Iraq Cracks Down on US Dollar Smuggling

Iraq Cracks Down on Dollar Smuggling Amid Growing U.S. Pressure

Story by David S. Cloud • Yesterday 10:51 AM

BAGHDAD—Iraq is trying again to crack down on money laundering and smuggling as the U.S. steps up pressure to stop dollars flowing to Iran and better isolate it from the rest of the world economy.

The dollar has served as almost a second currency in Iraq after the U.S. invaded in 2003, pumping greenbacks into the country to keep it functioning. Two decades later, Iraq still keeps its foreign reserves at the Federal Reserve Bank in New York, depositing the proceeds from its oil exports in its official accounts there.

Hundreds of millions of dollars a day flow through loosely-regulated Iraqi bank and currency-exchange shops, which U.S. officials say are rife with fraudulent transactions and money laundering. They say there is strong evidence that a portion of these dollars have been going across the border to Iran, providing Tehran with badly needed currency and some relief from stringent American sanctions.

Others have been going into the hands of Iraqi officials or Iranian-backed militias operating in the country, or recipients in other Middle Eastern countries.

Now Iraqi authorities are expanding raids on currency traders and increasing air and land border checks following recent moves by Washington to curb the flow of dollars that have put pressure on Sudani and the economy.

“It’s a battle between the state, which insists on completely reforming the financial and banking system, and a group of smugglers and price manipulators who are thriving and working to obstruct reforms,” Iraqi Prime Minister Mohammed al-Sudani said late Tuesday.

The U.S. Treasury and Federal Reserve Bank of New York last month banned 14 Iraqi banks from dollar transactions after uncovering evidence they engaged in money laundering and fraudulent transactions. Four other Iraqi banks were banned from dollar transactions in November, when the Treasury and the Central Bank of Iraq also imposed tighter controls on wire transfers in dollars from Iraq.

Those moves have made it harder for Iraqis to move money out of the country, U.S. officials say.

Among the new measures, Iraq’s government is asking the country’s central bank to ensure that dollar transactions are handled through a new electronic platform requiring detailed information about where the funds are going.

But Iraqi authorities face an uphill battle disrupting powerful networks of banks, currency traders and Iran-backed militias who control the illicit transactions. Many have the political clout to avoid arrest and have proven resourceful in finding ways around the efforts to halt the movement of dollars.

Sudani acknowledged Tuesday that the Central Bank of Iraq should have taken action against Iraqi banks suspected of money laundering, instead of waiting for the U.S. Treasury to act. He also blamed currency traders for driving up the exchange rate for the Iraqi dinar, which has risen to 1,510 dinar to the dollar since the latest U.S. ban on Iraqi banks was imposed. The exchange rate was 1,470 dinar to the dollar last month.

Indeed, the increase in the exchange rate highlights the risk Sudani faces in complying with Washington’s push to crack down on dollar smuggling: If he moves too aggressively, it could anger the many powerful interests in Iraq who benefit from the illicit dollar trade and drive up the exchange rate further, raising prices for ordinary Iraqis.

Dollar smuggling takes different forms, complicating the effort. In some cases, smuggling networks obtain dollars in cash from currency traders and carry them in vehicles to Iran, Turkey and other Iraq neighbors.

Shortly after Sudani’s remarks Tuesday, Iraq’s national security service announced it had arrested at least 23 individuals in several cases of money laundering and illegal dollar transactions. In a series of raids in Baghdad, authorities said they took down a major dollar-smuggling network, making 11 arrests and recovering $14 million in cash, a spokesman said.

Officers found $100 bills in shrink-wrapped bricks labeled “New York,” inside a so-called “safe room” at one of the locations, a video released by the security service showed. The defendants “confessed to acting as traders with fake trading companies as a cover for smuggling currency abroad,” the spokesman said.

In a separate case, Iraq’s border authorities arrested a man recently at a border crossing with Iran in southern Iraq after $48,300 in cash was found hidden in his vehicle.

A far larger amount of dollars moves by wire transfers by Iraqi banks to accounts mostly in Dubai, where the ultimate recipient can be hard to trace.

“Some banks do not abide by the rules,” Sudani said. “There are banks that act as banks only on the surface but they do money transfers on the other side.”

Source: MSN

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