Iraq to ban five banks from US dollar transactions

BAGHDAD,— Iraq’s central bank plans to ban five more local banks from carrying out transactions in U.S. dollars, following discussions with U.S. Treasury officials aimed at curbing money laundering and dollar smuggling, two sources familiar with the matter told Reuters on Sunday.

The decision follows meetings in Dubai last week between officials from the Central Bank of Iraq and representatives from the U.S. Treasury and Federal Reserve, one source said.

This comes after Iraq’s central bank had already banned eight banks last year from engaging in U.S. dollar transactions.

Iraq, which holds more than $100 billion in reserves in the United States, depends heavily on Washington’s approval to maintain access to its oil revenues and financial systems.

However, Iraq may come under greater scrutiny after U.S. President Donald Trump announced last month his intention to reintroduce the “maximum pressure” strategy targeting Iran.

Iran, a key regional player with deep ties to Iraq, wields significant influence through political parties and Shi’ite militias it supports. Tehran also secures hard currency from Iraq through exports and financial channels that help it bypass U.S. sanctions.

A Reuters investigation in December uncovered a complex fuel oil smuggling network operating in Iraq, reportedly generating at least $1 billion annually for Iran and its affiliated groups. The network has expanded since Prime Minister Mohammed Shia al-Sudani took office in 2022.

According to Iraq’s central bank, institutions banned from U.S. dollar transactions are still permitted to operate and conduct business in other currencies. However, the restrictions significantly hinder their ability to process international transactions.

The five banks affected by the latest decision are Al-Mashreq Al-Arabi Islamic Bank, United Bank for Investment, Al Sanam Islamic Bank, Misk Islamic Bank, and Amin Iraq for Islamic Investment and Finance.

Additionally, the move targets three payment services firms: Amawl, Al-Saqi Payment, and Aqsa Payment.

Iraq’s current government came to power with support from Iran-aligned political factions and armed groups with vested interests in the country’s largely informal economy, including a financial sector that has long been scrutinized for money laundering risks.

Western officials have previously praised Prime Minister Sudani’s administration for efforts to implement financial reforms aimed at limiting Iran’s access to U.S. dollars. However, with the Trump administration expected to increase pressure on Iran, further restrictions could be imposed.

(With files from Reuters)