From the Organized Crime and Corruption Reporting Project, October 8:
Investigation
A system set up to channel dollars from Iraqi oil sales to importers has been exploited by money launderers and militant groups for years. An OCCRP investigation shows how the fraud works in practice.
- Al-Huda, an Iraqi bank whose owner was sanctioned after a drone attack on U.S. forces, allegedly exploited the dollar auction to obtain billions of dollars.
- Files from an Iraqi parliamentary investigation show how Al-Huda and two other banks used apparently fake documents to manipulate the process.
- Over 99 percent of the money obtained by one bank in a single month in 2012 was cleared based on documents that appeared fraudulent.
- The dollar auction has been used to fund U.S. adversaries including Iran-backed militias, the Islamic State, and Syria’s Assad regime, experts say.
- At least $28 million was sent to a company the U.S. says handled funds for a Revolutionary Guard member later sanctioned for financing Yemen’s Houthi rebels.
In January, an attack drone detonated at a U.S. base near the Iraqi border in northeast Jordan, killing three soldiers and wounding dozens more — the most dramatic in a chain of strikes by Iran-backed militants since Israel’s war in the Gaza Strip.
The U.S. quickly cracked down on a financial network it said supported Kataib Hezbollah, the Iraqi militia blamed for the attack. One day after the strike, the Treasury Department sanctioned Hamad al-Moussawi, the owner of Iraq’s Al-Huda Bank, alleging he had set the bank up under the guidance of an elite wing of Iran’s Revolutionary Guards to launder money for terrorist groups.
“Today,” a press release declared, “the U.S. Department of the Treasury is using powerful tools to protect the Iraqi and international financial system from abuse by terrorist financiers, fraudsters, and money launderers.”
But despite the tough rhetoric, U.S. officials had failed to take action when alarms were raised about Moussawi and his bank nearly a decade earlier.
In 2015, a parliamentary committee chaired by a prominent Iraqi politician, Ahmad Chalabi, had analyzed dollar applications, invoices, customs documents, and bank transfer records and publicly alleged that Al-Huda had fraudulently obtained roughly $6.5 billion by exploiting an obscure mechanism known as the “dollar auction.”
A relic of the U.S. occupation, the auction works by channeling oil revenues into a dollar account at the Federal Reserve Bank of New York. Iraq’s central bank then sells the dollars to banks, who apply on behalf of companies so that they can pay for imports of anything from shampoo to shawarma spices.
“We believe that this evidence is the tip of the iceberg, as there are dozens of banks in Iraq carrying out these operations on a large scale,” Chalabi wrote in an official letter summarizing the committee’s findings to Iraq’s anti-graft agency. The letter, which was copied to the prime minister and other senior officials, was later leaked and widely circulated.
OCCRP’s reporters obtained some of the committee’s files, which have never been made public. By examining company records, U.S. government reports, public auction data, and conducting interviews with over a dozen U.S. and Iraqi officials, the reporters corroborated and expanded on the committee’s claims of fraud concerning Al-Huda and several other Iraqi banks. (Al-Huda and Moussawi did not respond to requests for comment.)
The findings helped build a detailed picture of how the banks were able to obtain billions of dollars by submitting documents that showed clear signs of fraud. By tracing the owners of companies and accounts listed in the invoices from dollar applications, OCCRP found that much of this money was channeled to accounts linked to alleged terror financiers, including at least $28 million sent to a company the U.S. says handled funds for a Revolutionary Guard member later sanctioned for financing Yemen’s Houthi rebels.
The reporting adds strength to the claim, long made by experts, that dollar auction fraud has been pervasive, entrenched, and — in many cases — apparently unchecked. Al-Huda, for example, remained in the auction long after the committee’s findings, buying hundreds of millions of dollars a year until at least 2020, records show.
Over the years, experts say, dollars funneled out of the auction have funded an array of U.S. adversaries, including Iran-backed militias, the Islamic State, and Syrian President Bashar al-Assad’s regime.
“The militias that now run Iraq built themselves using the threat finance provided by the dollar auctions,” said Michael Knights, a senior fellow at The Washington Institute think tank, referring to finance used for illicit activities that threaten U.S. security. “The U.S. was very slow in taking action.”
In recent years, the U.S. has cracked down on the auction. The New York Fed and its Iraqi counterparts have barred roughly two dozen Iraqi banks from the auction since 2019. But according to regional experts, Iraqi politicians, and former and current U.S. officials, the system that allows such pervasive fraud has never been reformed. In interview after interview, people familiar with the auction described how abuses have continued even though they have been obvious for nearly two decades.
“People talked about it, but no one did anything about it,” Ali Allawi, the former finance minister of Iraq, told OCCRP. The auction “went on and on” despite its problems because it was a “huge cash cow,” he said. “A lot of people got into the act.”...
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