Dollar Transaction Ban for 5 Iraqi Banks; Evasion of Sanctions Becomes More Difficult

The Central Bank of Iraq is prohibiting five more banks in the country from conducting transactions in US dollars in an effort to combat dollar smuggling and money laundering. Reuters reported on Sunday, February 17, citing two informed sources, that this action follows a recent meeting between officials from the Central Bank of Iraq and US Treasury Department officials in Dubai, aimed at addressing violations such as money laundering and dollar smuggling. The directive from the Central Bank of Iraq has limited these five banks' ability to conduct dollar transactions, significantly hindering their banking operations outside of Iraq. Last year, the Central Bank of Iraq also prohibited eight banks from transferring US dollars. The American newspaper 'Wall Street Journal' reported in September that Iraqi banks had transferred billions of dollars to Iran in violation of international sanctions against the Islamic Republic. According to this report, the funds transferred by Iraqi banks have been used for military purposes, such as purchasing drone and missile parts, and financing terrorist groups like Hezbollah in Lebanon and Hamas. Iraq, which is considered an ally of both the US and the Islamic Republic of Iran, has around $100 billion in deposits at the US Federal Reserve and relies on cooperation with Washington to access its oil revenue and income. Meanwhile, the Islamic Republic has been able to access major world currencies through the banking system in Iraq, circumventing US sanctions due to its significant military, political, and economic influence in the country. This comes as Donald Trump, the former President of the United States, signed an executive memorandum in early February to resume the maximum pressure policy against the Islamic Republic. Recently, Reuters uncovered a complex network of fuel smuggling in Iraq, which has reportedly generated at least one billion dollars annually for the Islamic Republic and its proxy groups since the premiership of Mohammed Shia' al-Sudani began in the fall of 2022. The US State Department has stated that Iraq's exemptions do not benefit the Islamic Republic financially. Reports indicate that oil smuggling from the Kurdistan region of Iraq to Iran has increased.