Iraq rejects report it is helping Iran avoid sanctions

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The U.S. government in December signed a law imposing sanctions on financial institutions dealing with Iran's central bank, the main channel for its oil revenues and the European Union has also announced a ban on Iranian oil shipments.

The New York Times reported at the weekend that Iraq has helped Iran skirt sanctions on Tehran, using financial institutions and oil-smuggling operations that are providing Iran with a crucial flow of dollars.

The newspaper, citing sources in Washington, current and former American and Iraqi officials and banking and oil experts, said Washington has privately complained to Iraqi officials about financial and logistical ties between Baghdad and Tehran.

"Iraq is not involved in any practices violating international laws," said Prime Minister Nuri al-Maliki's media advisor Ali al-Moussawi. "Iraq has been allowed to deal with Iran as have many other countries."

Moussawi said Iraq did not have a formal waiver from Washington on sanctions on Iran - something Baghdad considered earlier this year because of its high trade with Iran and to protect its foreign reserves from penalties - but he said its current economic ties were not in violation of sanctions.

Iraq's Shi'ite-led government has moved closer to Tehran since the 2003 invasion and Iran is now Iraq's main trade partner after neighboring Turkey. Tehran said last year it planned to boost bilateral trade to $10 billion in 2011 from $6 billion in 2010.

Iraq in February said it was considering seeking a waiver on Iran's sanctions.

Under the U.S. law, Washington can exempt institutions in a country that has significantly reduced its dealings with Iran and in situations where a waiver is in the interest of U.S. national security or necessary for energy market stability.

Iraq has $60 billion in foreign reserves, most of which are generated by its oil revenues. Countries and companies trading with Iran risk being barred from the U.S. financial system under the terms of the sanctions. London-based bank Standard Chartered Plc had to reach a $340 million settlement with New York regulators last week over transactions linked to Iran.

Iran provides Iraq with fuel and electricity for its domestic market as well as food, construction materials, petrochemicals and medical equipment. Iran has invested heavily as part of Iraq's post-war reconstruction.

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