BAGHDAD, Iraq, July 28 — The two armored vans left a branch of the Warka Bank on Thursday around noon, loaded with 1.191 billion dinars, or nearly $800,000. Almost immediately, on a busy street near the Baghdad zoo, the drivers spotted an oncoming Iraqi Army convoy, led by a shiny new Humvee. They followed standard procedure and pulled over.
But the convoy stopped, and an officer politely ordered the surprised drivers and guards to lay down their guns while his men searched the vans for bombs.
Within minutes all eight drivers and guards had been handcuffed and locked in the back of one of the vans on a suffocating 120-degree day, the cash had been stolen by the men in the convoy — whoever they were — and the Iraqi banking system marked another day of its slow slide into oblivion.
The only thing atypical about Thursday’s robbery, which was described by bank and Interior Ministry officials, is that most private banks try to avoid using armored vans, because they draw too much attention, and instead toss sacks of cash into ordinary cars for furtive dashes through the streets of Baghdad.
However the cash goes out, it risks being lost in the wash of robbery, kidnapping and intrigue that now plagues the system.
Praised by the United States as a success story as recently as a few months ago, that system has quickly become a wild landscape of clandestine cash runs, huge hauls by robbers dressed as police officers and soldiers, kidnappings of bank executives with ransoms as high as $6 million, American allegations of tie-ins with insurgent financiers, and legitimate customers turned away when they go to pick up their savings and flee the country.
“It is a crisis,” said Wisam K. Jamil, managing director of Iraq’s oldest private bank, the Bank of Baghdad, which lost $1.5 million in a literal case of highway robbery by men wearing police uniforms last December.
Because of that robbery, the bank lost much of its insurance coverage. Even more galling for Mr. Jamil, the insurance policy had a standard disclaimer saying that losses due to acts of war or terrorism were not covered, and as the Warka holdup on Thursday illustrated, no one can say if a theft in Iraq is committed by insurgents, bandits or genuine members of the security forces. So the insurance company has not paid Mr. Jamil’s claim.
The difficulty in moving cash has pushed Iraqi banks into business practices seen in few other places.
On a recent day in the basement of the Iraqi Middle East Investment Bank, Rahim al-Abadie, a bent, gnomelike man who has worked in banking for 54 years, shuffled into the cage next to his little desk and checked 100-pound sacks of cash to be loaded in an unmarked car and sped to its destination, which he declined to disclose. Just one of the bigger sacks held 1 billion dinars (about $650,000) in bank notes, Mr. Abadie explained, chuckling darkly.
Hussein al-Uzri, president and chairman of the Trade Bank of Iraq, a state-owned bank, said the risks of such deliveries had to be measured in relative terms. “Anywhere else in the world, throwing a few million dollars in the back of a Mazda and driving from the Central Bank is crazy,” he said. “But many people will say that living in Baghdad is crazy.”
Until the early 1990’s, when Saddam Hussein allowed private banks to open under tight restrictions, all of the country’s finances were handled by state-owned banks.
The popularity of the private banks soared after the 2003 invasion, as depositors fled the cumbersome and often distrusted state system in “a kind of exodus,” said Nafie Alais Aboo, managing director of the privately owned North Bank. But both have suffered major robberies, cash shortfalls and other problems, banking and government officials say.
Such problems have helped ignite an old-fashioned run on some banks, and several have had to turn depositors away, at least temporarily, telling them to come back another day for their money.
“People are withdrawing or transferring enormous amounts of money from the bank,” said Ahmed Younis Zeki, the assistant manager of the Iraqi Private Bank, which he said lost 1 billion dinars in a brazen holdup at what appeared to be a police checkpoint in central Baghdad on April 25.
Some bank executives say their problems have been compounded as well-to-do Iraqis and the companies they control flee the mayhem engulfing so much of the country. That flight has accelerated since sectarian tensions were heightened by the February bombing of a golden-domed mosque in Samarra, one of Shiite Islam’s holiest shrines.
“If we count from the Samarra bombing, it’s been worse by the day,” said Mohammed F. al-Alossi, managing director of the Iraqi Middle East Investment Bank, adding that 3 billion of roughly 50 billion dinars in deposits at his bank had been withdrawn in the last two months alone.
The banks’ troubles have had a ripple effect. Iraqi companies, already struggling in a devastated economy, cannot get enough cash to meet their payrolls, said Hashim T. Atrikchi, acting manager of the Iraqi Federation of Industries and chairman of the Arab Federation of Plastic Manufacturers.
“Hard currency is often not available in the banks,” he said. “It may take two, three or even five days.”
The run of hard luck for private banks stretches at least back to May 2005, when American and Iraqi troops raided the home of Saad al-Bunnia, chairman of the Iraqi Bank Association and chairman of the bank that was robbed Thursday. During the raid, the Americans seized $6 million in cash, apparently on suspicion that the money was being used to finance the insurgency.
The bank certified that it had asked Mr. Bunnia to keep the money in his safe as a hedge against bank robberies, said Sheik Hathal Yonis Y. Aga, vice chairman of the bank. But more than a year later, the money remains frozen, he said.
“The problem is, these funds belong to our clients,” Mr. Aga said. “This has affected some of our business transactions.”
A few months later, robbers stole $600,000 in cash being shuttled between Warka’s main bank and one of its branches, Mr. Aga said. And in December, men in police uniforms stopped and robbed a car carrying $1.5 million, or roughly 2.3 billion dinars, belonging to the Bank of Baghdad on the highway to the southern city of Hilla.
Remarkably at that stage of deteriorating security in Iraq, much of the shipment was covered by Al Ameen Insurance Company, said its managing director, Munem al-Khafaji. Even more surprisingly, the policy was underwritten by European, Saudi and Kuwaiti reinsurance firms, Mr. Khafaji said.
But the foreign involvement came at a price. Like similar policies the world over, this one covered burglary and damage but not acts of war or terrorism. Mr. Khafaji said any payment was in limbo while an investigation rattled back and forth between law enforcement agencies and the notoriously slow Justice Ministry.
“They toss this ball to each other,” Mr. Khafaji said, unable to suppress a slight smile. “Very long time,” he added.
After the Bank of Baghdad theft, the foreign reinsurers refused to cover robberies in Iraq anymore, Mr. Khafaji said. The bank’s managing director, Mr. Jamil, said the impact on his business was devastating: while last year he moved an average of 100 billion dinars a month around the city, by this spring the number had dropped to 15 billion dinars because the risk of robberies was so high.
That means more and more people who come looking for their money must be asked to wait, Mr. Jamil said. “We use diplomacy to deal with the situation,” he said quietly during an interview in his office.
Bank officials estimate that there has been an average of about one major robbery a month this year. Some banks seem to be particularly unlucky: only a week before Thursday’s holdup, robbers tried to steal a shipment of $500,000 from the Warka Bank, though in that case the police foiled the attempt, bank officials said.
But robbery is not the only type of crime the banks must cope with. In February, gunmen dressed in Iraqi Army uniforms kidnapped Ghalib Kubba, the chairman of the Basra International Bank, and his son Hassan, the bank’s executive manager.
The ransom: $6 million, a colossal amount here that was undoubtedly chosen because the kidnappers knew the Kubbas were bankers. The family, not the bank, paid the ransom, Hassan Kubba said, but afterward his father and the bank’s entire board of directors fled to Syria, where they now run the business in absentia.
Despite all those problems, no one knows of a bank that has given up and closed for good, and there are still a hardy few who express optimism that this bedrock institution of a functioning democracy will survive and one day flourish. Bankers, after all, rise and fall on their ability to project confidence under the direst of conditions.
But it is not easy. As Mr. Abadie oversees the white sacks of cash shuttling in and out of the basement of the Middle East Investment Bank, the managing director, Mr. Alossi, glances again and again toward the right corner of his desk, where a television cycles through images gathered by the bank’s surveillance cameras.
Nothing but the regular closing time would make his bank shut its doors, Mr. Alossi vowed.
“If the worst happens and everyone comes to withdraw his money,” he said, “we are ready to pay, to the last depositor.”