In a significant move to combat fraud, money laundering, and the illicit use of US currency, the Iraqi federal government has prohibited eight local commercial banks from engaging in US dollar transactions. This decision follows discussions between top US Treasury official Brian Nelson and Iraqi authorities in Baghdad, where the focus was on implementing measures to safeguard the nation's financial systems from criminal, corrupt, and terrorist activities.

During Nelson's visit, the US Treasury Department took specific action against Al-Huda Bank, citing its alleged involvement in diverting billions of US dollars to Iranian-backed groups. This move underscores the US expectation for Iraq to play a more active role in countering armed factions linked to Iran, particularly in light of recent events, including the killing of three US soldiers attributed to Iraqi hardline factions, as reported by Reuters.

The prohibited banks are now excluded from participating in the Iraqi central bank's daily dollar auction, a vital source of hard currency for the nation heavily dependent on imports. This measure aligns with the broader US crackdown on currency smuggling to Iran, emphasizing the urgency for Iraq to address concerns related to financial activities supporting Iran-backed entities.

The list of banks subject to the ban, as per a central bank document, includes 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.

This development underscores the delicate balance Iraq maintains as a rare ally of both the United States and Iran. Holding over $100 billion in reserves in the US, Iraq's access to oil revenues and financial systems relies heavily on maintaining favorable relations with both nations.

A spokesman from the US Treasury commended the steps taken by the Central Bank of Iraq to protect the financial system, acknowledging the efforts of legitimate Iraqi banks in establishing international connectivity through correspondent banking relationships. The ban reflects a concerted effort to strengthen Iraq's financial integrity and address concerns related to illicit financial flows.