Iraq shuts down Iranian banks across country in sign of growing tension

Iraq shuts down Iranian banks across country in sign of growing tension
Iraq has shut down Bank Melli Iran branches. / CC: Financial Tribune Archive
By bne correspondent in Tehran February 7, 2024

The Central Bank of Iraq (CBI) has revoked the operating license of Iran's Bank Melli International (BMI) in the country, citing the bank's "unprofitability", local banking media reported on February 7.

Bank Melli Iran previously operated several banks in Iraqi cities for several years, including in religious tourism sites in Najaf and Karbala, Baghdad and Basra. However, the al-Sudani government has turned its back on the neighbouring Shi'ite country following an attack on the northern city of Erbil, which killed a millionaire businessman, with a growing boycott of Iranian products and services in several cities. The US has placed increasing pressure on the CBI in recent months, including controlling CBI assets in Washington via the US Treasury.   

According to a letter from the CBI, the decision was made due to American sanctions against BMI, the bank's inability to develop and expand its business, a considerable rise in losses, and the limited volume of operations conducted by the bank's branches.

The Iraqi move is part of a wider clean-up of its financial sector, which has seen international partners and lenders, including the US and World Bank, focus on bringing it into line with international norms, including through countering the finance of terrorism and anti-money laundering (CFT/AML) regulations.

BMI has not yet responded to the news. Meanwhile, Iranian officials and business representatives claim that the measure is unlikely to impact the mutual trade ties between the two countries despite growing tensions after a boycott on Iranian products.

Yahya Al Is’haq, the head of the Iran-Iraq Joint Chamber of Commerce, stated that branches of two Iranian banks, namely BMI and Parsian, have halted operations for over two years. He said "such news stories will have no impact on bilateral trade ties between Iran and Iraq as these banks had no participation in financial transactions".

The decision to revoke BMI's licenses comes after the Iraqi central bank announced new policies aimed at enhancing transparency in banking operations and meeting anti-money laundering requirements.

Earlier on February 6, the Ministry of Finance announced the commencement of the implementation of an anti-money laundering project in Iraq.

On January 31, the US Treasury Department imposed sanctions on Iraq’s Al-Huda Bank due to its activities in 2022, following an announcement by the Central Bank of Iraq.

A US Treasury statement said, “Al-Huda Bank, an Iraqi bank that acts as a channel for financing terrorism, as a foreign financial institution, raises a major concern about money laundering”.

A Treasury official emphasised the critical need for the Iraqi government to share intelligence about these militias, particularly in the wake of the Iranian drone strike.