CBI’s Role in Facing Money Laundering and Deterioration of the Iraqi Dinar

Whenever you ask any Iraqi merchant or foreign investor about the dinar, you’ll sense caution in their voices. It’s not just about oil prices or political turbulence the conversation quickly turns to money laundering. 

Dirty money flowing through Iraq’s financial system doesn’t just tarnish reputations; it cripples currency stability, weakens investor confidence, and fuels black-market activity.

In this complex landscape, the Central Bank of Iraq (CBI) stands as both a gatekeeper and a firefighter tasked with cleaning up financial crime while restoring faith in the dinar. 

But is the CBI truly equipped for this mission? And can its efforts help reverse the deterioration of Iraq’s currency? 

Let’s take an honest look into the challenges and actions of the CBI, and whether Iraq is heading for a financial turnaround or simply putting out fires without addressing root causes.

Scope of Money Laundering Problems in Iraq

Money laundering in Iraq isn’t a side issue — it’s a widespread, deeply embedded challenge that affects nearly every level of the economy. Over the last decade, numerous investigations and international assessments have pointed out the sheer scale of illicit financial flows in the country.

• Currency Auction Vulnerabilities: Iraq’s daily currency auctions, intended to stabilize the exchange rate, have unfortunately become a key channel for laundering money. Shell companies forged documentation, and false import declarations have allowed billions of dollars to leak out under the guise of legitimate transactions. In some instances, these funds end up financing criminal networks abroad.
• Real Estate and Construction Sectors: Another popular vehicle for laundering illicit funds in Iraq is the booming real estate sector. Properties are purchased in cash, often at inflated prices, making it an easy way to integrate illicit money into the legal economy. Entire neighbourhoods have been suspected of becoming safe havens for money launderers and corrupt elites.
• Informal Money Transfer Systems (Hawala): Hawala, a traditional money transfer system based on trust, has long been used in the Middle East. But in Iraq, it’s often misused to move large sums of money across borders without any traceable record. This informal network bypasses bank monitoring, making it nearly impossible to regulate.
• Sanctions Evasion and Trade-Based Laundering: Due to regional sanctions on neighbouring countries, Iraq’s financial system has been exploited for sanctions evasion. Fraudulent trade invoices and under-invoicing schemes enable illicit money to flow into Iraq, be laundered, and exit clean, destabilizing the dinar in the process.

Regulatory Tools Used by the CBI to Combat Illicit Flows

Despite the challenges, the Central Bank of Iraq has not remained passive. Over recent years, it has introduced a series of regulatory tools and frameworks aimed at combatting money laundering and protecting the currency from further deterioration.

• Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) Law: Iraq’s AML/CFT Law No. 39 of 2015 forms the foundation of the country’s anti-money laundering efforts. Under this law, the CBI requires all banks and financial institutions to report suspicious transactions, enforce customer identification protocols, and maintain transaction records for several years.
• Financial Intelligence Unit (FIU): The establishment of the Iraqi Financial Intelligence Unit under the CBI was a critical step. This body is responsible for collecting, analyzing, and disseminating financial intelligence on suspected money laundering activities. It works closely with law enforcement agencies and international partners to track illicit financial flows.
• Stricter Currency Auction Controls: The CBI has significantly tightened rules surrounding currency auctions. Banks and businesses participating in these auctions must meet more rigorous compliance standards, including proof of legitimate business operations, clear documentation of imports, and tax clearance certificates.
• Risk-Based Supervision: The CBI has adopted a risk-based supervisory model, focusing its resources on financial institutions deemed most vulnerable to money laundering. This includes surprise audits, mandatory AML training for bank staff, and penalties for non-compliance.
• Digital Transaction Monitoring: In 2024, the CBI launched a new digital monitoring system designed to flag suspicious transactions in real time. The system uses artificial intelligence to detect anomalies in transaction patterns and automatically alerts the FIU for further investigation.

Challenges in Enforcement and Monitoring

While the CBI’s regulatory framework is solid on paper, enforcement on the ground faces multiple hurdles. Iraq’s complex socio-political dynamics, coupled with a fragile institutional framework, present serious challenges.

• Political Interference: Efforts to enforce AML laws are often hampered by political interference. Powerful figures who benefit from illicit financial activities can influence investigations and block penalties. This undermines the authority of the CBI and discourages whistleblowers.
• Weak Judicial System: Even when the CBI gathers strong evidence, prosecutions are rare. Iraq’s judicial system suffers from corruption and inefficiency, making it difficult to translate financial intelligence reports into court convictions. Many financial criminals operate with near impunity.
• Capacity Constraints: The CBI’s monitoring capabilities, while improving, are still stretched thin. Limited manpower and technical expertise mean that many suspicious transactions go unchecked, especially in rural or underdeveloped areas where financial literacy is low and informal transactions dominate.
• Evolving Criminal Tactics: Money launderers are constantly finding new methods to exploit gaps in Iraq’s financial system. Crypto assets, trade misinvoicing, and cross-border shell companies are increasingly being used, outpacing the CBI’s ability to detect and respond in real-time.
• Public Distrust: A lack of trust in the banking system means a significant portion of Iraq’s economy remains cash-based and outside the formal banking sector. This reduces the effectiveness of CBI regulations, as illicit money moves through informal channels without detection.

Global Partnerships to Strengthen Iraq’s Financial Integrity

Recognizing that money laundering is a global problem, the CBI has reached beyond national borders to seek help and build alliances aimed at cleaning up the system and restoring faith in the dinar.

1. Cooperation with the FATF: Iraq is working closely with the Financial Action Task Force (FATF), the global standard-setter for AML and CFT measures. The country has committed to implementing FATF recommendations, and periodic evaluations have pushed Iraq to address deficiencies in its legal and regulatory frameworks.
2. Engagement with the US Treasury: The US Treasury Department has taken an active role in monitoring Iraq’s financial system. Some Iraqi banks have even been temporarily suspended from dollar transactions for failing to meet compliance standards. While painful, this pressure has forced the CBI to adopt stronger internal controls and enhance transparency.
3. IMF and World Bank Support: The IMF and World Bank have provided financial assistance and technical training to Iraqi regulators. This includes workshops on forensic accounting, money flow analysis, and digital fraud detection. These partnerships are vital in upgrading Iraq’s enforcement capacity.
4. Regional Partnerships: The CBI is also collaborating with other Middle Eastern and Gulf countries to share intelligence on cross-border laundering networks. Joint task forces have been established to identify and freeze illicit assets that move between Iraq and neighbouring countries.

Final Thought:

There’s no denying the size of the challenge. Iraq’s financial system has long been a magnet for illicit money, and the deterioration of the Iraqi dinar is both a symptom and a consequence of weak controls, institutional fragility, and political interference. The Central Bank of Iraq is fighting a complex, multi-layered battle — one that involves cleaning up deeply entrenched corruption, modernizing oversight mechanisms, and restoring trust both at home and abroad.

The good news? Progress is visible. The regulatory tools are in place, the digital infrastructure is growing stronger, and international collaboration is lending much-needed support. But the true test lies in the consistency of enforcement and the willingness to tackle political interference head-on.

Iraq’s financial system is standing at a crossroads. Victory over money laundering is neither quick nor easy. It requires patience, determination, and unshakable political will. But if the CBI continues on this path with relentless focus, what once seemed like a difficult fight could well transform into a hard-won victory.

And in that victory, the Iraqi dinar might just find the strength to rise again.