Iraq Economy Reels as U.S. Moves Against Money Flows to Iran

Iraq Economy Reels as U.S. Moves Against Money Flows to Iran

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BAGHDAD—Iraqis are blaming an unexpected culprit for a weakening currency that has caused the price of food and imported goods to rise: a little-noticed policy change by the U.S. Treasury and the Federal Reserve Bank of New York.

The New York Fed began enforcing tighter controls on international dollar transactions by commercial Iraqi banks in November, in a move to curtail money laundering and the illegal siphoning of dollars to Iran and other heavily sanctioned Middle East countries, U.S. and Iraqi officials said.

Iraqi banks had operated under less stringent rules since shortly after the 2003 U.S. invasion that toppled Saddam Hussein. Almost two decades later, American and Iraqi officials said they have decided it was time to bring Iraq’s banking system into compliance with global money-transfer practices.

Since the procedures went into effect, 80% or more of Iraq’s daily dollar wire transfers—which previously totaled over $250 million some days—have been blocked because of insufficient information about the funds’ destinations or other errors, according to U.S. and Iraqi officials and official Iraqi government data.