Jake Miller
The Central Bank of Iraq (CBI) is the country's independent central bank, established in 1947 after the British occupation ended. The CBI's primary objectives are to ensure domestic price stability and foster a stable competitive market-based financial system. The US has taken action to protect the Iraqi financial system from abuse by terrorist financiers, fraudsters, and money launderers. Notably, in 2011, an Iraqi-owned bank called Warka opened a branch at a US base in Iraq, facilitating electronic funds transfers for the first time.
| Characteristics | Values |
|---|---|
| Year of establishment | 1947 |
| Monetary authority established after | End of British occupation of Iraq |
| Objectives | Ensure domestic price stability, foster a stable competitive market-based financial system, establish, oversee and promote a sound and efficient payment system, issue licenses or permits to banks, regulate and supervise banks |
| Total assets as of December 2009 | Over 57 trillion dinars |
| Head office location | Baghdad |
| Number of branches | 4 (in Basrah, Mosul, Sulaimaniyah, and Erbil) |
| Acting Governor | Abdel Basset Turki |
| Headquarters designer | Zaha Hadid |
| Bank within IBIZ | Warka Bank |
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What You'll Learn
US Army base hosts Iraqi-owned Warka Bank
The Iraqi-owned Warka Bank opened a branch at Contingency Operating Base Adder, near Nasiriyah, Iraq, on January 13, 2010. The opening ceremony was attended by elected Iraqi officials, U.S. soldiers, Defense Department civilians, and other well-wishers. The bank is considered the first private bank in Iraq and was established in 1999.
Warka Bank has one of the largest banking operations in Iraq, with over 150 locations and 350 ATMs across the country. The establishment of this bank within the Iraqi-Based Industrial Zone (IBIZ) is expected to greatly aid Iraqi businesses and U.S. objectives. It will provide electronic funds transfer capabilities, making it more convenient for U.S. forces and contracting agencies to pay Iraqi contractors.
The opening of this branch is significant as it is the first Iraqi bank to be opened on an American base. It symbolizes the independence and sovereignty of Iraq and fosters the growth and stability of the country's financial institutions. The bank will serve Iraqis working at Joint Base Balad who may not have access to banking services in their local communities. Additionally, it will provide job opportunities and contribute to the development of the local economy.
The process of establishing the bank faced challenges, but with the support of various Army, Air Force, and state department organizations, these obstacles were overcome. The partnership between Warka Bank and the U.S. forces at Imam Ali Base was celebrated, with anyone being welcome to open an account.
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US Treasury acts to protect Iraq's financial system from abuse
The US Department of the Treasury has taken action to protect Iraq's financial system from abuse by terrorist financiers, fraudsters, and money launderers. In January 2024, the Treasury identified Al-Huda Bank, an Iraqi bank, as a foreign financial institution of primary money laundering concern. The bank has been used as a conduit for terrorist financing by Iran and has exploited its access to US dollars to support foreign terrorist groups, including the IRGC-QF and Kata’ib Hizballah. The Treasury proposed a rule to sever the bank from the US financial system by prohibiting domestic financial institutions from opening or maintaining accounts for Al-Huda Bank.
The US Treasury's actions underscore the IRGC-QF's abuse of the Iraqi banking sector to gain access to US dollars and the international financial system. Al-Huda Bank has been controlled and operated by the IRGC and the IRGC-QF since its establishment. The chairman of the bank is complicit in its illicit financial activities, including money laundering through front companies that conceal the true nature of transactions, ultimately enabling the financing of terrorism. The bank has also afforded access to the US financial system to actors known to use fraudulent documentation, fake deposits, identity documents of the deceased, fake companies, and counterfeit Iraqi dinar.
In addition to its actions against Al-Huda Bank, the US Treasury has also taken steps to sanction individuals in Iraq implicated in serious human rights abuses or corruption. In July 2019, the Treasury sanctioned four individuals, including two militia figures and two former Iraqi governors, pursuant to Executive Order (E.O.) 13818, which targets perpetrators of serious human rights abuses and corruption. The Treasury has continued to hold accountable persons associated with serious human rights abuses, including the persecution of religious minorities, and corrupt officials who exploit their positions for personal gain.
The US Treasury's Office of Foreign Assets Control (OFAC) has also issued general licenses to authorize activities that would otherwise be prohibited with regard to Iraq. These licenses allow US persons to engage in certain activities without needing to apply for a specific license. For example, in March 2004, OFAC authorized certain new transactions with Iraq, and in September 2003, it allowed for the transfer of certain blocked claims by US financial institutions.
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US sanctions Al-Huda Bank for money laundering and terrorist financing
The US Department of the Treasury has taken action to protect the Iraqi and international financial systems from abuse by terrorist financiers, fraudsters, and money launderers. The Financial Crimes Enforcement Network (FinCEN) identified Al-Huda Bank as a foreign financial institution of primary money laundering concern. The bank has been used as a conduit for terrorist financing by Iran, exploiting its access to US dollars to support designated foreign terrorist organisations, including Iran's Islamic Revolutionary Guard Corps (IRGC) and IRGC-Quds Force (IRGC-QF).
Since its establishment, Al-Huda Bank has been controlled and operated by the IRGC and the IRGC-QF. The chairman of the bank, Hamad Al-Moussawi, is complicit in its illicit financial activities, including money laundering through front companies that conceal the true nature of and parties involved in illicit transactions, ultimately enabling the financing of terrorism. Al-Moussawi has also used forged documents to execute billions in wire transfers out of Iraq.
FinCEN proposed a rule that would sever the bank from the US financial system by prohibiting domestic financial institutions and agencies from opening or maintaining a correspondent account for or on behalf of Al-Huda Bank. This rule was issued under Section 311 of the USA PATRIOT Act, with FinCEN taking action to protect the US financial system from Al-Huda Bank's illicit activity. The Office of Foreign Assets Control (OFAC) has also imposed sanctions on Al-Moussawi, the owner and chairman of the bank, for his support of the IRGC-QF and its proxy militia groups in Iraq.
The US has a history of involvement in the Iraqi financial system. In 2003, nearly $1 billion was stolen from the Central Bank of Iraq, with \$920 million ordered to be withdrawn and given to Saddam Hussein's son, Qusay. After the fall of Saddam Hussein's government, the Central Bank of Iraq was established as an independent central bank. The US Department of the Treasury has also taken steps to integrate the bank's branches and increase foreign exchange reserves.
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US role in establishing Iraq's monetary system post-WW1
Following World War I and the dissolution of the Ottoman Empire, Iraq's monetary system was administered by the British Mandate of Mesopotamia until 1931. During this time, the Iraq Currency Board was established in London to issue the new Iraqi dinar and maintain its reserves. The Currency Board pursued a conservative monetary policy, which was strengthened by its link to the British pound. In 1947, shortly after the end of the British occupation of Iraq, the National Bank of Iraq was founded, replacing the currency board.
The United States played a significant role in shaping Iraq's monetary system post-World War I, particularly after the fall of Saddam Hussein's regime in 2003. Here are some key points outlining the US role:
- Securing Currency and Stabilization: The US took early action to secure currency stocks and printing facilities, preventing the printing of the Saddam dinar. They ensured that existing currencies in Iraq would continue to be accepted as a means of payment, stabilizing the currency and averting a potential monetary crisis.
- Pension and Salary Payments: US advisors worked with the Defense Department and other agencies to establish a mechanism for making emergency salary and pension payments to over 1.5 million civil servants, workers, and pensioners, providing a financial lifeline to the Iraqi people.
- Reconstruction and Market Economy: John B. Taylor, Under Secretary of the Treasury for International Affairs, emphasized the importance of establishing a market economy in Iraq based on clear property rights, rule of law, and economic freedom. This included donor contributions and support from international financial institutions for the country's reconstruction.
- Protecting the Iraqi Financial System: The US Department of the Treasury has taken actions to protect the Iraqi financial system from abuse by terrorist financiers, fraudsters, and money launderers. For instance, they identified and proposed severing Al-Huda Bank, an Iraqi bank, from the US financial system due to its involvement in terrorist financing.
- Central Bank of Iraq: While the Central Bank of Iraq (established in 1947) is an independent institution, the US presence in 2003 resulted in the loss of nearly US$1 billion from the bank. This occurred when Saddam Hussein ordered a large sum of money to be withdrawn and given to his son, Qusay Hussein, just before the US forces entered Baghdad.
In conclusion, while Iraq's monetary system has had a complex history with influences from the British and its own central bank, the US has played a significant role in shaping it post-World War I, especially in recent decades following the fall of Saddam Hussein's regime.
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US dollar's removal from the Iraqi economy
The US dollar has been a cornerstone of Iraq's economy since the 2003 US invasion, with the country's oil industry, which accounts for 99% of its exports, operating primarily in US dollars. The US dollar has effectively functioned as a secondary currency in Iraq, with the population preferring it over local notes due to recurring wars and crises following the invasion.
However, in recent years, there have been efforts to de-dollarize the Iraqi economy and reduce its dependence on the US dollar. The Central Bank of Iraq (CBI) has implemented new measures aimed at limiting the flow of hard currency, particularly US dollars, from the country. This includes banning cash withdrawals and transactions in US dollars as of January 1, 2024. The CBI has also focused on reducing cash usage in the country, promoting digital transactions, and automating settlement operations.
The Iraqi government's efforts to stabilize its economy and comply with international financial standards have faced challenges and public discontent due to the immediate impact on people's access to funds and the broader economic implications. The depreciation of the Iraqi dinar has led to protests, and the government and central bank have been scrutinized for their inability to address the issue.
The US Treasury and the Fed have also banned 14 Iraqi banks from conducting US dollar transactions due to concerns over the redirection of US currency to sanctioned individuals, particularly in Iran. This has contributed to a decrease in daily dollar sales conducted through the CBI and impacted import-dependent companies in Iraq, as transactions often require US dollars.
Overall, the removal of US dollars from the Iraqi economy has been a complex and challenging process, with significant economic and social implications. It remains to be seen what the long-term effects of these measures will be and how they will impact Iraq's economic stability and relationship with the US.
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Frequently asked questions
No, the US did not establish a bank in Iraq. However, an Iraqi-owned bank, Warka Bank, was opened on a US base in Iraq.
The Central Bank of Iraq (CBI) is a monetary authority established in 1947 after the British occupation of Iraq ended. The CBI's primary objectives are to ensure domestic price stability and foster a stable competitive market-based financial system.
Iraq's monetary system was administered by the British Mandate of Mesopotamia after World War I and the dissolution of the Ottoman Empire until 1931. The Iraq Currency Board was established in London that year to issue the new Iraqi dinar and maintain its reserves. The National Bank of Iraq replaced the currency board in 1949.
The Central Bank of Iraq is responsible for establishing, overseeing, and promoting a sound and efficient payment system. It issues licenses and permits to banks and regulates and supervises them as specified by the Banking Law. It also carries out ancillary tasks and transactions within the framework of Iraqi law.
The US Department of the Treasury has taken action to protect the Iraqi financial system from abuse by terrorist financiers, fraudsters, and money launderers. For example, the US has identified Al-Huda Bank as a primary money-laundering concern and proposed rules to sever the bank from the US financial system.
