FinCEN Targets Iraqi, Puerto Rican Banking Staples in Fight Against Money Laundering through IBE’s

FinCEN Targets Iraqi, Puerto Rican Banking Staples in Fight Against Money Laundering through IBE’s

Keeping their foot on the gas pedal with respect to measures to slow the spread of financial crime both domestically and abroad, the United States government has continued to remain vigilant in its oversight of its international counterparts. While the Russia-Ukraine military conflict has culminated in increased sanctions evasion and illicit financial activity across multiple European and Asian jurisdictions, both the U.S. Treasury and Justice Department’s have respectively warned of emerging risks posed by countries that remain with strategic anti-money laundering (AML) and counter-terrorism financing (CFT) deficiencies. Over the summer, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) informed U.S. financial institutions of actions taken by the Financial Action Task Force (FATF) – an intergovernmental body that establishes international standards for anti-money laundering, countering the financing of terrorism, and countering the financing of proliferation of weapons of mass destruction – of new additions to its list of Jurisdictions Under Increased Monitoring, prompting American financial service providers to re-examine their relationships and better perform their due-diligence with respect to clients and foreign financial institutions operating within these questionable domains.

More recently, the Treasury set its sights on a familiar name in the realm of terror financing: Iraq. Last week, an unnamed top Treasury official recently reported that the central bank of the Middle Eastern nation must do more to address risks of illegal activities such as money laundering and carrying out suspicious transactions in order to avoid further repercussions by the U.S. against their financial sector. The United States government has been pressing Iraq for over a year to stop the flow of American dollars being funneled to sanctioned entities and to limit the gross misuse of U.S. dollars at Iraq’s commercial banks. With the country failing to take appropriate action in this regard, the U.S. ultimately moved to increase pressure on the embattled Republic by blacklisting 14 Iraqi banks in July, effectively barring them from engaging in U.S. dollar transactions. In spite of these efforts however, the Treasury has identified that other banks operating with risks that require immediate remediation given their propensity to be used as tools for money laundering, bribery, extortion, embezzlement and fraud, among other crimes still remain.1

The influence of the United States weighs heavily on Iraq, as they currently have over $100 billion in reserves held within the U.S. As such, it is in Iraq’s best interest to stay on America’s good side in order to avoid its oil revenues and additional finances facing more stringent American sanctions. Given the developments seen over the last several years alone however, the private banking boom seen across Iraq over the last two decades appears to be too much for their government to handle. While Iraqi government officials have vowed to continue fighting against the corruption and crime that have historically plagued their financial sector, to date the actions backing these statements have remained lackluster at best. Of the over 70 private banks seen across the Republic, nearly one-third of these firms have already found themselves on U.S. blacklists – with no signs of this trend slowing regardless of the cooperation that has been provided by the government of Iraqi Prime Minister Mohammed Shia Al-Sudani to date.1 Reuters writes that the recent blacklisting and sanctions employed by the U.S. have focused on Iraq’s so-called dollar auction, where the central bank requests dollars from the U.S. Federal Reserve before selling them to commercial banks, which in turn sell to businesses in the import-dependent economy, with over $200 million being auctioned on a day-to-day basis.1 The issue with this process lies in the fact that large sums of money were long being illegitimately acquired by groups who would provide fake invoices before ultimately smuggling large volumes to neighboring countries, many of which are already subjected to heavy U.S. sanctions (i.e. Iran).1 The U.S. government is now calling on the Iraqi central bank to address these activities in order to protect the integrity of both its national economy, as well as that of the global financial system, or risk the potential ramifications of a more potent crackdown.

In an additional move made against an entity much closer to home, last week the Financial Crimes Enforcement Network (FinCEN) assessed a $15 million civil money penalty against Bancrédito International Bank and Trust Corporation (Bancrédito) for willful violations of the Bank Secrecy Act (BSA) and its implementing regulations, while also revoking the company’s banking license.  The move became the bureau’s first retaliatory measure against an international banking entity (IBE) for breaches of anti-money laundering regulations. Bancrédito admitted that they willfully violated the BSA between October 2015 and May 2022 when they did not file suspicious activity reports (SARs) with FinCEN and failed to establish an effective due diligence/AML program for accounts established, maintained, administered, or managed in the United States, ignoring violations cited by its primary regulator, the Puerto Rico Office of the Commissioner of Financial Institutions.2 Due to the bank’s failures to perform adequate AML checks, it is estimated that tens of millions of dollars of foreign origin flowed into the U.S. economy for years without being vetted, further jeopardizing the American financial system. The move is striking in that Bancrédito is the oldest and one of the largest banking entity’s in terms of total assets in all of Puerto Rico, showing that FinCEN and American authorities will continue their efforts to limit the elevated risks of money laundering posed by IBE’s both in the Caribbean and beyond.


  1. Azhari, Timour. “Exclusive: U.S. Treasury Official Says Iraq Must Act to Avoid Further Action on Banks.” Reuters, Thomson Reuters, 14 Sept. 2023. 
  2. “FinCEN Announces $15 Million Civil Money Penalty against Bancrédito International Bank and Trust Corporation for Violations of the Bank Secrecy Act.” Financial Crimes Enforcement Network, United States Government, 15 Sept. 2023.

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