With Iraq reconstructing its government and law system following the 2003 fall of Saddam Hussein's regime, foreign companies have been largely immune to Iraqi law. 1 January saw this change. Nadia Salem reports

Since the 2003 US-led invasion, foreigners have enjoyed immunity from all legal processes in Iraq whether criminal, civil, administrative or bureaucratic. Even driving on the roads, foreigners were granted the right of way – but no more. With the Iraqi government and people resuming authority over their cities, the rule of law is being restored.

The absence of Iraqi rule over foreigners may have led to the popular misconception that Iraq is lawless, but the opposite is true. The earliest written laws are to be found in this region (thanks to Hammurabi), however, twentieth century life necessitated a modern codified law. In 1951, Iraq enacted its civil code, which was drafted by Abd El-Razzak El-Sanhuri, the famed Egyptian jurist who had written the Egyptian Civil Code using French law as a model. In 1969 and 1971 respectively, the Penal Code and Criminal Procedure were decreed into law.

Following to the toppling of Saddam Hussein's regime in 2003, the Coalition Provisional Authority (CPA) made amendments to the Penal Code; for example, suspending the laws against insulting the President of Iraq, criminal acts that would result in capital punishment and capital punishment itself (although this was reinstated in 2004). In addition, punishment for certain heinous crimes and crimes against public utilities were increased to a maximum of life imprisonment.

The Authority also enacted CPA Order 17, which granted all foreigners with government contracts broad immunity from Iraqi law and jurisdiction. However, this immunity came to a silent, if not questionable, end on 1 January 2009, when the US signed the Status of Forces Agreement (SOFA) with Iraq that, among other things, restored Iraqi authority over foreign contractors and removed their immunity.

As a result, foreigners and international entities are unaware of the change in their immunity status that is now governed by Iraqi law. Because of the confusion created by the implied suspension of Order 17, Iraq's Ministry of Interior issued an order stating that no legal action will be taken against US contractors in the areas of licensing security companies; registration of firearms and weaponry; vehicle registration; licensing pilots and aircrafts relating to security operations; customs, duties, taxes and inspections; and entry and exit procedures.

The Ministry's order, which halted the enforcement of the SOFA agreement against US contractors, was for a limited and unspecified period until a newly assembled Ministry committee could meet and issue recommendations on how to implement the SOFA.

More recently, foreign contractors in the International Zone (IZ; formerly known as the Green Zone) have been receiving visits from the Iraqi police. This is a direct consequence of SOFA, which stipulated that the US-controlled IZ be restored to Iraqi governance. As a result, the Iraqi police set out to determine the legality of all foreign occupiers in the IZ. Typically, foreign companies are being asked to produce the following list of information:

• company name and address;
• manager of the company;
• name of the company's legal representative;
• company's nationality;
• letter of acceptance from the secretariat of the Council of Ministries;
• letter of acceptance from the National Security Department;
• company registration certificate;
• property title deed;
• lease agreement;
• area size of the property that the company occupies;
• company articles of association, initial minutes of meeting and other relevant documents;
• company specialisation;
• number of foreign and Arab employees;
• number of Iraqi employees;
• list of other company branches in the IZ; and
• inventory of weapons at the company's disposal.

Documents supporting this information must be presented to the National Security Department. Interestingly, the result of increased police activity is that many foreign companies are becoming registered entities of Iraq. However, it is worth noting that foreign companies which cannot produce the required documentary evidence may be asked to cease business until it can be produced.

In general, foreign companies can choose to have a representative office, a branch office, a limited liability company and joint stock company. In addition, foreign companies and foreigners can have 100% ownership of a limited liability company or joint stock company. However, a representative office is not permitted to engage in any commercial activity, while a branch office may do so to the extent of its contract with the Iraqi government. It is illegal to act in the name of a company that is not correctly registered.

It takes up to three months to set up a company in Iraq, however, with approval of the National Security Department, foreign companies may be allowed to continue to operate with evidence that the registration process has started.

In addition to affecting the rights of foreign entities, foreign individuals are well advised to know their rights under Iraqi law. An accused person (foreign or local) has the right to legal representation which will be appointed if the accused cannot afford a representative.

The accused must not to be coerced into a confession by any means including mistreatment, threats, enticement, promises, psychological influence, use of drugs, torture or cruel, degrading or inhuman treatment. Interrogation of an accused should take place within 24 hours of arrest and the person may be held in custody for a maximum of 15 days during the investigation of the crime.

Companies are criminally liable for offences committed by employees, directors or agents and may be fined as a result. A police officer is duty-bound to report a crime to the magistrate, who is responsible for the initial investigation of the crime, following the French model. The magistrate may compel a plaintiff or defendant to be subjected to a physical examination. With a search order, the magistrate may search a house or business.

If the magistrate finds that there is sufficient evidence for a trial, the case and the accused will be moved to the relevant penal court for trial. However, if the magistrate finds that the evidence is insufficient for trial, the accused will be released and the case closed. When a criminal complaint is rejected, the defendant is immediately released from custody.

There is nuance and complexity in Iraqi law, particularly now as Iraq emerges from the destruction of war and enters the reconstruction phase. At a time when much of the rest of the world is experiencing economic loss, the Iraqi economy is expanding quickly and its legal system has finally been applied to all who live in the country, regardless of status. Both companies and individuals seeking to do business in Iraq must now, for the first time in five years, understand the laws of the country and their implications as an integral part of project and business planning.

Nadia Salem is legal team leader of the Iraq practice at AL Tamimi & Company.