U.S. Bars Iranian Bank To Curb Access to Dollars

The Bush administration yesterday barred Iran's oldest bank from doing any future business in the United States, accusing the financial institution of transferring Iranian missile payments to North Korea.

The move will prevent Bank Sepah, Iran's fifth-largest bank, from conducting business in U.S. dollars and is part of a larger White House plan, put in place last year, to cut off Iran's access to U.S. and European currencies. Though U.S. officials say the effort is aimed at the Tehran government, it is also likely to affect millions of Iranian citizens who conduct personal business in U.S. dollars and who travel overseas.

Bank Sepah has nearly 300 branches in Tehran plus offices in Paris, Frankfurt and Rome as well as a British subsidiary, Bank Sepah International. U.S. law has long prohibited Iranian government institutions from doing business in the United States, but yesterday's move now bars Sepah from converting international transactions into dollars by routing them through New York banks.

"The only business Sepah could do before today in the United States was U-turn transactions," said Stuart Levey, the Treasury Department's undersecretary for terrorism and financial intelligence. "They would send it from a European office through a New York bank and then back to Iran. That's the way they would dollarize transactions, but they won't be able to do that anymore," Levey said in an interview.

Yesterday's move, however, will not affect the bank's huge interests in Europe. The Bush administration had tried for months to persuade European allies to take similar, unilateral steps against Iranian government institutions and had hoped that a recent United Nations resolution would encourage France, Britain and other countries to join in the effort. But no European nation has done so, nor has Japan or any Persian Gulf ally.

Last month, the U.N. Security Council ordered all countries to stop supplying Iran with materials and technology that could contribute to its nuclear and missile programs. It also froze the assets of 10 Iranian companies and 12 individuals related to those programs. Among those on the list is the head of Iran's Aerospace Industries Organization, which oversees the country's vast missile program.

The council warned that if Iran refuses to comply, it will adopt further nonmilitary sanctions, but the resolution emphasized the importance of diplomacy in seeking guarantees "that Iran's nuclear program is exclusively for peaceful purposes." The Bush administration is broadly interpreting the resolution to deter as many financial sectors as possible from doing business with Iran. So far, the Europeans seem to be taking a more narrow view of the resolution.

Levey said yesterday that Bank Sepah, mostly through its offices in Rome, has handled millions of dollars of transactions for Aerospace Industries, passing money from Tehran to North Korea, from which Iran buys missile components.

"Sepah provides direct and extensive financial services to Iranian entities responsible for developing missiles capable of carrying weapons of mass destruction," Levey said.

The Bush administration has never offered proof of an Iranian nuclear weapons program, and Iran maintains that its program is for the production of nuclear energy, not bombs.

But since 2004, U.S. intelligence has been in possession of thousands of Iranian drawings that analysts believe detail efforts by Iran's military to reconfigure existing missiles to one day carry nuclear warheads.

In an interview with reporters last month, Secretary of State Condoleezza Rice acknowledged that financial sanctions against Iran "will have consequences" for the Iranian people by negatively affecting their economy. "This isn't going to be surgical and you can't perfectly target in that way. But I think we've tried to be sensitive to not doing things that would have an ill effect on the Iranian people, per se," she said.