BAGHDAD -  In a move to combat fraud, money laundering, and illicit use of U.S. currency, Iraq has recently prohibited eight local commercial banks from participating in U.S. dollar transactions. The ban includes access to the Iraqi central bank's daily dollar auction, a crucial source of hard currency for the import-dependent nation. The decision follows a visit by a high-ranking U.S. Treasury official and aligns with the U.S. crackdown on currency smuggling to neighboring Iran.

The banned banks, including 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, have been listed in an official document from the central bank.

Iraq, a rare ally of both the United States and Iran, heavily relies on Washington's support to safeguard its access to oil revenues and financial stability, with over $100 billion in reserves held in the U.S. In response to the ban, the head of Iraq's private bank association, representing the affected banks, as well as Ashur and Hammurabi, have yet to provide comments.

This action by Iraq comes after a similar move in July 2023 when 14 banks were barred from conducting dollar transactions, responding to a request from Washington to curb dollar smuggling to Iran through the Iraqi banking system. The banks facing the dollar transaction ban are still permitted to operate and engage in transactions using other currencies, according to the central bank.

During a recent visit by the U.S. Treasury Department's top sanctions official, Brian Nelson, actions were taken against Al-Huda Bank, accused of diverting billions of U.S. dollars to Iranian-backed groups. Washington expects Iraq to enhance efforts in countering Iran-backed armed groups, particularly after the killing of three U.S. soldiers attributed to hardline Iraqi factions.

While the current Iraqi government has the backing of influential, Iran-backed parties and armed groups, especially in the informal economy, cooperation with Prime Minister Mohammed Shia al-Sudani has been recognized by Western officials. The collaboration aims to implement economic and financial reforms to limit Iran and its allies' access to U.S. dollars, aligning the Iraqi economy with international standards.