The Central Bank of Iraq (CBI) has revoked the operating licence of Iran's largest bank, Bank Melli Iran, citing international sanctions and the bank's limited operations in Iraq, a CBI document verified by two CBI officials shows.

Bank Melli Iran did not immediately respond on Thursday to a Reuters request for comment on the contents of the document, which was dated Jan. 31, 2024.

"In light of the losses accrued by your branch in Iraq and its limited activities and its inability to implement or expand banking activities and ... its inclusion in international sanctions, it is decided to cancel your license," the document said.

The U.S. Treasury sanctioned Bank Melli Iran in 2018, alleging it was being used by Iran's Revolutionary Guards "to dispense funds to Iraqi Shia militant groups, and Bank Melli's presence in Iraq was part of this scheme."

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.

Despite being brought to power in October 2022 mainly by Iraqi Shi'ite Muslim parties and armed groups with close ties to Iran, Iraq's government has cooperated closely with Washington on measures aimed at limiting Tehran's financial activities in Iraq and modernising the financial system.

Iraq recently banned eight local commercial banks from engaging in U.S. dollar transactions, taking action to reduce fraud, money laundering and other illegal uses of the U.S. currency, in a move welcomed by the U.S. Treasury.

In July 2023, it banned 14 banks from conducting dollar transactions as part of a wider crackdown on dollar smuggling to Iran via the Iraqi banking system after a request from Washington, according to Iraqi and U.S. officials.

(Reporting by Timour Azhari; Editing by Alexander Smith)