US Protests to Iraq Over Fraud, Money Laundering, and Evasion of Sanctions Against the Islamic Republic

A senior US Treasury official pointed to fraud, money laundering, and the evasion of sanctions against Iran by Iraqi commercial banks, calling for increased oversight from Baghdad in this regard. He stated, "The Central Bank of Iraq must address the ongoing risks of dollar misuse in the commercial banks of this country to prevent new punitive actions targeting its financial sector." According to Reuters, last July, the US barred 14 Iraqi banks from conducting dollar transactions as part of its efforts to combat the illegal use of the dollar. Despite these actions, a senior US Treasury official, who requested anonymity, said that other Iraqi banks are still engaging in risky activities that "must be corrected." With over $100 billion in foreign reserves held in the US, Iraq heavily relies on Washington's goodwill to ensure that its oil revenues and financial resources do not face US scrutiny. The Treasury official indicated that the US action in July was based on clear signs of illegal financial activities and alleged crimes that the Treasury was investigating, including money laundering, bribery, extortion, embezzlement, and fraud. The head of the Central Bank of Iraq has stated that the country is committed to implementing stricter financial regulations and combating dollar smuggling. The Central Bank of Iraq did not respond to a request for comment from Reuters on Thursday. Farhad Aladdin, foreign affairs advisor to the Iraqi Prime Minister, stated that the government has taken "tough measures to ensure the preservation of Iraq's interests while improving the banking sector and the currency transfer market." Aladdin mentioned that the Iraqi government is serious about continuing reforms and fighting corruption. Iraq has over 70 private banks and is considered an interesting case in the region. The banking system of the country was almost entirely under government control until the overthrow of Saddam Hussein by the US in 2003. Less than a third of Iraq's private banks are currently on the US blacklist. The Iraqi government came to power with the support of powerful parties backed by Iran and therefore cannot distance itself from Tehran, and its actions could anger parties and armed groups that have deep interests in Iraq's highly informal economy. The Iranian Foreign Ministry did not respond to a request for comment from Reuters. The 14 banks that faced US dollar sanctions in July have asked the Iraqi government to rectify punitive actions against them, claiming they comply with the laws. The US Treasury official stated that the government of Mohammed Shia' al-Sudani, the Iraqi Prime Minister appointed in October 2022, has cooperated and "progress has been made," which "was not necessarily the case" in the past 10-15 years. However, the Treasury official noted that some individuals with vested interests in maintaining the status quo could disrupt changes.