Iraq has been helping Iran skirt economic sanctions put in place because of its nuclear program, using a "network of financial institutions and oil-smuggling operations" to keep money flowing, according to a report in the New York Times.
In some cases, Iraqi officials turn a blind eye to trade with Iran, while some in the government -- including those close to Iraqi Prime Minister Nouri al-Maliki -- actually profited from it, the Times reported. In one instance, Iraq permitted the Iranians to use Iraqi airspace to get supplies to Syria. After President Barack Obama called al-Maliki to complain, the Iranians flew a different route.
“Maliki’s government is right in the middle of this,” one former senior American intelligence official told the Times.
Obama acknowledged the problem last month when he announced he was "cutting off" Baghdad's Elaf Islamic Bank from any business within the U.S. banking system, saying it had “facilitated transactions worth millions of dollars on behalf of Iranian banks that are subject to sanctions for their links to Iran’s illicit proliferation activities.”
And yet Iraqi banking experts told the Times the bank has still been allowed to participate in the Iraq Central Bank’s daily auction to sell Iraqi currency and buy American dollars -- a key way for Iran to boost its reserve of dollars to pay for imports.
Officials said Iranian organizations "have gained effective control" over at least four Iraqi commercial banks, according to the Times, giving Tehran direct access to the international finance system -- something supposedly blocked by sanctions. Only last week, Iraq's deputy prime minister and top finance and trade ministry officials met with their Iranian counterparts in Tehran to discuss furthering their economic ties.
The activities between the two countries have prompted concern among some in Baghdad about the impact the huge dollar transfers could have on Iraq's economic stability.
"We want to question the central bank and the banks that are involved,” Ali al-Sachri, a member of Parliament, told the Times.
Still, the Times reported the sanctions are nevertheless having a serious effect on Iran's economy, with the country's oil exports dropping 40 percent as a result of the last round.