Iraq is helping its neighbor Iran skirt international sanctions by smuggling oil and letting Tehran secretly move large amounts of cash through bank auctions, The New York Times reported Sunday.
Last month, US President Barack Obama singled out the Elaf Islamic Bank in Iraq, saying it had arranged transactions worth tens of millions of dollars with Iranian banks already under sanctions because of alleged links to Tehran's nuclear program.
But the Times said the bank was only part of a network of financial institutions and oil-smuggling operations that have helped funnel cash to the Islamic republic as sanctions choke its economy.
David Cohen, the Treasury Department's under secretary for terrorism and financial intelligence, said the United States is "actively pursuing efforts to prevent Iran from evading US or international financial sanctions, in Iraq or anywhere else."
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Iraqi Prime Minister Nouri al-Maliki effectively controls Iraq's central bank and is "right in the middle of this," a former US intelligence official told the newspaper.
It said that Iranian groups all but control at least four Iraqi commercial banks through Iraqi intermediaries, giving Tehran direct access to the international financial system from which it was supposed to have been shut out through the sanctions.
Trade between Iran and Iraq has rapidly increased since the 2003 US-led invasion that overthrew Saddam Hussein, reaching an estimated $11 billion a year, according to the Times.
Iraqi government spokesman Ali al-Dabbagh insisted that Iraq "is not intending to break any rules." However, he added: "we also have good relations with Iran that we do not want to break."
The Times said that large-scale smuggling of oil and oil products is on the rise, with Baghdad doing little to stop the "highly organized" effort.
Iraqi fuel oil obtained at very low prices through government subsidies is being smuggled from Iraq to Iran through Kurdistan, according to the newspaper. Some of the cheap fuel is then smuggled again to Afghanistan to be sold at a significant profit.
And the Times said that some Iranian oil is shipped to Iraqi ports for sale.