Guidelines on the Implementation of Targeted Financial Sanctions

Guidelines on the Implementation of Targeted Financial Sanctions Republic of Iraq March 2023

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Table of Contents
Introduction 2

Part One: Conceptual Framework 3
Part Two: Objective, Scope, and Targeted Entities 8
Part Three: Targeted Sanctions in UN Security Council Sanctions Regimes 9
Part Four: Basic Characteristics of Targeted Financial Sanctions 10
Part Five: Mechanism for Accessing UN Security Council Lists and the National List 12
Part Six: Obligations Imposed on All Entities 13
6.1 Obligations of Reporting Entities, Competent Authorities, All Persons, and Any Person or Entity in the Republic of Iraq 13
6.2 Obligations Specific to Reporting Entities from Financial Institutions and Non-Financial Businesses and Professions: 15
6.3 Determination of Name Matches and Similarities 17
Part Seven: Examples of Methods and Indicators of Suspicion Related to Proliferation Financing 18
7.1 Methods Used in Proliferation Financing 18
7.2 Indicators of Suspicion and Potential Risk Patterns for Proliferation Financing 19
Part Eight: Sanctions 22
Part Nine: Delisting and Requests for Exceptional or Essential Expenditures 23

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Introduction

UN Security Council sanctions regimes focus primarily on supporting the political settlement of conflicts, halting nuclear proliferation, and combating terrorism. These regimes include measures ranging from comprehensive economic and trade sanctions to more targeted measures such as arms embargoes, travel bans, and restrictions on certain financial transactions or goods. Additionally, the Financial Action Task Force (FATF) requires, under Recommendations 6 and 7 of the FATF Standards, the implementation of targeted financial sanctions to comply with UN Security Council resolutions regarding the prevention and suppression of terrorism and terrorist financing and proliferation financing.

Since interpretive guidelines are considered tools for achieving effectiveness in applying FATF standards, this guide seeks to provide guidance and support to competent authorities, financial institutions, and non-financial businesses and professions in the Republic of Iraq regarding the application of relevant standards on targeted financial sanctions.

This guide primarily addresses the obligations of reporting entities, persons, other entities, and competent authorities who hold funds or economic resources when taking freezing or unfreezing measures or making them available within the limits of exceptions established under Law No. 39 of 2015 on Combating Money Laundering and Terrorist Financing, and any other effective instructions or guidelines issued thereunder.

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Part One: Conceptual Framework

1.1 Asset Freezing Committee: The committee established under Article 15 of Law No. 39 of 2015 on Combating Money Laundering. The committee is responsible for freezing the assets of terrorists or other persons designated by the UN Security Council Sanctions Committee established under UN Security Council resolutions acting under Chapter VII of the UN Charter, or those classified nationally, or upon request by another state based on UN Security Council resolutions, consisting of:
First: The Deputy Governor of the Central Bank of Iraq – Chairman Second: The Director General of the Money Laundering and Terrorist Financing Combating Office – Vice Chairman Third: A representative from the following entities, whose job title is not lower than Director General or Dean for military personnel:
a. Ministry of Finance. b. Ministry of Interior.
c. Ministry of Foreign Affairs.
d. Ministry of Justice. e. Ministry of Trade. f. Ministry of Communications. g. Integrity Commission. h. Counter-Terrorism Agency.
i. National Intelligence Agency.

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1.2 Committee Tasks
The committee is responsible for the following:

• First: Notifying competent authorities of the names of persons whose assets are frozen upon publication on the official website of the UN Security Council Sanctions Committee, without delay, for the purpose of taking necessary measures to freeze the funds or other assets of the named persons and entities, or funds of persons and entities acting on their behalf, for their benefit, or under their direction. This includes funds and other assets derived from or generated by property owned or controlled directly or indirectly by these persons or entities. The committee may freeze the assets, branches, and spouses of any named person if justified.
• Second: Organizing a local list of terrorist persons and terrorist organizations that meet the freezing criteria, based on information provided by competent authorities.
• Third: Receiving requests from foreign countries via the Ministry of Foreign Affairs regarding the freezing of funds and other assets of persons residing in the Republic of Iraq, verifying that the freezing criteria are met, and issuing its decision accordingly.

Article 17:
First: Objection requests against inclusion in the Consolidated List from the Sanctions Committee are submitted to the competent authority in the UN Security Council or to the Committee.
Second: Objection requests against inclusion in local or international freezing lists by interested parties are submitted to the Committee for consideration. The Committee may retain the name, remove it, modify it, and modify the scope of the freeze. The decision may be appealed in accordance with the law.

Article 18: Freezing lists are published in the Official Gazette.

Article 19: Financial institutions, non-financial businesses and professions, and any other entity are obligated to freeze funds and other assets listed in freezing decisions issued by the Committee and notified to them. They must immediately notify the Committee of any information they possess regarding this matter.

Article 20:
First: Any interested party may submit a written request to the Committee to obtain a permit to dispose of all or part of the frozen funds for the following reasons:

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a. Payment of essential expenses for the person whose assets are frozen and any dependents, including amounts paid for food, rent and mortgage allowances, medicines, medical treatment, taxes, insurance premiums, and public service fees. b. Payment of fees, and payment of administration, custody, maintenance, and preservation expenses.
c. Humanitarian reasons for the family of the person whose assets are frozen.

Article 21: Financial institutions, owners of non-financial businesses and professions, or any other person holding funds subject to a freezing decision under paragraph (First) of this article must not dispose of them and must notify the authority that imposed the freeze and the Office thereof.

Article 22: A mechanism is organized for receiving and distributing lists issued by the UN Security Council, procedures for delisting, name correction, handling humanitarian cases, and all matters related to freezing procedures under the Consolidated List received from the UN Security Council Sanctions Committee and local lists prepared by the Committee at the national level or international lists prepared upon requests by other countries. The Committee's operations, meetings, and procedures are governed by a system issued by the Council of Ministers.

1.3 UN Security Council Resolutions: Current and subsequent resolutions issued by the UN Security Council under Chapter VII of the UN Charter, related to the prevention and combating of terrorism and the proliferation of weapons of mass destruction and their financing.

1.4 UN Security Council Regulations: Regulations listing all individuals, entities, and groups subject to targeted sanctions under relevant international resolutions.

• Targeted financial sanctions imposed under special sanctions regimes for UN Security Council resolutions related to terrorism and its financing concerning Al-Qaeda and Daesh and Afghanistan: 1267 (1999), 1989 (2011), 2253 (2015), 1988 (2011), and 1373 (2001) and subsequent resolutions to any of them.
• Obligations under UN Security Council Resolution 1718 (2006) concerning the Democratic People's Republic of Korea and its subsequent resolutions: 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016), 2321 (2016), 2356 (2017), and 2231 (2015), which endorsed the Joint Plan of Action and terminated all provisions of resolutions related to Iran and the financing of proliferation of weapons of mass destruction, including 1737 (2006), 1747 (2007), 1803 (2008), 1929 (2010), and any subsequent resolutions thereto.

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1.5 UN Security Council Consolidated List: The international list comprising the names of individuals and organizations related to terrorism or terrorist financing or the proliferation of weapons of mass destruction and its financing, who are subject to sanctions imposed under UN Security Council resolutions and Sanctions Committee resolutions, along with information concerning these persons and the reasons for their listing.

1.6 Funds or Other Assets: Assets of every kind, economic resources including oil and other natural resources, and property of all types, whether tangible or intangible, movable or immovable, concrete or abstract, regardless of the method of acquisition, and virtual assets, whether in electronic or digital form, documents or legal instruments indicating ownership rights in those funds or assets or a share or benefit therein, and circulating currencies, foreign currencies, bank credits, traveler's checks, bank checks, payment orders, financial transfers, cash transfers, shares, financial instruments, bonds, promissory notes, financial vouchers, letters of credit, and any interest, income, share in profits, or any other income or value due from or generated by these funds, or any other assets that may be used to obtain funds, other assets, goods, or services.

1.7 Categories of Funds: All types of funds or assets are subject to freezing measures. Funds can be classified based on the following types:
7.1 Assets: Include funds and other financial assets subject to sanctions, for example:
a) Cash, checks, monetary claims, drafts, payment orders, bearer instruments, internet payment tools, and other electronic or digital payment tools, including virtual currencies. b) Deposits with financial institutions or other entities and balances in accounts, including but not limited to: fixed-term or short-term deposit accounts, balances in stock trading accounts at banks or brokerage firms or other investment trading accounts. c) Debts and debt obligations, including commercial debts. d) Other accounts receivable, bills of exchange, and other monetary claims from others. e) Ownership rights and other financial benefits from sole proprietorships or partnerships. f) Securities and debt instruments traded publicly and privately, including shares, securities certificates, bonds, financial instruments, powers of attorney, and derivative contracts.

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g) Interest, profits, other income, or accumulated value from assets or generated by them. h) Credit, right of set-off, guarantees, performance bonds, or other financial obligations. i) Letters of credit, bills of lading, bills of sale; promissory notes and other documents proving interest in funds or financial resources or any other instruments for financing exports. j) Insurance and reinsurance.
7.2 Economic resources subject to sanctions include assets of all types, whether tangible or intangible, movable or immovable, actual or potential, which can be used to obtain funds, goods, or services, such as:
a) Land, buildings, or other real estate. b) Equipment, including computers, computer programs, tools, and machines. c) Office furniture, fixtures, fittings, and other items of a fixed nature. d) Ships, aircraft, and cars. e) Stock of goods. f) Works of art, cultural property, precious stones, jewelry, or gold. g) Goods, including oil, metals, or timber. h) Weapons and related equipment, including all materials mentioned in the arms embargo, including but not limited to: weapons and ammunition, military vehicles and equipment, paramilitary equipment, spare parts for the aforementioned, and technical advice, assistance, or training related to military activities. i) Weapons and related equipment, including all materials mentioned in the arms embargo, including but not limited to chemical components, detonating wires, or poisons. j) Patents, trademarks, copyrights, trade names, franchises, goodwill, and other forms of intellectual property. k) Internet hosting or related services. l) Any other assets.

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Part Two: Objective, Scope, and Targeted Entities

2.1 Objective of the Guide
In light of monitoring the implementation of resolutions issued by the UN Security Council related to targeted financial sanctions, and in accordance with FATF standards, interpretive guidelines are important matters that enhance the effectiveness of communication between authorities responsible for implementing these resolutions and sectors subject to compliance with those resolutions. Based on the above, the guide aims to develop knowledge, raise awareness, and guide authorities to ensure effective compliance with the application of targeted financial sanctions related to terrorism financing and proliferation financing, serving as a reference for the requirements of financial institutions and designated non-financial businesses and professions.

2.2 Scope of the Guide
This guide covers the scope of requirements of FATF Recommendations 6 and 7 related to the implementation of UN Security Council resolutions related to targeted financial sanctions for terrorism financing and proliferation of armaments.

2.3 Targeted Entities of the Guide
Iraqi competent authorities responsible for implementing UN Security Council resolutions, which fall within their jurisdiction to supervise and monitor the implementation of these resolutions, in addition to financial institutions and non-financial businesses and professions.

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Part Three: Targeted Sanctions in UN Security Council Sanctions Regimes
The purpose of imposing this type of sanctions is to deprive individuals and entities listed in the sanctions lists and the national list of any means that could enable any of them to threaten international peace, security, and stability, or support terrorism, or finance the proliferation of weapons of mass destruction. These sanctions remain in force as long as the name of the individual or entity remains listed on the sanctions lists or the national list.

Targeted sanctions in UN Security Council sanctions regimes include three main types of mandatory sanctions for all member states and preventive in nature, as they do not rely on criminal standards stipulated in national laws and do not require the existence of a criminal lawsuit against those to whom these sanctions apply. They include 3 main types:
First: Targeted financial sanctions, which include the freezing of assets and economic resources for listed persons or entities, including the prohibition of making funds, assets, economic or financial resources, or providing financial or other services available, fully or jointly, directly or indirectly, or for the benefit of any listed person or entity, or persons or entities acting on their behalf or under their direction, for the duration of the validity of the resolutions. Second: Travel ban: Prohibiting listed persons from entering the territory of other countries or transiting through them without requiring their arrest or legal prosecution. Third: Arms embargo: Prohibiting the direct or indirect supply, sale, or transfer of arms and related equipment.

Who is targeted by restrictive measures?

1. Any person or entity listed on the national list or the United Nations list.
2. Any person or entity that is owned or controlled, directly or indirectly, by a person or entity listed under paragraph (1).
3. Any person acting on behalf of or at the direction of any of the persons or entities listed under paragraphs (1) and (2).

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Part Four: Basic Characteristics of Targeted Financial Sanctions

o They are administrative sanctions
Freezing funds and assets and prohibiting transactions are not considered confiscation of these properties, but rather temporary restrictions on the ability to access property belonging to listed persons, entities, and organizations. Therefore, they differ from freezing or confiscation decisions taken in the context of judicial decisions. Consequently, decisions taken by the National Committee for Asset Freezing and Property and Prohibition of Transactions, whether based on inclusion in the local list or implementing sanctions regimes of UN Security Council Sanctions Committees regarding international regulations, are administrative decisions.

o They are sanctions independent of anti-money laundering duties Unlike anti-money laundering sanctions, the freezing of funds is not subject to a risk-based approach. Furthermore, due diligence and auditing operations related to the application of targeted financial sanctions are not considered part of risk-based due diligence measures and must be carried out regardless of the customer risk profiling system.

o They are situational and preventive sanctions Economic and financial sanctions are characterized by their situational nature, affecting property rights, which distinguishes them from confiscation or deprivation of ownership. They are sanctions taken against persons, entities, and organizations listed regardless of the existence of ongoing cases against them.

o They are sanctions with certain exceptions
To avoid infringing on the fundamental rights of listed persons or entities, a set of exceptions is stipulated, under which the listed person is granted the possibility of partial access to their funds, with a permit from the competent international authority or the National Committee for essential or necessary expenses.

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4.1 Examples of Freezing Funds and Economic Resources and Prohibiting the Provision of Financial or Other Services by Reporting Entities and Other Competent Authorities

First: Implementation of Freezing by Financial Institutions o Prohibiting any movements or transactions on existing accounts and immediate freezing upon detection, and preventing the account holder from using their account to make withdrawals or execute any other financial transactions. o Prohibiting the disposal or transfer of any amount from an electronic payment wallet if the owner is identified as a listed person or entity. o Not disbursing the balance of a loan previously approved by a microfinance company for a client who has become a listed person or entity.

Second: Implementation of Freezing by Owners of Designated Non-Financial Businesses and Professions o Not completing the sale of gold jewelry by the owner of a jewelry store. o The Real Estate Registration Department refusing to register a new property in the name of one of the listed persons or entities, or transferring the ownership of a property owned by one of the listed persons or entities to a buyer or to one of the listed persons or entities, and annotating the property page that the person is listed on the sanctions list or the national list.

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Part Five: Mechanism for Accessing UN Security Council Lists and the National List.

All financial institutions, non-financial businesses and professions, non-profit organizations, and all persons and entities are obligated to check the United Nations lists and the national listing lists when conducting any transaction or entering into a business relationship with any person or entity, to ensure that they are not listed on the aforementioned lists, which may undergo changes. To achieve this goal, access to the lists is obtained by referring to one of the following sources:

• The United Nations Website:
  The UN Security Council maintains a consolidated list of all persons and entities subject to sanctions by UN Security Council Sanctions Committees. These lists and updates are published on the website at the following link:
  https://www.un.org/securitycouncil/content/un-sc-consolidated-list

• The Money Laundering and Terrorist Financing Combating Office Website
  Names listed on international and local lists are published on the Office's website, along with all updates. All regulated entities, including financial institutions and non-financial businesses and professions, are required to continuously consult the website and immediately freeze all names listed on international and local lists, and notify the Committee and the Office immediately upon freezing:
  https://aml.iq/?page_id=2166

• Publication in the Official Gazette

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Part Six: Obligations Imposed on All Entities

6.1 Obligations of Reporting Entities, Competent Authorities, All Persons, and Any Person or Entity in the Republic of Iraq

First: Freezing
Freeing funds, other assets, and economic resources immediately upon listing on the national list and any amendments thereto, and within a maximum of 8 hours from the publication of sanctions lists and any amendments thereto, in accordance with the provisions of relevant legislation, or upon request to conduct or attempt to conduct any transaction related to any of the funds subject to freezing, whichever is earlier, without prior notice.

Second: Prohibition of Making Available
Prohibiting the making available of funds, other assets, and economic resources, or the provision of financial or other related services, fully or jointly, directly or indirectly, to any listed person or entity, or for the benefit of either, or for the benefit of persons and entities owned or controlled directly or indirectly by listed persons and entities, or for the benefit of any person or entity acting on behalf of or at the direction of listed persons and entities, unless an exception is issued by the Technical Committee in accordance with relevant UN Security Council resolutions concerning exceptional and essential expenses and payments due under contracts referred to in relevant legislation.

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Third: Referring to Sanctions Lists and the National List Referring to sanctions lists and the national list before providing any financial or other related services, or conducting or attempting to conduct any financial or other related transactions, or entering into any business relationship, to ensure that the service, transaction, or relationship does not involve a person or entity whose name is listed on the lists.

Fourth: Unfreezing Funds Belonging to Delisted Persons Unfreezing funds belonging to any person or entity whose name has been removed from the sanctions list or the national list within a maximum period of 8 hours from the publication of any amendments to any of these lists.

Fifth: Unfreezing Funds or Economic Resources
Unfreezing funds or economic resources or allowing the conduct of financial or other transactions for relevant legislation and in accordance with the decision issued by the Technical Committee on this matter.

Sixth: Notifying the Technical Committee of Matches Notifying the Technical Committee of the existence of listed persons or entities with names that match or are similar to the names of persons or entities listed on the sanctions lists or the national list, with differences in other information, without prejudice to taking any freezing measures in accordance with the provisions of relevant legislation.

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Seventh: Adding Interest
Adding interest or other profits due on frozen accounts to those accounts, provided that this interest or other profits are frozen in accordance with the provisions of relevant legislation. Also, adding interest, profits, returns, or any payments due under contracts, agreements, or obligations agreed upon before the date those accounts became subject to the provisions of relevant UN Security Council resolutions to the frozen accounts, and all such amounts are subject to immediate freezing. The Technical Committee is to be informed thereof.

Eighth: Feedback
Regarding attempts to conduct a transaction or business relationship, providing the Technical Committee with all information related to the measures taken in the context of freezing and unfreezing procedures and other related measures at the earliest possible time. The information provided must include the amount of funds, economic resources, or other assets frozen, their type, and other details and any measures taken regarding them.

6.2 Obligations Specific to Reporting Entities from Financial Institutions and Non-Financial Businesses and Professions:

In addition to the obligations mentioned above, reporting entities must do the following:

• First: Monitor the website of the Sanctions Committee for Targeted Financial Sanctions related to terrorism and its financing and the financing of proliferation of weapons of mass destruction, and monitor any updates related to the listing or delisting of persons or entities, or any amendments to the information concerning any of them.

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• Second: Regularly check databases, transactions, and operations and compare them with names listed on the sanctions lists and the national list, including any amendments thereto. This must include the following:

1. Searching the customer database.
2. Searching for the names of parties involved in any transaction, including those acting on behalf of the customer.
3. Matching names of potential customers.
4. Searching for the names of beneficial owners.
5. Searching for the names of persons and entities that have a direct or indirect relationship with listed persons and entities.

• Third: Continuous searching in the customer database before conducting any transaction or entering into a business relationship with any person to ensure that their name is not included in the sanctions lists or the national list.

• Fourth: In addition to notifying the Office in the following cases:

1. Notifying the Committee immediately:
   a. Notifying about funds, other assets, and economic resources that have been frozen and any measures taken regarding them in accordance with the provisions of relevant legislation. b. If it becomes apparent that one of their former customers or any customer who previously opposed dealing with them is listed on the sanctions lists or the national list.
   c. Suspicion that one of their current, former, or potential customers, or a person with a business relationship with them, is listed or has a direct or indirect relationship with a listed person or entity.
   d. In the case of name similarity where the reporting entity cannot resolve the similarity through available or accessible information, notifying the Technical Committee in this case to resolve the similarity as much as possible. e. Establishing internal controls and procedures and implementing them effectively to ensure compliance with obligations arising from these guidelines. f. Establishing and applying policies and procedures that prohibit their employees from notifying the customer or any third party, directly or indirectly, that a freezing measure or any other measures will be applied in accordance with the provisions of these guidelines.

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7. Appointing a primary and alternate liaison officer with competence and experience to handle requests from the Committee, the supervisory or regulatory authority, or any other competent authority, such that all written and/or electronic correspondence is limited to either of them, and ensuring that no unauthorized person has access to any of these correspondences. This includes ensuring that one of the two designated persons is available to handle requests from the Technical Committee daily and retaining all related transactions and correspondences in accordance with record-keeping procedures and security and protection procedures followe