Immunity Gone! Will Jail Be Next?
What You Need to Know About
Doing Business in Iraq in 2009
and Beyond
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INTRODUCTION
Presenters
• Moderator – Stephen J. Hirschfeld
CEO, Employment Law Alliance
San Francisco, CA
• Speaker – Mohamed H. el Roubi
I&D Iraq Law Alliance
Baghdad, Iraq
3
Mohamed el Roubi
Mohamed el Roubi is a founder and managing partner in I&D Iraq Law
Alliance, Fadel Ezzeldin Al-Qadi & Partners in Baghdad, Iraq. His practice is
focused on assisting foreign investors operating throughout Iraq and across
the Middle East. He started his career working on international boundary
disputes of oil producing states and on Saudi Arabia’s Natural Gas
Initiative. Mohamed’s current practice focuses on corporate and commercial
transactions with a particular emphasis on mergers and acquisitions, project
finance, telecommunications, and oil and gas. A significant portion of his
practice is spent advising clients on labor and employment and tax aspects of
their operations in Iraq.
Mohamed has been based in Baghdad, Iraq since June 2003. He received his
B.A. in Business Administration from the American University in Cairo, Egypt
(“AUC”), his M.A. in Middle East Studies from AUC, and his JD from
Northeastern University School of Law in Boston, MA.
4
SOFA Overview
• Status of Forces Agreement (SOFA) between
the United States and the Republic of Iraq came
into force on January 1, 2009.
• Similar agreements concluded with other forcecontributing countries of the Multinational Forces
in Iraq.
• To govern the presence of foreign forces in Iraq
until their withdrawal according to the negotiated
time frame.
5
SOFA Overview
• Transitional process currently underway –
temporary “stay of execution” on some aspects
possibly until March 31, 2009.
• Contractors to US Forces in Iraq are no longer
covered by privileges and immunities they used
to enjoy under CPA Order 17.
6
CPA Order 17
Privileges and
Immunities
• Under CPA Order 17, Contractors were defined as:
“non-Iraqi legal entities or individuals not normally
resident in Iraq, including their non-Iraqi employees and
Subcontractors not normally resident in Iraq, supplying
goods or services in Iraq under a Contract.”
7
CPA Order 17
Privileges and
Immunities
• A Contract is defined in Order 17 as:
– a) a contract or grant agreement with the CPA or any successor
agreement thereto, or a contract or grant agreement with a
Sending State, to supply goods or services in Iraq, where that
supply is:
• i) to or on behalf of the MNF;
• ii) for humanitarian aid, reconstruction or development projects
approved and
• organized by the CPA or a Sending State;
• iii) for the construction, reconstruction or operation of Diplomatic
and Consular Missions; or
• iv) until July 1, 2004, to or on behalf of Foreign Liaison Missions; or
– b) a contract for security services provided by Private Security
Companies to Foreign Liaison Missions and their Personnel,
Diplomatic and Consular Missions and their personnel, the MNF
and its Personnel, International Consultants, or Contractors.
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CPA Order 17
Privileges and
Immunities - 2
Per Order 17, Contractors were entitled to the following
privileges and immunities:
– “Contractors shall not be subject to Iraqi laws or regulations in
matters relating to the terms and conditions of their Contracts,
including licensing and registering employees, businesses
and corporations; provided, however, that Contractors shall
comply with such applicable licensing and registration laws
and regulations if engaging in business or transactions in
Iraq other than Contracts. Notwithstanding any provisions in
this Order, Private Security Companies and their employees
operating in Iraq must comply with all CPA Orders, Regulations,
Memoranda, and any implementing instructions or regulations
governing the existence and activities of Private Security
Companies in Iraq, including registration and licensing of
weapons and firearms.”
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Popular Misconceptions
and Myths about Privileges
and Immunities under CPA
Order 17
• A single US Government/Coalition Contract will exempt
my company from the application of Iraqi law regardless
of what other activities we carry out in Iraq.
• Because we are a Contractor we owe no obligations to
the Iraqi Government including in relation to our Iraqi and
normally resident employees.
• Private Security Companies are covered by CPA Order
17 and are not subject to Iraqi law.
• Contractors in Iraq operate in a “legal vacuum.”
10
Harsh Reality about
Privileges and Immunities
under CPA Order 17
• They do not apply to normally resident companies or individuals,
and they do not apply when companies engage in other business
transactions in Iraq outside of the Contracts.
• Contractors are still liable to withhold and remit employee income
tax for their Iraqi and normally resident foreign employees and must
contribute to and withhold social security for their Iraqi and normally
resident foreign employees.
• Despite mention of Private Security Companies in Order 17, PSCs
are excluded from CPA Order 17 by Memorandum 17 and
subsequent Ministry of Interior Orders requiring business registration
and therefore a “normal residency” in Iraq.
• Privileges and immunities afforded were for the benefit of the
Sending State and not the Contractor. The Sending State could
waive immunity (thereby subjecting the company or the employee to
Iraqi jurisdiction) or they could subject Contractors to their own laws.
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The Even Harsher
Reality
of the SOFA
• Despite the limitations of the privileges and immunities
under CPA Order 17, Contractors were permitted to act
with little fear of legal consequence.
• Media reports covering events such as the Aegis and
Blackwater shootings perpetuated the impression that no
law applied to Contractors and that Iraq was the “Wild
West of the East.”
• Iraqi anger grew over a number of spectacular incidents
and there was no appropriate action taken by the US
and the Coalition Forces to hold Contractors
accountable.
12
The Even Harsher
Reality
of the SOFA
• As a result, excluding Contractors from the privileges
and immunities to be granted under the SOFA became a
major negotiating point for the Iraqi Government.
Exclusion of Contractors from privileges and immunities
under the SOFA is not an oversight.
• As one e-mail from a Contracting Officer to one of our
clients read:
“As you are probably already aware, the implementation of the
US/Iraq Security Agreement rescinds the U.S. contractor
immunity provisions of CPA Order 17. Effective 01 January
2009, U.S. contractors will no longer enjoy special protections
and must operate in Iraq in accordance with the Security
Agreement and Iraqi law. Contract holders are advised to seek
competent legal counsel in order to ensure compliance with the
Security Agreement and Iraqi law.”
13
Consequences of Loss
of Immunity
• All Contractors must register to do business in
Iraq to continue to perform their Contracts.
• All Contractors must comply with Iraqi corporate
and personal income tax obligations.
• All Contractors are subject to Iraqi civil and
criminal laws and the jurisdiction of its courts.
• Contractors must obtain entry, exit, residency,
and exit/reentry visas.
14
Registration to Do
Business in Iraq
• Permanent Establishment (PE) risk is triggered the moment a
company has a place of business, administration, or adds value in
Iraq.
• Having a PE does not only trigger a tax liability, but entails a
registration requirement.
• Providing goods or services to Iraq from abroad where there is no
place of business or administration, and no value is added in Iraq is
considered international trade with Iraq and does not give rise to a
PE or an obligation to register in Iraq.
• Iraqi tax law contains anti-avoidance provisions that allows the Tax
Commission to see through relationships and structures that are
designed to hide a PE as international trade with Iraq.
15
Options for
Registration
There are three basic options for registration in Iraq:
1.
Register a representative office (NOTE: rep offices may not
conduct commercial activities in Iraq. They may only market and
canvas for opportunities). Rep offices may not be used to perform
Contracts in Iraq.
2.
Register a branch office if the company has a contract with the
Iraqi Government (NOTE: in the Kurdistan Region, the
requirement of a government contract does not exist). Branch
offices may not be used to perform US Government Contracts in
Federal Iraq (they may be used in the Kurdistan Region).
3.
Register a wholly owned limited liability company. A foreign
company may establish a limited liability company with a single
shareholder to carry on business activities in Iraq. For
Contractors that have only US Government Contracts in Federal
Iraq, this may be their only choice.
16
Branch Offices
• Branch offices have no independent personality from the
mother company. There is no corporate veil. Liability in
Iraq will flow back to the mother company.
• There is no capital for the branch office (although the
mother company must undertake to be liable for any
debts of the branch office in Iraq and must submit to Iraqi
jurisdiction).
• Branch Office will be able to carry on business activities
in Iraq in the name of the mother company.
17
Limited Liability
Subsidiaries
• Can be established with a single shareholder.
• Minimum Capital is ID1M (approximately $850 by current
exchange rate), although capital should be appropriate
for activities to be carried out by the LLC.
• In Federal Iraq, the company must trade under a name
that is made up of Arabic words having an original
meaning (i.e., “Microsoft” or “Pepsi” will not be
acceptable). Name must also contain a reference to the
activities of the company – i.e., Solar Rays Company for
Electrical Power General Ltd.
• In Kurdistan Region, Arabization rule is not enforced and
LLCs can be established with non-Arabic words or words
having no meaning in any language.
18
Registrations Required
Post-Establishment
• Branches and LLCs must register for:
– A corporate income tax file with the General
Commission for Taxes – Corporate Tax
Department.
– An employee income tax file with the General
Commission for Taxes – Employee Wage
Withholding Department.
– A social security file with the Social Security
Administration of the Ministry of Labor and
Social Affairs.
19
Corporate Income Tax
Requirements
• Currently corporate income tax is assessed at a flat rate
of 15%.
• Audited financials need to be prepared and submitted by
May 31 of year following closing of financial year.
• Financials to be prepared according to Iraqi financial
standards and prepared and audited by certified Iraqi
accountants and auditors.
• General Commission for Taxes can be aggressive, may
make assessments and conduct audits, and in the event
of appeals to assessments taxes must be paid for appeal
to be heard.
• Five-year statute of limitations for tax issues.
20
Employee Wage
Withholding Obligations
• Employer is responsible for withholding and remitting
employee income taxes.
• Employee income taxes are assessed on a sliding scale
from 3% to 15%.
• Up to 30% of base salary can be provided to employee
in the form of special allowances including for food,
clothing, hardship, etc.
• Errors in withholding or failure to withhold or remit
subjects the employer, not the employee to penalties
and obligations to pay back taxes and penalties.
21
Social Security
Obligations
• Social Security rate is 17% of base salary.
• Employer has an obligation to withhold 5% of
employee base salary on account of social
security.
• Employer must contribute 12% to employee’s
social security.
• Social Security, like most labor and employment
issues, is considered a matter of public order
and may not be contracted around.
22
Visas and Immigration
• Once a company is registered to do business in Iraq, it
can sponsor employees for visas and residency permits.
• Visas must be obtained prior to an employee’s arrival in
Iraq (except for entry via the Kurdistan Region). No
visas can be obtained on arrival.
• Visas are approved by the Ministry of Interior, Residency
Directorate, and forwarded to the Iraqi Embassy in the
country of application.
• Upon arrival, employees must report their arrival to the
Residency Directorate within 10 days and must present
themselves to the Ministry of Health for an HIV blood test
within the same time. Stays of less than one week do
not require such reporting.
23
Visas and Immigration
• Business visas are typically of one-month duration.
During this time the employer must apply for a residency
permit for resident employees, and obtain the necessary
visa extensions during processing time.
• Foreigners in Iraq must obtain an exit visa within six
days of their desired departure date. For foreigners who
hold a residency permit, the exit visa will include a
reentry visa valid for up to three months from the date of
departure. Failure to return within three months will void
the residency.
24
Visas and Immigration
• A foreigner will not be able to leave Iraq if he or she is
not in possession of an exit visa.
• Periodic HIV blood tests will be required, particularly
after a prolonged absence from Iraq.
• There are currently no Iraqi employment quotas,
although some Ministries have started trying to introduce
Iraqization programs with requirements of as high as 8090% Iraqi employment for companies holding Iraqi
government contracts.
25
Iraqi Labor Law
Highlights
• Iraqi Labor Law (No. 71 of 1987) has a socialist
backdrop and is highly protective of employees.
• It is very difficult to fire employees.
• Temporary or limited term contracts are only
possible where the nature of the work to be
performed is temporary or limited in nature (such
as project or seasonal work).
26
Iraqi Labor Law
Highlights
• An employment relationship exists whenever an
employer exerts administration and supervision,
regardless of how the relationship is described in a
contract.
• Labor and employment matters are issues of public
order and may not be contracted around. The Law
establishes the floor, not the ceiling, of employee rights.
However, benefits over and above those provided for in
the law, extended in a consistent manner over a period
of time, may become vested rights and the employer
may find itself unable to cancel or withdraw them.
27
Working Conditions
• Employees may work eight hours per day for a maximum
of six days per week.
• The number of hours to be worked and the length of the
week may be shortened in cases of hard labor.
• The law requires that employees be allowed a break of
not less than one-half hour, and not more than one hour
during the working day.
• Employees are not required to work more than five hours
continuously without a break.
28
Working Conditions
• In the event the employee works two shifts during the
day, the break between the two shifts must be not less
than one hour and not more than four hours.
• In working two shifts, the employee may not be required
to remain at the place of work for more than 12 hours
during the day.
• In certain limited conditions, the number of hours an
employee may work may be extended, particularly in the
case of emergencies or force majeure.
• Overtime must be paid.
29
Safety and Security
• Employers are obliged to provide all safety and security
precautions and equipment necessary to overcome the
risks imposed by the working conditions. This has
traditionally been considered to include such precautions
as hard hats and eye protection on construction sites,
and first aid kits on work sites.
• Although there is no precedent to this effect, employers
are cautioned that an Iraqi court could read the
obligation to include providing professional armed
security, hardened shelters, body armor, etc. where
kidnapping, shelling, or shooting are known risks of the
job.
30
Vacations
• Employees are entitled to an annual paid vacation of 20 days per
year.
• For employees working in difficult conditions, or performing work
that is hazardous to the health, the entitlement is for 30 days per
year.
• Employees serving more than five years with the same employer are
entitled to an additional two days for every five years of seniority
they accrue with the same employer.
• Employees are not permitted to work for another employer during
their vacation.
• The employer may control when the employees take their vacation,
by specifying so in the internal regulations of the company.
31
Sick Leave
• Employees are entitled to take up to 30 days per year of
paid sick leave.
• Thereafter the employee may take up to a total of 180
days of sick leave, but such time will be paid by the
social insurance, and not by the employer.
• Sick leave must be granted when the illness is
documented by medical evidence provided by a doctor.
32
Employee Discipline
• Employers must have internal regulations that are
approved by the labor office or they must use the model
regulations provided by the labor office.
• The internal regulations provide for an escalation of
disciplinary measures up to dismissal.
• Reasons for dismissal, however, are extremely limited.
33
Causes for Dismissal
An Employer may dismiss an employee only under the
following circumstances:
• If the employee commits gross negligence, which causes material
damage, on condition that the employer informs the Labor Office
within 24 hours of the event;
• If the employee discloses the employer’s secrets resulting in
damage to the employer;
• If the employee violates the instructions of the employer with regard
to occupational safety more than once, on condition that these
instructions are in writing and clearly posted;
• If the employee is found, more than once, in a state of intoxication or
under narcotic influence while at work;
34
Causes for Dismissal
• If the employee behaves, more than once, in a manner unbecoming
to the status of the employer and the work;
• If the employee assaults the employer or his representative or any of
his superiors at work or outside the work place, on condition that the
employer informs the Labor Office in the relevant governorate within
24 hours of the event;
• If the employee commits a misdemeanor or a felony against any of
his/her fellow workers, during work, and is duly convicted thereof;
• If the employee is sentenced to imprisonment of more than one year
and the conviction is final;
• If the employee is absent from his/her work for a period of 10 days
continuously, or 20 days non-continuously, without prior notice or
acceptable explanation, on condition that the employee has been
warned by the employer of his/her absences prior to termination.
35
Causes for Dismissal
NOTE: This list was intended to be non-exhaustive, but has
come to be considered by courts to be an exhaustive limited
list. Dismissal outside these limited situations will give an
employee a claim for abusive termination. In such cases,
reemployment is not an option, but the employer may be
required to pay financial damages assessed according to
salary for a number of months per year employed by the
company.
36
Criminal Law
•
Crimes, misdemeanors, and infractions committed by
any person in Iraq (whether foreign or Iraqi) are
governed by the Penal Code No. 111 of 1969 as
amended, with the exception of individuals who enjoy
immunity as determined by international agreements
or international law (no longer includes Contractors).
37
Types of Crimes
Crimes are divided into three types:
Felonies, Misdemeanors, and Infractions.
• Felonies are crimes that are punishable by any
of the following penalties:
– Death;
– Life imprisonment;
– Imprisonment for a period of between five and
15 years.
38
Types of Crimes
• Misdemeanors are crimes that are punishable
by any of the following penalties:
– Harsh or simple detention for a period between
three months and five years;
– A fine (the dissolved Revolutionary Command
Council issued decree number 5 on 17 January
1998, replacing the penalty of paying a fine with
the penalty of detention provided that it be
simple detention for a period of three months
per misdemeanor).
39
Types of Crimes
• Infractions are crimes that are punishable by
any of the following penalties:
– Simple detention for a period of 24 hours to
three months;
– A fine.
40
Criminalized Behavior –
Myths and Realities
• Iraq is not Saudi Arabia, but it is not California either. The
Penal Code is informed in parts by Islamic principles, but it is
not Islamic Shariaa in and of itself.
• The law contains all the crimes you would expect to be there,
but you should also expect the unexpected.
• Drinking alcohol is not a crime, but public drunkenness is.
• Gambling in a public place or opening gambling to the public
is a criminal offense, but the Friday night poker evening
among friends is not.
41
Criminalized Behavior –
Myths and Realities
• Sexual relations conducted in private between single
consenting adults is not a crime, but if you have a
communicable disease and you knowingly or accidently
spread it, you are committing a crime. If the disease leads to
death, you could be charged with assault leading to death.
• Publicly insulting the Arab community or the Iraqi people or
any section of the population or the national flag or the State
emblem is a crime; so is insulting Islam or any religion (a
Kurdish joke can get you in as much trouble as urinating on,
or shooting at, the Holy Koran).
• Murdering or assaulting the President of Iraq is a crime, and
so is throwing a shoe at President Bush during a press
conference.
42
Criminalized Behavior –
Myths and Realities
• Insulting agencies of the State or the branches of government
is criminalized, as is insulting the United Nations and other
international agencies (even if they deserve it).
• A woman who commits adultery has committed a crime, as
has the man with whom she committed adultery. The man is
deemed to have knowledge of the marriage regardless of
whether or not he actually knew.
• However, a man who commits adultery has not committed a
crime unless the adultery took place in the conjugal home.
• The crime of adultery cannot be prosecuted if the spouse
accepts to stay in the marriage after knowing of the adultery,
or if he/she consented to it.
43
Criminal Procedure –
Investigation of Crimes
and Arrest of Suspects
• The Criminal Procedures Law No. 23 of 1971 as amended applies
whenever a person commits a crime in Iraq.
• Criminal action is initiated against a suspect by a complaint
presented to an investigative judge, judicial investigator, or any
official in a police precinct.
• Preliminary investigation is conducted by an investigative judge as
well as by judicial investigators and police officials acting under the
direction of the investigative judge. Statements are taken from the
complainant, any victims, and the suspect him/herself. This will
result in the investigative judge, judicial investigator, or police official
issuing a summons to the suspect to appear before the investigative
body.
44
Criminal Procedure –
Investigation of Crimes
and Arrest of Suspects
• No arrest or detainment may be made except in accordance with an
order issued by a judge or a court.
• Bail is possible (either financial or release on presentation of an
undertaking to appear) at the discretion of the investigative judge.
• The investigative judge or the judicial investigator may question the
defendant during the 24 hours after his/her appearing, but the
defendant shall not be obliged to answer any questions directed at
him/her, and no illegal measures may be used against him/her to
induce the defendant to confess. Illegal measures of duress shall
include harsh treatment, threats of injury, incentives and promises,
mental duress, and the use of drugs or intoxicants.
• The defendant may demand the presence of his/her attorney at all
stages of the preliminary investigation and court proceedings.
45
Criminal Procedure –
Investigation of Crimes
and Arrest of Suspects
• If the defendant’s statement includes an admission that he/she
committed the crime, the judge shall record the admission himself
and present it to the defendant.
• If the investigative judge determines the actions do not constitute a
criminal act, or that the complainant dropped the charges or waived
his/her complaint, the judge shall issue an order dismissing the
charges and close the case with prejudice.
• If the actions of the defendant constitute a criminal act and the
investigative judge finds that the evidence is sufficient to present the
defendant for trial, the judge shall issue an order transferring the
case to the court of competent jurisdiction.
• If the evidence is not sufficient to support the charge, the judge must
issue an order to free the defendant and close the case without
prejudice with a record of the reasons for the temporary closure.
46
Theory vs. Practice
• Theory: New Constitution of Iraq provides that all persons
shall have the right to life, security, and freedom, and no
person shall be deprived of these rights except in accordance
with the law and pursuant to a judgment issued by a
competent judicial authority (Article 15). Criminal Procedures
Law, which predates constitution also provides for protections
or the accused.
• Practice: Media reports and human rights groups have
publicized severe abuses of Iraqi constitution and law in
regard to detention and treatment of criminal suspects with
inadequate safeguards and oversight.
47
Criminal Procedure –
Prosecution, Conviction
and Appeal
• The trial of the accused begins with the transfer of the case. The
court will hear the testimony of the complainant and the statements
of the civil prosecutor, followed by the statements of the witnesses
and the testimony of the accused.
• The court will also hear the statements and demands of the
complainant and the public prosecutor.
• If the court finds that the evidence does not lead to the conclusion
that the defendant committed the crime he/she is accused of, then
the court shall order his/her release. However, if the court is
satisfied that the defendant committed the crime that he/she is
accused of, the court shall convict the defendant and sentence
him/her to the appropriate penalty.
48
Criminal Procedure –
Prosecution, Conviction
and Appeal
• If the court is satisfied that the defendant did not commit the crime
he/she is accused of, or the court finds that the act does not
constitute a crime, the court shall acquit the defendant of the
charges against him/her.
• The Chief Justice of the Felony Court shall appoint a lawyer for a
defendant accused of a felony if the defendant has not appointed a
lawyer him- or herself, and the court shall set the compensation for
the lawyer to be paid from the state treasury.
• Each of the public prosecutor, the defendant, the complainant, and
the civil prosecutor may appeal to the Federal Cassation Court any
judgment of the Felony or Misdemeanor courts if the judgment is
based on an error of law or the implementation thereof.
49
Concluding Practical
Advice
• Get registered ASAP. It takes more time than you think,
so do not wait for the grace period to expire.
• Educate and culturally sensitize employees to the
environment they are entering.
• Obtain home jurisdiction and Iraqi legal advice to ensure
that your company is not exposed in one jurisdiction or
the other to employee claims, including from personnel
you thought were contractors or consultants.
50
Concluding Practical
Advice
• Establish a procedure for employees to follow in case of
arrest, and ensure that they know who to call, including
immediately calling their consulates (Iraq is a party to the
Vienna Convention).
• Seek out and employ qualified Iraqi labor and management
staff.
• Remember that Iraq is in a transitional phase and government
capacity is still low, which can lead to arbitrary and capricious
treatment. A proactive approach to compliance is the best
way to protect your and your employees’ interests. Trying to
fly under the radar may work in the short term, but is likely to
put you and your employees at risk.
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If you have any additional questions, please send an email to
Mohamed at mohamed.elroubi@idilaw.com. He will respond
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