In a significant move to strengthen Iraq’s financial integrity, U.S. Special Envoy to Iraq Mark Savaya announced high-level talks with Treasury Department officials and the Office of Foreign Assets Control (OFAC) on tightening oversight of Iraq’s banking sector. The discussions signal a stepped-up American effort to combat money laundering, smuggling, and the financing of militant groups through Iraqi institutions.

According to a statement from Savaya, the talks centered on comprehensive reforms for both state-owned and private banks, with a focus on improving financial governance, compliance, and institutional accountability. A key outcome was an agreement to conduct a thorough review of suspected payment records and financial transactions linked to Iraqi institutions, companies, and individuals involved in illicit activities.

“The discussions focused on reforming both state-owned and private banks, with an emphasis on improving financial governance, compliance and institutional accountability,” Savaya stated. He highlighted that the review would target money laundering, fraudulent contracts, and projects that fund or enable terrorist operations.

The envoy also indicated that further sanctions are being prepared, noting the meeting covered “next steps related to forthcoming sanctions targeting malign actors and networks that undermine financial integrity and state authority.” This points to potential new designations as U.S. investigations progress.

This renewed push comes as Washington intensifies scrutiny of an Iraqi financial system long seen as vulnerable to corruption and the diversion of public funds. Weak oversight and politically connected networks have facilitated smuggling and financing for armed groups. In recent years, the U.S. Treasury has sanctioned numerous Iraqi banks, businesses, and individuals for laundering money or financing regional militant activity.

U.S. authorities have also heightened monitoring of dollar transactions involving Iraqi banks, concerned that some channels evade international restrictions to move illicit funds. Iraqi officials acknowledge ongoing challenges, stating they are working to align with international standards but face obstacles from structural weaknesses and political interference.

The issue carries increased urgency for Baghdad, which is seeking greater foreign investment and financial stability amid budget shortfalls and persistent security threats. Western officials argue that robust transparency and enforcement are critical not only for economic reform but also for disrupting the financial networks of extremist groups and criminal organizations that erode state authority.

Savaya framed the technical discussions within the broader strategic relationship, asserting that U.S.-Iraq ties are currently at their strongest under President Donald Trump, with both nations pursuing deeper cooperation on governance, security, and economic reform.