US tightens Iraq’s dollar flow to stop Iran, Syria money laundering
Security forces stand guard during a protest in front of the Iraqi central bank Jan. 25 as currency plummets against the U.S. dollar, in Baghdad, Iraq.
For months, the United States has restricted Iraq’s access to its own dollars, trying to stamp out what Iraqi officials describe as rampant money laundering that benefits Iran and Syria. Iraq is now feeling the crunch, with a drop in the value of its currency and public anger blowing back against the prime minister.
The exchange rate for the Iraqi dinar has jumped to around 1,750 to the dollar at street exchanges in some parts of the country, compared to the official rate of 1,460 dinars to the dollar.
In Baghdad, exchange houses were closed on Thursday, while the Kurdistan Regional Government banned exchange companies in Sulaimaniyah from making transfers.
Mustafa Al-Karawi, a member of the parliamentary budget committee, told the state news agency that the Central Bank “must meet the requirements of the Federal Reserve to … reduce the scarcity of hard currency in the country.” He said new domestic procedures would be rolled out to improve access to currency, while a delegation of Iraqi officials will travel to the U.S. for negotiations next Friday.
The devaluation has already sparked protests. If it persists, analysts said, it could challenge the mandate of the government formed in October after a yearlong political stalemate.
The dinar’s deterioration comes even though Iraq’s foreign currency reserves are at an all-time high of around $100 billion, pumped up by spiking global oil prices that have brought increasing revenues to
the petroleum-rich nation.
But accessing that money is a different story.
Since the U.S. invasion of Iraq in 2003, Iraq’s foreign currency reserves have been housed at the United States’ Federal Reserve, giving the Americans significant control over Iraq’s supply of dollars. The Central Bank of Iraq requests dollars from the Fed and then sells them to commercial banks and exchange houses at the official exchange rate through a mechanism known as the “dollar auction.”
In the past, daily sales through the auction often exceeded $200 million.
The vast majority of the dollars sold in the auction are meant to go to purchases of goods imported by Iraqi companies, but the system has long been abused.
U.S. officials confirmed to the AP that they suspected the system was used for money laundering but declined to comment in detail on the allegations or the new restrictions.
For years, large quantities of dollars were transferred out of the country to Turkey, the United Arab Emirates, Jordan, and Lebanon through “gray market trading, using fake invoices for overpriced items,” a financial adviser to the Iraqi prime minister said, speaking on condition of anonymity because he was not authorized to discuss the matter publicly.
The inflated invoices were used to launder dollars, with most of them sent to Iran and Syria, which are under U.S. sanctions, leading to complaints from American officials, he said.
In other cases, the currency is smuggled across land borders under the protection of armed groups that take a cut of the cash, said Tamkeen Abd Sarhan al-Hasnawi, chairman of the board of Mosul Bank and first deputy of the Iraq Private Banks League. He estimated that as much as 80% of the dollars sold through the auction went to neighboring countries.