In a recent move aimed at curbing fraud, money laundering, and other illicit uses of U.S. currency, Iraq has prohibited eight local commercial banks from engaging in U.S. dollar transactions. The decision follows a visit by a high-ranking U.S. Treasury official and is seen as a part of a broader crackdown on currency smuggling, particularly to neighboring Iran.

The banned banks are now restricted from participating in the Iraqi central bank’s daily dollar auction, a key source of hard currency in a nation heavily reliant on imports. Iraq, holding over $100 billion in reserves in the U.S., depends on maintaining good relations with the United States to ensure unhindered access to oil revenues and financial stability.

A verified central bank document has listed the prohibited banks, which include 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.

As of now, representatives from the private bank association, which advocates for the implicated banks, as well as Ashur and Hammurabi, have not responded to requests for comments. Reuters is in the process of reaching out to the remaining banks for their statements.

A spokesperson from the U.S. Treasury expressed support for the Central Bank of Iraq’s measures, emphasizing the importance of protecting the Iraqi financial system from abuse. The spokesperson commended the steps taken to foster international connectivity for legitimate Iraqi banks through correspondent banking relationships.

This latest ban comes after Iraq previously prohibited 14 banks from conducting dollar transactions in July 2023, responding to a request from Washington. Notably, banks subject to such prohibitions are allowed to continue their operations and can engage in transactions in other currencies, according to the central bank.

The recent visit of the U.S. Treasury Department’s top sanctions official, Brian Nelson, to Baghdad resulted in discussions with Iraqi officials on safeguarding the Iraqi and international financial systems from criminal, corrupt, and terrorist activities. During the visit, Treasury announced action against Al-Huda Bank, accusing it of diverting billions of U.S. dollars to Iranian-backed groups.

A senior Treasury official stated that the United States expects Iraq to play a more active role in countering Iran-backed armed groups, especially after the killing of three U.S. soldiers, which has been attributed to hardline Iraqi factions.

Despite the challenges, Western officials have acknowledged cooperation with Iraqi Prime Minister Mohammed Shia al-Sudani in implementing economic and financial reforms. These reforms aim to limit Iran and its allies’ access to U.S. dollars and bring the Iraqi economy in line with international standards, amidst concerns about money laundering in the informal financial sector.

Photo ( LBCI)
By: Delino Gayweh
Serrari Financial Analyst
February 6, 2024