The United States' recent decision to ban five Iraqi banks from conducting transactions in US dollars marks a significant escalation in Washington's efforts to curb illicit financial activities, particularly those linked to money laundering and potential sanctions violations involving Iran.
The move underscores the increasing scrutiny on Iraq's financial system and raises broader concerns for international businesses operating in the region.
Background of the ban
In coordination with the Federal Reserve Bank of New York, the US Treasury Department has blacklisted five Iraqi banks from participating in dollar transactions, citing concerns over their role in facilitating illicit financial flows and fund transfers.
While the US has not publicly detailed the specific violations committed by these banks, the move is in line with Washington's efforts to employ what they refer to as a "maximum pressure" doctrine on Iran by freezing their access to the global financial system.
Iraq has historically acted as a key financial intermediary between Iran and the global economy due to its close political, economic and geographic ties. However, US officials have warned that elements within Iraq's banking sector have facilitated transactions that ultimately benefit Iran's Revolutionary Guard and other sanctioned entities.
By targeting these banks, the US is signalling its intent to tighten restrictions on Iran's access to the international financial system by pressuring Iraq to enforce stricter financial regulations.
Impact on international business
For international businesses operating in Iraq, the ban on these banks injects new layers of complexity into financial transactions. The exclusion from dollar transactions will severely limit these banks' ability to conduct international trade and may cause disruptions in payments, particularly for companies that access dollars for cross-border trade. There is also a risk that businesses operating in Iraq may inadvertently fall afoul of US sanctions by engaging with blacklisted banks, resulting in an additional compliance burden for companies and investors.
For Iran, the blacklisting of these Iraqi banks represents another hurdle in accessing foreign currency and to sustaining its economy in the face of US sanctions. Iran relies heavily on intermediaries to facilitate trade and access dollars to circumvent sanctions. The latest measures will force Iran to seek alternative financial channels, potentially increasing reliance on informal or illicit networks or strengthening their non-dollar trade with countries like China and Russia.