THE ROLE OF GOVERNANCE IN IMPROVING INTERNAL CONTROL AND COMBATING MONEY LAUNDERING FOR BANKS LISTED ON THE IRAQ STOCK EXCHANGE

Abstract

This study addresses the critical topic of the Role of Governance in Improving Internal Control and Combating Money Laundering, of banks listed on the Iraq Stock Exchange. The importance of the study stems from the escalating challenges facing the Iraqi banking sector, given the increasing risks of financial corruption and weak internal control systems. This makes governance a strategic tool for enhancing integrity and transparency in banking operations.The study aims to demonstrate the relationship between the application of corporate governance principles—such as transparency, accountability, independence, and the distribution of powers—and the efficiency of internal control systems, as well as their role in reducing the likelihood of money laundering. It also seeks to measure the extent of listed Iraqi banks' compliance with international governance standards and the impact this has had on strengthening their regulatory and compliance structures.

The study adopted a descriptive analytical approach, analyzing relevant theoretical literature and previous studies, along with field measurement tools such as questionnaires and semi-structured interviews with a number of internal control, audit, and compliance officials in a sample of Iraqi banks listed on the market for the period 2020–2024. The data was analyzed using SPSS to ensure statistical accuracy.The study finds that there is a statistically significant positive relationship between the level of implementation of governance principles and the effectiveness of internal control systems in banks.Good governance contributes to reducing control gaps exploited in money laundering operations by enhancing transparency and activating reporting and accountability mechanisms. Especially, the independence of the board of directors and internal audit committees plays a pivotal role in the early detection of illicit transactions.The weakness of the digital infrastructure in some banks limits also the effectiveness of electronic monitoring and monitoring of suspicious transactions.In light of the results, the study recommends the need to fully implement the governance manual issued by the Central Bank of Iraq and update it in line with international standards.Strengthening the independence of audit and compliance committees in banks and provide ongoing training for their members on methods for detecting money laundering. Banks should adopt advanced computerized control systems linked to a central database to track suspicious transactions.The study highlights the oversight role of the Securities Commission and the Central Bank in monitoring banks' performance and assessing their compliance with governance and oversight requirements.The study concludes that governance is not merely a regulatory framework, but rather a fundamental pillar for achieving financial stability, combating financial crimes, and enhancing confidence in the Iraqi banking system.This study contributes to enriching the literature related to external auditing and its role in combating money laundering, and provides an analytical model that can be used in future studies.It provides practical proposals and recommendations for Tunisian banks to strengthen external supervision and reduce money laundering, thereby enhancing confidence in the banking system.