After a top U.S. Treasury official visited, Iraq has prohibited eight domestic commercial banks from conducting transactions in U.S. dollars. This decision was made in an effort to decrease instances of fraud, money laundering, and other illegal activities involving the use of U.S. currency.

Restrictions have been imposed on banks regarding their participation in the daily dollar auction held by the Iraqi central bank. This auction is a significant source of foreign currency for the import-reliant nation, but it has also drawn attention as the U.S. is actively targeting attempts to smuggle currency to Iran through Iraq.

Iraq, an uncommon supporter of both the United States and Iran, holds over $100 billion in reserves in the U.S. and heavily depends on the benevolence of Washington to ensure their oil revenue and financial access remain unobstructed.

A document from the central bank was confirmed by a bank official and included a list of prohibited banks.

These are: Ahsur International Investment Bank; Investment Bank of Iraq; Union Bank of Iraq; Kurdistan International Islamic Investment and Development Bank; Al Huda Bank; Al Janoob Islamic Investment and Finance Bank; Arabia Islamic Bank and Hammurabi Commercial Bank.

The leader of the private bank association in Iraq, which represents the banks involved, and Ashur and Hammurabi did not immediately reply to requests for a statement. Reuters is reaching out to the other banks.

A representative from the Treasury stated: “We applaud the ongoing efforts of the Central Bank of Iraq to safeguard the country’s financial system from misuse. These efforts have resulted in legitimate Iraqi banks establishing connections with international banks through correspondent banking relationships.”

In July of 2023, Iraq implemented restrictions on 14 banks to prevent them from engaging in dollar transactions in an effort to combat the smuggling of dollars to Iran through the Iraqi banking system. This action was taken at the request of Washington, according to officials from both Iraq and the United States.

The central bank has announced that banks prohibited from conducting dollar transactions are still permitted to conduct business and participate in transactions using other currencies.

Last week, the U.S. Treasury Department’s principal official for sanctions, Brian Nelson, held a meeting with high-ranking Iraqi officials in Baghdad. The focus of the discussion was devising strategies to safeguard the Iraqi and global financial systems against illegal, unethical, and terrorist entities.

During the visit, the Treasury announced that it would take action against Al-Huda Bank for its involvement in diverting billions of U.S. dollars to groups backed by Iran.

A high-ranking Treasury representative informed Reuters that the United States anticipates increased efforts from Iraq in countering Iran-supported militant groups that are operating within Iraq. This expectation comes after three American soldiers were killed, which has been attributed to extremist Iraqi factions.

The current administration in Iraq gained control with the backing of influential factions supported by Iran. These groups also have stakes in Iraq’s predominantly unregulated economy, particularly in the financial sector which has been known for its involvement in money laundering activities.

However, Western authorities have praised the efforts of Iraqi Prime Minister Mohammed Shia al-Sudani in working together to implement economic and financial changes aimed at limiting Iran and its allies’ access to U.S. currency and bringing the Iraqi economy in accordance with global norms.