Quick Answer
Cryptocurrency is largely banned and operates in a legal gray area.
- The Central Bank prohibits financial institutions from dealing in crypto assets.
- No specific law criminalizes individual use, but AML law risks exist.
Legal Status of Crypto in Iraq
The legal status of cryptocurrency in Iraq is a complex gray area, defined by a targeted ban rather than a blanket prohibition. The Central Bank of Iraq has explicitly forbidden banks and other financial institutions from engaging with digital assets, citing risks under the country's Anti-Money Laundering and Counter-Terrorist Financing Law. However, as there is no specific legislation that criminalizes the possession or peer-to-peer trading of cryptocurrencies by private individuals, they operate in a legally ambiguous and unregulated space.
Current Regulations
The Central Bank of Iraq (CBI) has issued explicit prohibitions against cryptocurrency activities within the formal financial system. A key directive, Circular No. (125/5/9) from November 2021, forbids banks, electronic payment providers, and other financial intermediaries from engaging in any transactions involving virtual assets. This ban was later extended to prohibit the use of electronic cards and wallets for crypto speculation, as announced by the Trade Bank of Iraq. These regulations are enforced under the Anti-Money Laundering and Counter-Terrorist Financing Law No. 39 of 2015 to combat financial crime.
Regulatory Authorities
Several key bodies are responsible for overseeing and enforcing the country's restrictive stance on digital assets.
- Central Bank of Iraq (CBI):The CBI is the primary regulator, having issued directives that prohibit financial institutions from dealing in cryptocurrencies. It enforces these rules under the country's anti-money laundering laws to prevent financial crime and protect consumers.
- Kurdistan Regional Government’s Supreme Fatwa Committee:This committee reinforces the country's restrictive stance through religious rulings, such as its fatwa against OneCoin. Its influence is primarily advisory and shapes public and governmental opinion rather than direct regulatory enforcement.
- Anti-Money Laundering and Counter-Financing of Terrorism Office:As Iraq's financial intelligence unit, this office receives and analyzes suspicious transaction reports from financial institutions. It has the authority to investigate and refer cases involving potential money laundering, including those related to illicit crypto activities, to prosecutorial authorities.
Historical Context
Iraq's crypto regulations began with a 2017 ban from the Central Bank of Iraq (CBI), citing anti-money laundering concerns. This stance was reinforced in 2018 by a religious fatwa against OneCoin in the Kurdistan region. The CBI formalized its prohibition in 2021, forbidding financial institutions from handling virtual assets, and aligned with FATF standards in a 2022 directive. Despite these measures and a 2023 government crackdown on mining that saw over 5,000 rigs confiscated, informal trading and mining persist. This has driven activity into unregulated channels, creating a disconnect between official policy and grassroots economic activity.
Compliance Requirements for Businesses in Iraq
Under Iraq’s Anti-Money Laundering and Counter-Terrorism Financing Law No. 39 of 2015, businesses must adhere to several key compliance requirements to prevent financial crime. These rules create a framework for transparency and accountability within the financial system.
- Customer Due Diligence (CDD) and KYC: The cornerstone of compliance is knowing your customer. Businesses must verify the identity of their customers and understand the purpose of their transactions. For any transaction exceeding 10 million Iraqi dinars, the ultimate beneficial owner must be identified. Furthermore, enhanced due diligence is required for high-risk clients.
- Suspicious Activity Reporting: Institutions are obligated to file Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs) with the Financial Intelligence Unit (FIU) for any questionable transactions. The law also strictly forbids "tipping off"—alerting a customer that their activities have been reported to the authorities.
- Record-Keeping: Comprehensive records of all customer identification data, transactions, and internal risk assessments must be maintained for a minimum of five years after the conclusion of a business relationship or transaction.
- Internal Controls and Training: Businesses must establish and maintain robust internal AML programs. This includes creating risk-based policies, implementing control measures, conducting independent audits, and providing mandatory AML training to ensure all staff can identify and report suspicious activity.
- Prohibited Activities: The legal framework explicitly prohibits certain actions, including opening or maintaining anonymous or fictitious accounts and engaging in business with shell banks or institutions that service them.
Why this matters for Cross-Border Payments
Iraq's stringent AML framework and outright ban on institutional crypto dealings create significant hurdles for cross-border payments. For businesses involved in international trade, this translates to navigating a complex compliance landscape, leading to payment delays, heightened scrutiny, and increased operational costs. The complete prohibition of cryptocurrencies eliminates a potentially efficient payment channel, while the rigorous oversight on traditional transactions introduces friction and the risk of funds being frozen or rejected, forcing reliance on slower, more bureaucratic banking systems.
How Lightspark Enables Compliant Crypto-Native Payments
Lightspark offers a suite of tools to bridge traditional finance with Bitcoin's Lightning Network, addressing friction in cross-border payments. Its core products, Lightspark Connect and Grid Switch, provide two on-ramps. Connect allows crypto-native companies to leverage the Lightning Network directly, with Lightspark managing the complex infrastructure of nodes and liquidity. Grid Switch enables regulated institutions to use domestic real-time payment rails for instant, low-cost international payments in any fiat currency, using Bitcoin as a seamless settlement layer.
This infrastructure helps businesses meet stringent regulatory demands like Iraq's AML laws. Lightspark facilitates compliance by offering features such as audit-ready reporting, secure custody options, and built-in screening tools. By abstracting away technical complexity and providing a compliant-ready framework, Lightspark allows financial institutions to offer 24/7 global payments and expand into new corridors, easing the operational burden of cross-border transactions.
To learn more about how Lightspark is building the future of open, instant financial infrastructure, visit their website.
Notice: This article is provided for informational purposes only and does not constitute legal advice.
Sources
- Atiyah, Ghassan Adhab, et al. “Legal Status of Cryptocurrency Circulation in Iraq: Lessons from the United Arab Emirates and the United States.” Hasanuddin Law Review, vol. 9, no. 1, Feb. 2023. ResearchGate, doi:10.20956/halrev.v9i1.3867.
- “Dear customers… The Central Bank of Iraq decided to prohibit the use of electronic cards and wallets for the purposes of speculation.” Trade Bank of Iraq, tbi.com.iq/news/dear-customers%E2%80%A6-the-central-bank-of-iraq-decided-to-prohibit-the-use-of-electronic-cards-and-wallets-for-the-purpose-of-mudarabah/.
- Hashim, Saif wisam. “Cryptocurrencies in Iraq.” Al Nesoor Law Firm, 16 Mar. 2025, alnesoor.com/posts/cryptocurrencies-in-iraq?locale=en.
- Iraq. Council of Representatives. Law No. (39) of 2015 Anti-Money Laundering and Counter-Terrorism Financing Law. Government of Iraq, 2015, www.aml.iq/wp-content/uploads/2017/09/AMLCFT-Law-of-Iraq.pdf.
- “Iraq - Cryptocurrency Laws and Regulation.” Freeman Law, freemanlaw.com/cryptocurrency/iraq-and-cryptocurrency/.
- “Iraq among 10 nations banning cryptocurrency.” Shafaq News, 4 Feb. 2025, shafaq.com/en/Economy/Iraq-among-10-nations-banning-cryptocurrency.
- Team FOCAL. “Anti-Money Laundering in Iraq: Regulations, Best Practices.” FOCAL by Mozn, 21 Aug. 2025, www.getfocal.ai/blog/anti-money-laundering-in-iraq.
