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Iraqi Private Banks Ready to Challenge US Curbs on Dollar Transactions

In a recent development, fourteen Iraqi private banks are gearing up to challenge the measures imposed by the United States over allegations of facilitating the flow of dollars to Iran.

Iraqi Private Banks Ready to Challenge US Curbs on Dollar Transactions

Last week, US financial authorities took action, barring these banks from conducting dollar transactions in an effort to crack down on dollar smuggling to Iran through the Iraqi banking system.

However, the banks in question are standing firm and have expressed their willingness to face audits in response to the restrictions. They have also called on Iraqi authorities to provide assistance in this matter. The US State Department's deputy spokesperson, Vedant Patel, clarified that the measures taken were not sanctions, contrary to what Iraq's Central Bank governor had stated.

According to Patel, the US Treasury Department and the Federal Reserve Bank of New York removed the banks' access to the Central Bank of Iraq's foreign currency sale window, which includes the dollar and wire auctions. Patel explained that these actions were aimed at curbing money laundering attempts with US dollars, preventing the exploitation of funds belonging to the Iraqi people, and evading US sanctions.

The specific banks affected by these curbs have not been disclosed, and the US Treasury Department and the New York Fed have not yet responded to requests for comments on the matter.

The Iraqi Central Bank Governor, Ali al-Allaq, has been closely monitoring the situation and stated that there is no indication that the US will impose further "sanctions" on more Iraqi banks. He assured that other banks in the country are well-equipped to cover the market's dollar transaction needs, with the fourteen targeted banks representing only 8% of external transfers.

While these banks have been banned from conducting dollar transactions, they can still use Iraqi dinars and other foreign currencies for their operations. Governor al-Allaq clarified that the transactions that led to the US curbs occurred in 2022, before the Central Bank of Iraq implemented stricter regulations on dollar transfers. The new regulations require applicants to go through an online platform and provide detailed information about the end-recipients, aligning with US regulations aimed at curbing illegal dollar siphoning to Iran.

The situation has raised concerns about the potential impact on Iraq's currency. Haider al-Shamma, speaking on behalf of the fourteen banks, expressed worry that the US sanctions could further weaken the Iraqi dinar, which has already experienced a decline from under 1,500 dinars per US dollar to 1,580.

Iraq's central bank attributes the dinar's depreciation to certain merchants engaging in illegitimate financial transactions, obtaining currency from the black market instead of the official platform.

This is not the first time such restrictions have been imposed, as previous curbs were placed on eight other banks. As a result, nearly a third of Iraq's 72 banks are now blacklisted, according to two Iraqi central bank officials.

Al-Shamma voiced concerns that these sanctions could have broader ramifications, not only affecting the Iraqi dinar's value against the US dollar but also impacting foreign investments. He emphasized that the banks targeted in the US curbs are independent financial institutions and have no involvement in political tensions.

The situation remains tense as the Iraqi private banks prepare to challenge the US curbs, seeking a resolution that would not harm the country's economy and financial stability. Iraqi authorities and international observers are closely monitoring the developments to understand the potential consequences of these measures on both Iraq's financial system and its relations with the US.



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