In a significant move to combat financial crimes, Iraq’s central bank has decided to prohibit five local banks from conducting transactions in U.S. dollars. This action aims to address issues like money laundering and the illegal transfer of dollars out of the country. The decision follows discussions between Iraqi officials and representatives from the U.S. Treasury and Federal Reserve.
Background
Iraq holds over $100 billion in reserves in the United States, making its financial system closely tied to U.S. policies. The country depends on this relationship to access its oil revenues and maintain financial stability. However, with President Donald Trump’s recent emphasis on applying “maximum pressure” on Iran, Iraq’s financial dealings have come under increased scrutiny.
Iran, sharing a border with Iraq, has significant influence in the region. It relies on Iraq for economic support, including obtaining hard currency and circumventing U.S. sanctions through Iraq’s banking system. This interconnectedness has raised concerns, especially with reports of sophisticated networks smuggling fuel oil from the country to benefit Iran and its allies. Such activities reportedly generate at least $1 billion annually.
Details of the Ban
The five banks affected by this ban are:
- Al-Mashreq Al-Arabi Islamic Bank
- United Bank for Investment
- Al Sanam Islamic Bank
- Misk Islamic Bank
- Amin Iraq for Islamic Investment and Finance
The Billion-Dollar Fuel Smuggling Network in Iraq Benefiting Iran
Additionally, three payment service companies—Amawl, AL-Saqi Payment, and Aqsa Payment—are also prohibited from dollar transactions.
While these banks and companies can continue their operations and handle transactions in other currencies, losing access to U.S. dollars significantly hampers their ability to conduct international business. This restriction is particularly impactful given the global dominance of the dollar in trade and finance.
This decision mirrors a similar action taken last year when Iraq’s central bank banned eight other banks from dealing in U.S. dollars. These measures are part of a broader effort to clean up financial system and prevent illicit activities that could destabilize the country’s economy and strain its international relations.
Implications
The current Iraqi government, led deep ties to Iraq’s informal economy, including the financial sector, which has long been suspected of money laundering and illicit financial activities.
Western officials had previously acknowledged Prime Minister Sudani’s cooperation in implementing economic and financial reforms aimed at limiting Iran and its allies’ access to U.S. dollars. However, with increasing pressure from Washington, especially under Trump’s renewed push for strict measures against Iran, Iraq’s financial sector is now facing heightened scrutiny.
The latest ban on these banks is a clear signal that the U.S. is closely monitoring Iraq’s financial institutions, ensuring they comply with regulations designed to prevent misuse of the U.S. dollar. While the affected banks can still function using other currencies, the inability to transact in dollars presents a major challenge, particularly for cross-border trade and business operations.
The Central Bank of Iraq and the U.S. Treasury have not yet officially commented on this move. However, given Iraq’s reliance on its financial relationship with the U.S., further developments in this ongoing financial crackdown are likely to have significant ramifications for the country’s banking system and economy.
