Iraq Prohibits Eight Banks from US Dollar Dealings

Iraq has imposed a dollar transaction ban on eight domestic banks in a move to curb financial crimes such as fraud and money laundering.

This follows a visit from a senior US Treasury official and reflects ongoing efforts to prevent currency smuggling into Iran.

Despite having over $100 billion in US-held reserves and depending on US relations for uninterrupted financial and oil transactions, Iraq took this step to restrict access to the central bank’s dollar auctions, which are crucial for the country's imports.

The affected banks, confirmed by a central bank document, include Ahsur International Bank, Investment Bank of Iraq, Union Bank of Iraq, Kurdistan International Islamic Bank, Al Huda Bank, Al Janoob Islamic Bank, Arabia Islamic Bank, and Hammurabi Commercial Bank. Responses to comments on the ban from these banks and their association are pending.

The US Treasury has praised Iraq's measures to protect its financial system, which has fostered international banking connections for reputable Iraqi banks. Previously in July 2023, Iraq had already banned 14 banks from dollar dealings to counteract illegal dollar flows to Iran.

Although restricted from dollar transactions, the sanctioned banks can still operate and conduct business in other currencies. During a recent visit by Brian Nelson, the US discussed strategies with Iraqi officials to safeguard both the Iraqi and global financial systems from illicit activities.

The Treasury targeted Al-Huda Bank during the visit for allegedly funneling billions of dollars to Iranian-backed entities. The US anticipates further Iraqi cooperation in curtailing Iran-backed armed groups, especially after attacks resulting in American casualties.

Despite challenges, including the influence of Iran-affiliated parties and armed groups within Iraq’s informal economy, western officials have recognized Iraq's commitment to economic reform. Prime Minister Mohammed Shia al-Sudani has been noted for his efforts to align Iraq with international financial standards and limit Iran's access to US dollars.