Abstarct: Money laundering and terrorism financing are among the most significant threats to the financial stability and economic security of nations, and the Iraqi economy, due to its unique political, security, and structural conditions, is highly vulnerable to these phenomena. The present study aimed to assess the state of money laundering and terrorism financing in the Iraqi economy and to examine the impact of institutional, legal, and cross-border factors on these two phenomena. This study employed a mixed-methods approach with a sequential explanatory design, conducted in two quantitative and qualitative phases. In the quantitative phase, data from 30 selected banks out of 72 active banks in Iraq during the period 2017–2024 were analyzed using a Vector Error Correction Model. In the qualitative phase, 12 semi-structured interviews with experts in the field of anti-money laundering were conducted and analyzed using thematic analysis. The quantitative findings revealed that banking supervision quality, with a coefficient of -0.438, exerts the strongest reducing effect on the money laundering index, followed by the adequacy of laws and regulations with a coefficient of -0.311 and cross-border cooperation with a coefficient of -0.198. Furthermore, money laundering activities had a significant negative impact on economic growth with a coefficient of -0.275 and on foreign investment with a coefficient of -0.318. The error correction term, with a coefficient of -0.356, indicates the relatively high speed of adjustment of the Iraqi financial system toward long-run equilibrium. The qualitative analysis uncovered three main themes: the structural gap between law and enforcement, the dynamic adaptability of criminal methods, and the vital role of political will and international cooperation. baxsed on the findings, all four research hypotheses were confirmed. Finally, evidence-baxsed and practical recommendations were proposed, including the installation of intelligent transaction monitoring systems in private banks, the gradual reduction of cash transaction ceilings, the conclusion of financial information exchange agreements with neighboring countries, and the safeguarding of the independence of supervisory institutions from political pressures. The results of this study demonstrate that decisive, data-driven action can yield positive effects on the financial and economic stability of Iraq even in the short term.