This article examines the practical and legal issues that arise when an Iraqi company opens and operates a corporate bank account. Bank accounts are essential to every business, yet account problems are among the most frequent causes of operational disruption. Payments are delayed because a signatory has left, an account is restricted because ownership information is out of date, or a transaction is held because the bank cannot match it to the customer’s known activity.
Most of these problems arise from gaps between the company’s corporate records, its bank mandate and its actual operations. When those three sources tell the same story, the account usually operates smoothly. When they diverge, the bank must resolve the inconsistency before it can act, and the company may be unable to pay staff or suppliers in the meantime.
The Banking Law No. 94 of 2004 and Central Bank of Iraq instructions govern account opening and operation by banks. The Anti-Money Laundering and Counter-Terrorism Financing Law No. 39 of 2015 requires banks to identify customers and beneficial owners, monitor transactions and report suspicious activity. The Companies Law No. 21 of 1997, as amended, governs who may represent the company and how authority is conferred. The Iraqi Civil Code No. 40 of 1951 governs agency and powers of attorney, and the Commercial Law No. 30 of 1984 contains provisions on banking operations and cheques.
Preparing for account opening
Banks will ask for a set of documents that establish the company’s existence, ownership and authority. These commonly include:
- Corporate documents. The certificate of incorporation, articles of association, the latest registry extract and any amendments.
- Ownership information. Details of shareholders and, for corporate shareholders, the chain of ownership up to the ultimate beneficial owners.
- Authority documents. The resolution appointing the managing director or general manager and the resolution authorising the account and naming signatories.
- Identification. Identity documents for signatories, managers and beneficial owners, with residence documents for foreign nationals.
- Business information. A description of the company’s activity, expected transaction volumes, main counterparties and sources of funds.
Foreign corporate documents may need to be legalised and translated. Preparing these in advance avoids delays, particularly for newly formed companies that need an account to deposit capital.
Aligning signing authority with corporate records
The persons authorised to operate the account should be consistent with the company’s corporate records. The Companies Law and the articles determine who represents the company and what decisions require approval. A bank mandate that grants authority inconsistent with those records may be questioned by the bank, and payments made under it may later be challenged by shareholders.
The mandate should specify signatories, signing combinations, transaction limits and any requirement for dual signatures. For larger companies, a tiered structure allows routine payments to be approved by managers while significant transactions require senior approval. Corporate governance advice in Iraq can help design a mandate that fits the company’s delegation of authority and the bank’s requirements.
Updating mandates when circumstances change
Changes in managers, signatories or shareholders must be reflected promptly. Banks commonly require the updated registry extract and resolutions before accepting changes. Delays in updating the registry can therefore delay changes to the bank mandate, leaving a former manager as a signatory or preventing a new manager from acting.
Companies should treat mandate changes as part of every management change. The outgoing signatory’s authority should be removed at the same time as the new signatory is added, and the company should consider whether outstanding cheques signed by the outgoing signatory need special handling. Where a signatory leaves under difficult circumstances, the company should notify the bank immediately to prevent unauthorised transactions.
Disclosing and updating beneficial ownership
Banks must identify the natural persons who ultimately own or control the company. Where ownership passes through holding companies, trusts or nominees, the bank will ask for documents establishing each link. Changes in ultimate ownership, even if they occur abroad and do not change the Iraqi company’s registered shareholders, should be disclosed to the bank. Failure to do so can lead to account restrictions when the bank discovers the change through its own reviews.
Supporting transactions with evidence
Banks monitor transactions against the customer’s profile. Transactions that are unusual in size, currency, counterparty or pattern may be held for review. The company can reduce delays by:
- Informing the bank in advance. When the company expects a large or unusual transaction, such as receipt of investment funds or payment for a major contract, it can provide the supporting documents before the funds move.
- Keeping documents organised. Contracts, invoices, delivery documents and approvals for significant transactions should be readily available.
- Using consistent names and references. Payment instructions should use the contracting party’s correct legal name and reference the relevant contract or invoice.
Commercial contract advice in Iraq can help ensure that payment terms and instructions in contracts match how payments will actually be made.
Managing cheques and payment instruments
Cheques remain widely used in Iraqi commercial practice. The company should control cheque books, record cheques issued and ensure that cheques are issued only when funds will be available. A dishonoured cheque can have legal consequences for the signatory and may lead to enforcement action against the company. Post-dated cheques given as security to suppliers or landlords should be tracked carefully, because they may be presented at an inconvenient time.
Responding to account restrictions
If a bank restricts an account, the company should first establish the reason. Restrictions may result from missing documents, an unexplained transaction, a court or execution order, a tax attachment or a regulatory instruction. Each requires a different response. Missing documents can usually be supplied. An attachment must be addressed with the creditor or the authority that issued it. Litigation and dispute resolution advice in Iraq can help where restrictions result from creditor action or a dispute with the bank.
Planning for account continuity during disputes
Account access can become contested when shareholders or managers disagree. A manager who is being removed may refuse to hand over cheque books or online banking credentials. Two shareholder groups may each notify the bank that they represent the company. Faced with conflicting instructions, a bank will often freeze the account until the dispute is resolved, which can halt operations entirely.
Companies can reduce this risk by building safeguards into their mandate and governance arrangements:
- Dual signatures for significant payments. No single person can move large sums alone, reducing the incentive to seize control of the account.
- Clear removal procedures. The articles and the mandate should explain how a signatory’s authority ends and what evidence the bank will accept.
- Secure credentials. Online banking tokens and passwords should be issued to named individuals and revoked promptly when their role ends.
- A designated contact for the bank. One officer, identified in a board resolution, communicates with the bank on mandate matters.
Where a dispute does arise, the company should provide the bank with the registry extract and resolutions that establish who currently represents the company. If the bank still declines to act, a court order may be needed to clarify authority. Early legal advice helps the company choose between negotiation with the bank, an application to the registry and court proceedings.
Illustrative example. An Iraqi subsidiary of a foreign group replaces its general manager. The new manager is appointed by group resolution, but the registry filing takes several weeks. During that period, the bank refuses to accept the new manager as signatory, and the former manager, who has left the company, remains the only authorised signatory. Payroll is delayed. Had the company planned the change by appointing an interim second signatory before the departure and filing the registry change promptly, it could have maintained access to the account throughout the transition.
Conclusion & how Etihad Law Firm can help
A corporate bank account in Iraq operates smoothly when the company’s corporate records, its bank mandate and its actual operations are aligned. Preparing complete documentation, updating mandates promptly, disclosing ownership changes and supporting transactions with evidence reduce the risk of delays and restrictions.
Etihad Law Firm assists companies with bank account opening, mandate structuring and the resolution of account restrictions in Iraq. We help clients align their corporate records with the requirements their banks must apply.