ABA Section of Business Law

Volume 14, Number 6 July/August 2005

Business Law in Iraq?
Yes, But Be Careful
    By James Y. Rayis

"Nineveh is laid waste: Who will bemoan her? Whence shall I seek comforters for thee?" Jonah 3:7.

Dusty wind rips past my squinting eyes and continues across a wounded city. Asphalt dust clouds the air as I survey the crumbling high-rise to my left being so efficiently emptied of the twisting steel frame and rebar reinforcement that once supported the now-hollow and crumbled Defense Ministry headquarters. As I stand in line waiting to enter the protected government "Green Zone" with reconstruction staff and hopeful business partners, I am cautiously aware of the bustling parking lot behind the checkpoint and peer back constantly. This checkpoint is known in Baghdad as Assassin's Gate.

Once inside, past the first ID checkpoint, I wait to be frisked a second time and have my briefcase searched. Then, there is 150 feet of walking through a barbed path of sandbag and concrete protection until I see the familiar helmeted cavalryman atop his Abram's tank turret with hands dutifully on the machine gun as he peers down curiously at me.

I smile and the young soldier laughs at the sight of a suit-and-tie, briefcase-carrying American making his way back into relative safety in the midst of a city wondering why it is still at war. To paraphrase the fictitious detective, Joe Friday: "My name is James Rayis: I'm a lawyer."

The time is early February, 2004. This is the Iraq of 5,000 years' history, of Mesopotamian empires, birthplace of great rulers of wisdom and brutality — and of my parents. This is the Baghdad of Ali Baba, the great sultans and, not to be forgotten, my brother and sister. As one of the indigenous Assyrians who speaks a form of the language spoken by Christ, I was enchanted to be in this historic land.

As a lawyer in international business practice for more than 20 years who was handed an opportunity to practice with businesses working in Iraq, and with the richness of Iraq's ethnic mix as guides and interpreters — I am doing just that.

Iraq is a nation of respected but varying customs and traditions. Its history as one nation of Iraq being relatively recent, the different tribes and ethnic and cultural groups, while following federal law when necessary, are each more comfortable in their own traditions.

Habits of the southwestern Shiites follow more closely Gulf Arab traditions, whereas Sunni tribes from Anbar and Baghdad reflect more closely the traditions of those in Syria and Jordan. The Assyrian/Chaldean/Syriac (one people named "Chaldo Assyrian" in the Temporary Administrative Law) and Kurdish, who live in the North of Iraq alongside Yezidi, Turkmen, Armenians, and Shabak (South Asian Shiite Muslims) follow unique traditions and rules separately from the laws they must follow as part of a national government.

Iraqis have been sweeping up, both literally and figuratively. Reconstruction began almost on the heels of the fleeing Ba'athi soldiers. Due in large part to U.S. government investment and encouragement, Iraq is an opportune business investment site. While there is no downplaying the physical risk of traveling in and out of the country or the limitations on free movement within Iraq, there are opportunities for companies willing to be involved in rebuilding the country.

Between February and August 2004, I met no fewer than 25 representatives of major international law firms parked in luxury hotels from Kuwait to Dubai trying to rub elbows and share a drink with some contractor who may be involved in Iraq, and be a decision maker! The problem for them was that decision makers were already in Iraq. Being the first Western lawyer to get into Iraq and work, I was fortunate to meet and speak with not only the American contract representatives in the Green Zone, but Coalition Provisional Authority (CPA) representatives, Iraqi government leaders and the ministers who were themselves bidding out major projects.

By May 2003, the United Nations officially recognized the United States and Britain as joint occupying powers over Iraq and lifted previous sanctions against the country. In occupation, the CPA issued orders to establish basic institutions, to create a Governing Council to act in conjunction with it, to adopt ministries and appoint ministers, and to encourage economic activity by suspending taxes (temporarily) and lifting investment restrictions.

Iraq's economy had always been run in a bureaucratic, complex system of laws, regulations and orders since its original transition from Ottoman Rule to the British at the end of World War I. Years of instability, tribalism and corruption led to even greater complications in navigating the business environment, even through the relatively prosperous period from 1955 to 1975. With the Ba'ath party and Saddam Hussein came brutal suppression of free expression of any kind, including business activity. Despite these factors, the bureaucratic maze proved predictable even considering the nation's deepening troubles.

The original civil code of 1953 proved workable and, when results were not offending to the Ba'ath, predictably enforceable. It was heavily influenced by Napoleonic, Egyptian and Shari'a religious doctrines. A new commercial code was enacted in 1984 at the height of the Iran-Iraq war and a Companies Law was adopted in 1997 at a time of economic ruin. The new code set forth specific means to create business enterprises and expanded ownership rights of enterprises from Iraqis only to Arab League nationals.

No antitrust or competition rules existed under Iraqi law but it was well known that competing successfully with a state-owned enterprise met with harsh and dangerous punishment. Only Ba'ath party members could hold important positions and judges knew that decisions displeasing Hussein or any of his family could mean death or imprisonment.

On occupation, the CPA acted quickly to allow trade and investment access into the Iraqi market. Trade and customs barriers were removed and a new Companies Law was framed with ownership of stock (in most industries) opened up to foreigners. An intellectual property regime was framed and implemented for trademarks, copyright and patents.

The CPA also structured a transparent financial system with banking and currency rules overseen by a uniquely capable team led by ex-Bank of America and Michigan State University President Peter McPherson and U.S. Treasury Department's Deputy General Counsel George Wolfe. They succeeded in the important step of stabilizing runaway inflation and creating the new Iraqi currency now in use, even floating it on world markets (although the U.S. dollar remains the prized and most- used currency).

The adoption of the interim governing constitution, called the Temporary Administrative Law (TAL), gave Iraq the most sweeping framework for open and tolerant governance known in the Arab world, including a bill of rights guaranteeing freedom of voting, assembly and religious practice.

Of course, great caution is required when doing business in developing nations, particularly in today's climate of risk in the Gulf States. But also, in Iraq, it is extremely risky to skip a step that most U.S. companies now there seem to ignore; one must comply with Iraqi law to stay in business after reconstruction. For many companies this does not seem important since contracts are paid directly within the United States. But problems can and do arise and can stop or hinder a project.

The Iraqi legal system has a deep and long-standing tradition of holding form over substance. Running afoul of any regional authority for violating its codes or ignoring permitting requirements concerning construction and building standards, employment, riparian rights and water and sewage rules as well as a myriad other issues can lead to misunderstandings and trouble not only with government officers, but with police and local populations.

A primary means to achieve stability with Iraqi business partners is under a comprehensive (but not physically imposing) contract of Civil Code form. Contract enforcement is universally upheld unless certain social or religious principles would be offended. Specific performance is the means of judicial enforcement unless not practical, in which case monetary damages would be awarded. Financing contracts must be carefully considered since interest rules are detailed and strictly followed. While foreigners cannot directly own real estate in Iraq, appropriate contracts can accomplish results that are surprisingly similar.

Iraqi businesses are very adept at representation of foreign companies as agents or distributors. The Civil Code contains agency provisions familiar and agreeable to any Western business group. For instance, an agent is limited in authority to that granted to it in the agency contract and may only exceed such authority on specific granting of permission to do so by the principal. Commercial agencies are regulated and must be licensed and registered. Companies seeking an Iraqi agent must seek advanced permission through the Companies Department Registrar.

The Iraqi Ministry of Justice under the interim government no longer controls the judiciary. Judges are appointed nationally and supervised only by local bar collectives and a Supreme Judicial Counsel. Courts are separated into civil, criminal and personal status courts, the latter involving family concerns for Muslim citizens. Non-Muslim personal issues can be handled in civil court or by other recognized clergy such as Chaldo Assyrian priests.

Since my first trip to Iraq, the security environment has become continually more precarious for everyone, but especially risky to foreigners out in the open. With more and more Iraqis finding a decreasing likelihood of Saddam or his regime re-emerging, citizens are taking greater responsibility for improving safety on the streets. Coalition forces are more dependent on tips and warnings from the public against ambushes and improvised explosives.

The Iraqi National Guard is skittishly but visibly patrolling major streets. Foreign terrorists engaged in a worldwide Islamic war against the West — the United States in particular — have sent suicide bombers and kidnappers into the country to destabilize chances for a peaceful, democratic regime.

While northern Iraq is relatively safer, with populations of Kurdish, Chaldo Assyrians, Turkmen and Yezidi minorities populating large areas, security concerns remain deep in Mosul and south into the Bartella areas of the Nineveh province. Conducting business representing foreign enterprises in northern Iraq is pleasant and much less dangerous though forces of the Iraqi National Guard and KDP pesh merga occasionally threaten free travel.

Of $18 billion-plus dollars committed by the United States for reconstruction, the nine "prime" U.S. contractors have been hampered by security fears and isolation within the Green Zone to having spent, almost two years after their charge, just over $3 billion. Major efforts involving infrastructure of power, water, transportation and health systems are in serious need of attention despite the heroic efforts of Coalition military support. These efforts designed at taking over key infrastructure improvement have been carried on in the midst of fighting an unpredictable insurgency.

While much of the process of subcontracting and putting contracts in place with Iraqi businesses on the ground is met with enthusiasm and energy, old vestiges of corruption in the form of Arab "baksheesh" have not been fully rooted out of even newly formed ministry systems and, most disappointing, from U.S. official channels and government "contractors." The Project and Contracting Office is charged with seeing the prime contracts move forward as well as assisting in priority determinations and supply logistics.

A major step along the continually improving process of Iraq's march toward freedom was the national election. The Coalition no longer governs Iraq and is presumably planning to pull out its armed forces. The new Iraqi Assembly was elected with voting problems occurring less than could have been imagined. The Sunni Muslims and northern Iraq non-Kurdish minorities are vastly under represented.

The president and prime minister have been chosen and a slate of ministers nominated by the prime minister. These will be, in traditional Iraqi manner, powerful and forceful rulers. The Assembly, together with guidance by the heads of government, will determine the form of new government and important legal reforms such as economic and business regulation.

Issues such as the extent to which Shari'a Islamic law will be applied, the continued openness of the economy to foreign investors, regulation of trade and banking laws and other critical factors in determining Iraq's future economic health and legal structure are now in debate. The CPA's influence has been great and will not be entirely absent in the process. The Temporary Administrative Law provided incredible and widespread reform but did not completely permeate into the fabric of Iraqi law or society in its short life. Iraqi leaders saw in many of the reforms possibilities for true revitalization.

But long tradition and regional influences will temper and sway how far these may be accepted. The danger of deepening corruption in both government and business could derail much progress already attained.

There is great hope for optimism that not only will Iraq emerge a peaceful and stable regional ally of the West, but that Iraqi people will live in a more free and economically vibrant situation than has been known in an Arab nation since the best days of Lebanon before 1975.

Sectarian strife has been kept under control and the various groups will, one must hope, continue working together for the betterment and stability of one nation. Ba'ath loyalists and violent religious zealots must be brought in and publicly punished when caught committing crimes so that others will see and be discouraged.

Legal adjustments and conditions will be set by the new government and, I predict, will be remarkably familiar and provide ease of commerce within historically Arabic traditions. The north of Iraq may, with cooperation between its myriad of peoples, continue to develop and become a haven for nature lovers and tourists interested in clean air, mountains and the rich history seen in many ruins and artifacts. Lawyers will have a continually more important role in the long transition from oppressive rule to freedom in commerce and open trade.

When asked by the curious head of an Iraqi private commercial unit why I am not afraid to do business in Iraq these days, I reply only that my work brings me here and I am happy to come and see it for myself. He laughs and says he wishes me peace and God's safe passage always.