Iraq tightens financial measures to stop dollar smuggling to Iran

Iraq is implementing stricter financial measures to curb the smuggling of dollars to Iran, which has been siphoning them from Iraq via corrupt entities and militias linked to the Islamic Revolutionary Guard Corps (IRGC).

In recent months, smuggling activity has continued to pose a problem, albeit to a lesser extent than in previous years, despite the Central Bank of Iraq (CBI)'s close monitoring of hard currency transactions.

Unofficial estimates indicate "hundreds of millions of dollars" have been smuggled out of the Iraqi market over the past two years.

According to financial media reports, more than $100 million is smuggled into neighbouring countries each week, notably Iran and Syria, through companies, banks and currency exchanges, remittances and financial service companies.

Many of these entities are merely fronts for IRGC-affiliated Iraqi militias, officials say.

Fictitious companies

Some of the companies are active in trade, import, contracting and tourism, while others are fictitious and exist only on paper, an Iraqi MP told Al-Mashareq, speaking on condition of anonymity.

"Currency smuggling is done through the purchase of dollars by these companies from the national currency auction to finance their business activities," he said.

These activities may include the import from Iran of goods or merchandise at much higher prices than their real value, he said, conducted with forged valuation documents and phony invoices.

Many of these imports are classified as luxury or surplus goods or as highly perishable products.

For example, the MP said, Iranian Customs Administration spokesman Rouhollah Latifi on July 29, 2020, announced that Iran had exported to Iraq ornamental plants and roses valued at more than $2 million.

In June 2021, Trade Promotion Organisation of Iran official Farzad Piltan said Iran has earned $11 billion since 2016 from the export of crops and foods to Iraq, including nuts, chocolate and sweets.

According to the Iraqi MP, "the government has established rules and procedures to end currency smuggling and to hold accountable corrupt individuals and companies involved in financial activities harmful to the national economy".

The CBI, US Treasury and US Federal Reserve are working together to monitor bank transactions and transfers more closely and impose restrictions, he said.

"This co-operation must be supported to preserve Iraq's funds," he said.

Closer monitoring

CBI governor Mustafa Ghaleb Makhaif November 27 in Baghdad met with a US delegation headed by Jesse Baker, assistant deputy secretary of the US Treasury for terrorism and financial crimes.

The governor said the CBI "is committed to all international laws and guidelines on the issue of combating money laundering and terrorist financing".

The US Treasury delegation commended new measures implemented by Iraq.

The joint efforts aim to protect the wealth of Iraqis and stop the hemorrhaging of their money via the "mafias" that support the interests of the Iranian regime and enable it to keep targeting the security of the region, observers said.

The Iraqi government's measures to stop dollar smuggling included a new electronic platform to monitor buying and selling operations in the currency auction, according to official sources.

The CBI said this was done "in co-ordination with international bodies for the purpose of tightening and regulating operations in place for the buying and selling of foreign currency and ensuring effective control over them".

This procedure enables the collection of complete data on companies, banks and entities wishing to buy currency, to ensure the soundness and legality of their economic activities.

Iraqi authorities have strengthened the process for validating import documents and are requiring suppliers, merchants and trading companies to provide proof of purchases and of the imported materials.

These are then cross-checked against the invoices.

Greater control

The CBI has tightened its monitoring of non-governmental banks and intermediary financial companies, and suspends their activities when they commit any violation of the legal conditions and regulations.

This includes any failure to comply with international standards pertaining to opening letters of credit and the conduct of money transfers.

It also tracks the routes of all foreign and cash transfers, with US assistance, to prevent funds from reaching blacklisted parties, including Iranian entities and groups responsible for spreading terrorism and chaos.

In November, the CBI banned four Iraqi private banks from dealing in the dollar, for "audit purposes", it said in a statement.

The following month, media sources uncovered plans to impose international sanctions on 15 Iraqi banks accused of defrauding the Iraqi banking system and depleting Iraq's dollar inflows by smuggling them to Iran.

The new restrictions impose more control over financial revenues from the sale of oil, upon which Iraq relies to finance infrastructure projects and cover public expenditures.

These restrictions are widely expected to deter corrupt parties and militia leaders and prevent them from amassing funds in their private coffers.

They also are expected to help restore stability to the Iraqi dinar, whose value has been undermined by the smuggling of hard currency.