June 13, 2024

Iraq Bans Eight Banks from U.S. Dollar Transactions Amidst Crackdown on Illicit Financial Activities


Iraq has taken stringent measures to curb fraudulent activities, money laundering, and other illegal uses of U.S. currency by banning eight local commercial banks from engaging in U.S. dollar transactions. The move follows a recent visit by a top U.S. Treasury official, emphasizing the importance of international cooperation in combating financial crimes.

The banned banks are now restricted from participating in the Iraqi central bank’s daily dollar auction, a critical source of hard currency for the import-dependent nation. Iraq, with over $100 billion in reserves held in the U.S., is uniquely positioned as a rare ally of both the United States and Iran. The country heavily relies on Washington’s goodwill to maintain access to oil revenues and financial systems, making it imperative for Iraq to address concerns raised by U.S. authorities.

The banned banks 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. The private bank association, representing the affected banks, is yet to respond to requests for comments, and Reuters is reaching out to the other banks for statements.

This is not the first time Iraq has taken such decisive action. In July 2023, 14 banks were banned from conducting dollar transactions as part of a broader crackdown on currency smuggling to Iran. The current move aligns with the ongoing efforts to strengthen the integrity of Iraq’s financial system and prevent illicit activities.

The U.S. Treasury Department has expressed support for Iraq’s measures, commending the Central Bank of Iraq for taking steps to protect the financial system from abuse. The recent meeting between top U.S. Treasury official Brian Nelson and Iraqi officials discussed strategies to counter criminal, corrupt, and terrorist actors operating within the international financial system.

During the visit, Treasury announced actions against Al-Huda Bank, accusing it of diverting billions of U.S. dollars to Iranian-backed groups. Washington has also emphasized the expectation that Iraq should do more to counter Iran-backed armed groups within its borders.

While the current Iraqi government has ties to Iran-backed parties, recent initiatives indicate a commitment to economic and financial reforms. Prime Minister Mohammed Shia al-Sudani has collaborated with Western officials to bring the Iraqi economy in line with international standards and curtail the influence of Iran and its allies in accessing U.S. dollars.

As Iraq navigates its complex geopolitical position, these measures underscore the nation’s commitment to combatting financial crimes and fostering international cooperation in the process. The impact of these actions will likely have broader implications for the region and the global financial landscape.

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