VZCZCXRO1784
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #2258/01 2021335
ZNR UUUUU ZZH
P 201335Z JUL 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 8399
RUCPDC/USDOC WASHDC
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 03 BAGHDAD 002258 
 
SENSITIVE 
SIPDIS 
 
USDOC for Deputy Secretary of Commerce 
USDOC for 4530/ITA/MAC/IIRTF/Shamrock-Mann 
USODC for 4520/ITA/MAC/ME/KReichelt/CLoustaunau 
USDOC for 3131/ITA/USFCS/RD/ANESA/GLoose 
 
E.O. 12958: N/A 
TAGS: BEXP EINV EFIN ECON TU IZ
SUBJECT: Commerce DepSec Sullivan Pushes KRG to Boost Transparency, 
Combat Corruption 
 
This is a Kurdistan Regional Reconstruction Team (RRT) cable. 
 
Summary 
------- 
 
¶1. (SBU) Deputy Secretary of Commerce John Sullivan led the first 
Department of Commerce (DOC) sponsored trade mission to visit Iraq 
in more than 20 years June 22-25 in Erbil.  Accompanying D/S 
Sullivan were representatives from nine U.S. companies who sought to 
explore profitable business opportunities in the Kurdistan Region 
and in greater Iraq.  A separate delegation of 14 U.S. companies 
visited Erbil concurrently with the DOC trade delegation, in a trip 
organized by the U.S. Chamber of Commerce in Washington.  During 
discussions with the Kurdistan Regional Government's (KRG) Deputy 
Prime Minister, the Chairman of the KRG's Board of Investment, and 
the KRG Ministers of Trade, Agriculture and Planning, D/S Sullivan 
stressed the importance of transparency in the formulation and 
execution of government budgets, as well as the necessity for KRG 
senior officials to combat corruption in both the public and private 
sectors.  D/S Sullivan noted that the Kurdistan Region's strong 
natural and human resources should be "more than sufficient" to 
attract significant investment from the U.S. and other countries, 
and he pledged to educate U.S. businesses about the opportunities 
available in the Kurdistan Region.  He stated, however, that the 
perception of corruption could materially reduce the flow of 
U.S.-sourced investment into the region.  D/S Sullivan's message 
reinforced the USG's broader anti-corruption initiative and was 
especially timely, given the likelihood of substantial medium-term 
increases in oil-related revenues and business activity in the 
Kurdistan Region (see septel for further information on other 
aspects of the trade mission).  END SUMMARY. 
 
D/S Sullivan Delivers Strong, 
Consistent Message on Corruption 
--------------------------------- 
 
¶2. (SBU) During his meeting with KRG Deputy Prime Minister (DPM) 
Omar Fatah on June 23 in Erbil, D/S Sullivan discussed the corrosive 
effects of corruption upon the ability of nations and regions to 
attract foreign direct investment.  He noted that the perception of 
corruption among KRG officials could materially reduce the flow of 
U.S.-sourced investment into the region, and he stressed the 
"importance that U.S. businessmen see fair systems of awarding 
government contracts, as well as transparent overall governance 
based on the rule of law."  The DPM said the KRG recently created a 
committee to investigate allegations of official corruption and is 
"against corruption in all its forms."  He noted that the KRG has 
possibly created a "misperception of corruption" through its efforts 
to help foreign investors find local partners and facilitate foreign 
direct investment.  Fatah said the KRG is increasingly encouraging 
foreign investors to find their own local partners, and he welcomed 
the trade mission as a step in that direction. 
 
¶3. (SBU) Fatah emphasized that "the U.S. military and people are 
liked, respected and considered as liberators in the Kurdistan 
Region."  He also described the Kurdistan Region's "good security 
situation that is better than in the rest of Iraq."  D/S Sullivan 
agreed with these points, and he also noted that the Kurdistan 
Region's strong natural and human resources should be "more than 
sufficient" to attract significant investment from the U.S. and 
other countries.  He said the U.S. Department of Commerce would 
continue to educate American businesses about the opportunities 
available in the Kurdistan Region. 
 
¶4. (SBU) During subsequent meetings with other senior government 
officials (i.e. the KRG ministers of planning, agriculture, and 
trade, as well as the Chairman of the KRG Board of Investment), D/S 
Sullivan repeated his message on corruption.  He was joined during 
his private meetings with these KRG officials by Ambassador Charles 
Ries, Minister for Economic Affairs and Coordinator for Economic 
Transition in Iraq.  D/S Sullivan's KRG interlocutors stressed their 
firm opposition to corruption, as well as their individual and 
collective commitments to ensuring transparency in the KRG's 
budgeting, government procurement, and corporate oversight 
processes. 
 
¶5. (SBU) KRG Minister of Trade Mohammed Raouf, a leader in the 
Kurdistan Islamic Union party, admitted that corruption was present 
all over Iraq, and that the appointments of senior KRG officials 
based on political connections only made it worse.  Raouf reiterated 
the KRG's commitment to fight corruption, but he found it unlikely 
that U.S. firms would face corruption-related obstacles in the 
Kurdistan Region.  He said, "If a powerful, large U.S. company came 
here, no one would dare ask for a bribe.  Let's have just one big 
U.S. company enter, and we'll see if they have problems.  They 
 
BAGHDAD 00002258  002 OF 003 
 
 
won't."  D/S Sullivan described bidding transparency and the absence 
of corruption as crucial aspects of any U.S. businessperson's 
analysis of whether to invest in a particular foreign country or 
region.  Citing the U.S. Department of Justice's (DOJ) rigorous 
enforcement of the Foreign Corrupt Practices Act, he said, "U.S. 
businesses will only invest in the Kurdistan Region if they are 
convinced they will not face DOJ legal scrutiny regarding such 
investments." 
 
KRG Ministers Describe 
Investment Priorities and Concerns 
----------------------------------- 
 
¶6. (SBU) The Chairman of the KRG's Board of Investment, Herish 
Muharram, described financial sector investment opportunities and 
said attracting foreign investments in the underdeveloped banking 
and insurance sectors remains a high priority.  Muharram noted the 
propensity of Kurdish individuals to avoid banks, given past bank 
failures in the region, and he described most banks' reluctance to 
actively solicit private and corporate customers who are unknown to 
them.  He said, "We're trying to build a bridge of trust between the 
banks and their customers."  He cited the 18 percent rate of 
interest on bank deposits with the Central Bank of Iraq as both a 
disincentive to lending and an impediment to modernization of the 
banking sector.  Muharram said the KRG is considering minority 
investments of "maybe 20 percent" with foreign bank and insurance 
companies seeking to establish branches in the Kurdistan Region, as 
a means to jump start foreign investment.  He described a recent KRG 
initiative to attract investment from Iraqis who fled Iraq into 
neighboring countries.  Muharram also noted that the KRG is creating 
special identification cards for Arab businesspeople from other 
parts of Iraq that will "ease their passage through all [KRG] 
checkpoints." 
 
¶7. (SBU) The KRG Minister of Agriculture, Abdulaziz Tayeb, described 
the "decline in all agricultural sectors" in the Kurdistan Region 
over the past 20 years, as a result of Saddam Hussein's "destruction 
of villages and infrastructure that converted [Kurdish Iraqis] from 
producers to consumers."  He said the region's farmers "have 
problems bringing production to market."  Tayeb listed cold storage, 
canning factories, dairy production centers, and improvements in 
transportation infrastructure as the KRG's highest investment 
priorities for the agricultural sector.  D/S Sullivan noted that 
many U.S. companies have the products and expertise necessary to 
assist in these areas.  Tayeb responded, "The [KRG] prime minister 
has issued an order to all ministries to give U.S. companies 
preferred access to business opportunities in the Kurdistan 
Region." 
 
¶8. (SBU) KRG Minister of Planning Shwani told D/S Sullivan and 
Ambassador Ries that he expects Iraq's forthcoming budget 
supplemental amount to total approximately $8 billion.  From the 
KRG's expected $1.3 billion (i.e. 17 percent) share of that amount, 
Shwani said the KRG has allocated $300 million for electricity 
infrastructure and $200 million for water projects, with the 
remainder to be disbursed to the three Kurdish governorates for 
"capital investment projects involving provision of basic services." 
 
 
Comment 
-------- 
 
¶9. (SBU) Given their focus on increasing U.S. business activity and 
investment in the Kurdistan Region, KRG officials eagerly welcomed 
the DOC trade mission.  The KRG expects substantial medium-term 
increases in the region's oil-related revenues and foreign business 
activities -- including significant investments from U.S. companies. 
 These factors increased the importance of D/S Sullivan's clear and 
timely message to KRG officials regarding corruption.  As in the 
rest of Iraq, the number of corruption cases successfully prosecuted 
in the Kurdistan Region remains negligible. The statutory and 
regulatory provisions intended to control corruption will require 
substantial revision to be effective.  Tighter statutes and 
regulations must then be followed by much more aggressive 
enforcement actions.  Despite public and private protestations by 
KRG officials against corruption, the KRG's financial inflows and 
outflows remain opaque, KRG officials are not required to publicly 
declare their assets or sources of income, and RRTOffs are aware of 
no corruption convictions against KRG officials during at least the 
past year.  The KRG also lags the central government in developing 
initiatives to combat corruption.  RRT Erbil and Embassy Baghdad 
will follow up with the KRG to pursue more vigorous action from the 
KRG PM's anti-corruption committee and support other such 
initiatives. 
 
 
BAGHDAD 00002258  003 OF 003 
 
 
CROCKER