Iraq has banned eight local commercial banks from engaging in U.S. dollar transactions, taking action to reduce fraud, money laundering and other illegal uses of U.S. currency days after a visit by a top U.S. Treasury official, Ednews reports citing Reuters.

The banks are banned from accessing the Iraqi central bank's daily dollar auction, a main source of hard currency in the import-dependent country that has become a focal point of a U.S. crackdown on currency smuggling to neighbouring Iran.

A rare ally of both the United States and Iran with more than $100 billion in reserves held in the U.S., Iraq relies heavily on Washington's goodwill to ensure that its access to oil revenues and finances are not blocked.

A central bank document verified by an official at the bank listed the banned banks. They are: Ahsur International Bank for Investment; Investment Bank of Iraq; Union Bank of Iraq; Kurdistan International Islamic Bank for Investment and Development; Al Huda Bank; Al Janoob Islamic Bank for Investment and Finance; Arabia Islamic Bank and Hammurabi Commercial Bank.

The head of Iraq's private bank association, which represents the banks involved, and Ashur and Hammurabi did not immediately respond to requests for comment. Reuters is contacting the other banks. A Treasury spokesman said: "We commend the continued steps taken by the Central Bank of Iraq to protect the Iraqi financial system from abuse, which has led to legitimate Iraqi banks achieving international connectivity through corespondent banking relationships.”