Aljazeera.net correspondents
BaghdadThe meetings held by the Iraqi Central Bank delegation in Washington have gained great momentum, according to financial and banking experts, amidst the realization that the outcomes of these meetings will be the most important in a series of banking and financial audits regarding the mechanism of transferring funds between Iraqi banks and abroad, in order to avoid additional severe American sanctions, the echo of which will be reflected on the Iraqi street in light of fears of their impact on the payment of salaries to employees, and the potential obstruction of commercial transactions in dollars.
The Central Bank said in a statement, “The meetings resulted in an agreement with its international partners that will see the light at the end of this year, regarding ending the work of the electronic platform for foreign transfers, replacing it with direct banking relations, and expanding the network of international correspondent banks, with the participation of 13 Iraqi banks, in an important step aimed at enhancing the diversity of currencies and facilitating international transfer operations.”
Regarding the evaluation of the visit and its results, economic expert Abdul Rahman Al-Mashhadani told Al Jazeera Net that the Central Bank delegation presented to the Americans the file of monetary reforms in the Iraqi banking system, in addition to discussing the American sanctions on some of its banks. He explained that the meetings addressed the audit procedures that the Iraqi Central Bank reached through its contract with two international companies specializing in financial auditing, and presented their results to the American side.
Al-Mashhadani confirmed to Al-Jazeera Net that the work of the two companies is to audit the work of banks on the one hand, and to audit bank transfers on the other hand, and that this audit process requires three and a half months, which is the duration of the contract with these two companies. Al-Mashhadani mentioned, quoting the Governor of the Central Bank, Ali Al-Alaq, saying that the contract with these companies was based on advice from the US Treasury, stressing the suspension of the work of the electronic platform in its current form, and the agreement with correspondent banks with a prestigious international reputation, to supervise the audit of the work of banks including the National Bank of Iraq, Al-Mansour, Baghdad, and the Commercial Bank of Iraq, which handle about 70% of Iraqi transfers.
Iraqi electronic platform
The Central Bank of Iraq launched an electronic platform at the beginning of 2023 to purchase the US dollar in response to American requirements. The platform became the only outlet for those who wanted to buy the US dollar, but the procedures of that platform, according to those concerned, lacked accurate information showing the sources of the funds being traded, the goods that traders wanted to import and the origin from which they were imported, in addition to the outlet through which those goods would enter.
The Central Bank indicated that “the new announcement came after reaching an agreement on the mechanisms for regulating these operations, as it will include dealing in the euro, Chinese yuan, Indian rupee and Emirati dirham,” stressing that “determining the scope of work of the international auditing company /E&Y/ that will review the transfer operations to ensure their safety and compliance with international standards, is a reflection of the Central Bank of Iraq’s commitment to achieving the highest levels of transparency and security, and enhancing confidence in the Iraqi financial system.”
A boost for Iraqi banks
For his part, economic expert Ziad Al-Hashemi told Al Jazeera Net, “One of the most important outcomes of the Washington meetings is increasing reliance on Iraqi banks that have a solid network of correspondent banks. Correspondent banks are banks that work as an intermediary or on behalf of local Iraqi banks to complete financial transfer operations and ensure that international transfers comply with international transfer standards and controls. He pointed out that dozens of local Iraqi banks that do not have a solid chain of external correspondent banks will be excluded from accessing the remittance dollar after the platform system is completely terminated starting from the first month of 2025.”
However, Al-Hashemi commented in his interview with Al Jazeera Net, saying that “the precise implementation of the outcomes of the Washington meetings, even if it will raise the level of protection of Iraqi funds from leakage into irregular channels, and greatly improve the level of quality of banking services and competitiveness between banks, may cause, during the first stage, a narrowing of the bottleneck of remittance flows, and thus this may affect the size of the Iraqi dinar block that can be provided to public finances, to cover the enormous and increasing operating expenses year after year.”
These urgent moves by the Baghdad government came after a similar meeting in March 2024, regarding reviewing US sanctions on 14 Iraqi banks in July 2023, and 4 other banks last November, most of which are affiliated with institutions affiliated with political parties supported by well-known figures, and are accused of smuggling more than $100 million weekly to 4 neighboring countries, most notably Iran, in addition to Syria, Jordan and Turkey, according to international reports.
Although some Iraqi officials at the time downplayed the impact of the US move on the Iraqi economy, citing internal statistics that showed that the 14 banks combined held only 1.29% of total banking assets in Iraq, out of 46 other commercial banks, US officials pointed to a noticeable decline in financial transfers in recent months by banks accused of practicing bank fraud in transferring money, and reducing their ability to access dollars, which led to a significant reduction in the value of daily dollar transfers through those Iraqi commercial banks.
Bank fraud
Experts point out that these banking frauds are carried out by reselling the dollar, which banks and companies buy from the Central Bank of Iraq at the official price, which is always lower than the market price, which provides them with some profits. Over the course of two decades, the dollar trade in Iraq has become a source of rampant corruption in the country.
Meanwhile, fraud is being carried out in new ways to transfer dollars illegally, including using Western money transfer companies and informal networks in the Middle East to transfer money via remittances, in order to avoid audits, while local exchange offices and companies have resorted to using dozens of cash cards loaded with dinars in Iraq, then transferring them to neighboring countries, where the money can be withdrawn in dollars.
This prompted Washington to impose stricter controls on financial transfers in the country in general, which forced the Central Bank of Iraq in recent months to oblige banks to request import contracts and travel tickets in exchange for exchanging dollars for those entitled to them. These documents, in turn, are submitted to the Central Bank to allow those banks to participate in the currency auction again. These obstacles caused the value of the Iraqi dinar to decline against the dollar, and the prices of imported goods to rise, causing a crisis that lasted for about 3 months at the beginning of this year.
What many people do not know about the issue of banking audit and the financial reality in Iraq is that most Iraqis, both citizens and merchants, keep their financial savings in their homes and do not prefer to deposit them in banks. When businessmen want to buy US dollars from banks, many of them pay in Iraqi dinars in cash, without providing written certificates or transfers about the source of those funds.
It is worth mentioning in this context that since 2003, Iraq has been placed under American guardianship, and with it, Iraq’s money resulting from the sale of oil, which constitutes more than 90% of Iraq’s hard currency imports, was placed in the US Federal Reserve Bank, to protect it from compensation claims submitted by some countries harmed by the policies of the former regime that ruled Iraq before 2003, which means American control over its spending operations.
