US keeps quiet as Iraqis smuggle dollars into Iran

AFP Photo / Atta Kenare
A network of iraqi financial institutions have been smuggling US dollars into Iran to alleviate the financial struggle there caused by economic sanctions – but the Obama administration has been mum about it.

­The New York Times exposed Washington's ongoing struggle with Baghdad's Elaf Islamic Bank, in addition to a full network of financial institutions and oil-smuggling operations helping Iran evade sanctions.

In July, President Obama said he was barring the Elaf Islamic Bank from relations with US banks, after it was caught providing Iran with dollars to help its sanctions-stricken economy.

The Times report called the announcement “a rare acknowledgement of a delicate problem,” facing an administration that is hesitant to engage in public dispute with Iraqi Prime Minister Nuri Kamal al-Maliki.

While Iran’s economy is struggling, Elaf is just one of many institutions helping bring cash across the border. Obama said the bank had “facilitated transactions worth millions of dollars on behalf of Iranian banks that are subject to sanctions for their links to Iran’s illicit proliferation activities.” The smuggled dollars allow Iran to reinforce its reserves of the US currency to stabilize its exchange rates and pay for imported goods.

But since the US president’s announcement, the Iraqi government has continued to allow Elaf to bypass the sanctions, and has hesitated to impose penalties for noncompliance. The bank has been allowed to continue participating in the Iraq Central Bank’s daily auction, which allows banks to buy and sell currency – including US dollars. The auction allows Iranian customers to move cash into other financial centers internationally.

But current and former American and Iraqi officials say Iraqi government officials are purposely turning a blind eye to the illegal trade, smuggling money into Iran for the sake of personal profit.

“Elaf Bank is attending the auctions, and they are telling us that they didn’t violate the law, and saying that they didn’t deal with any Iranian institutes,” said Central Bank Governor Mudher Salih, explaining that Elaf’s denial of wrongdoing allows the bank to participate.

Intelligence officers claim that the illegal collaboration with Iran is a profitable business, and that high-ranking Iraqi government officials are directly involved.

“Maliki’s government is right in the middle of this,” a former senior American intelligence official said.

Iraqi government spokesman Ali al-Dabbagh told the Times that his country has “good relations with Iran that we do not want to break.”

While the US has not taken action to stop Elaf from participating in the auctions, American authorities are making headlines for investigating four European banks for violating sanctions by trading oil with Iran.

Days earlier, Britain’s Standard Chartered Plc had to pay a New York banking regulator a $340 million fine for helping Iran launder $250 billion in violation of federal sanction laws.

But regarding Iraq’s financial institutions – particularly Elaf – the Obama administration simply announced Elaf’s trading ban, without enforcing the law that media reports state was repeatedly broken.

US troops withdrew from Baghdad eight months ago, leaving a politically instable country in their wake, and the Obama administration is not eager to return to the region soon. Public attention is now on the European banks, who are said to have broken sanctions law – banks that the US government threatens to penalize, while staying out of Iraqi affairs with its own financial institutions.