Iraq Central Bank bars 8 local banks from US$ transactions (2024)

Iraq's central bankhas banned eight local commercial banks from participating in transactions involving US dollars, citing efforts to combat fraud, money laundering and illicit uses of the UScurrency, according to a formal document by Iraq's Central Bank (CBI) obtained by The New Arab.

This step follows a recent visit by a high-ranking US Treasury official to Baghdad.

The banks targeted are now prohibited from accessing the Iraqi central bank's daily dollar auction, a significant source of foreign currency in a nation heavily reliant on imports and subject to increased scrutiny over currency smuggling to neighbouring 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.

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.