Iraq Bans 8 Banks From Dollar Trade To Curb Smuggling To Iran

To get in line with US measures to crack down on currency smuggling to Iran, Iraq has banned eight local commercial banks from engaging in US dollar transactions.

The banks are banned from accessing the Iraqi central bank's daily dollar auction, a main source of hard currency in the import-dependent country that has become a focal point of a US crackdown.

The measure was taken to reduce fraud, money laundering and other illegal uses of the US currency days after a visit by a top US Treasury official. The measures are in line with US regulations aimed at curbing the illegal siphoning of dollars to Iran and applying pressure on Tehran along with US sanctions imposed over its nuclear program and other disputes.

As an ally to both the United States and Iran, Iraq -- holding over $100 billion in reserves in the US -- heavily depends on Washington's goodwill to ensure access to its oil revenues that are kept in US banks.

Citing an Iraqi central bank document verified by an official at the bank, Reuters said the banned banks are Ahsur International Bank for Investment; Investment Bank of Iraq; Union Bank of Iraq; Kurdistan International Islamic Bank for Investment and Development; Al Huda Bank; Al Janoob Islamic Bank for Investment and Finance; Arabia Islamic Bank and Hammurabi Commercial Bank.

A US Treasury spokesman said, "We commend the continued steps taken by the Central Bank of Iraq to protect the Iraqi financial system from abuse, which has led to legitimate Iraqi banks achieving international connectivity through correspondent banking relationships.”

The measures to restrict Iran's access to US dollars come amid high tensions between Washington and Tehran after three US soldiers were killed on January 28 by a drome attack launched by Iranian proxy militias operating in Iraq.

In July 2023, Iraq banned 14 banks from conducting dollar transactions as part of a wider crackdown on dollar smuggling to Iran via the Iraqi banking system. The decision came after a request from Washington, according to Iraqi and US officials. The targeted banks were mostly small institutions, even by Iraqi standards. Some of these banks have ties to influential Iraqis, who are known for financial connections to Iran, or have heavy involvement in dollar transactions. The sanctions, along with previous ones on eight banks, left nearly a third of Iraq's 72 banks blacklisted, two Iraqi central bank officials said.

Last week, the US Treasury Department's top sanctions official, Brian Nelson, met top Iraqi officials in Baghdad, and discussed how to protect the Iraqi and international financial system from criminal, corrupt and terrorist actors, a tacit reference to the Islamic Republic.

During the visit, the Treasury announced action against Al-Huda Bank, saying it was involved in diverting billions of US dollars to Iranian-backed militia groups.

Reuters quoted an unnamed Treasury official as saying that Washington expected Iraq to do more to help counter Iran-backed armed groups operating out of Iraq after the killing of three US soldiers in Jordan, which has prompted US-led military strikes against Iran-linked targets in Iraq, Syria and Yemen.

Iran International revealed in May, that an aide to former IRGC’s Quds force commander Qasem Soleimani is a key figure in money laundering for Tehran. Earlier in 2023, Iran International also reported some details about the inner workings of a Quds force unit tasked with smuggling money from Iraq to Iran, demonstrating that the Islamic Republic’s embassy in Iraq is also involved in the money laundering operations aimed at funneling revenues from oil and gas exports back to Iran.

This financial network is bypassing the US sanctions at the cost of the Iraqi economy. An informed source in Baghdad told Iran International late in December that Washington has received reports Iraq is still conducting trade with Iran using US dollars despite sanctions.

The United States has insisted that oil-rich Iraq, the OPEC group's second-largest producer, moves towards self-sufficiency in energy and power generation, and has put pressure on Baghdad to stem the flow of dollars into neighboring Iran.

The Iraqi dinar went into a tailspin against the dollar after the New York Federal Reserve imposed tighter controls on international dollar transactions by commercial Iraqi banks in November 2022 to halt the illegal siphoning of dollars to Iran.

Under the curbs that took effect in January 2023, Iraqi banks were obligated to use an online platform to disclose their transaction details.