U.S. Bans 14 Iraqi Banks in Crackdown on Iran Dollar Trade

Wall Street Journal-July 19th, 2023

WASHINGTON—The U.S. has barred 14 Iraqi banks from conducting dollar transactions, U.S. officials said, part of a sweeping crackdown on the siphoning of U.S. currency to Iran and other sanctioned Middle East countries.

The ban, which was imposed Wednesday by the Treasury Department and the Federal Reserve Bank of New York, is likely to provoke new tensions between Baghdad and Washington and could spark more economic turmoil for ordinary Iraqis.

It signals a hardening of sanctions enforcement against Iran only months after the Biden administration appeared intent on lowering tensions with Tehran. The Treasury recently approved a payment of 2.5 billion euros, equivalent to about $2.8 billion, toward unpaid debts by the Iraqi government for Iranian electricity and gas imports, which had been frozen by sanctions.

Earlier this week, the Pentagon dispatched a warship and jet fighters to the region, saying it was in response to Iranian threats against commercial shipping in the Persian Gulf.

U.S. Officials said they were taking action against the Iraqi banks after uncovering information that they engaged in money laundering and fraudulent transactions, some of which may have involved sanctioned individuals and raised concerns that Iran could benefit.

U.S. Officials said the main goal of the dollar restrictions was to choke off money-laundering in Iraq.

“We have strong reason to suspect that at least some of these laundered funds could end up going to benefit either designated individuals or individuals who could be designated,” said a senior U.S. official, adding “of course the primary sanctions risk in Iraq relates to Iran.”

Most of the banks targeted by the U.S. Are small institutions, even by Iraqi standards. Several have ties to influential Iraqis, are known for having financial connections with Iran or for heavy involvement in the dollar transactions, according to two Iraqi banking experts.

Among those on the U.S. List are Al Mustashar Islamic Bank, Erbil Bank, World Islamic Bank and Zain Iraq Islamic Bank. Erbil Bank Chairman Mohammed Saeed Al-Barzanji said in emailed comments that he had not been notified of the dollar ban and said transactions by the bank were carefully checked to prevent fraud. Other banks didn’t return messages seeking comment on the U.S. Action. A spokesman for the Central Bank of Iraq also didn’t respond to a request for comment.

At a Baghdad branch of Al Taif Islamic Bank, another of the targeted banks, several customers in line Wednesday evening were seeking to buy dollars for overseas travel or were receiving dollars in money transfers from abroad.