By John Davison
MOSUL, Iraq (Reuters) - The only sign that Sunni-majority Mosul's newest and busiest marketplace is in Shi'ite Muslim hands is a small plaque in the office of its leaseholder from Baghdad.
"The Imam Hussein Market," it reads, dedicated to the Prophet Mohammed's grandson and most revered Shi'ite imam.
Banners of Shi'ite leaders that militiamen erected after helping drive out the Sunni extremists of Islamic State two years ago have been removed amid fears of renewed sectarian tension.
Iraq's second city, once a recruitment center for Sunni officers in Saddam Hussein's army, became an al Qaeda hotbed after the 2003 U.S. invasion that toppled the dictator, and later the base from where IS leader Abu Bakr al-Baghdadi declared a caliphate in 2014.
Iranian-backed Shi'ite paramilitary groups that played a crucial role in driving out IS have since become dominant in the city, if less visibly than before.
But Shi'ite religious authorities are now quietly seeking to formally take over state land and property they say is historically Shi'ite - something that has incensed Sunni officials.
In the Imam Hussein marketplace, an area of some 60 shops and stalls, they have established a lucrative foothold.
Shi'ite paramilitary groups deny accusations by local officials that they provide at least the implied threat of force to back up Shi'ite claims of land ownership.
But many Iraqi Sunnis view the growth of Shi'ite land control and investment in areas once held by IS as a sign of the expanding power of the militias and influence of Iran. [nL8N1XN33U] [nL5N20136K]
"Today in Iraq, the last word goes to whoever has force, and that's what these groups have. Law means nothing," said Mosul lawmaker Shirwan Dubardani.
The areas the Shi'ite groups and authorities are seeking to acquire lie in a strategic corridor of territory stretching from Tehran to Beirut. Greater Shi'ite control there, whether by Iranian allies or others, is important for Iran as it seeks to offset U.S. economic sanctions. [nL8N23H1VV]
It comes at a time when Iran has been expanding its influence in Syria, Yemen and Lebanon, while asserting its readiness to take on its Saudi and U.S. enemies.
There is also evidence of further Iranian-linked Shi'ite expansion in Iraq. North of Baghdad on the way to Mosul - and near a military base hosting U.S. forces - an Iranian-backed militia offered to buy an area where it built a shrine to an Iranian general killed fighting IS in 2014, the owner of the land said.
The owner refused, but cannot return with the area sealed off by policemen linked to the militia. "They're not satisfied with controlling land - they want formal, legal control," he said, declining to be named for fear of reprisals.
In Mosul, it is religious authorities, not militias, that are seeking property, particularly older shrines and mosques.
Iraq's Shi'ite endowment office - a government body that administers religious sites and real estate - is using legal recourse, incentives and influence to invest in several areas of Mosul, according to local authorities, business owners, investors and documents seen by Reuters.
Such claims could be explosive.
"We sometimes worry that armed force will be used, by either side," said Mosul Mayor Zuheir al-Araji.
Officials in the city accuse the Shi'ite endowment and armed groups of unlawful land grabs to make money and force demographic change.
Shi'ite armed groups and investors deny this, saying all property takeovers are legal and those lands rightfully Shi'ite.
The Shi'ite endowment did not immediately respond to a request for comment. Its Mosul branch declined several requests. The Iraqi prime minister's office declined to comment on the issue.
The Sunni endowment says it owns all state religious land in Mosul including sites claimed by Shi'ites. But the battle over legal ownership of areas claimed by both sects is intractable. A complex legal process for solving disputes favors those with power, analysts say.
MONEY, CHARM AND THREATS
In the past year, the Shi'ite endowment issued notices asserting ownership of several sites in Mosul that it had long claimed, handing leases for attached commercial areas to investors.
More recent claims have stalled pending appeals by Sunni officials and the town hall. But the marketplace is already operating as a Shi'ite endowment-owned area.
"The Shi'ite endowment has rights to this land, which historically was a Shi'ite cemetery," said Uday Muhsin, the market leaseholder.
He pays 170 million dinars yearly ($143,000) to the endowment which he says goes to a fund for wounded Shi'ite fighters and victims of Islamic State.
Last year, Muhsin began leasing the deserted site opposite the tomb of Nabi Yunis (the Prophet Jonah), which was destroyed by IS. He rents it out to local traders, and showed papers from city authorities letting him do so.
Market vendors said the rent of roughly $200 per month is about half what they would pay in areas administered by the Sunni endowment.
It is one way of winning local support and securing control, Sunni officials say. They say the takeover was illegal and dispute the area's Shi'ite heritage - the basis for the endowment's claim to it.
"People accept it because it's done in an attractive way. They're poor and need the money," Mosul's Sunni endowment director Abu Bakr Kanaan said.
But behind paperwork and lower rent there is the implied threat of force, said Kanaan and shopowners in another area the Shi'ite endowment claimed last month.
"A Shi'ite investor came to 20 stores on this road, saying we must sign new rental agreements with him," said Abu Mohammed, who owns a shop that abuts state religious property in the Old City managed by the Sunni endowment.
The investor produced a document from the Shi'ite endowment, a copy of which was seen by Reuters, declaring ownership of the area and leasing him the properties for around $40,000 per year.
"He was charming at first, and was offering better rent. But when we hesitated he threatened to throw us out. He clearly had connections and force behind him," said Abu Mohammed. He declined to give his full name for fear of reprisals.
Harith Hasan, an Iraq expert at the Carnegie Middle East Centre, said the Shi'ite endowment "often reinforces its guardianship not only through the legal process but also by allying with groups that are present on the ground."
Paramilitaries in Mosul denied involvement but said they had once intervened to "calm things down" between the two sides.
"The Sunni endowment chief doesn't accept the idea that the Shi'ite endowment can take land in Mosul," said Hayder Abu Hadma, a deputy commander in the Popular Mobilisation Forces (PMF), the official grouping of Iraq's Shi'ite paramilitaries.
"But he knows very well there are many Shi'ites here and 20 to 30 Shi'ite shrines," he said.
Under Saddam a single endowment ministry ran all state religious lands, which Shi'ites persecuted by the dictator complained left them unable to oversee their heritage.
The ministry disbanded after 2003, replaced by separate Shi'ite and Sunni endowment offices. When a mosque or shrine is claimed by both, a committee with representatives from both sides must decide. It often cannot, leaving decisions pending and benefiting whoever has sway in courts or on the ground.
In recent years the Shi'ite endowment "has been in a better position to advance its claims, given the support it has enjoyed from Shi'ite Islamist parties that dominated the government and parliament," Hasan said.
Around Mosul, once a melting pot for ethnic and religious groups along the ancient Silk Road, IS destroyed Shi'ite shrines. Now many PMF groups see defense of shrines as their primary task.
"They think they have the right to our religious sites because IS blew up Shi'ite property. It's all about money, from investment and rent to attracting pilgrims who would eventually visit," Kanaan said.
Sunni authorities acknowledge the Shi'ite heritage around Mosul. But they say most heritage inside the city is Sunni.
Mayor Araji hopes the Shi'ite endowment will stop claiming property, which would encourage stability.
After the chaos that followed the end of IS, things were now more under control, he said. "But we need Baghdad's support. We can't bring law and order on our own."
(Reporting by John Davison; Additional reporting by Jamal Badrani, Ahmed Rasheed in Baghdad, Ghazwan Hassan in Tikrit; Editing by Giles Elgood)