The United States placed restrictions on fourteen private banks in Iraq because they were allegedly involved in the transfer of dollars to Iran. The banks indicated on Wednesday that they were prepared to contest the restrictions and confront audits. They also requested assistance from the Iraqi government.
As part of a larger campaign against the smuggling of dollars into Iran through the Iraqi banking network, US financial regulators last week prohibited fourteen Iraqi banks from carrying out dollar transactions, according to officials from the central bank of Iraq.
According to Vedant Patel, a deputy spokesperson for the US State Department, the actions could not be sanctions as the governor of the Iraqi Central Bank had referred to.
The banks' entry to the dollar and wire auctions was reportedly blocked by the Department of Treasury and the Federal Reserve Bank of New York early this month, Patel said.
According to Patel, these measures assist in limiting the ability of criminals looking to launder dollars benefited from exploitation of capital belonging to the Iraqi people, and escape from American sanctions.
Iraqi central bank Governor Ali al-Allaq stated on Wednesday that the organization was investigating the matter and that he did not have any indication that the US would impose "sanctions" on additional Iraqi banks.
He further said that other banks had sufficient capacity to meet the market's demands for dollar transactions since the 14 target banks account for only 8% of all external transfers.
The fourteen banks have been barred from conducting dollar transactions, but they can still conduct transactions in Iraqi dinars as well as other kinds of foreign currency.
Allaq said that the financial transactions that resulted in the US restrictions occurred in 2022, before the Iraqi central bank imposed tighter requirements on transfers of dollars, forcing users to complete a process on an online system and provide full details on end-recipients.
These restrictions align with US legislation intended to reduce illegal dollar transfers to Iran and put more stress on Tehran, in addition to US sanctions implemented over its nuclear project and other disagreements.
As representative of the fourteen banks, Haider al-Shamma stated on Wednesday that the sanctions might further undermine Iraq's currency, which has dropped below 1,500 dinars each US dollar in the past week to 1,580 on Wednesday.
According to the Iraqi central bank, the dinar's devaluation is due to merchants, which includes some performing illegal financial activities, obtaining currency via the black market instead of the legal platform.
According to two officials from Iraq's central bank, the latest US actions, combined with prior restrictions on eight banks, have blacklisted almost one third of the country's 72 banks.