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US Forbids All Transactions With a Major Iranian Bank

By Steven R. Weisman


The United States, moving to raise pressure on Iran, on Tuesday barred American financial institutions from doing business with a major Iranian bank after concluding that it had been involved in illicit weapons programs.

The move against Bank Sepah, announced by the Treasury Department, also affected North Korea, which U.S. officials said had used the bank to facilitate payments to a North Korean group that exports missile technologies.

The announcement applies to domestic and foreign branches of American banks, as well as to U.S. citizens working at overseas banks that deal with Bank Sepah anywhere in the world. The department also said that no American bank can transfer dollars to Bank Sepah or its branches and subsidiaries in Rome, London, Frankfurt and Paris.

The Treasury announcement was the second time in the last year that a major Iranian bank had been barred from any dealings with the American financial system. It is the first specific move against an Iranian bank since the imposition of sanctions on Iran by the U.N. Security Council on Dec. 23.

Last year, the United States took similar action against Bank Saderat, another of Iran’s major institutions, citing its alleged involvement in financing terrorism. Both Bank Saderat and Bank Sepah, cited for financial transactions linked to weapons proliferation, are state-owned or controlled.

Though the two banks have virtually no direct links to American banks, the designation means that no American bank can help facilitate — by transferring dollars, for example — any transaction between a European bank and Bank Sepah. Thus if an Italian or German bank wanted to supply dollars for a transaction involving Bank Sepah, it would be unable to do so because American banks would be barred from transferring them.

American experts say these steps effectively extend the reach of U.S. law to other countries, though only to a limited degree.

“By taking this action, the United States is putting immense pressure on our allies and trading partners to treat Bank Sepah the same way we do,” said Judith Lee, a partner at Gibson, Dunn & Crutcher specializing in sanctions law. “It is an effort to make U.S. actions against Iran extraterritorial.”

European countries have opposed moves by the United States to apply the principle of extraterritoriality, a term referring to cases when U.S. law can affect dealings entirely within another country. But the Bush administration recently has stepped up its use of various laws and directives to press forward with the concept.

For example, since oil is traded in dollars, the reach of U.S. directives could be significant, many banking experts say. In theory, Tuesday’s action would prevent Bank Sepah from facilitating an oil sale in which dollars are used. Iran has already announced that, because of U.S. directives, it has begun selling oil for euros rather than dollars.

“Bank Sepah is the financial linchpin of Iran’s missile procurement network, and has actively assisted Iran’s pursuit of missiles capable of carrying weapons of mass destruction,” said Stuart Levey, the Treasury undersecretary for terrorism and financial intelligence.