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Tuesday, March 5, 2024

Iraq Implements Stricter Measures: 8 Banks Banned from U.S. Dollar Transactions

Iraq has taken decisive action to address financial misconduct, money laundering, and illicit use of U.S. currency by banning eight local banks from engaging in U.S. dollar transactions. This move follows a recent visit by a top U.S. Treasury official and underscores the ongoing efforts to combat currency smuggling to neighboring Iran. The banned banks, denied access to the Iraqi central bank’s crucial daily dollar auction, are now at the center of a significant development impacting Iraq’s financial landscape.

The Banned Banks and Their Impact

The central bank’s decision, aimed at curbing financial malpractices, includes prominent banks such as Ahsur International Bank for Investment, Investment Bank of Iraq, Union Bank of Iraq, and others. These institutions are now barred from participating in the daily dollar auction, a primary source of hard currency crucial for Iraq’s import-dependent economy. The move follows a wider crackdown on dollar smuggling to Iran, highlighting the importance of U.S. cooperation in shaping Iraq’s financial policies.

U.S.-Iraq Relations and Financial Dependencies

Iraq, a rare ally of both the United States and Iran, holds over $100 billion in reserves in the U.S. This financial dependency underscores Iraq’s reliance on Washington’s goodwill to safeguard access to oil revenues and maintain financial stability. The recent ban on select banks is positioned within the context of diplomatic relations, reflecting the delicate balance Iraq must strike to navigate its alliances with two influential nations.

Previous Actions and Continued Crackdown

This recent ban echoes a similar move in July 2023 when 14 banks were barred from conducting dollar transactions at the request of Washington. Despite the restrictions on dollar transactions, the banned banks are permitted to operate and engage in transactions in alternative currencies, according to the central bank’s guidelines. The U.S. Treasury Department’s recent discussions with Iraqi officials highlight the ongoing commitment to protecting the international financial system from criminal activities.

U.S. Expectations and Iraq’s Ongoing Reforms

During a recent visit by the U.S. Treasury Department’s top sanctions official, Brian Nelson, expectations were expressed for Iraq to take further actions against Iran-backed armed groups. The killing of three U.S. soldiers, attributed to hardline Iraqi factions, has heightened the urgency for Iraq to counter such influences. Despite challenges posed by Iran-backed parties in Iraq’s informal economy, cooperation with Prime Minister Mohammed Shia al-Sudani is recognized for initiating economic and financial reforms aligned with international standards.

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