The Central Bank of Iraq is Still Not Out of the Woods with the US Treasury Department
A top U.S. Treasury official said that despite fraud, money laundering, and Iran sanctions evasion, Iraq's central bank must address continued risks of dollar misuse at Iraqi commercial banks.
In July, the United States banned 14 Iraqi banks from conducting dollar transactions as part of a broader crackdown on illicit dollar transactions.
The senior U.S. Treasury official, who spoke on condition of anonymity, said there were still other Iraqi banks operating with risks.
Having more than $100 billion in U.S. reserves, Iraq relies heavily on Washington's goodwill to safeguard oil revenues and finances.
A U.S. official said the July action was based on clear indications of illegal financial activity, including money laundering, bribery, extortion, embezzlement, and fraud.
Iraq's central bank governor has said the country is committed to tightening financial regulations and combating dollar smuggling.
According to Farhad Alaadin, the foreign affairs adviser to the Iraqi prime minister, "hard measures have been taken to protect Iraqi interests while improving the banking sector."
After Saddam Hussein was toppled by the U.S. invasion in 2003, Iraq now has more than 70 private banks.
Just under a third of Iraq's banks are now blacklisted by the United States.
The official told Reuters in Baghdad, "I chose to focus on banks that still have access where I see continued risk."
The central bank should take this opportunity to address it directly, which may eliminate the need for the U.S. to take further action."
According to the 14 banks given dollar bans in July, they work in compliance with regulations and ask the Iraqi government to remedy the situation.
According to the Treasury official, Iraqi Prime Minister Mohammed Shia Al-Sudani's government, appointed in October 2022, has been cooperative and has made "progress," something that had "not necessarily been the case" in previous decades.
Nevertheless, " vested interests are still comfortable with the status quo that can create friction to driving change," the Treasury official said.
Iraq's so-called dollar auction, in which the central bank requests dollars from the U.S. Federal Reserve before selling them to commercial banks, which then sell them to businesses in the import-dependent economy, has been the focus of U.S. economic measures.
Daily auctions range from $200 million to $250 million.
"Significant volumes" of money were smuggled to neighboring countries, including Iran before enhanced U.S. measures were implemented.
The auction system was also used by thousands of small businesses that required dollars but were not formally registered with the government, and so provided false information, Iraqi officials say.
