Iraq’s Central Bank prohibits eight local banks from engaging in US dollar transactions

In a recent development reported by The New Arab, Iraq’s Central Bank (CBI) has taken a strict stance against fraudulent activities, money laundering, and illicit use of the US currency. As part of these efforts, eight local commercial banks have been restricted from engaging in transactions involving US dollars.

This development comes in the wake of a recent visit to Baghdad by a high-ranking official from the US Treasury Department.

The banks that have been identified are currently not allowed to participate in the Iraqi central bank’s daily dollar auction. This auction is crucial for providing foreign currency in a country that heavily depends on imports. The nation is under close watch due to concerns about smuggling currency to neighboring Iran.

The official documentation from CBI confirms the list of all banned institutions, including 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.

Iraq has over US$100 billion in reserves, primarily in the US, and heavily relies on the US Treasury’s cooperation to safeguard its access to oil revenues and financial operations.

This move follows a similar ban in July 2023 when Iraq prohibited 14 banks from conducting dollar transactions, part of a broader crackdown on dollar smuggling to Iran facilitated through the Iraqi banking system, reportedly at the urging of Washington.

ICB and the US Treasury have not issued formal clarifications on the matter.

TNA contacted some of the banned banks, but they did not immediately respond to media inquiry requests.

In a statement last month, the Iraqi parliament’s finance committee rebuked the US Treasury’s sanctioning of some Iraqi private banks, describing the sanctions as “unfair” and based on pretexts of prohibiting money laundering. The committee also indicated the US Treasury’s decisions “would weaken CBI’s efforts to increase the value of the Iraqi dinar in exchange for the US currency.”

The committee also urged CBI and the Iraqi government to eliminate the dollar hegemony and increase Iraq’s reserves from selling oil in other foreign currencies.

Financial and banking expert Mahmoud Dagher has told Iraq’s state television, Al-Iraqiya News, late on Sunday night that “the ban is temporary and they were not sanctioned”, explaining that “The US claims that some of the banks are causing the dollar to reach prohibited entities.”

“All banks have to adhere to the central bank’s procedures regularly. There are banks still accessing the dollar without facing sanctions,” Dagher said. “Political conflicts should not impact the citizens’ economic life. If the US Treasury had evidence-backed sanctions, they would announce it.”

On his part, Samir Al-Nasiri, advisor to the Private Banks League, told the channel, “Exaggerating events lead to negative repercussions on the financial sector,” confirming that “The Central Bank’s cooperation with the government has yielded positive results in regulating external transfers.”

“The new banks have not been punished but rather regulated for further compliance with international standards,” pointing out that “banks fully complied with international standards during 2023,” he added. 

Recent discussions between top US Treasury officials and Iraqi counterparts in Baghdad centred on bolstering safeguards against criminal, corrupt, and terrorist activities within the Iraqi financial system.

The Under Secretary for Terrorism and Financial Intelligence at the Treasury, Brian Nelson, recently travelled to Iraq, where he engaged in discussions with key Iraqi figures, including Prime Minister Mohammed Shia Al-Sudani. This visit was part of ongoing efforts to address and counter illicit financial activities.

During the visit, the Treasury announced action against Al-Huda Bank for its alleged involvement in channelling billions of US dollars to Iranian-backed groups.

According to documents obtained by TNA, CBI’s daily dollar auction involves alleged corruption and monopoly for certain Iraqi private banks for the interests of certain Iraqi governmental officials and ruling elites. According to the documents, CBI has hired K2 Integrity, a US auditing firm, to oversee all dollar transactions by the Iraqi private banks.   

In light of recent events, Washington expects Iraq to intensify efforts in countering Iran-backed militias operating in Iraq, particularly following the killing of three US soldiers attributed to hardline Iraqi factions.