Iraq Bans Eight Banks from U.S. Dollar Transactions: A Crackdown on Financial Crime

In a significant move to combat financial crime and protect the integrity of its financial system, Iraq has banned eight local commercial banks from engaging in U.S. dollar transactions. The decision, announced on February 16, 2025, follows a visit by a top U.S. Treasury official and is part of a broader effort to address fraud, money laundering, and other illicit uses of U.S. currency.

The banned banks, listed in a central bank document verified by an official, are: Ahsur International Bank for Investment; Investment Bank of Iraq; Union Bank of Iraq; Kurdistan International Islamic Bank for Investment and Development; Al Huda Bank; Al Janoob Islamic Bank for Investment and Finance; Arabia Islamic Bank; and Hammurabi Commercial Bank. The head of Iraq's private bank association and the banned banks did not immediately respond to requests for comment.



The U.S. Treasury Department commended the Central Bank of Iraq for taking steps to protect the Iraqi financial system from abuse, which has led to legitimate Iraqi banks achieving international connectivity through correspondent banking relationships. The ban is part of a wider crackdown on dollar smuggling to Iran via the Iraqi banking system, following a request from Washington in July 2023.

The ban on these banks is expected to have a significant economic impact, as they were previously participating in the daily dollar auction held by the Iraqi central bank, which is the primary source of hard currency for the import-dependent country. The shortage of U.S. dollars in the local market may lead to an increase in demand for U.S. dollars on the black market and a decline in the value of the Iraqi dinar against the dollar.

The U.S. Treasury's decision to ban these banks from U.S. dollar transactions aligns with its broader sanctions strategy, which aims to protect the Iraqi financial system from abuse and prevent the redirection of funds to sanctioned individuals or entities, particularly in Iran. The ban is a clear indication that the U.S. is serious about addressing financial crimes and maintaining international financial stability.

In conclusion, the ban on these eight banks in Iraq is a significant step in the fight against financial crime and the misuse of U.S. currency. While the ban may have short-term implications for the Iraqi economy, it demonstrates the Iraqi government's commitment to implementing economic and financial reforms and strengthening its relationship with the U.S. As the situation evolves, it will be crucial for the Central Bank of Iraq to take measures to mitigate potential disruptions and maintain stability in the financial system.