Eurasia Press & News
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.
Key Findings
- 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.”
Stuart Bowen, who from 2004 to 2013 headed the body that oversaw U.S. reconstruction funds for Iraq under former presidents George W. Bush and Barack Obama, described how the U.S. had set up the auction with “minimal guidance” and then “handed it to Iraqis who had no idea what to do with it other than take advantage of it.”
“If you want to know what’s the genesis of the problem, again, among many things, in Iraq, it’s us,” he told OCCRP. “We created the monster and then said, ‘Not our monster!’”
The New York Federal Reserve declined to be interviewed for this story, but said that the bank was working with the Iraqi central bank and the Treasury Department to “continue updating and refining our compliance controls to best prevent abuse of our payment channels.”
“In providing correspondent banking and custody services to foreign central banks and official institutions, we maintain robust compliance regimes that evolve over time in response to new information and in communication with other U.S. government agencies,” the bank said in an emailed statement.
The U.S. Treasury Department and State Department declined to comment.
Matthew Zais, a director on the U.S. National Security Council for two years under former President Donald Trump, said the fraud at the dollar auction has been “well known for years.”
“The right question is, why did it take Americans getting killed by Kataib Hezbollah before they went after their bank?” Zais said.
Abuse at Iraqi Dollar Auction
In May 2003, the month after the U.S. toppled Iraqi President Saddam Hussein, the U.N. Security Council set up the Development Fund for Iraq (DFI) to administer the country’s oil revenues. Oil proceeds were directed into a DFI account at the Federal Bank of New York.
At first, the U.S. airlifted millions of dollars in cash from the account to Baghdad, where Iraqi officials trucked it to the central bank. By mid-2004, though, the U.S. had handed authority over the DFI to an Iraqi caretaker government, and the airlifts gave way to the dollar auction.
The auction allows Iraq’s central bank to sell U.S. dollars held in the DFI account at a daily event open to approved Iraqi banks. The banks apply for dollars on behalf of Iraqi traders, who submit invoices for imported goods. The money is wired by the New York Federal Reserve to the account of an Iraqi bank, and then — in theory — sent on to pay for the imports.
But it didn’t always work that way.
In October 2012, Bowen — who was serving as head of the Special Inspector General for Iraq Reconstruction, the U.S. agency overseeing the $63-billion reconstruction effort — filed a report to Congress flagging large-scale abuse at the auction. An Iraqi audit had found that 80 percent of the roughly $1 billion purchased at the auction each week was “tied to illegal transactions” and “potentially lost abroad to money laundering,” he wrote.
But a lack of jurisdiction prevented the U.S. from taking immediate action, Bowen said.
“It’s Iraqis overseeing Iraqi money,” he told OCCRP. “The rule of law applicable to that circumstance was Iraqi law.”
Three years later, in December 2015, the Federal Reserve pressured Iraq’s central bank into banning 142 exchange houses from the dollar auction. Iraq’s central bank cited concerns that the dollars were funding the Islamic State militant group, which was rampaging across much of Syria and Iraq at the time. Over the following years, the Federal Reserve continued to ban banks from the auction, typically without announcing the decision publicly.
But the fraud did not stop. In 2018, Joel Rayburn, who was appointed U.S. Special Envoy for Syria that year, concluded that the dollar auction was funding the Assad regime.
“I was trying to find out why the Assad regime was financially resilient. That’s the first time it registered with me that there were gaping holes in our sanctions enforcement apparatus,” Rayburn told OCCRP.
It became clear that “the Iranians had gotten the Iraqi government to supply dollars to them for their purposes, but also to shore up the Assad regime,” Rayburn said. “There was no other way that the Iranian regime could have been channeling a large dollar supply other than the dollar auction.”
There is no single, easy explanation for why the U.S. failed to take stronger action earlier to stop the dollar auction fraud.
James Jeffrey, U.S. ambassador to Iraq from 2010 to 2012, said that during his time in the country, the U.S. was focused on maintaining the Iraqi dinar’s stability, and the dollar auctions were not seen as a major problem.
“Money laundering was not something that we put particular attention into,” he told OCCRP.
Rayburn said the U.S. fight against the Islamic State, carried out with the Iraqi government from 2014 to 2017, was also a distraction: “There was no appetite to restrict the flow of dollars into Baghdad while that war was going on,” he said.
Allawi, the former finance minister, said U.S. officials had known about the fraud but failed to appreciate its full consequences.
“Maybe in the early days, they said, you know, ‘boys will be boys’ type of thing. ‘What’s new? Iraq is corrupt,’” Allawi said.
Chalabi Fraud Report Names Al-Huda
While fraud at the dollar auction was broadly understood to be taking place, the report by Chalabi’s committee represented a clear, forceful warning.
The scion of a prominent Iraqi family, Chalabi had been a leading dissident politician-in-exile under Saddam Hussein. After serving in various senior government roles after Saddam’s fall, Chalabi was elected to parliament in 2010 and went on to head a finance committee charged with accounting for the oil money held in the New York account. Working from his date palm farm in the outskirts of Baghdad, he and his team of investigators probed a group of banks buying billions through the auction.
Based on dollar applications obtained from the central bank — including customs records, invoices, account statements, and SWIFT transfers — they concluded that dozens of banks had engaged in large-scale fraud. The committee named three of the banks in a 2015 letter to Iraq’s anti-corruption agency, known as the Commission of Integrity. The list of offenders included Al-Huda, the bank that would appear in the U.S. sanctions order after the drone attack nearly a decade later.
The investigators reviewed three years of Al-Huda’s applications for dollars and traced 32 companies the bank claimed had imported goods into Iraq. The committee found that 29 were not even registered in Iraq, as they are required to be to take part in the auction.
The money released by the New York Fed to Al-Huda — nearly $6.5 billion over three years — was not paid to the suppliers that were ostensibly exporting goods to Iraq. Instead, it was funneled into the accounts of three exchange companies, including nearly $5.8 billion to an exchange company co-owned by Al-Huda’s owner, Hamad al-Moussawi.
Moussawi had obtained dollars “from the Central Bank with forged documents and transferred it to a company he owns and disposes of in full,” Chalabi wrote in the letter summarizing his findings.
In support of the allegations, the committee provided documents — also obtained by OCCRP — including the ownership records of Moussawi’s exchange house and communications with Iraq’s company registry confirming only three of the importers were registered in Iraq.
During the nine years between those findings and the U.S. sanctions notice, the bank continued to obtain millions of dollars at the auction. In September 2020 — the last full month the central bank released detailed auction data — the New York Fed transferred $136 million to Al-Huda. Because detailed records of those transactions are not publicly available, it was not possible to see where the money went or if there were any further signs of fraud.
In 2018, Moussawi was elected to Iraq’s parliament, where he joined an anti-corruption committee.
Chalabi Files Show Flaws in UBI Applications
Files from the committee’s investigations, obtained by OCCRP, offer a road map of how to rip off the dollar auction.
A month’s worth of records, subpoenaed by the team in 2013, from the United Bank for Investment (UBI) include invoices submitted to the central bank and the final transfers from the New York Federal Reserve. The records show UBI successfully applied for nearly $315 million in April 2012.
OCCRP reviewed the records with half a dozen U.S. and Iraqi experts, including Bowen and Allawi. With the exception of one apparently legitimate transaction for home appliances, every one of the applications — accounting for over 99 percent of the money UBI applied for that month — showed evidence of fraud, including mismatched and missing documents, fictitious companies, or both.
Though reporters were able to identify these flaws with relatively straightforward checks of public records, Iraq’s central bank and the New York Federal Reserve transferred the funds. At UBI’s request, the money went not to the exporters UBI claimed were sending goods to Iraq, but to accounts across the region with no obvious ties to the supposed vendors.
At least a million dollars, ostensibly to finance the import of steel bars and air conditioners, ended up sent to UBI’s chairman, Fadhil al-Dabbas. No customs documents or import licenses were included in the documents seen by OCCRP, and the exporter listed in the documents, supposedly based in the UAE, did not appear in company registries. (See box for details.)
Dabbas, who did not respond to OCCRP’s requests for comment, made international news for financing a contract where Iraq purchased hundreds of fake bomb detectors before the scandal broke in 2009. Dabbas has previously denied wrongdoing, and did not face charges.
OCCRP also found multiple people and companies — both applicants and recipients of dollars — connected to Iraqi businessman Hassan Nasser Jaafar al-Lami, who was reportedly arrested in Iraq for “dollar smuggling” briefly last year before being released without charge.
Two businessmen who appeared in the files, Hasan Hadi Farhan and Hayder Jawad Hassan, are partners with Lami in a Baghdad-based consultancy. Lami and Hassan also hold just under 10 percent each in Iraqi Noor Islamic Bank, which was barred from the dollar auction in late 2019 at the Federal Reserve’s request due to what it said was the risk that the dollars would be “directly or indirectly supplied to individuals or entities that are subject to United States sanctions programs.” (Iraqi Noor Islamic Bank did not respond to requests for comment.)
The UBI files show that Farhan and Hassan each applied for millions of dollars based on invoices from a company ostensibly based in the UAE which does not appear in corporate registries. In another instance, Hassan applied for about $7.5 million apparently without including customs documents or import licenses — and then wired $5 million to an exchange house part-owned by Lami.
None of the three responded to requests for comment.
The UBI Files
The documents obtained by Chalabi’s investigators reveal a pattern of suspicious dollar orders by UBI and its clients across one month in 2012.
The documents comprise packets of files which UBI submitted to the central bank to apply for dollars, ostensibly on behalf of Iraqi traders. They include invoices, customs documents, certificates of origin, tax forms, and import licenses meant to demonstrate that those traders imported real goods into Iraq.
OCCRP reviewed the application packets and found indicators of fraud — including mismatched and missing documents — in all but one request for dollars. In every one of these applications, the sums UBI obtained were not wired back to the ostensible exporters who invoiced for the goods, but were instead divided up in different denominations and sent to individuals and accounts across the region.
For instance, on April 29, 2012, an Iraqi company called Basma Al Furat submitted an application through UBI for $24 million, and included invoices saying it had imported 21,000 tons of reinforcing deformed steel bars and 8,800 air conditioners into Iraq from a company based in Ajman in the United Arab Emirates.
But when reporters went to the UAE registry to look for the supplier — the oddly named “Al Auqab Emport & Export” — they found no trace. The files seen by OCCRP also showed no sign of customs documents or import licenses indicating that any steel or air conditioners had actually reached Iraq.
The $24 million, which was wired regardless, didn’t even go back to the UAE. Instead, the money was sent to Jordan, where it was divided between four exchange houses. Out of the cash, $1 million went directly to UBI’s chairman, Fadhil al-Dabbas. A Jordan-based trading company co-owned by one of his brothers, Ali al-Dabbas, received $4.5 million. None of the final sums matched the amounts requested on the invoices.
OCCRP also found multiple connections to the well-known Iraqi businessman Hassan Nasser Jaafar al-Lami in multiple stages of the applications — sometimes with the companies and people applying for dollars, and sometimes with those receiving the funds.
Basma Al Furat, for instance, was owned by Hassan Hadi Farhan, who is a partner of Lami in a Baghdad-based consultancy. On April 30, Farhan also personally requested $8.3 million to import 487,840 automobile spare parts.
In the same application, another trader named Hayder Jawad Hassan, who is also a partner in the same consultancy, asked for $20.6 million to import 25,000 tons of sugar. Hassan and Lami both also hold just under 10 percent of shares each in Iraqi Noor Islamic Bank, which was kicked out of the dollar auction at the Federal Reserve’s request in late 2019.
The files seen by OCCRP contained no customs documents for the car parts, which were ostensibly provided by Ajyal Import & Export — described as an exporter in Ras Al-Khaimah in the UAE, but which, again, does not appear in the company registry.
They did supply customs clearances for roughly 26,000 tons of sugar, but the invoices and customs documents did not match: they listed different countries of origin, different delivery ships, and a different total price. The payments, again, were made not to the UAE but to five exchange houses in Jordan.
The same pattern held across all thirteen of UBI’s applications for dollars in April 2012. At least 20 out of the 38 total invoices come from Al Auqab and Ajyal Import & Export, neither of which show up in the UAE registry. In eight applications, the documents seen by OCCRP lack customs forms for certain imports. In three more, the declared origin of the goods listed on Iraqi customs declarations differed from the origin of the goods on the invoices.
It is possible that these customs documents may have represented real, if far smaller amounts of goods with some connection to UBI’s applications. But, with one exception, the dollars obtained by UBI didn’t go where they should have. None appeared to be wired into the corporate coffers of Dubai sugar brokers or steel suppliers.
At least $11 million went directly to Dabbas and to the trading company owned by his brother. Other recipients included an individual in Turkey, unspecified accounts in Jordan, and Dubai-based trading companies. Nearly $860,000 went to a Chinese bus manufacturer.
None of it, except a $1 million wire to Lebanon for an order of household appliances, appeared to correspond to real goods that were invoiced and sent to Iraq’s borders.
Dabbas, Lami, Farhan, Hassan, UBI, and Iraqi Noor Islamic Bank did not respond to requests for comment.
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Another $28 million of the funds UBI requested were transferred to a company that the U.S. says handled funds for Sa’id Ahmad Muhammad al-Jamal, an Iran-based financier sanctioned for allegedly providing “tens of millions of dollars’ worth of funds to the Houthis” through a network of front companies across the Middle East. Repeated efforts to reach Jamal for comment through his companies were unsuccessful.
UBI, which did not respond to requests for comment, was never barred from the dollar auction. But in 2018, it was put under the guardianship of Iraq’s central bank for “failure to meet financial obligations.” Central bank data shows that it continued to apply for, and receive, dollars as late as 2020.
Shortly after he wrote his letter, Chalabi died on his farm at the age of 71. There is no indication that his findings led to any serious action against dollar auction fraud.
Entifadh Qanbar, a former spokesperson for Chalabi, pointed out that the former exile’s toxic reputation among U.S. officials may have dissuaded them from looking into his findings. The Iraqi National Congress, which Chalabi founded, had funneled information to U.S. authorities that was used to justify the invasion — and much of which was later shown to be bogus.
“They think he was a destabilizer,” Qanbar told OCCRP. “They just don’t want to touch anything Chalabi did or said.”
