U.S. Says Iraqis Are Helping Iran to Skirt Sanctions
By JAMES RISEN and DURAID ADNAN
Published: August 18, 2012 122 Comments
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WASHINGTON — When President Obama announced last month that he was barring a Baghdad bank from any dealings with the American banking system, it was a rare acknowledgment of a delicate problem facing the administration in a country that American troops just left: for months, Iraq has been helping Iran skirt economic sanctions imposed on Tehran because of its nuclear program.
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The little-known bank singled out by the United States, the Elaf Islamic Bank, is only part of a network of financial institutions and oil-smuggling operations that, according to current and former American and Iraqi government officials and experts on the Iraqi banking sector, has provided Iran with a crucial flow of dollars at a time when sanctions are squeezing its economy.
The Obama administration is not eager for a public showdown with the government of Prime Minister Nuri Kamal al-Maliki over Iran just eight months after the last American troops withdrew from Baghdad.
Still, the administration has held private talks with Iraqi officials to complain about specific instances of financial and logistical ties between the countries, officials say, although they do not regard all trade between them as illegal or, as in the case of smuggling, as something completely new. In one recent instance, when American officials learned that the Iraqi government was aiding the Iranians by allowing them to use Iraqi airspace to ferry supplies to Syria, Mr. Obama called Mr. Maliki to complain. The Iranian planes flew another route.
In response to questions from The New York Times, David S. Cohen, the Treasury Department’s under secretary for terrorism and financial intelligence, provided a written statement saying that Iran “may seek to escape the force of our financial sanctions through Iraqi financial institutions.” But he added that “we will pursue, and are actively pursuing, efforts to prevent Iran from evading U.S. or international financial sanctions, in Iraq or anywhere else.”
Some current and former American and Iraqi officials, along with banking and oil experts, say that Iraqi government officials are turning a blind eye to the large financial flows, smuggling and other trade with Iran. In some cases, they say, government officials, including some close to Mr. Maliki, are directly profiting from the activities.
“Maliki’s government is right in the middle of this,” said one former senior American intelligence official who now does business in Iraq.
In announcing that he was “cutting off” Elaf Islamic Bank, Mr. Obama said it 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.”
But the treatment the bank has received in Baghdad since it was named by Mr. Obama suggests that the Iraqi government is not only allowing companies and individuals to circumvent the sanctions but also not enforcing penalties for noncompliance.
Iraqi banking experts said last week that the bank was still allowed to participate in the Iraq Central Bank’s daily auction at which commercial banks can sell Iraqi dinars and buy United States dollars. These auctions are a crucial pathway for Iranian access to the international financial system. Western officials say that Iran seeks to bolster its reserves of dollars to stabilize its exchange rates and pay for imports.
Iraqi and American officials with knowledge of Iraqi banking practices say Iranian customers are able to move large amounts of cash through the auction, and from there into banks in regional financial centers like Dubai, United Arab Emirates, or Amman, Jordan, and then into the international banking system.
Mudher Salih, the central bank governor, said in an interview that Elaf Islamic Bank was being allowed back into the auction because Elaf officials had denied any wrongdoing. “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,” Mr. Salih said.
While Iraq has tried to impose more stringent reporting requirements that might pick up illegal transfers, officials with knowledge of the Iraqi banking industry say that banks, hawala houses, an unofficial global network of money-traders, and their Iranian customers are finding ways around them, often by forging documents that make it look as if the money transfers are to finance legitimate trade between Iraq and other countries.
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