US Bars 14 Iraqi Banks From Dollar Trade With Iran
Amid reports that the Biden administration has allowed Iraq to pay Iran for electricity via non-Iraqi banks, the US has imposed a ban on 14 Iraqi banks from conducting dollar transactions.
Amid reports that the Biden administration has allowed Iraq to pay Iran for electricity via non-Iraqi banks, the US has imposed a ban on 14 Iraqi banks from conducting dollar transactions.
According to a report by the Wall Street Journal on Wednesday, the ban, imposed by the Treasury Department and the Federal Reserve Bank of New York, is part of an effort to crackdown on the flow of US currency to Iran and other sanctioned Middle East countries.
The targeted banks are mostly small institutions, even by Iraqi standards. Some of these banks have ties to influential Iraqis, are known for financial connections with Iran, or have heavy involvement in dollar transactions. Among those on the US list are Al Mustashar Islamic Bank, Erbil Bank, World Islamic Bank, and Zain Iraq Islamic Bank.
The newspaper added that US officials have taken action against these Iraqi banks after uncovering information that they engaged in money laundering and fraudulent transactions, some of which may have involved sanctioned individuals, raising concerns about benefiting Iran.
"We have strong reason to suspect that at least some of these laundered funds could end up going to benefit either designated individuals or individuals who could be designated," a senior US official was quoted as saying by the Journal."And of course the primary sanctions risk in Iraq relates to Iran."
According to the officials, the main goal of the dollar restrictions was to choke off money-laundering in Iraq.
Iran International revealed in May that an aide to former IRGC’s Quds force commander Qassem Soleimani is a key figure in money laundering for Tehran. Earlier in the year, Iran International also unraveled some details about the inner workings of a Quds force unit tasked with smuggling money from Iraq to Iran, proving that the Islamic Republic’s embassy in Iraq is also involved in the money laundering operations aimed at funneling revenues from oil and gas exports back to Iran.
This financial network is bypassing the US sanctions at the cost of the Iraqi economy. An informed source in Baghdad told Iran International late in December that Washington has received reports that Iraq is still conducting trade with Iran using US dollars despite sanctions.
The new move by Washington, which probably provokes new tensions between Baghdad and Washington and could lead to more economic turmoil for ordinary Iraqis, was announced only hours after Reuters reported that Secretary of State Antony Blinken has signed a 120-day national security waiver allowing Iraq -- heavily dependent on Iranian electricity -- to deposit payments into non-Iraqi banks in third countries instead of into restricted accounts in Iraq.
Moreover, the Treasury recently approved a payment of 2.5 billion euros, equivalent to about $2.8 billion, toward unpaid debts by the Iraqi government for Iranian electricity and gas imports, which had been frozen by sanctions.
Despite rumors of the Biden administration's intentions to lower tensions with Iran, these new restrictions signal a hardening of sanctions enforcement against Iran. Earlier this week, the Pentagon also dispatched a warship and jet fighters to the region, saying it was in response to Iranian threats against commercial shipping in the Persian Gulf.
The United States has insisted that oil-rich Iraq, the OPEC group's second-largest producer, moves towards self-sufficiency, and has put pressure on Baghdad to stem the flow of dollars into neighboring Iran.
The dinar went into a tailspin against the dollar after the New York Federal Reserve imposed tighter controls on international dollar transactions by commercial Iraqi banks in November to halt the illegal siphoning of dollars to Iran.
Under the curbs that took effect in January, Iraqi banks must use an online platform to reveal their transaction details. But most private banks have not registered on the platform and resorted to informal black markets in Baghdad to buy dollars.
Former chief of the Iranian parliament's national security and foreign policy committee Heshmatollah Falahatpisheh said Wednesday that “What exists between Iran and the United States now is similar to the 'red telephone line' that existed between the United States and the Soviet Union during the Cold War.”
He added, “I proposed a similar suggestion in the parliament to establish a direct hotline of communication between Iran and the United States to manage the tensions.”
Established in 1963, the Moscow–Washington hotline links the Pentagon with the Kremlin. Although the hotline was never a telephone line, and no red phones were used, in popular culture it is known as the "red telephone.”
His remarks come after recent reports that the two sides were striving to reach an unofficial unwritten agreement to prevent escalation. However, many US lawmakers from both sides of the aisle have called on the Biden administration to come clean about its dealings with the Iranian regime, particularly after the US special envoy Robert Malley was dismissed last month, with Congress in the dark.
Falahatpisheh said that in a situation when reviving the JCPOA (Joint Comprehensive Plan of Action) seems practically unattainable, this kind of communication is the best possible outcome Iran and the United States could achieved.
“What is referred to as the 'unwritten agreement' is essentially the formation of this hotline for communication. Iran and the United States have not reached a formal agreement, but they are managing the existing tensions in their relationship,” he said.
He underlined that “The establishment of this hot line does not imply anything specific except that the two countries have direct and indirect (mostly secretive) interactions with each other at any given time, discussing tensions and preventing crises from escalating.” He made it clear that “there is no written agreement taking shape.”
The Biden administration says that it continues contacts with Tehran, but no nuclear or prisoner release agreement is imminent.
According to Falahatpisheh, Washington’s lax enforcement of sanctions on Iran's oil exports and Tehran’s tendency to avoid tensions in the Persian Gulf are the outcomes of such a mechanism to manage differences.
But some events could be seen as contradicting this scenario. The US military announced in early July that it intervened to prevent Iranian naval vessels from seizing two commercial ships in the Persian Gulf.
Pentagon announced on Monday that it was sending more warplanes and an additional warship to the region, mainly to provide maritime security.
Meanwhile, US lawmakers are intensifying efforts to restrict the Biden administration in its interactions with the Iranian regime.
On Monday, Michael McCaul (R-TX), the chairman of the US House foreign affairs committee, threatened a subpoena if the administration does not brief Congress on the circumstances of Rob Malley’s dismissal, noting that the State Department has been less than candid with his security clearance investigation.
However, the administration still sounds reluctant to divulge any information as White House Press Secretary Karine Jean-Pierre dodged questions about the investigation on Tuesday.
Moreover, on the backdrop of a flurry of Congressional initiatives and letters to the administration, eight Republican Senators wrote to Secretary of State Antony Blinken and the Secretary of the Treasury Janet Yellen, demanding more serious enforcement of US sanctions on Iran.
The senators raised the issue of China’s increasing oil imports from Iran, while US sanctions prohibit third parties from buying Iranian oil and oil products. “Despite sanctions, the People's Republic of China (PRC) has purchased roughly $47 billion in Iranian oil since President Biden took office,” the letter says.
Despite the push by lawmakers, Washington has made a change in the way Iraq pays Iran for electricity. According to an exclusive report by Reuters, the Biden administration on Tuesday moved to let Iraq pay Iran for electricity via non-Iraqi banks.
According to an exclusive report by Reuters, the Biden administration on Tuesday moved to let Iraq pay Iran for electricity via non-Iraqi banks, a US official said, a step Washington hopes may keep Tehran from forcing unpopular power cuts during the sweltering Iraqi summer.
Secretary of State Antony Blinken signed a 120-day national security waiver allowing Iraq - heavily dependent on Iranian electricity - to deposit such payments into non-Iraqi banks in third countries instead of into restricted accounts in Iraq, said the official who spoke on condition of anonymity.
Reuters, apparently quoting the official, said that funds put into the non-Iraqi banks, like those deposited into Iraqi banks, will also be restricted, still requiring US permission for Iran to get access to them and only for spending on humanitarian goods.
Tehran has in the past pushed Baghdad to secure US permission to release such funds by cutting Iranian natural gas exports to Iraq, limiting Iraq's ability to generate power, and forcing deeply unpopular electricity cuts.
Reuters said the change came at the request of the Iraqi government, apparently in the hopes that this might transfer some of the pressure that Iran has exerted on Baghdad to other countries.
But it is not clear if the change is not the result of an Iranian plan to gradually weaken the impact of US banking sanctions on its dealings with Iraq. Iran’s next move could be pressure on Iraq to ask the United States to lift all restrictions on the funds, enabling Tehran to withdraw cash dollars. The current Iraqi government has closer ties with Tehran than its predecessor.
"We have to help the Iraqis with this perennial pressure from the Iranians to access the money," the US official told Reuters.
"The Iraqis have requested, and now we have agreed, to expand the waiver," said the US official, adding that this might help ensure better compliance with the US requirement that any disbursements be for humanitarian purposes.
"It also helps the Iraqis, at least somewhat, to have an argument to make (to Iran) that they are not in control of the money that they have paid (into non-Iraqi accounts)," he added.
If this was a change resulting purely from an Iraqi-US agreement, it is not clear whether Iran might ease up on Iraq as a result. Tehran could decide it has greater leverage over Iraq than over other nations and continue to exert pressure.
Last week it was reported that Iraq was willing to barter oil with Iran instead of cash payments, which could also violate US sanctions.
Iraq exports at least four times more oil than Iran, with more than $100 billion annual revenues, but with its inefficient government and corruption it has not been able to tap its own natural gas to produce electricity.
Iran is under extensive US economic sanctions reimposed in 2018 after then-US President Donald Trump abandoned the nuclear deal that Tehran struck with major powers Britain, China, France, Germany, Russia and the United States in 2015.
Trump believed his policy of "maximum pressure" on Iran would force it to accept more stringent restrictions to its nuclear program, which the United States, European powers and Israel fear may be designed to obtain a nuclear weapon.
As a result of Trump's withdrawal from the deal and US President Joe Biden's failure to revive it, Iran could make the fissile material for one bomb in 12 days or so, according to U.S. estimates, down from a year when the accord was in force.
With exclusive reporting by Reuters