Iraq has implemented a ban on eight local commercial banks, preventing them from participating in U.S. dollar transactions. This move is aimed at curbing fraud, money laundering, and other illicit uses of U.S. currency. The decision comes shortly after a visit by a top U.S. Treasury official, emphasizing Iraq’s commitment to addressing financial system vulnerabilities.
The banned banks are no longer allowed access to the Iraqi central bank’s daily dollar auction, a crucial source of hard currency in a country heavily reliant on imports. Iraq, with over $100 billion in reserves held in the U.S., navigates a delicate balance as a rare ally of both the United States and Iran. Washington’s goodwill is essential for ensuring continued access to oil revenues and financial stability.
The affected 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 these banks, has yet to respond to requests for comments.
This move follows a similar ban in July 2023 when 14 banks were prohibited from conducting dollar transactions to prevent smuggling to Iran through the Iraqi banking system. Banned banks are permitted to continue operations and engage in transactions using other currencies.
The U.S. Treasury Department’s recent discussions in Baghdad with top Iraqi officials, including sanctions official Brian Nelson, highlighted the need to protect the Iraqi and international financial systems from criminal, corrupt, and terrorist activities. During the visit, the Treasury announced action against Al-Huda Bank for diverting billions of U.S. dollars to Iranian-backed groups.
The U.S. expects Iraq to play a more active role in countering Iran-backed armed groups operating within its borders. While the Iraqi government has ties to Iran-backed factions, it has shown cooperation in implementing economic and financial reforms. Prime Minister Mohammed Shia al-Sudani’s efforts aim to align Iraq’s financial practices with international standards and reduce the accessibility of U.S. dollars to Iran and its allies.
