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Iraq's Central Bank Bans Five More Local Banks from U.S. Dollar Transactions

2/16/2025
Iraq's central bank to ban five local banks from U.S. dollar transactions in efforts to combat money laundering and ensure compliance with U.S. regulations, amid growing tensions with Iran. The move signals a crackdown on financial violations.
Iraq's Central Bank Bans Five More Local Banks from U.S. Dollar Transactions
Iraq's central bank takes decisive action by prohibiting five local banks from engaging in U.S. dollar transactions to tackle money laundering and comply with international regulations. This move highlights the complex economic dynamics in the region and the impact of geopolitical tensions on financial institutions.

Iraq's Central Bank Expands Ban on U.S. Dollar Transactions

Iraq's central bank has announced a ban on five additional local banks from participating in U.S. dollar transactions, following discussions with U.S. Treasury officials. This strategic move aims to combat money laundering, dollar smuggling, and other financial violations, according to sources familiar with the situation.

Background of the Ban

The decision follows recent meetings in Dubai between officials from the Central Bank of Iraq and representatives from the U.S. Treasury and the Federal Reserve. This initiative builds on previous actions taken last year when eight banks were similarly restricted from dollar transactions.

Economic Implications for Iraq

Iraq, a rare ally to both the United States and Iran, holds over $100 billion in reserves within the U.S. The nation's economy heavily depends on Washington's support to ensure uninterrupted access to its oil revenues and financial assets. However, tensions may rise as the U.S. administration under President Donald Trump reinstates its maximum pressure policy towards Iran.

Iran, which views Iraq as a vital economic partner, exerts significant military, political, and economic influence through its support of Shi'ite militias and political entities within Iraq. The country also uses Iraq's banking system to secure hard currency and circumvent U.S. sanctions.

Impact on the Iraqi Banking Sector

The banks affected by the dollar transaction ban include 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. While these banks can continue operations and transactions in other currencies, their ability to conduct international transactions is significantly limited.

The restriction is a considerable setback for an Iraqi government supported by powerful Iran-backed groups, which are deeply embedded in Iraq's informal economy—a sector often associated with money laundering activities.

Response and Future Steps

Despite the challenging landscape, Western officials have praised Prime Minister Mohammed Shia al-Sudani for his efforts to implement economic and financial reforms aimed at reducing Iran and its allies' access to U.S. dollars. However, the pressure is expected to increase under the Trump administration's stringent policies.

Additionally, the ban includes three payment services firms: Amawl, AL-Saqi Payment, and Aqsa Payment. The Central Bank of Iraq and the U.S. Treasury have yet to issue official comments on these developments.

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Reported by Maha El Dahan in Dubai and Ahmed Rasheed in Baghdad; Edited by David Holmes

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