks for this purpose.

Article No. (3) Objectives

The main objectives of the Central Bank of Iraq are to achieve stability in domestic prices and to work to achieve a financial system based on market forces. The Central Bank of Iraq, in addition to the aforementioned objectives, works to promote sustainable development, increase employment, and achieve prosperity in Iraq.

Article No. (4) Duties

1. In order to achieve the objectives stated in Article No. (3) and as mentioned in this Law, the Central Bank of Iraq has the following duties: (a) Formulate and implement monetary policy in Iraq, including foreign exchange policy, as referred to in Part Six. (b) Hold and manage all official foreign exchange reserves of Iraq, as referred to in Article No. 27, except for the government's operating balance. (c) Hold and manage the state's debt portfolio. (d) Provide financial and advisory services to the government pursuant to Part Four. (e) Provide liquidity services to banks, as referred to in Articles No. 28 and 30. (f) Issue and manage Iraqi currency, as referred to in Part Seven. (g) Consolidate and report data related to the banking and financial sectors and data related to the economy, as referred to in Article No. 41. (h) Supervise and regulate the credit and banking sector, as referred to in Article No. 39. (i) Issue licenses and permits for banks, regulate their activities, and supervise them, as stipulated in this Law and the Banks Law. (j) Establish and maintain accounts for domestic and foreign banks and international financial institutions. (k) Establish, on its own initiative, accounts for domestic and foreign banks and governments and international institutions, record them, and supervise them. (l) Perform any additional duties or transactions that arise during the performance of the duties stipulated in this Law.

2. In addition to the above, the Central Bank of Iraq may take the necessary measures to: (a) Combat money laundering and terrorist financing. (b) Regulate the operations of credit institutions and microfinance institutions and any other financial institutions not licensed under Iraqi law, and supervise them.

3. The Central Bank of Iraq shall have the authority to issue executive regulations to implement this Law and perform its duties under it. Executive regulations issued under this Law and any amendments thereto shall be published in the Official Gazette.

4. If the Central Bank of Iraq proposes to issue executive regulations under this Law, it shall publish a draft of the proposed regulations in full and in a manner deemed appropriate by the Bank to attract the attention of the financial sector and the general public. The draft shall be published with a period of at least one month from the date of publication for comments. The Central Bank of Iraq shall take into account any comments received during the publication period and shall issue the final regulations accompanied by a summary of the comments received. The procedures in this paragraph shall not apply if the Central Bank of Iraq determines that delay poses a serious threat to the interests of the financial system or hinders the proper conduct of monetary policy, provided that the Central Bank of Iraq states the reasons for this decision in the preamble of the executive regulations.

5. The Central Bank of Iraq shall, even when implementing duties and powers stipulated in this Law, have the authority to issue binding orders to individuals or entities required to perform specific duties under this Law.

6. The Central Bank of Iraq shall have the authority to issue internal regulations and general directives for the organization and management of the Bank.

Part Two: Capital, Reserve, and Net Profits

Article No. (5) Capital and Reserve.

1. The capital of the Central Bank of Iraq shall be (1,000,000,000,000) Iraqi Dinars (one trillion Dinars).
2. The State is the sole owner of the issued capital of the Central Bank of Iraq. The State shall not receive profits on the issued capital of the Central Bank of Iraq, and the issued capital shall not be transferable or subject to any lien.
3. The issued capital of the Central Bank of Iraq may be increased based on amounts approved by the Minister of Finance upon recommendation of the Board and with the concurrence of the amounts.
4. The Central Bank of Iraq shall maintain a general reserve account and a reserve for unrealized profits account, as well as other reserve accounts deemed appropriate according to international accounting standards.

(Note: Paragraph 1 of Article 5 was amended by Article No. 1 of Law No. 82 of 2018, the Second Amendment to the Law.)

Article No. (6) Profit and Loss Account and Distribution of Operating Losses

1. The Central Bank of Iraq shall prepare, within three months from the end of each financial year, a statement of its accumulated profits for distribution or its accumulated losses, and shall do so in accordance with the rules stipulated in Articles No. 7 and 45.
2. If the Central Bank of Iraq accumulates operating losses for any financial year, the losses shall be offset against the general reserve and consequently against the capital.

Article No. (7) Disposition of Unrealized Gains

1. If the Central Bank of Iraq's income for a year includes unrealized gains on the Bank's assets or liabilities from the previous financial year, and these unrealized gains are recorded at fair value or valued in a foreign currency, the accumulated profits of the Central Bank of Iraq available for distribution shall be determined in accordance with Article No. 8 as follows: (a) Deduct the total amount of unrealized gains included in the income from the income, and deduct an amount equal to the unrealized profits reserve account. (b) Deduct the amount of any unrealized gains arising from the income of the previous year or previous years and realized during the financial year from the unrealized profits reserve account and add it to the accumulated profits available for distribution in the manner described in paragraph (a).
2. Any amount exceeding the amounts permitted under this Article shall be deducted from the unrealized profits reserve account.

Article No. (8) Distribution of Net Profits

1. The Board of Directors of the Central Bank of Iraq shall distribute the accumulated profits available for distribution within three months from the end of the financial year as follows: (a) 80% of the accumulated profits available for distribution shall be transferred to the general reserve account of the Central Bank of Iraq until the amount in this account equals 10% of the total assets of the Central Bank of Iraq. (b) The remainder of the accumulated profits available for distribution shall be transferred to any other reserve account that the Central Bank of Iraq may establish pursuant to paragraph 4 of Article No. 5.
2. The accumulated income or income of the Central Bank of Iraq shall not be distributed except as permitted by paragraph 1, and the distribution of accumulated profits shall not include any unrealized gains.
3. No distribution shall be made under paragraph 1 if such distribution would reduce the assets of the Central Bank of Iraq below the total of liabilities and capital other than the general reserve and reserves.

Article No. (9) Covering Deficit in Capital

If the annual balance sheet of the Central Bank of Iraq, prepared in accordance with paragraph 3 of Article No. 45, shows that the value of the Bank's assets has fallen below the total of liabilities and capital other than the general reserve and reserves, the Board shall, upon recommendation of the Bank's external financial auditor, assess the situation and prepare a report on the causes and extent of the deficit. If the Board finds that the Bank needs capital replenishment, it shall request the Minister of Finance to replenish the capital on behalf of the State, and the Minister of Finance shall, upon receiving the request and within a period not exceeding two months, submit the request for replenishment to the Legislative Authority to obtain concurrence on the replenishment amount and present it to the Central Bank of Iraq within the necessary period to cover the deficit.

Part Three - Administration

Article No. (10) Board of Directors and Committees

1. The Board shall be responsible for the management of the affairs of the Central Bank of Iraq and the performance of the duties assigned to it in this Part.
2. The Board may, if it deems it necessary, form committees composed of members to review certain issues and submit recommendations to the Board. The Board may delegate executive authority to these committees to make decisions, within the framework of general principles established by the Board for this purpose.
3. The Board shall form an Audit and Review Committee that reports directly and shall consist of (3) members who are not employees of the Bank and possess scientific qualifications and practical experience in the fields of financial management, accounting, law, and economics. Its duties and operational mechanism shall be determined by instructions issued by the Board in accordance with international standards and the best practices of Central Banks, and approved by the Governor.

(Note: Paragraph 3 of Article 10 was added by Article No. 2 of Law No. 82 of 2018, the Second Amendment to the Law.)

Article No. (11) Composition of the Board

The Board shall consist of nine members: (a) The Governor, who shall chair the Board. (b) Two Deputy Governors. (c) Three General Managers of the Bank. (d) Five members from outside the Central Bank of Iraq with expertise and specialization in financial, banking, or legal matters.

(Note: Paragraphs (c) and (d) of Article 11 were amended by Article No. 3 of Law No. 82 of 2018, the Second Amendment to the Law.)

Article No. (12) Qualifications for Appointment and Service

1. The Governor, Deputy Governors, and other members of the Board shall be persons of integrity and hold a university degree, or be persons with extensive practical experience in banking business or fields related to the economy, finance, trade, or law.
2. A person shall not be eligible for appointment and service on the Board if the Appointing Authority determines that: (a) The person is not an Iraqi citizen. (b) The person is not suitable for appointment. (c) The person or anyone related to them, whether by marriage, blood, or kinship, including anyone they have adopted or raised, or any other person living with them in the same household or having a direct or indirect commercial interest, requires them to abstain from participating in Board decisions for reasons of acceptability.
3. The Governor, Deputy Governors, and other members of the Board shall, during their tenure, refrain from doing the following: (a) Holding any other position within the Central Bank of Iraq, whether paid or unpaid, but they may perform a limited number of lectures and practice an academic activity as long as this activity is unpaid and does not conflict with the person's duties and obligations at the Central Bank of Iraq. (b) Holding any other public office other than the position held at the Central Bank of Iraq, except in the case of approval from the Central Bank of Iraq. (c) Membership in the Legislative Authority as a member. (d) Working as an auditor or public official. (e) Working as a director, auditor, official, or employee in any bank or any entity subject to the supervision of the Central Bank of Iraq.

Article No. (13) Appointment of Board Members and Term of Office

1. a. The Governor of the Central Bank of Iraq shall be appointed at the rank of Minister upon proposal of the President of the Council of Representatives and approval of the Council of Representatives, and shall be of expertise and specialization in banking, financial, or economic matters. b. The Governor shall have two Deputy Governors appointed at the rank of Deputy Minister upon proposal and recommendation of the Council of Representatives and concurrence of the Council of Representatives, and they shall be of expertise and specialization in banking, financial, or economic matters. c. The Governor, Deputy Governors, and other members of the Board stipulated in Article (11) of the Law shall serve a term of...