The Iraq Development Bank, among dozens of other targets, was hit with sanctions by the US on Thursday for its relations with Iran, the Treasury Department said in a statement.
The bank was one of 10 entities and 16 people hit in the latest round of sanctions under Washington's “Economic Outcast” programme. US President Donald Trump's administration has warned countries and companies continuing to do business with Iran would face significant consequences.
“Working with partners across the US government, the European Union, the United Kingdom, Gulf partners, and others, Treasury is targeting any source of the regime’s illicit revenue, as well as its sanctions evasion schemes to move funds,” the department said.
Treasury has previously imposed sanctions on banks in Turkey and a Bank Melli branch in the UAE, among others. The UAE Central Bank last month barred Bank Melli Iran from conducting any transactions between its UAE branches and Iran after an investigation.
Mr Trump's administration has hoped its “Economic Outcast” programme would sever Iran's remaining economic lifelines and force the regime to reopen the Strait of Hormuz.
“The noose is tightening around Iran’s economy, and not even Iran’s so-called allies can save it,” Treasury Secretary Scott Bessent said.
Iraq in 2024 banned the IDB and seven other local commercial banks from engaging in US dollar transactions. The Treasury department said the IDB has abused the now-dissolved dollar wire auction and maintains ties to Iran government entities and militia groups in Iraq.
It is one of dozens of Iraqi banks that have been cut off for years due to concerns over sanctions evasion, money laundering and illicit finance. The US holds significant influence over Baghdad's financial policies because its international oil revenue is held at the Federal Reserve Bank of New York.
The latest round of sanctions against the IDB also comes as Iraqi Prime Minister Ali Al Zaidi has sought to work with US authorities on the country's banking sector, which for years has been marred by corruption.
In July, the Treasury's Office of Terrorism and Financial Intelligence outlined a years-long plan that would eventually allow restricted Iraq banks to be reintegrated into the US dollar system. The process would include an initial phase of reforms from the Central Bank of Iraq, with the second phase consisting of a restricted bank completing the entire reform and licensing process.
This would involve successfully undertaking a third-party audit of their compliance function, securing a qualified investor and meeting international standards. The department at the time said “no banned banks have regained access to foreign currency transactions”.
"The United States will not tolerate the abuse of Iraqi banks by Iran-aligned militia groups and will take independent action, if necessary, to target such activity,” it said.
The move coincided with Mr Al Zaidi's visit to the US, where he had pledged to disarm militia groups in the country by September 30.
In an interview with The New York Times in September, Mr Al Zaidi pushed that timeline to June 2027. The disarmament is a crucial part of how he is expected to manage Iraq's relations with the US and Iran.