Iraqi Banking System Struck by New Sanctions Amid Money Laundering Concerns

The US Treasury Department has taken a bold step to safeguard the Iraqi and international financial systems against abuse by terrorist financiers, fraudsters, and money launderers. In a move aimed at preventing the misuse of US dollars by designated Foreign Terrorist Organizations (FTOs), the department has identified Al-Huda Bank as a foreign financial institution of primary money laundering concern.

Background on the Sanctions

• The sanctions were imposed after Al-Huda Bank was found to have exploited its access to US dollars in support of FTOs, including the IRGC, Kata’ib Hizballah, and Asa’ib Ahl al-Haq.
• The Financial Crimes Enforcement Network (FinCEN) proposed a rule that would sever Al-Huda 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.
• The Office of Foreign Assets Control (OFAC) also imposed sanctions on the bank’s owner, Hamad al-Moussawi.

Impact of the Sanctions

• The proposed rule and sanctions are part of an ongoing effort by the US government to combat terrorism financing and money laundering.
• The move is expected to have significant implications for Al-Huda Bank’s operations and its ability to access the global financial system.
• Non-US financial institutions and other persons that engage in certain transactions or activities with sanctioned entities and individuals may expose themselves to sanctions or be subject to an enforcement action.

Power and Integrity of OFAC Sanctions

• The power and integrity of OFAC sanctions derive not only from OFAC’s ability to designate and add persons to the Specially Designated Nationals and Blocked Persons List (SDN List) but also from its willingness to remove persons from the SDN List consistent with the law.

The US Treasury Department’s actions demonstrate a commitment to protecting the integrity of the Iraqi banking system and preventing the abuse of US dollars by terrorist organizations. The proposed rule and sanctions are a significant step in disrupting the financial networks of terrorist groups and bringing those responsible for money laundering to justice.