By Anas al-Bar | 2025-12-04

Mounting warnings caution against the detrimental impact on the Iraqi economy posed by transactions with Iranian banks, experts told Al-Fassel.

Due to direct ties to the the Islamic Revolutionary Guard Corps (IRGC), Iran's banking sector faces severe US and international sanctions.

The sector is also facing significant financial deterioration, with Ayandeh Bank, one of Iran's largest commercial banks, declaring bankruptcy due to financial losses.

This prompted the Central Bank of Iran to dissolve Ayandeh Bank and merge it with the state-owned Bank Melli on October 23.

The current crisis reveals the severe debt and inflation in Iran's banking system, accumulated over years of debt and corruption.

Banks have become institutions linked to politically influential figures within the regime, fueling their investments and obscene wealth directly at the expense of burdened citizens.

They also serve as conduits for laundering and funneling illicit funds to finance the IRGC and support its activities, thereby threatening regional stability.

Restrictions on militia-linked banks

As international sanctions tighten and financial collapse looms, concerns are rising that Iraq is being positioned to serve as a "financial lifeline" for Iran.

Warnings are mounting against supporting a corrupt regime through illicit partnerships and financial relationships between Iranian and Iraqi banks.

"Such involvement would expose Iraq to sanctions that directly threaten its economic stability and put its international standing and transactions at risk," said Ghazi Faisal Hussein, director of the Iraqi Center for Strategic Studies.

"Baghdad must take all necessary regulatory and preventative measures to stop the smuggling of Iraqi funds to Iran and prevent sanction violations," he told Al-Fassel.

He stressed the need to "tighten restrictions" on militia-linked banks and penalize entities involved in money laundering or black market transactions serving the IRGC.

Hussein called on Iraq to continue coordinating with the United States to monitor and ban illegal banks and money transfer networks that are violating the law.

Combating currency smuggling

"Iraq has prevented several local banks from purchasing dollars as part of its efforts to combat currency smuggling and money laundering," economist Abdul Rahman al-Mashhadani told Al-Fassel.

He noted that the Central Bank of Iraq has implemented "strict controls on financial transfers and monitoring of currency sale outlets."

Dollar transactions, al-Mashhadani said, are now reserved for "trusted banks" adhering to "the highest standards of financial compliance."

Since 2023, the US sanctions campaign has targeted more than 30 Iraqi banks for violations, specifically those involving currency smuggling and financing a network of Iranian proxies.

In October, sanctions were expanded to target three Iraqi banking executives who were accused of leveraging their positions to benefit the IRGC and the Asaib Ahl al-Haq militia.