By Ahmed Rasheed and Timour Azhari
BAGHDAD (Reuters) -Fourteen Iraqi private banks hit with curbs by the United States over allegedly helping siphon U.S. dollars to Iran said on Wednesday they were ready to challenge the measures and face audits and called on Iraqi authorities to provide assistance.
U.S. financial authorities last week barred 14 Iraqi banks from conducting dollar transactions as part of a wider crackdown on dollar smuggling to Iran via the Iraqi banking system, Iraqi central bank officials have said.
U.S. State Department deputy spokesperson Vedant Patel said the measures were not sanctions, as they have been referred to by Iraq's Central Bank governor.
Patel said the Treasury Department and Federal Reserve Bank of New York earlier this month removed the banks' access to the Central Bank of Iraq's foreign currency sale window, which he said are known as the dollar and wire auctions.
"These actions help limit the ability of bad actors seeking to launder U.S. dollars, profit from the exploitation of money owned by the Iraqi people, and evade U.S. sanctions," Patel said on Thursday.
The U.S. Treasury Department and the New York Fed have not responded to requests for comment.
Iraqi central bank (CBI) Governor Ali al-Allaq said on Wednesday the institution was following up on the issue and he had no indication the U.S. would impose "sanctions" on more Iraqi banks.
He also noted that other banks were able to cover the market's needs for dollar transactions, with the 14 targeted banks representing just 8% of external transfers.
The 14 banks have been banned from undertaking dollar transactions but can continue to use Iraqi dinars and other foreign currencies.
Allaq said the transactions that led to the U.S. curbs took place in 2022, before the CBI enforced tighter regulations on dollar transfers requiring applicants to go through an online platform and provide detailed information on end-recipients.
Those measures are in line with U.S. regulations aimed at curbing the illegal siphoning of dollars to Iran and applying pressure on Tehran along with U.S sanctions imposed over its nuclear program and other disputes.
Haider al-Shamma, speaking on behalf of the 14 banks, said on Wednesday the sanctions could further weaken Iraq's currency, which has fallen from under 1,500 dinars per U.S. dollar last week to 1,580 as of Wednesday.
Iraq's central bank says the dinar's depreciation is tied to merchants, including some undertaking illegitimate financial transactions, sourcing currency from the black market rather than the official platform.
The latest U.S. measures, along with previous curbs on eight banks, have left nearly a third of Iraq's 72 banks blacklisted, two Iraqi central bank officials said.
"Forcing sanctions on a third of the Iraqi private banks from conducting dollar transactions will have negative consequences not only on the value of the Iraqi dinar against the U.S. dollar, but it will have a very big impact on foreign investments," al-Shamma said during a news conference on Wednesday.
"Our banks have nothing to do with political tensions, but are independent financial institutions."