The US Treasury Department and the Federal Reserve Bank of New York have barred 14 Iraqi banks from conducting transactions in US dollars as part of a “sweeping crackdown” to stop Iran and other sanctioned nations from acquiring the greenback, the Wall Street Journal (WSJ) reported on 19 July.

US officials say the new sanctions were issued after discovering “information” showing the banks “engaged in money laundering and fraudulent transactions, some of which may have involved sanctioned individuals and raised concerns that Iran could benefit.”

“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 told the WSJ.

The banks targeted by the punitive measures are small institutions reportedly “heavily involved” in US dollar transactions.

According to Iraq’s Shafaq News, the targeted banks include the Islamic Advisor for Investment and Finance, the Islamic Qartas for Investment and Finance, Al Mustashar Islamic Bank, Elaf Bank, Erbil Bank, the International Islamic Bank, Trans-Iraq Bank, Mosul Bank, Al-Rajeh Bank, Sumer Commercial Bank, Trust International Islamic Bank, the World Islamic Bank, and Zain Iraq Islamic Bank.

The sanctions came only one day after the US State Department issued a new 120-day sanctions waiver to allow Baghdad to deposit payments for Iranian natural gas into non-Iraqi banks in response to criticism that the White House is responsible for recent power cuts at the height of Iraq’s blistering hot summer.

Since 2003, all Iraqi oil revenues have been paid into an account with the US Federal Reserve. Although Iraqis formed a sovereign government after the US invasion and occupation of their state, Iraq is still restricted from opening accounts for its oil earnings outside the US.

Given its dominance of the global financial system, Washington can control all funds of Iraq’s Central Bank through threats or sanctions, even though these funds are not deposited exclusively in US banks. Furthermore, Iraq’s oil funds, which in 2022 amounted to more than $90 billion, remain in one single account in New York Fed – the institution that two years ago unilaterally blocked Afghanistan from accessing its foreign reserves, plunging the nation into an unparalleled crisis.

Last November, the US Treasury cut off four Iraqi banks from access to dollars and imposed tight controls on wire transfers, sending the economy reeling.

To negate the effect of these unilateral measures, Baghdad has been looking to move trade away from the greenback and, in May, banned the use of the US dollar for both personal and business transactions.

Earlier this month, the commercial advisor to the Iranian embassy in Iraq, Abd al-Amir Rabihawi, revealed that Baghdad proposed that the two nations switch trade payments to the Iraqi dinar to combat US economic coercion.