Washington has steadily imposed sanctions against Iraqi actors, companies, financial institutions, and commercial actors linked to Iran-backed militias. Although sanctions have constrained aspects of militia activity and complicated international transactions, they leave largely untouched the domestic economic ecosystem that enables these networks to convert exploited state assets into political and military capital. So long as Iraqi institutions continue to finance, license, and contract with sanctioned entities, U.S. pressure will remain incomplete.
So long as Iraqi institutions continue to finance, license, and contract with sanctioned entities, U.S. pressure will remain incomplete.
A primary vehicle of the Iranian-backed economy is the Muhandis General Company, an economic conglomerate established via Iraq’s cabinet decree—which received an initial state capitalization of $76 million, with a $305 million investment budget allocation. Despite the U.S. designation, the government transferred more than 1.2 million acres of land along the Saudi Arabian border to the Muhandis General Company, effectively gifting a designated terrorist network. Iraq’s Ministry of Communications further awarded a critical fiber-optic telecommunications infrastructure contract to the Muhandis General Company, yielding both financial returns and strategic intelligence leverage.
Nor are Iranian interests the only beneficiaries. U.S.-sanctioned Sunni politician Khamis Al-Khanjar bypasses federal restrictions by utilizing his son Sarmad to secure government opportunities, benefiting Qatari and Turkish sponsors.
With the Central Bank of Iraq’s dollar auction coming under tighter U.S. scrutiny, proxy groups have shifted their focus to domestic cash-intensive industries. Sanctioned groups use local tourism companies, restaurants, spas, private universities, schools, and health care centers as laundering fronts. For example, Ali Al-Shemary, a member of the U.S.-sanctioned Asa’ib Ahl al-Haq, utilizes his medical clinic as a money laundering node. Al-Shemary’s trajectory as a parliamentary candidate highlights how these economic actors seamlessly translate financial power into legislative influence, aided by the state’s failure to bar armed and sanctioned groups from electoral politics.
The Iraqi government has largely failed to act against sanctioned individuals or entities. Sanctioned companies secure government contracts, sanctioned individuals conduct business with public institutions, and both retain access to Iraq’s formal financial system. This disconnect has produced a system of dual legitimacy, in which U.S. sanctions impose international costs while Iraqi state institutions continue to confer legal and financial legitimacy on the same actors. The result is that sanctions become symbolic, while revenue, influence, and institutional access remain largely unchanged.
The continuity of these network-linked enterprises reflects domestic legal realities rather than simple administrative failure. Iraq bears no obligation to enforce unilateral U.S. sanctions at ministerial or provincial levels, and its departments lack the statutory authority to exclude designated firms from public bidding. Furthermore, the Central Bank of Iraq intervenes only when transactions intersect with the Federal Reserve’s dollar-clearing system, leaving local currency operations untouched. Legislative remedy remains impossible because Iran-aligned actors dominate the cabinet and parliament, actively blocking the passage of anti-money laundering laws or reforms that would jeopardize their financial empires.
U.S. sanctions impose international costs while Iraqi state institutions continue to confer legal and financial legitimacy on the same actors.
Because Iraq’s political system lacks the capacity to police itself, Washington should focus on the state officials who enable sanctioned networks. Directors-general, procurement officials, and other public servants who authorize contracts or administrative approvals benefiting designated entities should become targets of sanctions. Simultaneously, the United States should leverage its diplomatic and economic assistance to embed independent international forensic auditing firms within key Iraqi financial, customs, procurement, and state-owned enterprise institutions.
To break this cycle, Washington should condition future economic and diplomatic assistance on verifiable, transparent benchmarks. Rather than sanctioning militia front companies, the Treasury Department should sanction officials within Iraqi ministries who sign contracts or grant administrative approvals benefiting U.S.-designated entities.
Unless the solution is accompanied by comprehensive institutional reform in Iraq, unraveling the militias’ hijacking of the state will fail. If Iraq successfully implemented reforms, however, the gains would extend beyond Iraq, transforming militia-linked economic networks from self-funding enduring strategic assets for Tehran into expensive liabilities.
