Rules restricting illicit dollar flows create unexpected hardship for some Iraqis03 March, 2023 1:00 PM
These regulations are designed to prevent the transfer of dollars to corrupt actors. But they ended up hurting ordinary Iraqis who needed US currency for legitimate purposes.
The United States and Iraq recently enacted tough new international banking rules aimed at stemming the illegal flow of dollars to criminals and money launderers, including aid groups in Iran and Syria.
But in a country dominated by a cash economy, the changes have created unexpected difficulties for ordinary Iraqis who need dollars to travel abroad. The demand for dollars has increased and the Iraqi dinar has become more expensive for some local currency traders.
There are long queues outside exchange offices early in the morning, where Iraqis planning to travel abroad usually arrive with plastic bags full of dinars, which are not accepted by banks in the stranger. Nowadays, it is not easy to find money changers who still have US dollars. And those who run out early.
"I'm out of dollars," Abu Ali, a currency trader, said last week at his shop near Karada, Baghdad.
New rules under a US-Iraq agreement require greater transparency in wire transfers of US dollars held in New York Fed accounts held as Iraqi foreign exchange reserves . They entered into force at the end of last year.
The agreement is part of a long-delayed modernization of the Iraqi financial system, as it aligns with rules followed by most countries and meets demands for greater transparency in international financial transactions.
But some Iraqi businessmen and others who previously could pay in dollars via international bank transfers are unable or unwilling to comply with the stricter transparency requirements.
So they turned to money changers, which led to an increase in demand for dollars on the streets of Iraq, driving up the price of the dinar.
Every day, the Central Bank of Iraq makes wire transfers on behalf of Iraqi businesses and individuals from their accounts at the Federal Reserve Bank of New York to pay for goods from outside Iraq . Money transfers are crucial because few companies have international bank accounts.
In addition, a sum of money was sent to the Central Bank of Iraq for currency exchange and bank distribution mainly to Iraqis traveling abroad.
Before the new rules were introduced, e-footprinting couldn't do much for you.
US officials are investigating whether some of the transfers ended up in the hands of criminals.
For example, an Iraqi party may require that an electronic transfer in US dollars be sent to a bank in another country (eg the United Arab Emirates) in payment for goods imported into Iraq. But the American bill
E. May also be used to transfer US Dollars out of Iraq for money laundering purposes or to provide funds to sanctioned parties. Therefore, more information is needed to ensure that these transactions are legal.
Fears that the dollar is falling into the wrong hands date back to 2003 in the United States.
Invasion of Iraq. At the time, US authorities were primarily concerned with cash transfers, but the US Treasury Department has since focused more and more attention on wire transfers.
The Treasury Department wants to make sure that dollars sent by wire transfer don't violate US law.
S. Law as a front or agent for a sanctioned party or criminal entity. In congressional testimony in 2016, for example, a senior Treasury Department official identified three groups active in Iraq and targeted by sanctions: Al-Qaeda, the Islamic State, and the Iranian-backed Lebanese militia Hezbollah.
These concerns became more pressing when the Islamic State took control of northern Iraq in 2014, seizing a branch of the Iraqi central bank. This situation highlights the need for greater transparency in US dollar bank transfers.
After the Iraqis finally defeated ISIS in 2018, Iraqi and American bankers and the Treasury Department began discussing a new wire transfer system.
Under the new rules, individuals and businesses requesting a US dollar bank transfer must disclose their identity, as well as the identity of the person who ultimately receives the money. The information would then be reviewed by electronic systems and by experts from the Central Bank of Iraq and the New York Fed before payment is made.
Ahmed Tabaqchali, chief strategist of Iraq funds at Asia Frontier Capital, said the new system allows banks around the world to automatically verify funds transferred from Iraq to other countries.
"In short, the system increases the visibility of red flags," he said.
Muder Saleh, former deputy governor of the Central Bank of Iraq and financial policy adviser to new Iraqi Prime Minister Mohammad Shia al-Suldani, said many requests were now being denied. Sometimes it was because of dubious identities, he said, but other times it was because many Iraqi companies did not have the required licenses to import goods or were not properly registered as business entities, thereby violating Iraqi law.
These denials have resulted in an increased demand for dollars from Iraqi money changers, dramatically increasing costs for Iraqis with legitimate needs, he added.
As of 2003, there are two Iraqi dinar rates for buying dollars; the official rate set by the Central Bank of Iraq and the unofficial street rate, which is higher. When there is a shortage of dollars, street prices go up.
The difference between the two creates difficulties for Iraqis like Janna, mother of four. She said she saved up for a refrigerator and opted for a German model that costs around $250. In October, the equivalent is 320,000 dinars.
Today, a refrigerator would cost 375,000 dinars for lack of dollars.
"It's more than I can handle," she said.
After the new wire transfer rules came into force, the amount of dollars entering Iraq via wire transfer dropped sharply daily compared to before the rules came into force - dropping by almost 65% from from $180 million to $67 million on some days, according to the Daily Bank of Iraq published by the Central Bank of Iraq.
Transfer rates have since recovered, but generally remain less than half of what they were before the new system was introduced.
It is unclear to what extent the decline in transfers was attributable to illegitimate recipients.
"I wouldn't attribute almost 90% of the decline to fraud," said Douglas Silliman, director of the Washington-based Institute for Arab Gulf States and former US ambassador to Iraq. incompetent or simply don't know how to deal with new regulations.