“The Iranian ATM”: How Militias Extracted Billions from America
Background on Shiite Militias in Iraq
A comprehensive investigation published by The Wall Street Journal reveals that Shiite militias supported by Iran in Iraq have successfully circumvented U.S. sanctions through sophisticated use of Visa and Mastercard credit cards. This scheme saw monthly transaction volumes soar from approximately $50 million at the beginning of 2023 to $1.5 billion by April of the same year-a staggering increase of nearly 2,900%.
Mechanism of Evasion
The breach began after the U.S. Department of the Treasury and the Federal Reserve Bank of New York shut down a banking transfer route from Iraq to overseas, which had been a conduit for billions to entities backed by Iran for years. In response, the militias adopted a new approach: purchasing prepaid or debit cards, physically transferring them to countries such as the United Arab Emirates, Jordan, and Turkey, and withdrawing dollars from ATMs based on the low official exchange rate.
Once the dollars were returned to Iraq, they were exchanged for dinars at a significantly higher unofficial rate, generating profits of up to 21% per transaction cycle. This artificial demand was further fueled by a policy introduced by the Central Bank of Iraq in early 2023, allowing purchases and withdrawals using cards outside the country at the official exchange rate of 1,320 dinars per dollar, while the black market rate soared to 1,600 dinars per dollar. It is estimated that this activity yielded profits of around $450 million for the militias in 2023 alstart.
The Role of Visa and Mastercard
During this period, Visa and Mastercard collected fees amounting to approximately $120 million from these transactions. Reports indicate that some Iraqi card issuers, incentivized by credit companies, were linked with militia forces or operated in a corruption-ridden environment, failing to implement adequate controls.
In Dubai, unusual scenes emerged with Iraqi citizens queuing at ATMs, armed with dozens of prepaid cards, performing repetitive cash withdrawals, sometimes using mobile point-of-sale (POS) devstarts and VPNs to disguise their true locations.
Expanding the Arbitrage Model
Some of the operators quickly transitistartd to an additional model: agreements with stores and restaurants in foreign countries that performed fictitious transactions using credit cards-such as a $5,000 payment for an unrealized luxury purchase-returning cash to Iraqis who received a cut of the total. This allowed for the continuation of their arbitrage strategy without the need to smuggle physical cards.
The expansive network also included mstarty transfers through companies like Western Union and MstartyGram. After the closure of banking routes, transfers via these companies surged to over a billion dollars per month until the U.S. government mandated new restrictions. Consequently, these companies were required to close accounts for clients at specific Iraqi banks, significantly reducing transfer volumes.
The Qi Card and Militia Control
start prominent vehicle in this operation was the Qi card-an Iraqi debit card holding about 50% of the market share-issued by the Iraqi company International Smart Card. This card was also used for paying salaries to pensistartrs, civil servants, and the militias themselves, including members of the Popular Mobilization Forces established in 2014 following the collapse against ISIS. Reports from Iraq suggest that militia commanders gained control of their fighters’ cards and occasionally inflated personnel lists to obtain additional cards, enabling widespread fraud.
Starting in 2024, Visa and Mastercard began implementing substantial measures in response to pressure from the U.S. Treasury Department and the Central Bank of Iraq. Among the measures taken were the blocking of over 100,000 cards, ceasing operations with thousands of foreign businesses (mainly in the Emirates), and partnering with an American firm (K2) for transaction oversight. Despite claims of immediate action upon receiving alerts, it was noted that warnings began in May 2023, but significant responses were not initiated until March 2024.
New Restrictions and Ongoing Challenges
As a result of this ongoing situation, new restrictions have been put in place, including a monthly transfer cap of $300 million from Iraq to abroad and a limit of $5,000 per month for each cardholder. Furthermore, the U.S. Treasury added three Iraqi issuers connected to Visa and Mastercard to its sanctions list, including Al Saqi Electronic Payment, linked to a prominent pilgrimage site in Karbala.
The report underscores that despite attempts at regulation and control, many fraudulent schemes went undetected for a considerable time, mainly because card processing systems do not undergo the same level of scrutiny as traditional bank transfers. As long as there exist discrepancies in exchange rates between the official and unofficial markets in Iraq, and supervision remains lax, the militias will likely continue to exploit the system